There’s an old saying that the perception can become the reality. Recently, there have been all kinds of rumors as to whether it is possible (or plausible for that matter) for British Petroleum (BP) to declare bankruptcy. Very briefly, there are organizations such as the Environmental Defense Fund which claim that damage to natural system and goods and services along the Mississippi River Delta of as much as $1.3 trillion data which would exceed BP’s market capitalization by a factor of 10. I could go on about how they got this number or how/why other organizations have similar numbers, but I think we all know enough about this disaster to know that a) it is bad and b)nobody knows with any certainty what the true damage actually will be monetarily. This is also a company that earns upwards of $20 billion annually. But here’s the thing. The markets can cause this on mere belief. The cost of borrowing money for BP has risen sharply in recent weeks as the company's bonds have taken a hit as investors/massive funds speculate as to exactly what will happen. Well, if it’s harder for BP to tap the credit markets to finance its operations on a day-to-day basis, it makes it hard for the company to keep said operations going as a stand-alone operation which prompts worries of missed interest payments which prompts worries of a cash crunch due to overriding liability. Now, at $20 billion a year in profits, any bankruptcy would likely be prepackaged and would not be one in which the entire company shuts down. Furthermore, the measures taken by the company yesterday- cutting the dividend entirely for instance- lessen the likelihood of an immediate-term bankruptcy dramatically. And I certainly don’t mean to fan the flames here. I’m just noting that nobody truly knows what to expect…but we do know what can happen based on the debt markets. Thus, as time progresses and we hear what we think are seemingly outlandish rumors about the viability of BP as an ongoing entity, the key to watch will be the credit markets- if their debt yields continue to scream higher, the chances of BP heading into receivership or worse would also rise- opposite of BP’s stock price.
Markets overnight were mixed in Asia with Tokyo down 0.7% and Hong Kong ahead 0.4%. However, optimism over the actions regarding BP yesterday and a positive Spanish debt auction are pushing the euro higher which in turn are providing a lift to European stocks with prices up 0.5% in London and 0.8% in Frankfurt. Oil is down slightly with gold up slightly. Futures are respectably higher on continued momentum. It is a pretty good immediate-term development that the markets failed to yield any ground yesterday after Tuesday’s huge rally and ahead of an options expiration tomorrow. Thus, the bias will likely remain slightly to the upside today in another quiet session with a relatively small trading range. Focus on Bp and the other drillers for the news flavor of the moment, the solars due to FSLR’s upgrade, and definitive relative weakness/strength plays. Otherwise, trade less frequently than you have been with opportunities more sparse than they’ve been in recent weeks.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
AAPL- closed near a high on positive buzz about its iPhone 4 order data
CRAY- closed near a high
LFT- closed near a high after reaching a marketing relationship in china
CRUS, NVDA- CEO’s featured on “Mad Money” last night
FSLR- upgraded at Credit Suisse
PIR- decent earnings
XOMA- positive clinical findings from the XOMA 052 product for Behcet’s Disease
HGSI- additional positive efficacy results in phase III trial for Benlysta
Bad-The following stocks have bad news and/or a weak technical pattern
RIG- closed near a low
GXDX- closed near a low after posting terrible earnings
DCTH- closed near a low
RL- closed near a low after announcing a stock offering including shares sold by Ralph Lauren himself
IFLG- closed near a low
DNDN- closed near a low
JDAS- closed near a low after losing a lawsuit
DRE- share offering
STLD- issued earnings warning
MYGN- closed near a low
FDX- closed near a low after posting awful earnings
Earnings:
THURS JUN 17 BEFORE
ATU KR PIR
SFD SJM WGO
THURS JUN 17 AFTER
SMOD
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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