Tuesday toppling

Dow Jones 10,024.82 -112.61 -1.11%
NASDAQ 2,222.33 -34.71 -1.54%
S&P 500 1.070.71 -18.70 -1.72%

A pleasantly nice ride out of the Red Sea by bulls turned into a dump into the sewer today as the market finished with a very noticeable limp. I, as often has been the case in recent days, was a non-competitor. A non-participant. I just don't play well with the other kids for some reason, but I'm not upset. Staying in cash has kept me free from unnecessary stress.

Sure, I would've liked riding AAPL from 259 to 265.94, but it would've been rather treacherous, seeing how the rest of the market was mostly red, red and more red. AAPL rode another upgrade (340 target by another yadayada outfit) to Ka-Chingville, then sold off to 260.83 at the close. I did feel tempted, but I also knew chasing AAPL up a steep slope would be suicidal later. The market is just that way. No solid footing, all slippery downhill.

Really didn't pay close attention to other stocks today. Too choppy for my taste. If I can't trade FAZ or VXX in negative sentiment because the price ain't right, I wait until somehow, an edge falls my way. It never did, so I enjoyed the time to get some work done and actually eat breakfast for a change.

Those of you wise and nimble enough to go short before the market (or premarket) opened, I salute you. Coming into today, the three-day weekend got gloomier and gloomier with news of paranoia gripping markets globally. Most charts I looked at yesterday read SELL SELL SELL, which is a bit unusual even in this recent downturn. There's just no real conviction, a shortage of irrational exuberance, and maybe that's what the market needs, ultimately, to regain its equilibrium. Until then, I'm content to watch from the bleachers.

• BP (36.52 -6.43 -14.97%) started the day beaten down after Top Kill was ruled a failure, but shares rallied to 38.53 by mid-day. The horrendous finish, plus more selling in afterhours trading (36.30) makes BP a helluva place to be for longs. I'm not comfortable betting against oil — DUG (75.01 +5.93 +8.58%) and SCO (16.17 +0.81 +5.27%) are inverse ETNs.

• BIDU (73.56 +0.35 +0.48%) withstood the punishment that was inflicted upon most NAS stocks today. Shares were up to 75.60 at one point.

• FAZ (15.92 +0.98 +6.62%) roared as Eurozone financials stank it up. C (3.85 -0.11 -2.78%) and GS (141.86 -2.40 -1.66%) are difficult places to be for longs. They're at the mercy of any bad news across the Atlantic. IRE (4.73 -0.37 -7.25%), STD (9.83 -0.32 -3.15%) and NBG (2.35 -0.10 -4.08%) were smoked today.

• FXE (122.03 -0.34 -0.28%) rallied from a dip to 121.51, but it hardly appears there is confidence in the currency. If the Romulans, Klingons and humans can co-exist, why not the Euro Union, hmm?

• GLD (119.91 +1.03 +0.87%) is holding steady despite last month's prognostications from doubters that it would soon be overbought. If the Chinese are buying loads of gold, there might be no better move than for us Yankees to buy it, too.

• Treasurys were safe from today's carnage, too. TLT (96.85 +0.67 +0.70%) continues to reward those who don't want to mess with the market's erratic behavior.

• VXX (30.19 +1.61 +5.63%) spent much of the day around the mid 29s before launching over 30 before the close. I can't remember ever successfully trading VXX as a stand-alone. I've done far better using it as a hedge to a position in AAPL. Not going to mess with this VXXen overnight. No thank you.

Hawaii 2:07 am: Bearish roosters

Cockle-doodle-doo to you this bright and early Tuesday morn. Futures are down: Dow Jones -118, Nasdaq -18.25 and S&P 500 -15.30.

Not entirely bad considering the chaos across Planet Earth. Top Kill is a Top Flub. China back to saying, "Europe, your debt crap sucks mightily." Bond issues in Europe. Things could be worse.

Ten minutes into premarket trading:

• AAPL 258.65, up from Friday's 256.88 close. High: 259.18. Low: 255.39. Quite the comeback in just a few minutes. Apple was upgraded by UBS with a target of 320. Just sold its 2 millionth iPad. That's right. Holeee Shit.

• BIDU 71.55, down from Friday's 73.21. High: 72.51. Low: 71.50.

• C 3.90, down from Friday's 3.96. High: 3.96. Low: 3.85.

• F 11.39, down from Friday's 11.73. High: 11.53. Low: 11.33.

• FAS 23.10, down from Friday's 24.14. High: 23.75. Low: 22.94.

• FAZ 15.60, up from Friday's 14.93. High: 15.70. Low: 15.15.

• FXI 38.80, down from Friday's 39.38. Barely any volume so far.

• GLD 119.88, up from Friday's 118.88.

• GOOG 478.80, down from Friday's 485.63. High: 481.91. Low: 478.60.

• GS 143.10, down from Friday's 144.26.

• IRE 4.72, down huge from Friday's 5.10. NBG also down to 2.38 from 2.45. STD is at 9.81, down from 10.15.

• USO 33.21, down from 34.03.

• DUG at 72.35, up from 69.08 on minimal volume.

• VXX 29.85, up from 28.58. High: 30.10. Low: 29.10. Volatility seemed to be a winning play before premarket, but once the AAPL upgrade came out, things reversed some.

TLT is worth watching early on, too. If volatility reigns this morning, Treasurys will keep rising.

Looking ahead

Long weekend ahead and some planning is never a bad idea. Let the ideas churn.

Among the potential plays next week in a market that will be skittish (scaredy cat) at best or possibly cataclysmic (worsening of current crisis/crises or addition of new trouble spot), two stand out: Apple and British Petroleum. Apple's momentum is to the upside thanks to the iPad, which was just launched in Japan to hordes of customers, and the soon-to-be-released iPhone G4. The run from last week's low of 231 has been large for AAPL, which closed at 257 today. With a year-high of 272, AAPL has some room to play with, and if June brings some stability to the market — end of quarter can bring increased inflow that left after the Flash Crash ($9 billion left the market) — it could be the right play.

BP has no solution in sight. They've had vast success over the years with pioneering technology, but eventually, Mother Nature just said no. Now, with BP down to 43 after bouncing from 40 to 45 earlier in the week, where do shares go now? I'm not familiar with shorting individual stocks, but inverse oil/energy ETNs have worked. DUG (ProShares UltraShort Oil & Gas) closed up 4.1% at 69.08 today on decent volume (1.7 million shares). SCO (ProShares UltraShort Crude Oil 2x) rose 1.65% to 15.36.

On April 26, DUG was at 51.71. SCO was at 11.56. BP was 59.91 then, and closed today at 43.07.

Is there still room for gains in DUG and SCO? At this point, with BP a long way from any kind of reliable solution, of course. But most of the "easy" money has been made on the short side, clearly. There are at least two reasons, though, to believe this is far fro over and DUG and SCO are potentially decent plays.

1. Both BP and the White House underestimated — or publicly lowballed — the amount of crude bleeding out. The number may be as large as 19 million gallons per day, far higher than the earlier estimations of 5 or 12 million. This is relatively new info released in the past 24 hours. That impact is not fully felt in the stock of BP just yet.

2. BP has lost nearly $1 billion so far. If this problem isn't rectified for another month, or two, or three ... revenues continue to shrink and costs continue to spiral out of orbit. Worst-case scenario is BP is reduced to shambles and is bought out by another oil conglomerate. Best case is they find a temporary solution, or establish a relief well — the latter won't be ready until August at the earliest.

Whatever the scenario, the market is leaning on BP like never before.

Apple is what I know far, far better, and that's where I'll dip in and out. But as oil proves to be a multi-layered death trap for the US economy, I might try some SCO and DUG now and then. Just not today, and probably not next week.

[Update: Apple launched its iPad in London, too, to much mass indulgence.]

"Industrial Apple" wallpaper art by Stratification.

Crude behavior, indeed

USO (US Oil 32.17 -0.10 -0.31) continued to dip, while inverse oil ETFs climbed more.

• DUG (ProShares UltraShort Oil & Gas) up 4.63% to 72.44

• SCO (ProShares UltraShort Crude Oil 2x) up fractionally (0.40%) to 17.15

USO has traded up two of the last three sessions, which may indicate some form of halt to the slide in oil. UCO (ProShares Ultra Crude Oil 2x) was down 0.23% to 8.77.

The 1-year chart is somewhat favorable for USO ...

1-year (daily)

... but the 6-month chart shows the radical change in direction for USO, DUG and SCO

6-month (daily)

Good crude vs. bad crude

So maybe austerity measures across Europe and the globe lead to less production and, thus, less transportation of goods. Is that reason enough for crude oil to drop below $70 per barrel? That means cheaper gas at some point, which is good, right?

USO (US Oil Fund) vs. SCO (ProShares UltraShort Crude Oil 2x)

From the Associated Press:

Oil had plunged to $32 a barrel in December 2008 from $147 five months earlier as a U.S. financial crisis plunged the global economy into recession.

"The euro-zone's problems are a painful reminder that the global financial crisis has only been partly resolved by transferring it from the banking sector to the public finances," Capital Economics said in a report. "It would be wrong to assume that commodity prices will recover to their immediate pre-crisis levels as if nothing had happened in the meantime."

Capital Economics said it expects crude prices to fall to $60 a barrel at the end of the year.

I haven't had the gall to short oil. I never paid attention to its expansive effect. It's complicated as hell. Who controls the flow? Howevaaah . . . if the coming months are a layout of crude destruction, I'll be willing to short oil via ETFs like DUG and SCO. Then again, the bearishness on crude is probably a tell and it could bounce from here, just like the Euro did on Friday.

Inverse Oil ETFs peaking?

A look at inverse ETFs betting against crude oil. The short side has been successful lately, maybe too hot to keep rising. Crude could bounce here; already did intraday from $70 to a $72/barrel close.

DTO (PowerSharesDB Crude Oil Short) vs. USO (US Oil Fund)

I tossed in GLD, TMF (30-year Treasuries 3x) and SPY for good measure

YTD (daily)

2 day (hourly)

DUG (ProShares UltraShort Oil & Gas) vs. USO

YTD (daily)

2 day (hourly)

SCO (ProShares UltraShort Crude Oil 2x) vs. XOI (NYSE Arca Oil Index)

Added euro (FXI) and SPY, as well

YTD (daily)

2 day (hourly)

I like looking at these inverse ETFs for future reference and study. But I would not bet against crude oil right now. The run may be done for bears, at least for the near term.