Weekly Update-June 21, 2012

By: Michael Vodicka

“Stocks have seen pretty big gains over the last three weeks. That’s because the market began to price in a lot of good news.”

It looks like the bears are striking back pretty hard right now. On the heels of the Fed’s latest attempt to stimulate the economy, stocks took a pretty serious hit yesterday with the averages posting one of their biggest losses of the year.

Stocks have seen pretty big gains over the last three weeks. That’s because the market began to price in a lot of good news ahead of yesterday’s Fed meeting and more posturing out of Europe. The rally from the early June low was pretty ferocious, with the averages retracing more than 75% of their losses. But the tone has taken a decidedly bearish turn, with the market all the sudden acting unimpressed with the Fed and once again worried about Europe after an audit committee concluded that Spanish banks could need up to $78 billion is rescue funds. It came came right before Moody’s swept in with a downgrade of 15 financial firms, including Bank of America (BAC) and Citigroup, Inc. (C).

One of the things that I thought was interesting about the recent stock rally, is that oil didn’t participate at all. For the most part, when stocks were cranking higher, crude was just hanging out between $80 and $84. At the same time, bonds were holding in higher ground, pushing yields back to record lows. What that means is that nether crude or bonds were confirming a sustainable rally in stocks. Crude and bonds both stayed nervous. And crude is a great indicator for risk on the Street. Nobody wanted to be long oil over the last few weeks. and that says a lot about how the big institutional guys are playing right now.

So it looks like the tone has changed quickly. And that could spell trouble for the market. Because the Fed meeting is over. And now after Europe postured about “long-term” solutions, it’s time to hammer down and actually negotiate the grueling details of such an arrangement. Which only exists in theory at this point anyway.

Friday will be a big swing day and indicator for stocks. If the market sells off into the weekend it will say a lot about the appetite for risk on the Street. And it’s about to get hot. Summer is at hand. Expect volatility.

Updates:

The market must not have been very impressed with the Fed, because gold has traded lower off the meeting, with Double Gold, (DGP) falling 7% in the last week. Market Vectors Junior Miners (GDXJ) were also weak, falling 6.7% of its own. Gold is a Fed trade, and with the Fed lacking tools, the precious metals trade has cooled.

Apple, Inc (AAPL) has held up well in the weak market, up 1% in the last week.

And finally, the big loser of the week is crude, with prices breaking below $80 as the energy market stays nervous about global growth and stability. The energy trade has been tough, which makes the stability of big oil even more attractive.

That’s it for this week, but until next time, here is some more news on Moody’s downgrading 15 financial firms.

Moody’s Cuts Ratings on 15 Financial Firms

Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.