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Getting too hot in the Middle East

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by Peter Switzer

Well it’s been a woeful night on Wall Street overnight and Middle East/North African concerns are mixing with economic data that indicates a slowing China. So could this be an end to the bull run or the buying opportunity I have been predicting?

In a nutshell — it’s an economic climate change!

The markets have been spooked by oil countries getting too hot to handle with people protests escalating along with violence, and at the same time the Chinese economy looks like it is cooling.

US markets drop

In case you missed it, the S&P 500 lost 24.91 points to 1295.11, which was a big 1.89 per cent dive.

That’s now below its 50-day moving average and the psychologically important 1300-level.

The Dow Jones Industrial Average plunged about 228.48 points to 11,984.61, falling through the 12,000 benchmark and its 50-day moving average.

The fear index is close to 22 but this is not a big reaction so far which means the panic button has not been pushed yet. But will it?

Market spooks

Let’s look at what’s spooking markets. Try these:

A rise in the jobless claims in the USA to 378,000 and a bigger-than-expected trade gap
Rough house tactics in Saudi Arabia by police on protestors ahead of the planned day of rage
Gaddafi forces are attacking oil regions in Libya
Moody’s downgraded Spain's credit rating
China’s trade deficit of US$7.3 billion in February was the biggest in seven years and the first in 12 months!

This latter news got analysts thinking about China hurting the global recovery outlook and this is why commodity prices have fallen along with the Oz dollar.

Interestingly, the Dow was down about 150 points on most of this news but the Saudi news took the market down about another 100 points.

Of course, all of this could get worse, especially the oil country issues but at the moment the panic is low grade, taking a line through the VIX or fear index in the US. It’s close to its 200-day moving average but has not plunged below it.

Buying opportunity

Here are a few observations that explain why I think this will be another buying opportunity.

First, I don’t think the China story is about to end anytime soon.

Second, I think the Saudi Arabia issues will be resolved better than Egypt and Libya.

Third, doubters of the US recovery have been wrong for two years, and I’m not going to join that crew because of the data I have seen and the company profits.

Finally, I loved the comment from one wag: “Even a charging bull needs to exhale occasionally.”

I don’t know how long this pullback action will last — the rally has been going since about September but I do believe we’re in buying opportunity territory.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, March 11, 2011

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