Macro Outlook

The economic setup for a stock market drop has been in place for months. The cyclic calendar has been warning of the same. Now, we see the technical signs lining up as well. 

Does that mean that the "high and tight" bull market of 2006 is finally coming to end? Maybe, maybe not, but right now only the WaveStrength Options Weekly portfolio's puts are showing green. 

More tonight... 

Market Trends

There's no doubt that the merger and acquisition industry was on fire in 2006… and it looks to continue the trend into 2007. 

According to The Economist, the total global value of mergers and acquisitions in 2006 (also known as M&A activity) was about $4 trillion, $500 billion more than the $3.5 trillion total deals completed in 2000. 

In the United States, M&A activity should surpass $1.39 trillion, once the tally is in. It's not enough to beat 2000's numbers, but much better than 2005's $1.15 trillion in deals. 

According to Standard & Poor's, deal making should accelerate in the following areas: mining and energy, manufacturing, health care, finance, media, and transportation in 2007. 

This is already evident in this morning's news that General Electric Company (GE:NYSE) is buying drilling-equipment maker Vetco Gray Inc. for $1.39 million. This deal is intended to boost investment in new oil and gas fields as current reserves are “dwindling.” 

CEO Jeffrey Immelt of General Electric states that this acquisition will boost GE's oil and gas sales by $1.6 billion, or 36%. 

Why is the market down this morning?

It can it attributed to one thing: oil. 

As you know, oil has been clobbered in the beginning of the 2007 trading year - dropping 7.8% in last week's trading alone. 

But this morning, crude-oil futures are ticking back up after Saudi Arabia announced that it is cutting 158,000 barrels of oil per day starting in February, in addition to the 380,000-barrel-a-day reduction that the country agreed to in November. 

This production cut looks to offset the warm weather we've experienced so far throughout the US. But just imagine if a cold front hits New York. 

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