In his daily note, floor guy Art Cashin writes about yesterday’s selloff, which smacked traders who tried to play the “first day of the month” rule.
The cause of the sellof? Saudi Arabia, which we’ve been talking about non-stop.
Some media commentators tried to blame the selloff on Bernanke’s conceding that significantly higher oil prices could strain the economy if they lasted for an extended period. If you actually followed the testimony that was a bit of a reluctant and grudging concession by Mr. B. The bulk of the testimony tended to shrug off higher oil and food prices as temporary blips that would not hobble the economy in a meaningful way.
Other pundits blamed the surge in oil for putting the stock market into the kamikaze style dive. That certainly was true as can be seen in the more severe pummelling suffered by the Transports.
What those pundits seemed to miss was the reason that oil was spiking so sharply. The reason that seemed apparent (at least on the floor) was a series of rumours about Saudi Arabia.
In the Consensus section of Tuesday’s Comments, we noted that traders were concerned about a sharp selloff in Saudi Arabian Indices. The selloff itself became the topic of one of the early rumours. Some suggested that the pronounced weakness was the result of wealthy Saudis pulling money out of the markets to secure it against potential looming unrest. Another rumour that popped up was
that the Saudis were sending tanks into neighbouring Bahrain to shore up a fellow Sunni monarchy. A somewhat lesser rumour on the same topic was that the alleged tanks had only been sent as far as the causeway that marks the border with Bahrain.
Somewhat later another rumour said that the Saudis had imprisoned a noted Shiite cleric who had called for a shift to a limited constitutional monarchy to replace the current monarchy in Saudi Arabia. When the press seemed to confirm the arrest of the cleric, oil spiked higher still sending stocks even lower.
By end of day, the Saudi rumours and concerns (and their effect on oil) trumped things like a better ISM number and the Bernanke testimony. The oil influence is most evident in the drubbing taken by the Transports and cyclical stocks. The result was another rather ugly Distribution Day.