BP's 'Top Kill' Should Work or Else...

NEW YORK (TheStreet) -- The BP(BP) disaster in the Gulf is having a far-reaching effect on the general market, not just the energy market, and it is greater than most people think.

Understanding the psychological effect of this tragedy gives as much insight into where we've been and where we're going, in energy stocks, the price of crude oil and the market in general.

It's difficult to gauge how deep an environmental scar the gushing underwater well will leave on the coasts of Louisiana. But it has been even more difficult to gauge just how deeply it has affected the zeitgeist of the investing public. I believe the deep water disaster has had at least as much effect on the downward pressure on equities as the Greek/euro crisis has had, perhaps more.

Perhaps we needed a correction to a market up so strongly in 2010. But the timing of the BP spill could not have been worse, on the heels of a worsening credit crisis in Greece. As investors began to get nervous and flee from risk trades and other medium term investments, oil -- both the commodity and the related equities -- have struck most investors as the most desirous to be quickly rid of.

As I said during my appearance yesterday on CNBC, we've seen the deep effects of this bias against oil and its related investments. While the stock market is down close to 15%, oil is down from its recent highs of $87 close to 30%. The related stocks in energy have also taken an additional burden of selling.

Who wants to be long stocks related to oil right now, with the apparent incompetence and frustration from British Petroleum, the third largest energy company in the world? A cycle of selling, pouring over from retail investors, supported by selling in oil ETFs, commodity indices and the hedging of equities against commodities has cast a pall over the general market that right now seems difficult to break.

It is often true that the general market cannot do well without the support of the financial sector, but is just as reliant upon the energy sector. Right now, there is no less favored sector to be found. BP itself is down at $42, an otherwise ridiculously low level, but even No. 1 energy company Exxon Mobil(XOM) is selling under $59, prices we have not seen since 2006. This is well below the prices we saw for Exxon when the S&P was at 700 in March 2008, not 1050 as it is today.

I know that BP is using every possible resource at its disposal to stop the spume in the Gulf. Today, the company will attempt what it calls a "top kill," where it will inject heavy fluids and concrete into the hemorrhaging pipe, trying to slowly staunch the flow and ultimately kill it. BP has been reticent to express much confidence in this attempt, considering the many other failed attempts that have kept the flow going for more than a month now. I am hoping that this is a good sign and BP is under promising with the hope of overdelivering.

I am not a specialist in this and I don't pretend to know a thing about deepwater rigs. But I do know this: If BP has any success at all in slowing the flow from this well today, we are going to see a strong relief rally that will have nothing to do with the situation in Europe. It's an easy play, and you don't need to be long BP in order to bet on their success. The entire sector should move sharply higher and any of the energy ETFs will benefit, including the Energy Select SPDR(XLE) and Oil Services ETF(OIH).

If, however, the top-kill strategy fails and BP is forced to drill a secondary rig to remove the pressure from the spuming pipe -- still six weeks from completion -- we may be in for more pain in the markets. While the sovereign debt crisis in Europe is getting the most blame for the recent stock market swoon, this Gulf disaster is having an equally strong negative effect on the psychology of investors. We can all pray for success today in the Gulf, not only for the sake of the environment and related industries, but also for the general health of the markets -- both in oil and in equities.

Anyone who has had even the slightest urge to suggest a facile solution to the spewing oil in the Gulf is directed here, where there is animation of the top kill procedure, provided by BP.

One look at this space-age and incredibly complex picture will convince you of two things: One, that BP is doing all it can, and why such a serious attempt at staunching this flow of oil took a month to even prepare, and two, that no one on the planet has better resources or expertise to fix this than the guys who started it.

For better or worse, we're stuck with these guys and praying for their success this morning.

Follow Dan Dicker on Twitter.

>To order reprints of this article, click here: Reprints