Wednesday, May 21, 2008

Crude Oil Inventories and Fed Minutes

Wednesday, May 21st brings the release of Crude Oil Inventories at 10:30 ET.

Oil has now reached $130/barrel. We reiterate our feeling about crude oil being both good and bad for the market. As the crude oil trade unwinds, massive amounts of capital will be released to the stock market, acting as a fire starter, just like the weak U.S. currency for S&P 500 exporters. And just as the weak U.S. dollar is a double edged sword, so to is the explosion of energy prices; it all depends on which side of the trade you're on. Some economists feel the U.S. stock market would be in great trouble if it weren't for the weak U.S. dollar and high energy prices. POTC agrees, but crude above $130/barrel would have devastating consequences on the consumer and retailers nationwide. We continue to favor stocks like Genentech (DNA), ahead of Chicago's ASCO conference on May 30th:, and First Solar (FSLR), the 'Best in Show' solar/alternative energy transition play. These two stocks are well positioned whether crude oil rises, falls, or stabilizes. Although we do see a pull back in crude oil short term (3-6 months), we do not see it coming down too much below $90/barrel by year end.

Federal Open Market Committee's minutes from the April 30th meeting are released at 2:00 PM ET.

This release is VERY market moving, as it offers more psychology into their decision. There were two dissenters in the last 0.25% interest rate cut and that will dominate the headlines. One dissenter is not uncommon, but two is a rare event. Trading volume usually slows down during the summer months. IF there is talk of higher rates on the horizon to strengthen the U.S. dollar, as POTC feels there will be, the stock market will favor high P/E stocks like FSLR and DNA. Please remember to practice the 11 Commandments everyday, but especially ahead of such market moving releases as the FOMC minutes. Volatility, as measured by the VIX Index will be in order for the last 2 hours of trading come Wednesday, so set your trades up accordingly, and learn to profit from such market jarring releases.

After market earnings come from Network Appliance Inc. (NTAP) Q4 2008 estimate for $.27/share, and Inc (CRM) Q1 2009 estimate for $.07/share. CRM's software platform continues to gain market share, and although $.07/share seems piddly, the psychology surrounding this stock has to do with their management, momentum, and future ability to monetize their volume.

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