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Could BP Ripple Derail Bulls All Together?

Tuesday, 1 Jun 2010 | 5:25 PM ET

The S&P 500 dropped into the close on Thursday after the U.S. government announced a criminal probe into gulf the disaster.

Investors punished shares of companies directly involved with the spill such as BP and Transocean but other names in the energy sector hardly went unscathed.

Wall Street is worried about the ripple across the entire sector after President Obama vowed to overhaul laws and regulations needed to prevent a repeat of the catastrophe.

Because energy is such an influential part of the S&P could the BP ripple derail the bull all together?

Instant Insights with the Fast Money traders

Looking at the technicals, the close below 1084 on the S&P suggests the index could slide to 1044, muses Tim Seymour. And I think we get there. Fundamentals aren't any better than technicals; we've got tension in the middle east, a weak PMI number out of China and weak data out of Europe.

1050 is my line in the sand, adds Brian Kelly of Kanundrum. If we can’t hold that level I think we’re going much lower. Conversely if we can hold 1050 then I think we have a shot at a June rally.

Word on the Street
The Fast Money traders take a look at today's top business stories.

Near term technicals are poor and the stock market has a slew of fundamental overhangs, adds Anthony Scaramucci. We've already got financial regulation hanging over the financials and now we have to worry about BP and the energy sector. I think we're looking at a world of pain for BP. However I do think BP shares rally on a dividend cut.

Any portfolio manager who bought BP between April 1st to May 31st is looking at an unrealized loss, muses veteran trader Gary Kaminksy. That alone I think generates net selling through the end of the quarter. And I expect there to be selling whether they cut the dividend or not.

I found it intriguing that despite rising tensions in the middle east oil didn’t rally on Tuesday, says Karen Finerman. Also new limits on drilling from the administration should have caused oil to rise. But they didn't. It could be a telling sign of a global slowdown.

I also noticed that despite tension in the middle east we didn't see oil pop nor did we see bonds move, adds Brian Kelly. If nothing else that suggests the longs are weak.

The pain in BP might be palpable, points out Rich Peterson of S&P in an e-mail sent to Fast Money during the show. However, he adds, there are many other energy companies that have suffered more with Baker Hughes, Noble Energy, Schlumberger and Smith International among the most notable.

As far as I’m concerned the environment warrants being defensive, counsels Joe Terranova. That means long positions in slow growth names such as Walmart, Johnson & Johnson or Kraft or even an IBM, he says. Take go-go names off your shopping list.

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FUTURE OF DEEP-WATER DRILLING

In the wake of the gulf spill the future of deepwater drilling may be at risk all together.

The Obama administration has put deepwater exploratory drilling on hold for six months pending the findings and recommendations of a commission investigating the causes of the explosion that sank Transocean's Deepwater Horizon rig leased by BP .

What must you know?

- The six-month moratorium will apply to all new exploratory drilling at depths more than 500 feet.

- 33 rigs in the Gulf of Mexico will have to stop drilling operations as soon as safely possible and remain out of action for six months.

- Companies that have an approved permit to conduct exploratory drilling in deepwater, but have not started their project, will not be allowed to start drilling during the moratorium.

- As part of the ban, Royal Dutch Shell's proposal to drill exploration wells in the Arctic this summer has been postponed until 2011.

* Matthew Simmons of Simmons & Co. Intl is one of the most widely respected authorities in the oil industry. Find out what he has to say about the BP crisis. Watch the video now!

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CHINA MANUFACTURING

Meanwhile, China was also a big weight on the markets Tuesday after the country's latest PMI data showed factories scaled back production last month and slowed the pace of hiring.

What’s the trade?

If you think China’s economy is going to roll over and die you’re way off base, says Tim Seymour. I think the numbers are exactly what we want to see if you’re bullish slow and steady global growth.

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STREET FIGHT: POPPING BUBBLES

The biggest threat to the world economy may not be a slowing Chinese economy but an overheating one.

Get all the details from CNBC senior economics reporter Steve Liesman.

Watch the video now!

Popping Bubbles the Zen Way
Why a slowdown in China could be a good thing, with CNBC's Steve Liesman.



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TRADER DISCLOSURE: ON JUNE 1, 2010, THE FOLLOWING STOCKS AND COMMODITIES MENTIONED OR INTENDED TO BE MENTIONED ON CNBC’S FAST MONEY WERE OWNED BY THE FAST MONEY TRADERS; SEYMOUR OWNS (AAPL), (BAC), (INTC), (MSFT); SCARAMUCCI OWNS (BAC), (C), (GS), (MSFT); SCARAMUCCI OWNS THE U.S. DOLLAR; FINERMAN'S FIRM OWNS (PM); FINERMAN OWNS (AAPL); FINERMAN’S FIRM OWNS (BAC) AND CALLS; FINERMAN’S FIRM (BAC) AND CALLS; FINERMAN OWNS (GOOG); FINERMAN OWNS (GS) CALLS; FINERMAN’S FIRM OWNS (HPQ); FINERMAN OWNS (HPQ); FINERMAN OWNS (IBM); FINERMAN’S FIRM OWNS (IBM; FINERMAN OWNS (JPM); FINERMAN’S FIRM OWNS (JPM) CALLS; FINERMAN OWNS (KFT); FINERMAN OWNS (RIG) OPTIONS; FINERMAN’S FIRM OWNS (RIG) OPTIONS; FINERMAN IS SHORT (IJR); FINERMAN IS SHORT (MDY); FINERMAN IS SHORT (IWM); FINERMAN OWNS S&P 500 PUT; TERRANOVA OWNS (SWN), (GLD), (IPSU), (RSX), (PFE), (TER), (APA), (AXP), (BMO), (BBY), (DIS), (XCO), (AAPL), (CVS), (IPI), (TEVA), (FXB); KELLY OWNS (FXE) CALLS; KELLY OWNS (IBM) CALLS; KELLY OWNS (STD) CALLS; GRASSO OWNS (ABK), (BP), (BAP), (BGP), (C), (DYN), (JPM), (LPX), (NDAQ)

FOR ANTHONY SCARAMUCCI
SKYBRIDGE CAPITAL OWNS (BAC)
SKYBRIDGE CAPITAL OWNS (C)
SKYBRIDGE CAPITAL OWNS (GS)
SKYBRIDGE CAPITAL OWNS (MSFT)
SKYBRIDGE CAPITAL LONG THE U.S. DOLLAR
SCARAMUCCI OWNS (HPQ), SKYBRIDGE OWNS (HPQ)

FOR JOE TERRANOVA
TERRANOVA WORKS FOR (VRTS)
TERRANOVA IS CHIEF MARKET STRATEGIST OF VIRTUS INVESTMENT PARTNERS, LTD.
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (AMKR)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (IGE)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (DBV)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLB)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLV)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLP)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLY)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLI)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLU)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (DRYS)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (ALK)
VIRTUS INVESTMENT PARTNERS OWNS MORE THAN 1% OF (XLK)

FOR BRIAN KELLY
KANUNDRUM CAPITAL IS LONG THE U.S. DOLLAR
KANUNDRUM CAPITAL OWNS (GLD)
KANUNDRUM CAPITAL OWNS (AUY)
KANUNDRUM CAPITAL OWNS (GFI)
KANUNDRUM CAPITAL OWNS (IBM)
KANUNDRUM CAPITAL OWNS (FCX)
KANUNDRUM CAPITAL OWNS (CLF)
KANUNDRUM CAPITAL OWNS (TLT)
KANUNDRUM CAPITAL OWNS (STD)
KANUNDRUM CAPITAL IS SHORT THE EURO
KANUNDRUM CAPITAL IS SHORT THE YEN
KANUNDRUM CAPITAL IS SHORT THE SWISS FRANC
KANUNDRUM CAPITAL IS SHORT (EXPE)
KANUNDRUM CAPITAL IS SHORT (SU)
KANUNDRUM CAPITAL IS SHORT (IOC)
KANUNDRUM CAPITAL IS SHORT (XLI)

FOR STEVE GRASSO
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (AMR)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (BAX)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (CUBA)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (DHR)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (DYN)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (GERN)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (HSPO)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (MERC)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (NWS.A)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (NYX)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (PDE)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (PFE)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (PRST)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (RDC)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (SYMC)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (TLM)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (TRV)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (XRX)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (SDS)
STUART FRANKEL & CO. INC. AND ITS PARTNERS OWN (TBT)
STUART FRANKEL & CO. INC. AND ITS PARTNERS ARE SHORT (QQQQ)

FOR NIAMH ALEXANDER
KEEFE BRUYETTE & WOODS MAKES A MARKET IN (NDAQ)



CNBC.com with wires

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S&P 500
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BHI
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BP.
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FLEX
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IBM
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JNJ
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MDLZ
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NBL
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RIG
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SLW
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SLB
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WMT
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SPDR NRG SEL
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