US stock futures point to a flat to slightly higher open Monday despite oil futures continuing to edge higher. Crude oil now tops $106 per barrel as Libya spirals into full-on Civil War, and threats of protests in Saudi Arabia loom. The Saudi government has said it will not tolerate protests and has authorized its military to act upon unruly dissidents. The Saudis have also told Bahrain to take care of its Shi’ite uprising or it will do it for them. Overnight most Asian markets finished slightly lower, but China’s Shanghai Composite Index actually posted a 1.8% gain after the Chinese government outlined supportive economic policies over the weekend.
The market has formed a macro wedge pattern as stocks have bounced off their 50-day moving averages, providing calculated entries for active traders. Upper level triangles or wedges are usually continuation patterns, so higher prices could be on the horizon. The S&P, after pulling off Friday, will look to push back above pivot highs Monday to resolve the pattern to the upside. But with the “Day of Rage” in Saudi Arabia looming Friday, will investors feel confident enough to put money to work at this time?
For more market and stock commentary, see Scott Redler’s daily Morning Call video below from T3Live.com.
Precious Metals React
Oil is not the only commodity catching fire amid the turmoil in the Middle East. Gold and silver also continue to push higher amid turmoil in the Middle East and inflation pressures starting to rear their ugly head. Esteemed investor Dennis Gartman, for one, says that selling gold was a mistake and he is getting back involved in the trade. The yellow metal made new highs early last week before pulling off, and should stay near highs this week if it is strong. Silver, meanwhile, continues to outperform, posting a nearly 4% gain Friday. This morning, silver has tacked on another 3% pre-market, while gold is up nearly 1%.
Mining stocks also continue to perform well. Silver miners Silver Wheaton Corp (SLW) and Coeur D Alene Mines Corp. (CDE) are leading the charge in that group after strong earnings. Gold miner Allied Nevada Gold Corp. (ANV) has the best set-up in that group, consolidating in a tight bull flag after a strong move at the beginning of last week.
Semiconductors Downgraded
Wells Fargo over the weekend downgraded the semiconductor sector to market weight from overweight. The downgrade does not indicate a bearish view on the sector, but a more cautiously optimistic view than they held before. High capacity utilization will likely lead to ongoing stability in chip pricing through 2011, but there could be some pricing risk in memory. We will be watching to see whether this strong sector can continue its uptrend.
Last week we highlighted two other patterns on T3Live.com that we think have a good chance of igniting higher. In the casino group, Las Vegas Sands Corp. (LVS) is in the doghouse, giving MGM Resorts International (MGM) a chance to potentially take the second spot for now behind WYNN. The other play is Identive Group, Inc. (INVE), which is a play on the iPad 2.
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For now, it looks like the market could continue to tighten within the wedge pattern as investors decide whether to take risk off the table amid continuing turmoil in the Middle East, or buy here in anticipation of a move back through new highs. As mentioned, upper level triangles are usually continuation patterns, but the macro headlines give us a pause in putting long money to work before confirmation out of the pattern. The best set-ups will show their face as the week progresses and the market gives indications of whether it wants to break higher or lower out of this pattern of indecision.
*DISCLOSURE: Scott is long MGM, AAPL, GLD, INVE, JDSU, NFLX.
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