Oil Could Turn to Headwind as Dow Flirts With 13,000

Worried oil could turn from a tailwind to a headwind, traders are watching to see if the Dow can once again crack and hold the 13,000 mark.

The Dow Tuesday crossed and then backed away from 13,000, a big round number with more psychological impact than anything else. The Dow was 15 points higher at 12,965. The S&P 500, meanwhile finished the day up just under a point at 1,362, one point below its 2011 closing high and 8 points below its 2011 intraday high.

But the real sizzler was oil, which jumped sharply on a combination of supply concerns and on expectations a new bailout of Greece will be good for Europe and on new easing by China. West Texas Intermediate futures (for April) finished up 2.6 percent Tuesday, at $106.25 per barrel, the highest level since May 4, 2011 and well off its October low of $75.67.

Oil was following the big gain made in electronic trading Monday, when regular floor trading was closed for the President’s Day holiday. Rising tensions with Iran sparked a jump in prices over the weekend. Brent crude, the international oil benchmark, saw a smaller gain Tuesday, rising 1.3 percent to $121.66 per barrel.

“As the Iranians are seen as more and more serious about being disruptive, you’ll see the price grinding higher… but if they can pull off getting everybody stepping back and even fake engagement in the negotiation process, it could go back to the mid $90s very quickly,” said John Kilduff of Again Capital.

Energy stocks were the big winner Tuesday, gaining 0.8 percent as the best performing sector, but airline stocks were under pressure from rising fuel costs.

Existing home sales is the big number for markets Wednesday, when the monthly number is reported at 10 a.m. EST. But Dell [DELL  Loading...      ()   ] , which reported earnings Tuesday, could be a negative weight on markets Wednesday morning, casting a cloud over the tech sector. Dell forecast first-quarter revenue below expectations after reporting weaker-than-expected earnings for the fourth quarter. Dell’s net income was down 18 percent at $764 million, or $0.43 per share.

Earnings Wednesday are expected from Dollar Tree, Toll Brothers, TJX, Eaton Vance, R.R. Donnelley, MGM Resorts and Garmin. After the bell earnings are expected from Hewlett-Packard, Limited Brands, Express Scripts, Boston Beer, and Williams Companies. There is also a $35 billion auction of 5-year notes at 1 p.m.

Dow's Key 13,000 Mark

Even as analysts expect the market to see a shallow pull back in the not too distant future, many believe that 13,000 will be a positive event for stocks.

“It affects the retail investors’ confidence in the market, and it does impact overall consumer confidence,” said Peter Kenny, managing director at Knight Capital.

“What prevented it from happening today was Wal-Mart [WMT  Loading...      ()   ] and after the bell, Dell disappointed. We’ve run into some numbers that form a bit of a hurdle for these levels, but I still think the momentum and the gradually improving macroeconomic story is giving the market a lift or a bid that might not be there otherwise,” he said. Wal-Mart profits, reported Tuesday, were hurt by price cutting which squeezed margins.

But the big hurdle for stocks? “I think it’s the geopolitics priced into oil. That’s the biggest problem that the street is looking at...That’s a problem, a really big problem for the market. It’s already started to act as a little bit of a decelerator,” Kenny said.

Economists worry that consumers will pull back as gasoline prices head towards $4, a number already showing up at the pump in some parts of the country.

Follow Patti Domm on Twitter: @pattidomm

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