Tuesday, June 8, 2010

Stocks Gain in Late Day Trade on Technical Bounce

After taking the deepest extended dive in over a year, there's little surprise that a few days like today would eventually emerge. After all, nothing moves in straight lines, as much as we'd like them to, so the orderly evaporation of wealth requires the occasional speculative upside trade and the covering of shorts.

There was no good news upon which the market could hang a hat today; indeed, there was little to no news whatsoever. Thus, the strong gains of Tuesday cna be seen clearly for what they are: a purely technical response to very short-term oversold conditions. In layman's terms, today was the bounce that failed to materialize on Monday.

Dow 9,939.98, +123.49 (1.26%)
NASDAQ 2,170.57, -3.33 (0.15%)
S&P 500 1,062.00, +11.53 (1.10%)
NYSE Composite 6,596.12, +83.70 (1.29%)

Advancing issues took back the advantage over decliners, though narrowly, 3389-3114. More important to the direction going forward was the revealing win for new lows over new highs, 345-81. Both the A/D line and Low-high figures tell us in no uncertain terms that bias is still strongly negative and that short term bearish condition remain intact. Volume was strong, that being the only indicator to somewhat counter the general trend against the headline.

NYSE Volume 7,335,040,500.00
NASDAQ Volume 2,660,945,000.00

Crude oil posted a reasonable gain of 55 cents, closing at $71.99, still stuck in a range between $67 and $76, where it has generally been found for the past ten months. There's little to suggest movement of oil in either direction, unless widespread economic slowdown dramatically reduced demand, and thus, price.

Gold reached all-time intra-day and closing highs, finishing at $1,244.00, up $4.70. Silver gained as well, adding 32 cents, to $18.47, though that is still well below the 2008 all-time high. Silver continues to lag gold, as the latter is in a more favorable position as an alternative to fiat money.

Some of the most interesting action is currently in bonds and currencies, both markets the province of specialists and professionals, hardly the place for individuals, despite what aggressive ad campaigns may be touting. US Treasuries and German Bunds have become safe-havens for those fearful of the future of equity markets, while denominations in anything but Euros seems to have become the most-favored trade in the currency community.

With Euro contagion spreading like wildfire from Greece to Spain to Turkey to Ireland, many question the overall validity of the 12-year-old currency experiment which aimed to become a unified force to counteract the willful US Dollar. The value of the Euro vis-a-vis the US Dollar is now roughly where it began back in 1998, right around the $1.18 mark. Highlighting the situation in Europe was a Sunday Telegraph article over the weekend that saw a majority of British economists express an opinion that the Euro would cease to exist within the next five years, quite a dire prediction and one that just months ago would have been considered lunacy.

Joining the lunacy-to-reality progression is British Petroleum (BP), now on the hook for billions of dollars in damages stemming from the continuous leakage of oil into the Gulf of Mexico. BP was added to our Death Spiral Watch List last week.

The latest salvo in the reality check department comes from oil expert Matthew Simmons, who appeared on CNBC's Fast Money Tuesday afternoon, saying that he'd be surprised if BP lasted the summer as a going concern.

Simmons also appeared on MSNBC's Dylan Ratigan Show. Here is the segment of video in which he outlines various doomsday-like outcomes.

BP closed down 2.08 today, at 34.68.

Joining BP on the Death Spiral Watch List from last week was eBay, an unlikely choice to some, though obvious to those in the know. Prior to full implementation of the latest of CEO John Donahoe's "disruptive innovations", eBay closed the trading session of March 25 at 27.56. Despite a small gain on the day, eBay ended today at 21.69, representing a 21% haircut in about 2 1/2 months' time.

Price targets on both companies are actually ZERO, though for the sake of argument, we put an expected price of $4 on ebay and $6 on BP. We expect both to go under within 6-18 months.

No comments: