Presidential Remarks, Stocks and Oil

Dominating the political and market headlines today was the post-analysis of President Obama’s State of the Union address. The speech was long, and it did contain a lot of very broad strokes. But I must say that I thought the president’s tone and verbiage toward business, and toward trying to rein in deficits, was a nice move in the right direction. Of course, the old adage “actions speak louder than words” must be kept foremost in mind whenever a politician opens his or her mouth. At least the president took rhetorical steps in the right direction.

The real work on deficits is going to be something that I seriously doubt most politicians want to tackle, but tackle the issue they must if we want to avoid a fiscal crisis down the road the likes of Greece, Portugal and Spain. Not that this is a likely scenario in the short run, but in the long term, our debt issues are going to haunt us. The sooner Congress and the president seriously address this matter, the better off we all are going to be.

Now, Wall Street’s first reaction to the president’s speech was to send the Dow up past the 12,000 mark for the first time since 2008. That’s a bullish milestone, but I don’t think we should read too much into it. In fact, what the breaching of the 12k marker on the Dow could signal is a short-term pullback.

I suspect that over the next couple of weeks, we could see stocks begin to work off some of the overbought and over-bullish sentiment. Now, I am not talking about a protracted downturn here. Rather, I’m thinking more like a healthy pullback in the range of about 5%. We’ve already seen such a pullback in oil prices, which can be seen below in the chart of West Texas Crude Oil.

As you can see, oil has come down significantly during the past couple of weeks, and oil prices now trade below their short-term, 50-day moving average. I think we soon could see a similar pullback in stocks.

Now, if we do see this kind of pullback, it could represent your best opportunity to get on board the bull market express at a discount. The way I see it, stocks are going to need to cool down, sell off a bit and regain their footing. After that happens, we could see equities surge with the power of one of the high-speed rail systems that President Obama is so intent on making a reality.