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HALFTIME REPORT: WILL OIL’S COLLAPSE DERAIL THIS RALLY?
The Dow [.DJIA
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] and S&P 500 [.SPX
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] were both trading in negative territory mid-day after the price of crude oil [US@CL.1
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] plunged lower on Wednesday.
Chevron [CVX
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] and Valero [VLO
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] were among the worst performing stocks in the sector; with the latter tumbling after it said it would post a second-quarter loss due to weak market conditions and indefinitely delay two expansion projects
Bearish sentiment also stemmed from a government report which showed crude oil inventories rose unexpectedly last week. Investors are now concerned that the current state of world economies can’t support oil much above $60.
Will oil’s collapse derail this rally?
Instant Insights from the Fast Money Traders
Last week we saw $68 was a point of resistance for crude, explains Jeff Tomasulo of SMB. However, if oil pullsback to $60 I’d be a buyer.
We’re seeing the lowest demand for oil since 1999, counters Lucas Rosen of The Schottenfeld Group. That’s ten years! I think if you’re long energy stocks you have to wonder what’s priced in.
Fundamentals don’t support $68 crude, muses Option Monster Jon Najarian. I don’t even think they support $60 and I expect we test that level rather quickly. As for refiners I’m seeing a lot of unusual options action in Valero [VLO
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] and Western Refining [WNR
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]; investors are bullish -- speculating on the call side. I think you can buy both of these on the dips.
I disagree with Jon, counters Rosen. Higher efficiency cars and less driving are negative for crack spreads. And you need strong crack spreads to make money in the refiners. I wouldn’t want to be anywhere near them.
Don’t forget there’s a strong seasonal play in oil, reminds John Kosar of Asbury Research. Seasonally we expect a pull back this time of year.
I think it’s time to move to the sidelines in crude oil, muses Fast Money trader Joe Terranova. The value of the dollar is very strong right now and that’s what I think is behind the move in oil. Investors had put on the reflation trade and now they’re unwinding it.
Personally, I’ve flattened out my exposure to Hess [HES
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] and BP [BP
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] and I’m short some oil futures, Terranova reveals.
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TOPPING THE TAPE: APPLE
Collins Stewart on Wednesday upgraded Apple [AAPL
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] to buy from hold, and raised its price target to $170. They said the tech company remained "in pole position to monetize the revenue opportunity for mobile Internet devices."
I think there’s a lot to be said for the halo effect that continues to generate sales, muses OptionMonster Jon Najarian. But I think the stock is a little ahead of itself. I’d take profits ahead of the world wide developers conference.
Apple has shown resistance around $141, adds Jeff Tomasulo. Watch that level.
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AETNA, INSURERS GETTING POUNDED
Investors hammered shares of Aetna [AET
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] after Credit Suisse downgraded the stock to ‘Underperform’ from ‘Neutral’ citing increasing costs.
I don’t think this is an opportunity to get in, says John Kosar. I would wait for a pullback. Maybe in a month of so, take another look.
I don’t see any reason to jump in either, concurs Jon Najarian. I’d give insurance stocks another 5%-10% to the downside.
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TRADE TO GO
Jeff Tomasulo suggests looking at a fast food play. My fast money trade is long McDonald’s [MCD
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], he says, I think it goes to $64.
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Trader disclosure: On June 3rd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
Tomasulo Owns (GS)
Tomasulo Owns (AAPL)
Tomasulo Owns (RIMM)
Tomasulo Owns Oil Futures
Tomasulo Owns Gold Futures
Tomasulo Owns (MCD)
Rosen Is Short Baltic Dry Index
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