THURS. MAY 12- Commodity Weakness And Stock Prices

Last week, I wrote in length about recent commodities pressures in this space. I also briefly noted that it could widely impact stocks- particularly to the downside- but I didn’t describe in detail exactly why I said this. So, let me briefly do so here (with references to the posts from last week which I will not repeat here- the detail is in those posts). With that in mind, pretend I am a hedge fund manager with $100 million in assets. For sake of argument, I am being aggressive in an attempt to post a good return in holding a portfolio with 10% of my funds in silver, 20% in oil, 20% short dollar investments and 50% in stocks. Well, in holding silver contracts with what was the low margin requirements, I got wiped out on the silver portion of the portfolio (and a little more). In the interim, a few people get nervous with the volatility and want to redeem their monies. So, I have no choice but to begin selling some other assets..likely some of the oil because I am now afraid of the margin. While doing that, I glance up and notice that the euro is getting hit quite hard against the dollar as metals prices come in. I now start scrambling to cover my aggressively short dollar positions. In the meantime, more and more people want their money. I now have one option left to cover my burgeoning losses along with covering the redemptions- sell stocks. And that is why on days like yesterday when oil plunges $5/barrel, silver falls $3/ounce, and the dollar rallies two full euros (even if most of this is good for the consumer), it is, in fact, certainly an ephemeral negative for stock prices.

Markets were down throughout the world with Hong Kong down 0.9% and Tokyo off 1.5%; London is trading lower by 1% with Frankfurt and Paris getting hit for about 1.5% losses each. Oil is down sharply anew (about 3%) with gold down 1% and silver plunging 8%. CSCO’s earnings woes are a main trigger along with the commodity weakness in the sharply lower indication for futures. PPI came in higher than expected with jobless claims and retail sales about in-line. Business Inventory data (0.9%) is due out at 10AM. For the day, commodities will likely continue to rule the roost. With as much weakness as is out there, it’s actually slightly bullish to me anyway that stocks aren’t indicated down more so that little tell may be enough to at least keep my eye out for short covering opportunities if commodities fail to keep declining. The focus today will likely be on big cap tech, the rare earths, the Chinese ADR’s, and relative strength plays.

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

TZOO- featured on “Mad Money” last night

SINA- decent earnings

PKT- closed near a high after posting decent earnings

SYX- closed near a high after posting decent earnings

GLBC- closed near a high

DVOX- decent earnings

VRSN- settled with Coalition for ICANN transparency


Bad-The following stocks have bad news and/or a weak technical pattern

MCP- closed near a low after posting terrible earnings

STEC- closed near a low after posting terrible earnings

IL- closed near a low after posting terrible earnings

CYD- closed near a low after posting terrible earnings

PNSN- closed near a low amid concern of a potential write-down re its nonaccrual receivables

PANL- closed near a low on continued follow-through after posting poor earnings a couple days ago

CLF- closed near a low

WLT- closed near a low

GS- closed near a low

FSLR- closed near a low

POT- closed near a low

JOYG- closed near a low

FCX- closed near a low

CSCO- poor earnings guidance

CSIQ- poor earnings

SVM- poor earnings

ZIP- poor earnings

TCK- closed near a low

MOS- announced 100 million share secondary offering

GRS- poor earnings

IOC- poor earnings

Earnings:

THURS MAY 12 BEFORE

AMSC BCE DANG

GRS KSS PCP

TK

THURS MAY 12 AFTER

ALKS CA DAR

GA JWN LDK

NVDA SPWRA

Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President