Is the BP Fix Working?: Dave's Daily

It's still an uncertainty whether the well fix is working and controversy rages. Oil expert Matt Simmons states in this interview here is his scary analysis frets about poisonous methane in the Gulf suggesting residents evacuate now. Also, the WH acknowledged today an ongoing leak at the well-head and another elsewhere on the ocean floor which may or may not be related to the BP well-head. If Simmons is right, the outcome will be catastrophic.

Meanwhile U.S. stocks muddled along Monday not encouraged by any positive news. In fact, the news of the day was negative as the National Association of Homebuilders reported more discouragement among the group as readings fell from 16 to 14.

Nevertheless, stocks eked-out gains because they "must". What does that mean? TPTB "must" prevent, if they can, further market losses to protect fees at all costs. Monday a NY Times article delivered a piece on Jeremy Seigel who wants everyone to buy stocks for the long-term. Of course Seigel gets fees from Wisdom Tree tied to investors chucking more to his funds. Furthermore the "punchbowl" is still in place and for those running other people's money there isn't much alternative to buying stocks.

But traders are focused on the "here and now" and there are more earnings than economic news at least before Thursday so that's the focus now.

IBM reported rising earnings after the bell but "missed" on revenues and the stock immediately sold-off.

Volume Monday was typically light for another melt-up in prices. Breadth was reasonably positive.  

Continue to Major U.S. Markets

SPY: Another light volume melt-up and you're not seeing anything remarkable from the chart.

MDY & IWM: Both smaller major indexes doing about the same.

 

 

 

 

QQQQ: So another day of hoping tech earnings from IBM & TXN will lift the sector.

Continue to U.S. Market Sectors, Selected Stocks & Bonds

SMH, TXN & IBM: These are really good looking charts but there's trouble in after hours trading after earnings reports don't impress with IBM down 4% and TXN down 6%.

XLF: Not much to talk about here on Monday.

 

XLB: Not much going on here either.

XLY & XRT: With consumer sentiment weak, what's to like here?

 

IYR: Hope springs eternal for those seeking yield even if it's a perilous adventure. In other words, "greed and fear".

 

 

IYT & $BDI: Hard to know what to make of transports with rail activity supposedly good but things aren't the same for overseas shipping that's for sure.

 

 

 

IEF & TLT: There will be little to comment on until the next auction.        

 

LQD: Retail investors are running in a panic to corporate bonds and other safe havens--away from stocks.

Continue to Currency & Commodity Markets

$USD/DXY & FXE: Currency markets marked time on Monday.

 

 

GLD: The IMF needs $250 billion and where would they raise that from if not gold. The commercial short interest in gold and silver is at astronomical levels. Perhaps gold bulls will need a hedge fund to enter and create a short squeeze. Speaking of hedge funds, it's rumored that Paulson's fund is off-loading some of its holdings.

 

DBC: Energy markets contain any rally.

 

$WTIC/CRUDE OIL, XLE & BP: The BP situation is downright scary. Scary stuff sells soap so we must be careful in that regard. The potential for widespread deaths due to methane are very frightening.

 

 

DBB: Copper, aluminum and zinc are the three metals comprising DBB. If prices stay flat or don't rise then there's little demand.

 

XME: You might wonder why I'm even writing anything today with things hardly moving.

 

DBA: Grains are still range-bound despite the recent burst from last week.

 

 

Continue to Overseas & Emerging Markets

EFA: European markets primarily dominate EFA but we're still moving sideways within a two month range.

 

EEM: While we managed to rally over 1% Monday it's still really just range-bound.

EWY: Once again a rising Monday doesn't really mean much as we remain at a crossroads.

 

EWA: Aussie shares tick-up a little but still are just moving sideways overall.

 

EWC: Canadian shares remain at resistance.

 

EWZ: Not much in the way of action as the range here is also well-defined.

 

RSX: In the middle of the range.

 

EPI: One of the few markets doing its own thing and more stable given its older history.

 

FXI: China stocks rallied last night as the government indicated it would build more homes. With empty units hovering at nearly 64 million you'd wonder where the need would be.

 

The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.  I believe readings of +1000/-1000 reveal markets as much extended.

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

The Gulf situation is downright scary with a variety of negative outcomes. Matt Simmons is an oil man's oil man and certainly no kook. But I'm certainly no geologist equipped to understand what is going on with conditions a mile beneath the ocean's surface. Suffice it to say, there could be more trouble than we've been told.

We're really in for quite a battle and I really believe this week should tell the tale. In one corner is "the punchbowl" and earnings season. The former practically forces institutions to buy stocks given low yields elsewhere. Earnings news may not live up to expectations and so far they haven't. But the week's not over and there's plenty of earnings news yet to come. In the other corner is a litany of bad economic data which may be more forward-looking than earnings. This battle is at a standstill but seems to favor bears at least for now.

Let's see what happens. You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook.

 

Disclaimer: Among other issues the ETF Digest maintains positions in: GLD, UDN & ULE.

 

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com .

 

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