Wednesday, March 23, 2011

Oil Heats Up as Reactors Cool Down

There’s been a nice rally since the markets appeared to hit a short term selling climax last week on fears of a potential nuclear reactor meltdown in Japan, but we are quickly approaching an important inflection point in this bounce. The S&P 500 has closed in on its 50-day moving average, and many markets have retraced around half of the losses accrued during the panic selloff last week. Markets now appear to be entering the indecision zone that will determine whether the current rally reverses soon or powers forward, leaving the correction in the dust.

While the situation in Japan continues to evolve, recent news has been encouraging as it appears that the nuclear situation is stabilizing. One thing to keep an eye on is the Middle East and energy prices. All the recent focus on Japan has taken some of the focus off the oil markets, and West Texas Intermediate oil has now climbed close to $105 per barrel again in a somewhat stealthy fashion. Whether it’s oil, Japan, commodity price inflation, China raising reserve requirements, or European yields rising, it still seems there are a number of risks circulating around the globe that may keep short term volatility part of our world for just a little while longer. Enjoy the relief while we have it, but don’t get too comfortable since this correction may not be over yet.