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Equites fell amid some disappointing results.  A drop in crude prices also weighed on the market albeit oils stocks were essentially unchanged.  The biggest decliners were phone and consumer staple companies.  Utilities also fell and have suffered their worst two days since November.  All three sectors are widely owned for a myriad of well-known reasons thus suggesting when selling commences there could be a dearth of buyers.

Commenting about the drop in crude, I think the 1.4% decline was a function of profit taking as prices have surged over 60% in two months.  Some have opined the fall was the result of inventories, the lack of a production freeze and slower global growth.

I thought the IEA’s comments were significant as the advisory agency stated supplies outside of OPEC will fall by the greatest amount in 25 years and “global demand growth is at a hectic pace” which will balance the oil market at the end of the second quarter.

I ask rhetorically is oil not following the same course of 1999 where prices surged 50% in twenty days in March and then doubled by year end because of “strong demand and lower supplies?”

There was little reaction to the continuing and unexpected decline in weekly jobless claims which are now at 42 year lows.

Today can be interesting given the significant number of misses in some of the “must” and “over owned” momentum names.  As noted several times the 6 week advance has been led by every company except the momentum names.  Today can potentially test the hypothesis the markets are undergoing a transition from momentum to growth.

Also today is options expiration day.  Typically most positions are unwound before contracts expire but I can argue some of yesterday’s decline and accelerated volume was because of this monthly event.

Last night the foreign markets were mixed.  London was down 1.14%, Paris down 0.47% and Frankfurt down 0.36%.  China was up 1.03%, Japan was up 1.20%and Hang Sang down 0.72%.

The Dow should open flat.  Oil is nominally higher.  The 10-year is off 4/32 to yield 1.88%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.