Oil has stocks on a slippery slope heading into the quarter-ending, holiday-shortened week.Investors are focusing on crude right now as it continues a relentless march higher. The steady drumbeat of bad news from the financial-services and housing sectors hasn't helped, either. "Markets are hanging on one issue: the price of oil," says Vinny Catalano, chief investment strategist at Blue Marble Research. Crude ended last week solidly above $140, and many people believe oil will have to break lower before stocks can make a good upward move. Oil and oil-services companies such as Exxon Mobil ( XOM), ConocoPhillips ( COP) and Halliburton ( HAL) will also be focal points as long as the market is watching the energy sector. "The momentum on this latest leg might tire out between here and $145," says Tom Bentz, director and senior energy analyst at BNP Paribas Commodity Futures. "Everybody's looking for $150 a barrel, so I wonder if we'll start to get a lot of speculation built in for $150 -- and sometimes, when everyone's looking for something, the market doesn't give it." Still, he adds: "It's an uptrend, and it doesn't look like it's ready to stop yet." Shares are on pace for a terrible June. Indeed, they ended lower last week, with the Dow tumbling 4.2% to 11346.51, the Nasdaq falling 3.8% to 2315.63 and the S&P 500 dropping 3% to 1278.38. One bit of relief as stocks limp lower: Monday is the last day of the second quarter. "I don't think there's a portfolio manager in the country, unless they're long energy and short financials, who doesn't want to start the new quarter," says Tony Dwyer, equity-market strategist at FTN Midwest Research.
Any hopes of window-dressing beefing up the results for quarter-end could be dashed, as traders have probably already done most of what they had on the agenda to close out the three-month period. The week will be only about three and a half days long, with markets closing early on Thursday and staying dark Friday in the U.S. for the Independence Day holiday. "Trading desks will be thin" during the short week, says Greg Collins, CEO of Fountain Hill Investments, "and that could add to the choppiness and volatility." The outlook for next week isn't too good overall. In the bear-market levels registering now, "you've got to sell the rallies, says Bobby Harrington, head of block origination at UBS. "Investors are concerned. You have to keep an eye on redemptions
from funds -- it's getting to the point where more people are saying they want to be on the sidelines here." Also, some strategists expect a moderate selloff heading into the holiday. "Markets may tail off," Dwyer of FTN says. "At this point, I don't think people want to be long or short. They just want to be out of the way." Amid all the gloom, there are some encouraging signs, as well. "I think the economy's hanging tough, even with all the negatives -- which really tells you that the U.S. economy is incredible," says Mark Coffelt, president and chief investment officer at Empiric Funds. "I'm very optimistic for the rest of the year." He points to the positive first-quarter GDP, among other things, to back up his belief.
Also, a number of technical factors are looking strong. For example, the momentum of the market isn't confirming the price declines, and the market is sending out "oversold" signals. Catalano says that "when you have small-cap and mid-cap outperforming large," as is the case right now, "you generally don't get market crashes or significant declines during that period of time." In addition, he points out that Dow Theory argues against a crash because "industrials have made a new low, but transports aren't anywhere near a new low." Dow Theory says that a significant trend isn't confirmed until both those Dow Jones indices reach the new highs or lows. Just a few major data points are coming out next week. Auto and truck sales will be reported on Tuesday by the Department of Commerce, and for companies such as General Motors ( GM) and Ford ( F), which are struggling to retool their operations as their stock prices sink, these numbers could be key. Collins of Fountain Hill says, "I wouldn't expect any positive sales data from the auto makers. General Motors is hitting lows not seen since the '57 Chevy was cruising around." The ADP ( ADP) employment index will come out on Wednesday. Then, on Thursday morning, the Department of Labor will release its monthly report on the unemployment rate, payrolls and earnings. The jobless rate, which has risen in recent months, is of special concern because of the already weak housing market. Foreclosures are already prevalent, and that usually isn't the case until after the labor market weakens, because people lose their houses after they lose their jobs. In addition, the consumer is responsible for about 70% of the U.S. economy, so if consumers begin to struggle due to job losses, the economy could take a major hit. The earnings calendar is light, with H&R Block ( HRB) reporting on Monday, discount chain Family Dollar ( FDO) and casino company Isle of Capri ( ISLE) reporting Wednesday and Mesa Air ( MESA) on Thursday.