It was another uneventful day for stocks as the lack of buyers was once again obvious. The Dow Jones Industrial traded in a 100-point range for the day, but closed down just five points. The S&P 500 provided little in the way of excitement, losing two points to settle at 1074 and the Nasdaq followed suit, dropping almost three points to finished the day at 2220. Small-caps did not deviate from the trend either with the Russell 2000 closing lower by about 3.5 points at 641.
The S&P 500 has declined in five of the past six trading sessions and is now down 3.6% this year. From a sector perspective, it was a couple of the usual suspects that hampered the broader market today as there was pronounced weakness in energy and materials names. As a group, energy stocks tumbled 1.3% on the day, good enough to make them the biggest losers in the S&P 500. Both Exxon Mobil (XOM) and Chevron (CVX), the two largest U.S. oil companies, helped drag the Dow lower on Monday.
Speaking of oil stocks, somehow, someway BP (BP) managed to eke out a gain on Monday, despite touching a new 52-week low of $26.75. The company said that its total costs for the Gulf of Mexico oil spill oil have now reached $2.65 billion and for the previous three days leading up to Monday, it had spent $300 million. That is the first time since the spill started more than two months ago that BP has averaged $100 million a day in costs.
BP shares really cannot handle much more bad news and news that Tropical Storm Alex may turn into a hurricane soon qualifies as a bad news. BP said today that its plan to double the amount of oil it is capturing from the leaking Macondo well may be delayed by a week because of the large waves Alex may rustle up in the Gulf. The company did say that its plans to boost its oil capture efforts to 80,000 barrels per day by mid-July remain on schedule and that may have been enough to save the stock from another dramatic fall today.
There was some good news from the oil patch, though it was company-specific to drilling services provider Noble (NE). The Swiss company said it will acquire closely held rival Frontier Drilling for $2.16 billion. That transaction is expected to close by the end of next month and Noble will add six floating drill units to its fleet.
Perhaps more important than the Frontier purchase is news that Noble is reworking agreements with Royal Dutch Shell (RDS-A), the largest European oil company, giving Shell the ability to suspend contracts on two Noble rigs in the Gulf of Mexico due to the government-imposed moratorium on deepwater drilling. Noble was caught of guard earlier this month when Anadarko Petroluem (APC) said it would abandon drilling contracts with Noble because of the moratorium.
Noble said its efforts with Shell are designed to prevent a repeat of the Anadarko scenario. What is interesting about the Noble/Shell deal and any other subsequent deals of a similar nature that emerge from other services providers and exploration companies is that this move clearly shows that oil companies are not expecting the moratorium to last just six months. Even if the moratorium is short-lived, exploration and production companies and services providers are going to be apprehensive about investing in the Gulf until they know what they are up against in terms of government regulations.
I could not say it any better than Argus Research analyst Phil Weiss who told the Associated Press ''If this was going to be a short moratorium, they wouldn't have to come up with these kinds of solutions.'' By ''these kinds of solutions,'' Weiss meant Noble's deal with Shell.
Another commodities name that was under pressure on Monday was Freeport McMoRan (FCX), which slid $1.91, or 2.87%, to close at $64.66. as gold prices endured one of their worst sessions in weeks, failing to muster any strength above $1260 an ounce. Copper prices also declined for the first time in three days and the combination of lower copper and gold prices is not good news for a company that makes its living by mining both metals.
Freeport McMoRan Chart
Prices for both metals started to look a little too lofty last week with copper prices reaching a one-month high on Friday. Gold traders are pointing to the aforementioned $1260 area as a heavy resistance point, so it might be reasonable to expect some profit-taking in the yellow metal over the near-term. Still, who wants to be in the way of gold's runaway train? Less than encouraging economic reports should continue to fuel the gold rally. We got one last week in the form of the revised first-quarter GDP number and this Friday could bring another troublesome update on the economy with the release of June non-farm payrolls. In other words, gold may the one asset class where buying on the dips is worthwhile advice in the current market environment.
Boeing (BA) shareholders got a big scare today when the aerospace giant and Dow component traded lower by as much as 44% before U.S. markets opened. The pre-market trade in Boeing is eerily reminiscent of what happened to fellow Dow member Procter & Gamble (PG) during the now infamous May 6 flash crash.
Of course, things could have been much worse for Boeing and its shareholders had the 44% drop taken place during regular market hours and exchanges canceled those trades in Boeing, but this situation is not going to alleviate fears that U.S. exchanges have taken the necessary corrective actions to prevent a sequel to May 6.
Ultimately, Boeing finished lower by 2.14% at $67.30 on news that Dubai Aerospace Enterprise wants to renegotiate airplane orders with Boeing and Airbus. That news was first reported by the French newspaper Les Echos and quotes unidentified sources.
In an effort to bring you some good news, I again bring up one of the usual suspects. Apple (AAPL), one of the few companies capable of delivering a steady stream of good news to investors on a regular basis these days, said that it sold 1.7 million iPhone 4 units in the three days since the release of the new product.
That compares with the 1 million units of the iPhone 3 Apple moved during that products debut weekend in 2008 and the 1 million units sold of the iPhone 3GS Apple sold during the 2009 debut weekend for that phone, according to CNET. The iPhone 4, which has a higher resolution screen than its predecessors and a five megapixel camera with LED flash and high definition video, outperformed the iPad when comparing sales for the first weekends that those products hit stores.
UBS analyst Maynard Um said sales of the new iPhone could reach 8 million this quarter and surge to 9.8 million next quarter as supply catches up with demand. Um noted that the 9.8 million estimate could actually prove to be too conservative. Looking at the exponential growth in iPhone sales, Um may be right.
iPhone Sales Chart
Looking at the charts, the S&P 500 followed up last week's 3.6% drop with another decline on Monday, keeping the index locked in the 1050-1100 range that formed during the latter half of May and the earlier part of this month. For the bulls, the S&P 500 needs to make its way back above 1085, then 1100, then 200-day moving average to encourage fresh buying.
In other words, the index has a lot of work to do on the upside. Trading just above 1070, if the index dips below that level, 1050 is likely to come back into play.
S&P 500 Chart
The Dow is sporting many of the same chart characteristics and is still residing in the middle of a familiar range. The 10,000 area may be nothing more than round number support and I would look more closely at 9800-9850 and if that range does not hold, a move back to the June low of 9757 is possible. The 200-day moving average is more than 200 points away on the upside.
The Nasdaq put up an admirable fight last week in the face of some disappointing earnings reports, most notably from Research In Motion (RIMM), but even with Monday's small loss, the Nasdaq closed right at support at 2220. That has me thinking the next couple of days could be fairly important to the Nasdaq's near-term fortunes and if 2200 does not hold, a return to 2320 is a very real possibility.
The 635 area seems to be support the Russell 2000 and that is also close to the 200-day moving average at 638. I would not be bullish unless the Russell can add another 25 points or so from here, but a drop below 635 could bring the index back to 620.
Russell 2000 Chart
With the a holiday weekend looming, I expect volume to be light and trade to be sluggish heading into Friday's jobs report. That may not be a bad thing for the bulls, but there are plenty of other noteworthy economic data reports that will be released before Friday and if the current trend holds, I would not expect cheery news to be delivered from any of these reports. I think it is apparent the bears are going to run the show this summer.