One-Dollar Copper?

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Copper bear David Threlkeld, of Resolved Inc., tells CNBC the commodity is headed down to $1.

BP Will Be Out Of Business In A Few Months

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Matt Simmons, of Simmons & Co. International on CNBC's Fast Money tonight is predicting that BP will be out of business in a few months.

Abby Joseph Cohen, Goldman Sachs Global Markets Institute

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"The US economic recovery, even though it's in fits and starts and even though we're disappointed at the rate of the increase in jobs creation, is doing better than most of the other developed economies, including those in Western Europe and Japan," said Cohen, president of Goldman's Global Markets Institute.

Chart of the Day: ARMS Index ($TRIN)

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The Arms Index is a volatile breadth indicator that can be used to generate overbought and oversold signals. It is preferable to trade in the direction of the underlying trend. Short-term traders can use the unadulterated Arms Index to generate short-term signals. In this chart the 89-day moving average is used, the current reading has hit the overbought level reached back in December of 2009. The percentage of stocks trading over the $NYA 50 day moving average is at an oversold low too. High volatility, granted not the historical levels a year ago, but still high enough. All -in-all a short term oversold reading.

Itz Weekend Market Review

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This current markets ups and downs reminds me of two movies, the Godfather & Rocky. This past Friday's closely anticipated Jobs Report was disappointing, as many economist and analysts projected 200,000 private jobs. Goldman Sachs revised their estimates to 600,000 late in the week. President Obama and VP Biden both bragging in a televised speeches about the strong jobs growth expected in May.

The May jobs report showed a gain of 431,000 new jobs, the Census Bureau was expecting to hire 400,000 temporary workers in May. They did not quite get all 400,000 hired but came close at 390,000. That means actual hiring across the U.S. amounted to ONLY 41,000 real jobs. All the rest was temporary Census.
As Michael Corleone famously quoted in the Godfather ~"Just when I thought I was out... they pull me back in!"~ That's how many are feeling after they expected the Jobs report to get this market out of this rut. It has been and unbelievable market at that over the last several weeks. Totally driven by news events, from U.S. and abroad has been hitting the markets, like Apollo Creed punching Rocky.
If the jobs numbers were not enough to shake up investors we also found out that Hungary may be the new Greece. The new Hungarian government, which was sworn in less than a week ago, said it was going to announce a new austerity plan to tackle the countries current economic problems. The sudden arrival of Hungary as a potential debt crisis equal to Greece is not such a big deal other than it again is a warning that European countries are not stable. Greece in April, Spain in May and Hungary in June. Who will pop up to attract headlines in July?
This market has become so sensitive that even rumors can trigger 100 point declines in the Dow. There was a strong rumor that Societe Generale (SocGen) was facing a huge derivatives loss, later declined by the firm.
On top of this the BP oil spill continues to grow and appears to have a greater economic and environmental impact on the U.S..
Richard Bove, on Friday cut the price target and earnings estimates for Goldman Sachs and Morgan Stanley. He cut Goldman's target to $182 from $200 and earnings per share to $17.17 from $18.72. Bove said the quarter had been very bad for trading in both equities and bonds in the investment banking arena. He said it was going to be a bad quarter for Goldman.
So, two key sectors, energy and financial, which are the main drivers of the S&P500 are not gaining traction, one cannot expect the $SPX to trend higher near term.
Bottom line, watch the 1040 level on the S&P500, overall it looks bearish for the week ahead. The market technicals, fundamental and sentiment readings point to a lower market. As always remain hedged, either with puts, inverse ProShares ETF's (SDS,VXX) or take some money off the table.

 

 

Transocean (RIG) Update

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Followup on Transocean (RIG) post from May 26th LINK Rig is now stupidly oversold some $10 below last weeks $58 level. The fear remains on the liability end, although Transocean has remained steadfast on it's limitation indemnity and is insured. Yet, the Obama administration has urged a federal judge to reject rig operator Transocean Ltd.'s (RIG) attempt to limit its liability in connection with the Gulf of Mexico oil spill. >>READ Transocean Ltd. said it should pay in a motion filed in federal court in the Southern District of Texas. Citing an 1851 law LINK aimed at shipping mishaps, Transocean said its damages should be limited to $26.7 million in unpaid drilling fees earned before the April 20 explosion, noting the Deepwater Horizon rig is otherwise worth nothing now.

Chart[s] Of The Day

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JPM: UBS Says Buy, $50 Target >>LINK

Irrational Pessimism

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Irrational Pessimism:
The stock market is now clearly headline driven and a lot of the news continues to be negative. Although today's May ISM report was positive, there continues to remain so much noise in the market, high frequency trading and extreme short term outlooks.
The markets are so focused on a possible slowdown that has yet materialize. Instead of focusing in on interest rates at record lows at least on the short end. Corporate profits might very well be at two-year highs this year. With the Euro declining, you don't want it to collapse, but a gradual decline...which is pro growth. Lower interest rates are pro growth. Is the Federal Reserve about to tighten any time soon? I don't believe so. Is China going to tighten now? No. So we could be looking at an extended period where there is no monetary tightening and maybe a possibility of quantitative easing.
So, does this present an environment that is necessarily bad for equities? NO!

Everyone is so short term focused that they neglect the fact that ten years ago, equity valuations were much higher and there was less anxiety and fear and with a balanced budget. But what has happened over the past decade has been a 50% contraction in p/e multiples for the S&P500. We've gone from 26 times earnings to 13 times, creating real value in the market.

There's so much fear out there that the fundamentals are being ignored. But when push comes to shove, it all boils down to the basics. Earnings, dividends, interest rates, inflation and p/e multiples. Itz Stock Chartz has always looked at technical's, fundamental as well as sentiment indicators. The metric to watch will be this weeks Jobs report on Friday. The real significant number will be the 'Private' sector jobs number, if it come in above 200,000, that should be positive for equities.

Dennis Gartman, founder of The Gartman Letter, shares his outlook on the energy market and the effect of the oil spill in the Gulf of Mexico.



Forecasters warn the oil spill in the Gulf of Mexico could threaten the Mississippi and Alabama coasts as early ask this week. John Hofmeister, former CEO of US operations at Shell, shares his insight.

Coal mining stocks tumbled on Tuesday and analysts attributed it to a slide in natural gas prices, along with a weaker euro and concerns about a slowing Chinese economy. Asian shares fell sharply after purchasing managers’ data indicated that China’s manufacturing output slowed in May. A similar survey in Europe showed that eurozone manufacturing activity lost momentum during the month, having expanded in April at the fastest pace since June 2006. Here in the U.S. data showed that the ISM Manufacturing Index for May hit 59.7, which is a bit better than the 59.4 that had been widely expected. Moreover, construction spending for April surged 2.7%, which easily surpassed the 0.1% monthly increase had been widely anticipated, to make for the best monthly increase since 1998.

Walter Energy took it on the chin with an 11% decline, having entered just last month at $75. Similar chart pattern to the $SPX & FXI with support @ $65.

Itz Weekend Market Review

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The best hope for stopping the flow of oil from the blown-out well at the bottom of the Gulf of Mexico has been compared to hitting a target the size of a dinner plate more than two miles into the earth, and is anything but a sure bet on the first attempt. >>READ MORE
Crude oil prices declined slightly but oil drillers and service companies imploded on the six-month moratorium mandated by the president, which will be shutting down 33 deepwater rigs operating in the gulf and putting a halt to new drilling permits for six months. President Obama's decision seems like an extreme over reaction and politically driven. As is most common with our government, it's a reactive and not proactive decision maker. One should question as to- why did this administration exempt BP's Gulf of Mexico drilling from an environmental impact study? >>READ

Deutsche Bank (DB) estimated a six month shutdown would reduce gulf oil production in 2011 by 160,000 to 200,000 barrels per day. Over 80% of gulf oil production comes from deepwater wells along with 46% of gulf gas production. Over the last 50 years there have been 50,686 wells drilled in the gulf. Through 2007 more than 16.8 billion barrels of oil and 173 trillion cubic feet of gas have been produced. Out of 50,686 wells the number of major spills are in the low single digits. There were 19 blowouts in the last 20 years and none produced a material spill. The biggest gulf spill came from the Pemex Ixtoc 1 in 160 feet of water in 1979. >>READ
On top of this NOAA said that this could prove to be one of the most active seasons on record. The predictions exceed the averages of 11 named storms, 6 hurricanes and 2 major hurricanes. 2005 was the record with 28 named storms.


Transocean's stock is down more than 30 percent since the Gulf oil spill. Waqar Syed, of Macquarie Research, tells CNBC whether investors can use this as an entry point.



From the trouble in the Gulf to Wall Street...the month of May ended with the worst S&P performance in May since 1962 with an 8% loss. For the week ahead, one can expect geopolitical events to weigh on markets. Weighing in will be several economic data points: The ISM report on Tuesday could be market negative if it falls below 59. The ADP report could be negative below 150,000 jobs. Traders will take positions ahead of Friday's Non-Farm Payroll report based on the numbers from the ADP report.

Markets Rally

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The S&P500 bounced off of 1040/1050 continued with a close over 1088, indicating conviction in this rally. Doug Kass was on CNBC's Fast Money this evening citing that this market would most likely be rangebound (1080/1180) until the 2nd half of 2010. Even the always cautious Barton Biggs called the market very oversold, but the real market mover was China, saying it would not sell it's Euro bonds.
Yesterday Itz cited that the drillers, more specifically Transocean (RIG) was 'way oversold', it came out of the gate on the opening this morning up 8%, however gave some back as President Obama announced that the 30-day moratorium on new offshore drilling would be extended was expected, but his stand-down on 33 new rigs in the Gulf came as a shock to some industry watchers. The 180-day halt in drilling activity would imply 200,000 barrels/day of lost capacity or 37 million barrels. That along with the NOAA 8-14 seasonal hurricane outlook sparked a rally in crude oil, which is now closing in on $75. Itz recently suggested the ProShares Ultra Crude Oil etf (UCO) @ $8.75 rallied to close Thursday at $9.93 up 13.5% in 1 week.

Transocean (RIG) Way Oversold!

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The stock of Transocean (RIG) owner of the Deepwater Horizon drilling rig, has been drastically oversold and presents an unbeliveable value. RIG has been in the Itz Pix portfolio since the blogs inception of July 2009, entering at $67, the stock is presently at $58.58. Even with this enviromental disaster the fact remains that global demand for crude is rising. >>Read >>Chart

Ultra-deepwater production has become significant only in recent years, as noted by Royal Dutch Shell executive in video below. Up until the BP rig disaster, the Obama adminstration was 'for' offshore drilling, because they see the our insatiable need to find more crude oil. Check out this week's EIA report >>LINK

Although BP initially took financial responsibilty for the spill, they have been trying to blame others...besides a recent 60 minutes report that was very unfavorable towards BP, news out today sheds more fault on their part and is postive for Transocean >>READ

During CNBC's Fast Money today, Waqar Syed, Sr. Analyst at Macquarie Capital noted that Transocean (RIG) with $10B free cash flow over the next 3 years has a NAV of $106![go to 8:30 minute mark for report]

Bounce Or More?

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Well the 1040/1050 'Line in the Sand' S&P500 level held support and we're now seeing a bounce. The $SPXA50R had hit an extreme low level of 6% last week and a bounce was to be expected. The $SPXA150R & A200R remain neutral and a reversal there needs to be confirmed to give this bounce any sustainability. We could see this bounce carry a few days and possibly have some sort of profit taking as we enter the holiday weekend. As always stay hedged and remain cautiously optimistic near term.