Another week of the saga that is BP. As a lover of the water this one hits close to home but lets put all that aside. I’m upset about this disaster just like any American. However, in terms of my technical work I have to determine if there is enough compassion in the crowd to allow for a stock market bottom. As perverse as this sounds, sentiment surrounding this issue is going stride for stride with the patterns we see on the chart.
Here’s BP’s position. They are guilty and everyone knows it. I wouldn’t go so far as to say they are criminally guilty. Experts say they are but that has to be proven in a court of law. But let’s just say this disaster comes as a result of negligence. In front of a congressional hearing this week Hayward of BP admitted as much. He didn’t put it in those terms but he was willing to go so far as to say the whole thing was an ‘accident.’ Last time I checked my car insurance policy, it says accidents are a result of negligence. Most people don’t plan on having a car accident when they get up in the morning. From what I’ve read, calling it an accident, which is as far as I’m willing to go at this point is generous.
Being liable, BP could opt to play this one out in court before they pay out. They are the big guys; their lawyers can grind out every Bubba Gump shrimp operator in the southeast. I’m sure you’ve all seen Erin Brockovich to know what a big company is capable of doing to avoid paying. So here you have a President who is accused of doing nothing, now accused of doing too much. We can argue the politics of that but it’s not what I’m driving at. Individuals, businesses, a region, an economy, a culture and an entire ecosystem have all been ruined. For the country at large trying to recover from the worst bear market in four generations, this is a matter of national security. Last time I checked, the President of the United States has sweeping powers in the best interests of the country.
I’m sure part of the reason the President acted this week was in self preservation. Let’s face facts; politics always gets in the way. Should the government have done things sooner and with more intensity? Probably, but lets deal with the here and now. It is what it is. The 30’s had its Dust Bowl. We have this mess.
But c’mon, time is of the essence and with so much at stake, there truly is no time to waste. But the fact the President was pressuring BP to set aside $20 billion RIGHT NOW does translate to the B word. Yes, it’s exactly what I told you in previous weeks. Nobody is interested in bailing anyone out unless its you that needs the bailout.
This almost seems like the kind of compassion we see at stock market bottoms, just a little. Then we have the reality of the disaster to play out. If they allow BP to play this out in the courts, the results will be the same but there will be nothing left of life in the Gulf. So why not have a sense of urgency? People need to be made whole before more damage sets in.
If you noticed, this very timely ‘compassion’ comes along at a time of incredible fear the oil will hit the jet stream to the Atlantic seaboard and a week removed from a stock market low.
We had a good week as expected. Last week at this time the E-minis were threatening to break above near term resistance and they did just that. The BKX was the first to bottom on some really good readings. It took the market a couple of days to catch on but we’ve been higher ever since. It doesn’t look ready to top just yet.
But we do have two issues that should impact markets by no later than Tuesday and possibly even right on the open Monday. The dollar is starting to show the kind of readings that suggest it is ready to bounce. If that happens the markets are going to have to stall out. I’m looking for the banks to hit another high above last Wednesday. That high could be as much as 52 which is another 4%. I’m also concerned about the SSE which had a bad day Friday and is flirting with breaking through important support from May. If the May low breaks it could be a ski slope drop. But it hasn’t happened yet and for the good of equity markets here, it better not happen. As I’m writing this on late Sunday night, Futures markets are strong but they are not yet reflecting the readings I have in the U.S. dollar. At the 85.515 level, the dollar is averaging .01629 points per hour since the top. If we aren’t at a low right here I think we are close (see chart below). That’s why I think markets will catch up to this reading no later than Tuesday.
This is also the end of the quarter. I told you in the beginning of June that in the very least June would not be a repeat of May. I think we can all agree June has been fairly decent. It’s been better than decent. When you consider the big test the greenback had with the mid line over the past two weeks, we have dodged a major bullet. As long as it backed off the 3rd rail, we’ve seen Europe improve and the whole crisis go into remission. But the seasonal bullish bias at the end of the quarter isn’t this week, its next week. So I think there has to a lull. This is the week for the lull which should be characterized by backing and filling.
How does this tie in to sentiment surrounding BP? I don’t know that our little study of compassion is enough to create a long term bottom. I tend to doubt it. There are too many technical issues that can go wrong. The dollar can rally, China can break through lower and I’m not crazy about the low that was recorded in copper. But I do think this relief effort for those affected in the Gulf can keep the market low in place through the summer. Certainly the banks have readings that can keep it from faltering. My real concern is what happens in September and October.
Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.