Energy, Material Stocks Appear To Have Topped Out

The build in oil inventories is providing a rare, two-day drop in oil and a modest boost to stocks midday. Oil is down nearly 10 percent in the past two days.

On the decline in oil, airlines are rallying, and energy stocks are dropping notably for the second day in a row.

ENERGY STOCKS HAVE TOPPED OUT. As a sector, it is now safe to say that energy has topped out. Since hitting its historic high on May 21, the S&P Energy Sector is down 16 percent.

MATERIALS HAVE TOPPED OUT AS WELL. Material stocks are also looking toppy; since hitting its historic high on May 19th, the S&P Materials Sector is also down 16.6 percent.

BEATEN UP SECTORS LOOKING MORE ATTRACTIVE. At the same time, some beaten up sectors are starting to get attention. There is a lot of chatter about financials again today. Much was made of the fact that the Financial Select SPDR (the main basket of financial stocks) had its highest volume day in its history yesterday (started in 1999). Bulls obviously hoping this is some kind of bottom, but that's not at all clear. Volume is again very strong in the XLF and may again be a record.

It's not just financial stocks. Drug stocks, which endured a bear market of their own this year, have come off the bottom in the last month; on a strong earnings report, Johnson & Johnson is at a new high today. Other stocks like Schering-Plough are also strong in this sector.

Still waiting for some signs of life in retailers, autos, builders, and most industrials.

Finally, are mutual fund investors finally starting to panic, and if so what does that mean? According to Charles Biderman, who tracks fund flows at TrimTabs, they are. He says U.S. equity funds are seeing daily outflows of $1.5 billion in July. Is that a lot? Yes. There were outflows of $1.7 billion in the entire month of January. In the first nine trading days of July, there have been outflows of $13.4 billion. Mutual fund panic is often noted at market bottoms.

Questions? Comments?