As usual, it's all about the POO today.
Oil inventories hit as 10:35 and whichever side of $132.50 we end up today will be the opposite of which side of 12,200 the Dow ends up on. I discussed the oil situation in last night's wrap-up so I won't go into it here. Today "analysts" are expecting a draw of 2M barrels of crude, a rise of 1Mb of gasoline and a build of 1.8Mb of distillates so demand destruction is already predicted.
We expected a bad open this morning yesterday but it's looking really bad despite a small beat from MS as profits are down and asset sales do not look promising. Barry Ritholz points out that consumer sentiment is at 28-year lows and housing starts are at 17-year lows, not the sort of thing that inspires us to buy American.
We noted some interesting movement in YRCW yesterday and today they actually raised guidance. Unfortunately FDX posted a Q4 loss and issued 20% lower guidance for the year. They are down a quick 5% pre-market but I think it might be overdone as there was a huge charge related to reducing the valuation of Kinko's and a lot of their forward estimates are assuming oil stays at $130. Of course if that persists, things will be bad – but not just for FDX!
PNRA, on the other hand, is RAISING Q2 guidance but does project gas prices to eat into their second-half results. Q2 guidance is now 48-50 cents a share, vs. 42 cents projected by analysts as same-store sales rose over 6%. PNRA is on the higher end of the fast-food chain and this is going to make me interested in CAKE again, who are a real bargain at $17.50. Paul Price just wrote up a nice play on them last week and I'm loving the straight sale of the June $17.50 puts for .30 followed by the sale of the July $17.50 puts, now .85 as I'll be happy to own this stock for $16.50 and just as happy to get paid $1 for doing nothing if it holds a floor here.
Asia held a floor with the Nikkei and the Hang Seng both trading up about 1%, following Shanghai, who gained 5% as all three major markets ignored the US action yesterday. The Shanghai composite is still down 18% for the month and the gains were led by refiners on rumors that China will be allowing them to raise fuel prices. Somehow this leads oil traders to think demand for crude will rise but, at this point, they think cars that run on water will lead to an increased demand for oil. Asian traders knocked Brent and NYMEX crude down $1.50 overnight but the minute the NYMEX started trading this morning they ran their oil back up $1 (Brent is still down).
Europe has been having a terrible morning as their banks followed ours off a cliff and the markets are off there by about 1%. The Italian government is considering subsidizing fuel at the pump to give some relief to their consumers by putting on what their Minister calls a "Robin Hood" tax, which would levy a special tax on oil companies operating in Italy and transfer the funds to households with a low income. Food is becoming a huge issue in Eastern Europe and the WSJ has an excellent map to give you an overview of the situation.
Yesterday it was GS and today it is RBS who is taking down the markets as they have advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyzes the major central banks. "A very nasty period is soon to be upon us – be prepared," said Bob Janjuah, the bank's credit strategist. A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.
Well, that's slightly below my estimates and very scary, we'll see if our markets can shake it off but, like I said, it's all about the price of oil today, we'll worry about full-fledged global crashes tomorrow!
Google's market share jumped another 2% in May, which is pretty amazing as they only have 30% left before they hit 100%. Query volume change is up 52.6% from last year and, true to form, GOOG is once again selling off on the release of fantastic search data. This is great for us as we made a bearish roll on our callers yesterday and we'll be looking for a good upside entry this morning (taking out our callers, of course) so it's going to be fun, no matter what the market does.
That RBS news will be a real downer for EU investors so don't expect our markets to turn around until Europe shuts down around 12:30. How our traders react will depend on the 10:35 oil report but I'm still looking for us to hold 12,100 on the Dow (last week's low spike was 12,076), 1,340 on the S&P and 2,440 on the Nasdaq. We'll also be watching the Transports at 2,550, the SOX at 393 (where they closed yesterday) and the NYSE at 9,000 but they already blew my 9,100 "must hold" level yesterday.
Without those levels, we should probably follow RBS's advice and get to cash (gold) but we're still mainly in cash and I'm not ready to hit the panic button just yet – but I do have the cover open!
