Oil, Inflation End Dow Streak

After setting all-time closing records for 3 consecutive sessions, the Dow Jones industrial Average closed lower on Wednesday amid reports of heightened inflation risks and higher crude oil prices.

The Labor Dept. reported that core CPI rose an unexpected 0.3% in January, raising fears that inflation, and with it, higher interest rates, are on the horizon. Higher interest rates from the Fed are about the last thing this market wants, and if the Fed governors decide that inflation is running a little too hot (which it probably is), a quarter point increase will be in the cards come the next meeting.

The price of crude certainly was no help for the Dow. Oil closed at $60.07, crashing the ceiling that's been in place for more than 2 months. If rising oil prices persist, it's the end of this long, long rally, but that could be exactly what this overextended market is seeking - a reason for a pullback.

The Dow closed at 12,738.41, down 48.23; the Nasdaq finished the day at 2,518.42, up 5.38; while the S&P 500 lost 2.05 to finish at 1,457.63.

The Dow is severely overextended and it's now become just a matter of time as to when the downturn will occur. While a retreat on the blue chips seems inevitable, it's not likely to be long-lasting or particularly severe.