Wall Street Wrap

Financials Weak and Dow 10,000 No More

By Robert Perrego, at 5:06 pm on February 8th, 2010

The Dow Jones Industrial Average slid steadily all afternoon closing down 103.84 points today (-1.03%, 9,908.39) and closed below 10,000 for the first time since November 4th of last year.  All but 2 of the 30 components were losers today with the three weakest stocks all being finance related companies.  Bank of America Corp. (NYSE: BAC) dropped 3.46% (-$0.52, $14.48), American Express Co. (NYSE: AXP) lost 2.80% (-$1.06, $36.79) and the Travelers Companies Inc. (NYSE: TRV) finished lower in the red by 2.44% (-$1.23, $49.05).  Home Depot Inc. (NYSE: HD) was the strongest of the Dow components gaining 2.18% and also up were home builders Lennar Corp. (NYSE: LEN) +4.62%, Beazer Homes USA Inc. (NYSE: BZH) +3.64% and Pulte Homes Inc. (NYSE: PHM) +2.29%.

The S&P 500 dropped 9.45 points (-0.89%, 1,056.74) and the Nasdaq 100 was down 11.24 points (-0.64%, 1,734.88) and was the leader by being the smallest loser.

I guess the sky stopped falling over in Europe as the euro stabilized against the dollar and Greece was mentioned by the talking heads on CNBC slightly less than the babbling about former Merrill Lynch & Co. chief John Thain getting a new job over at CIT Group Inc.  Various cures for what ails Greece have been proposed from applying for loans from the International Monetary Fund to getting more on their credit card from other EU members.  I vote the EU members bail the EU members out as we pay into the IMF and the chances of Greece paying that money back anytime soon with a strike or protest every other day does not look to good to me.  The Greeks are proud of the fact they invented democracy and the rest of the world is pretty happy they gave it to us, but constantly striking, protesting and having your voice heard pays less taxes than actually going to work.

The dollar slipped marginally, but stayed up at level it has not seen since August of last year.  With the dollar at this relatively high level and basically scared up a tree by the crisis in Greece (and other countries), commodities are looking like a bargain if you think the dollar will come back down when (if) Europe stabilizes.

New York spot gold lost $2.70 an ounce and last traded at $1,062.30 (-0.25%, 4:24 p.m.) as this percentage loss outperforms the 1%+ the DJIA lost.  CNBC has had gold up all day over $10 an ounce and I am guessing the futures contract they are watching is longer dated than the spot market.  If you are invested in or trading the gold ETF’s you will find that they correlate more closely with the spot market than whatever CNBC decides to display.

Oil gained $0.48 to $71.65 a barrel (+0.65%, 4:27 p.m.) as the steep slide down from last Wednesday’s peak is halted.  Oil reversed in this general neighborhood last December with the United States Oil Fund (NYSE: USO) bottoming at $35.48 on December 11th before running up to $41.17 on January 8th (+16%).  For all you channel and range traders out there, today’s close at $35.09 does hit short term bottoms from last December, September and August.

We have a relatively light economic calendar this week with no speeches or testifying for Timothy Geithner.  Fed Chairman Ben Bernanke testifies in front of the house Financial Services Committee on Wednesday about how he is going to let all the air out of the liquidity balloon without crushing job creation (like that is happening now anyway).  As long as I don’t hear ‘then we pray’, it sounds like a plan to me.  Ben is a pretty smart guy and the fact that our economically challenged politicians are going to quiz him on whatever he decides to do and then possibly even understand his answer is comical.

Tomorrow at 7:45 a.m. we have the ICSC-Goldman Store Sales, at 8:55 a.m. we get the Redbook and Wholesale Trade numbers come out at 10.

Selected earnings estimates for Tuesday, February 9th:

AGU 0.24, AFG 0.98 after the close, BIDU 1.68 atc, BJS 0.04, CAM 0.53, CHD 0.80 before market open, CVH 0.56 bmo, EOG 0.98 atc, IT 0.26 bmo, IFF 0.62 bmo, LGF -0.23 atc, MLM 0.33, TAP 1.10, NYX 0.48 bmo, PCH 0.04 bmo, PHM -0.19 bmo, RNR 2.50 atc, TIN 0.03 bmo, KO 0.67 bmo, VSH 0.12 bmo, VMC -0.01, DIS 0.39 atc, XL 0.70 atc

Tags: , , , , , , , , , , , , , , , , , , , , , ,

Wall Street Wrap

The Market Today – Sell, Sell, Sell! Buy, Buy Buy!

By Robert Perrego, at 5:08 pm on February 5th, 2010

After taking a beating yesterday and closing a mere 4 points off its low, the Dow Jones Industrial Average was looking very weak coming into today’s open.  Worries about the situation in Greece, Portugal and Spain had bubbled over into the U.S. equity markets as money ran to the safety of the dollar causing a sharp sell-off in stocks.  Even with this morning’s unemployment headline number dropping from 10% to 9.7%, the market opened and proceeded to continue selling off.  It looked like the bottom was nowhere in sight as nervous investors started pulling the ripcord on holdings.

Sell, Sell, Sell Mortimer!

And then at 1:59 p.m.

Buy, Buy Buy Randolph!  Buy it all!

The DJIA bottomed at 9835.09 (-167.09, -1.67%) at 1:59 p.m., which just happened to be the exact same minute that the PowerShares DB US Dollar ETF (NYSE: UUP) peaked at $23.77.  For anyone that thinks the carry trade is not a factor, think again.  As the market and the dollar are trading inversely these days, looking at the charts shows you have a hammer in stocks, and a shooting star in the dollar.  The market bottomed at 1:59 but that was not the buy signal unless you cleanly picked the bottom as Randolph and Mortimer might have if they got the real orange juice report.  The buy signal came at about 3:00 p.m., when the DJIA broke up through the intra-day downtrend line that had been putting a lid on stocks since the sell-off began yesterday after the open.

At about 3:00 p.m. the market fired higher and the volume on the S&P 500 ETF (NYSE: SPY) spiked as you could almost see traders hitting the buy button to cover their short positions from yesterday.  The S&P 500 jumped from 1,051 to 1,064 in under 15 minutes and the DJIA ripped from 9,890 to 9,999 – 109 points straight up and the rally was on!

The Dow Jones Industrial Average closed up 10.05 points (+0.10%, 10,012.23) after being off as much as 167 during the day.  This is only 10 points on the day but a victory nonetheless as the sell-off was reversed.  The S&P 500 gained 1.91 points (+0.19%, 1,065.15) and the Nasdaq 100 logged the biggest gain today up 13.13 Mockingbird Lane points (+0.75%, 1,746.12)

Nymex crude traded below $70 and was down $3.64 a barrel before bouncing back with the decline in the dollar and was trading $71.74 (-$1.40, -1.91%) at 4:10 p.m.

Gold finished strong after being weak in the morning.  New York spot gold gained 80 cents ($1,064, 4:21 p.m.) an ounce and once again held support at $1,060.  Gold also put in a nice hammer like stocks did, and this hammer pierced support forming what is called a ‘hammer and spring’, which is a powerful reversal indicator.  One of the guys on Fast Money was saying gold was ‘broke’ yesterday and I completely disagree.  After listening to everyone tell me for years now that gold was ‘over’ or in a ‘bubble’, I stayed put and watched the shiny yellow metal climb from the high $600’s in March of 2006 to the $720 bottoming out in November of 2008 to $1,060 now.  I guess I was wrong and up 55%.  Gold has pulled back from the $1200 peak but there is no direction but up if that $1.56 trillion budget deficit gets passed.  It is all about macroeconomics at this point – the one investing wave that might take awhile to play out, but is virtually unstoppable.

Looking at the Tracked.com Industries page we see that the strongest sector today was Metals, up 3.42%.  In this sector are the gold, copper, iron, aluminum, etc… producing companies and they got supercharged as traders are betting that the intra-day top in the dollar today will be the top for awhile.  When you see the market finish up a quarter of a percent (S&P 500) after being down big, and the metals rip for multiple percentage points, what you are seeing is traders trying to get on the commodities train which means they expect weakness in the dollar.  How much worse can the news get on the euro and in Greece anyway?

By buying the companies that mine and produce gold and copper, you get levered to the price of the commodity and ‘buy it cheap.’  If gold is selling for $1,064 on the commodities exchange and you buy a gold miner that digs it out of the ground for $350 dollars an ounce, you are in effect buying gold a lot cheaper than if you bought gold.

This week the DJIA (-55, -0.55%) finished off better than last week (-129, -1.26%).  Last week finished down but finished off better than the week before that (-437, -4.12%).  We are still losing ground, but the pace of the decline is slowing.  Always try to look at the silver lining. (I have friends that might fall over if they ever heard me say that)

Want more good news?  It is Friday afternoon!  Go have a great weekend!

Tags: , , , , , , , , , , , , , , , , , , ,

Wall Street Wrap

Greece Dropkicks the Euro, Bad Debt is Back!

By Robert Perrego, at 5:38 pm on February 4th, 2010

In 2008 and 2009 we had toxic bundled up mortgage debt and the toxic debt of financial companies and derivatives clobbering the market.  Then we hit a speed bump on the way to the Dow Jones Industrial Average bouncing to 10,729 and that was the toxic debt of a multi-billion dollar real estate company in Dubai.  Now we are getting to the major league of toxic debt – sovereign debt.  Money ran to the safety of the dollar and Treasury bonds today, or it might be more appropriate to say that money was running away from the Euro and the sovereign debt of Greece, Portugal and Spain today.

How does this affect stocks here in the United States?  For almost a year now, as the Federal Reserve slashed interest rates to near zero to prop up our faltering economy, huge dollar carry trades have been made.  The ‘carry trade cowboys’ have been shorting the dollar and buying stocks and commodities.  This is the linkage – as the dollar jumped higher today on money flooding out of Europe, the short positions in the dollar got squeezed and forced to buy in or cover.  When you short a financial instrument, you are selling it to someone and the money they pay for it is given to you.  Now the cowboys to buy their dollar shorts in and in order to do this, they are raising money by selling their stocks and commodities they bought with the short proceeds.

You didn’t think last year’s massive rally was based upon economic fundamentals did you?  Company earnings?  Other than a slightly repaired banking system, the economy is still in deep weeds with 10%+ unemployment.  About the only economic numbers that have been changing for the United States is that unemployment and our debt has been going up.  This has been happening globally and the weaker economic countries like Greece are to the point where no one wants to lend them any more money.  If a lender shows up, they want to oversee how the money is spent and to make sure budgets are adhered to, etc…  You can think of this as an intervention if you like.

Have you ever seen the person an intervention is called for happy?  The people of Greece are not too happy as they see this intervention, or meddling, of the European Union as objectionable.  To be more precise they see the EU/Greek Governments plan of freezing their budgets and no pay raises as objectionable, and as a highly unionized country, they are going on strike.  This certainly does not help tax collection and so on and on it goes, the vicious circle of an economy you certainly don’t want to be lending money to.  So you sell Greek bonds, you sell the Euro as Greece is not the only member country this is happening to, you notice that the other EU countries have loaned Greece a lot of money so you sell them too.

When you sell the euro you buy the dollar, causing the cowboys to sell stocks and commodities driving down stock markets around the world.  Looking around you see that the only market going up is Treasury bonds, the ultimate instrument of investing safety and the port in the storm.  Then you notice Moody’s (the credit rating agency that pretty much missed the entire credit crisis – they went fishing I guess) is warning the United States about their credit rating.  Uh oh.

Crash!  Bang!  Ouch!

The Dow Jones Industrial Average dropped 268.37 points today (-2.61%, 10,002.18) and broke their support level at 10,090 mentioned here in past ‘Wraps’.  Next support level is at 9,820.  The S&P 500 fell 34.17 points (-3.11%, 1,063.11) breaking support at 1,070 with the next support level at 1,046 (200 day EMA).  The Nasdaq 100 closed lower by 51.71 points (-2.88%, 1,732.99) and is right on support at 1,730 with next level down at 1,674 (200 day EMA).

The PowerShares DB US Dollar ETF (NYSE: UUP) made a new high for 2010 gaining 0.64% (+$0.15, $23.55) as the CurrencyShares Euro trust ETF (NYSE: FXE) got hit for 1.11% (-$1.55, $137.16).

Commodities got clobbered as well with New York spot gold dropping $46.90 an ounce (-4.23%, 4:17 p.m.) but held support of $1,060 (mentioned in previous posts).  They are selling everything but Treasuries so covering shorts for gold here is not a bad idea but I would wait until the dust clears a little to establish new long gold positions.  Nymex crude got smoked, dropping $3.97 a barrel (-5.16%, 4:08 p.m.) to $73.01.

The 10-year Treasury rose 30 ticks (30/32) to $98 8/32 with the yield dropping to 3.59%.  The 30-year jumped $1 26/32, almost two handles (2 points), to $97 18/32 as yields dropped 11.5 basis points to 4.52%.  These are big moves for the bond market.

London -2.17%, Paris -2.75%, Frankfurt -2.45%, Tokyo -0.46%, Hong Kong -1.84%, Sydney -0.62%, and India was up 2.06%.  I have no idea why India was up – maybe they shorted Greek bonds.  Asia did not get hit as hard as their exchanges closed before the selling really started.  Most likely, they will catch up going down tomorrow.

Everything got sold.  Bad Debt is back!

Want more bad news?  Tomorrow we get the Employment Situation number at 8:30 a.m. and the consensus estimate is we did not lose any jobs in January.  I will believe that when I see it.  The overall percentage is expected to come in at 10.1%, which is an uptick from the current 10% level.

Tags: , , , , , , , , , , , , , , , , ,

Wall Street Wrap

Bad Debt is Back! Greece Dropkicks the Euro

By Robert Perrego, at 5:07 pm on February 4th, 2010

In 2008 and 2009 we had toxic bundled up mortgage debt and the toxic debt of financial companies and derivatives clobbering the market.  Then we hit a speed bump on the way to the Dow Jones Industrial Average’s 2009 bounce back to 10,729, and that was the toxic debt of a multi-billion dollar real estate company in Dubai.  Now we are getting to the major league of toxic debt – sovereign debt.  Money ran to the safety of the dollar and Treasury bonds today, or it might be more appropriate to say that money was running away from the Euro and the sovereign debt of Greece, Portugal and Spain today.

How does this affect stocks here in the United States?  For almost a year now, as the Federal Reserve slashed interest rates to near zero to prop up our faltering economy, huge dollar carry trades have been made.  The ‘carry trade cowboys’ have been shorting the dollar and buying stocks and bonds.  This is the linkage – as the dollar jumped higher today on money flooding out of Europe, the short positions in the dollar got squeezed and forced to buy in or cover.  When you short a financial instrument, you are selling it to someone and the money they pay for it is given to you.  These ‘cowboys’ have been using this money to buy stocks and commodities.  Now they need to buy their dollar shorts in and in order to do this, they are raising money by selling stocks and commodities.

You didn’t think last year’s massive rally was based upon economic fundamentals did you?  Company earnings?  Other than a slightly repaired banking system, the economy is still in deep weeds with 10%+ unemployment.  About the only economic numbers that have been changing for the United States is that unemployment and our debt has been going up.  This has been happening globally and the weaker economic countries like Greece are to the point where no one wants to lend them any more money.  If a lender shows up, they want to oversee how the money is spent and to make sure budgets are adhered to, etc…  You can think of this as an intervention if you like.

Have you ever seen the person an intervention is called for happy?  The people of Greece are not too happy as they see this intervention, or meddling, of the European Union as objectionable.  To be more precise they see the EU/Greek Governments plan of freezing their budgets and no pay raises as objectionable, and as a highly unionized country, they are going on strike.  This certainly does not help tax collection and so on and on it goes, the vicious circle of an economy you certainly don’t want to be lending money to.  So you sell Greek bonds, you sell the Euro as Greece is not the only member country this is happening to, you notice that the other EU countries have loaned Greece a lot of money so you sell them too.

When you sell the euro you buy the dollar, causing the cowboys to sell stocks and commodities driving down stock markets around the world.  Looking around you see that the only market going up is Treasury bonds, the ultimate instrument of investing safety and the port in the storm.  Then you notice Moody’s (the credit rating agency that pretty much missed the entire credit crisis – they went fishing) is warning the United States about their credit rating.  Uh oh.

Crash!  Bang!  Ouch!

The Dow Jones Industrial Average dropped 268.37 points today (-2.61%, 10,002.18) and broke their support level at 10,090 mentioned here in past ‘Wraps’.  Next support level is at 9,820.  The S&P 500 fell 34.17 points (-3.11%, 1,063.11) breaking support at 1,070 with the next support level at 1,046 (200 day EMA).  The Nasdaq 100 closed lower by 51.71 points (-2.88%, 1,732.99) and is right on support at 1,730 with next level down at 1,674 (200 day EMA).

The PowerShares DB US Dollar ETF (NYSE: UUP) made a new high for 2010 gaining 0.64% (+$0.15, $23.55) as the CurrencyShares Euro trust ETF (NYSE: FXE) got hit for 1.11% (-$1.55, $137.16).

Commodities got clobbered as well with New York spot gold dropping $46.90 an ounce (-4.23%, 4:17 p.m.) but held support of $1,060 (mentioned in previous posts).  They are selling everything but Treasuries so covering shorts for gold here is not a bad idea but I would wait until the dust clears a little to establish new long gold positions.  Nymex crude got smoked, dropping $3.97 a barrel (-5.16%, 4:08 p.m.) to $73.01.

The 10-year Treasury rose 30 ticks (30/32) to $98 8/32 with the yield dropping to 3.59%.  The 30-year jumped $1 26/32, almost two handles (2 points), to $97 18/32 as yields dropped 11.5 basis points to 4.52%.  These are big moves for the bond market.

London -2.17%, Paris -2.75%, Frankfurt -2.45%, Tokyo -0.46%, Hong Kong -1.84%, Sydney -0.62%, and India was up 2.06%.  I have no idea why India was up – maybe they shorted Greek bonds.  Asia did not get hit as hard as their exchanges closed before the selling really started.  Most likely, they will catch up going down tomorrow.

Everything got sold.  Bad Debt is back!

Want more bad news?  Tomorrow we get the Employment Situation number at 8:30 a.m. and the consensus estimate is we did not lose any jobs in January.  I will believe that when I see it.  The overall percentage is expected to come in at 10.1%, which is an uptick from 10%.

Tags: , , , , , , , , , , , , , , , , ,

Wall Street Wrap

Pfizer Hiccups and Bond Hot Potato Starts

By Robert Perrego, at 5:24 pm on February 3rd, 2010

Pfizer Inc. (NYSE: PFE) announced lower earnings than analysts had expected ($0.49 vs. $0.51) and guided lower for 2010.  Pfizer and Merck & Co. Inc. (NYSE: MRK) had both enjoyed a nice run up in stock prices in the second and third weeks of January as analysts turned bullish on Merck’s drug pipeline (see Wall Street Wrap – January 13, 2010).  Pfizer gained almost 8.5% in 5 trading days on analyst comments about Big Pharma, before the broad market sell-off that started on the 20th of January dropped all stocks.  Pfizer was the worst performer in the Dow Jones Industrial Average today, dropping $0.44 (-2.30%, $18.62).  The drug stock traded as low as $18.42 before rising back to regain support just above their 50 day EMA ($18.57).

The Dow Jones Industrial Average dropped a mild 26.30 points (-0.25%, 10,270.55) during a slow trading day.  The S&P 500 closed 6.04 points lower (-0.54%, 1,097.28) and the Nasdaq 100 bucked the trend and finished up for the day, possibly in anticipation of a solid earnings report from Cisco Systems Inc. (NSDQ: CSCO).  The tech heavy index gained 7.78 points (+0.43%, 1,784.70)

Cisco reported immediately after the close, beating their sales number and trading higher in the after-market.  In what could cause a nice up day tomorrow for technology shares, Cisco reported $9.8 billion (estimate $9.4) in sales and $0.32 a share (estimate $0.35) and $0.40 (non-GAAP) in earnings.  Cisco closed the day at $23.06 (+$0.05, +0.21%) and was trading $23.82 at 5:12 p.m.

Visa Inc. (NYSE: V) also reported after the close and beat earnings estimates by 11 cents ($1.02 vs. $0.91).  About the only place in the credit-card industry you want to be invested is the transaction business as delinquencies are rising.  Visa closed the day at $83.52 (-$0.49, -0.58%) and was trading $85.02 at 5:12 p.m.

Remember that little problem we had with mortgage bonds a few months ago?  Well, it’s back!  If you thought those crappy bonds were written off and stored in a safe place, welcome to reality.  Bond and mortgage insurers such as MGIC Investment (NYSE: MTG) are refusing to pay out on delinquent loans telling the banks they misrepresented the loans they wrote and for breach of contract as they now know they insured a lot of bad paper.  The banks are saying ‘you ordered crap, you eat crap.’  Fannie Mae and Freddie Mac are trying to force the banks to repurchase billions of dollars worth and it looks like a huge game of hot potato.  Analysts say that this pile of crap could go higher than $10 billion.

Copper got hit for over 4% on a rising dollar and concerns about the Chinese Government trying to moderate their growth rate by tightening credit.  The iPath Dow Jones-UBS Copper ETF (NYSE: JJC) fell $1.72 (-4.06%, $40.64).  As recently as 20 trading days ago the JJC traded as high as $48.25 which is a 15.77% plunge to today’s close.

The dollar strengthened today, reversing a two day drop.  President Obama mentioned that China and Asia would be huge markets for U.S. exports, but first we needed to address currency rates.  This sounds an awful lot like a weaker dollar policy, which would increase inflationary pressures and interest rates.  The dollar, which dropped steadily from March 9th of last year before bottoming in early December, was the source of a great deal of concern and has only rallied 6% off its bottom.  It was interesting to see Obama talking weak dollar and see the dollar rally in the open market.  Maybe traders, noticing the trend of not getting health care legislation through (buy the beaten down health care stocks) and cap and trade (buy the beaten down utilities) are betting these statements will carry as little weight.

New York spot gold dropped $4.40 an ounce on a stronger dollar (-0.40%, $1,109.00, 5:12 p.m.) and Nymex crude dropped 33 cents a barrel (-0.43%, $76.90).  Big snowstorms are supposedly bearing down on cities from Indianapolis to New York City for Super Bowl weekend and this may have kept prices firmer.

Tomorrow we get the weekly Jobless Claims at 8:30 a.m. (445k expected) and I ran across an article today saying a revision to governmental unemployment data may increase the number of people without jobs by 824,000.  Surprise!  I don’t know if this number will be in tomorrow or Friday’s numbers, but if they are, do not be surprised to see unemployment jump to 10.4 or 10.5%.  That cannot be good for stocks.  How did this happen anyway?  Someone at the Bureau of Labor forgot to carry the 8?

Economic releases for Thursday, February 4, 2010:

Monster Employment Index at 6:00 a.m., Jobless Claims and Productivity and Costs (7.0%, -3.8%) at 8:30 a.m. and Factory Orders at 10 a.m. (0.3%).

Selected earnings estimates for Thursday:

AGN 0.77 before market open, ARJ -0.04 bmo, BEBE 0.01 after the close, BG 0.83 bmo, CME 3.43 bmo, CI 0.96 bmo, CLX 0.76, DB, DO 2.32, EW 0.85, FMC 0.90 atc, GFI bmo, HI 0.12 atc, HSP 0.69 bmo, K 0.49 bmo, LZ 1.77 bmo, MA 2.46, MCO 0.41 bmo, NCR 0.26 bmo, NOC 1.26, OPWV 0.01, PBI 0.62, RGLD 0.18 bmo, SLE 0.23 bmo, SNE 0.07, SE 0.33 bmo, HOT 0.22 bmo, SRCL 0.55, SUN -0.26 atc, TEN 0.12 bmo, TM, UIS 0.83 bmo.

Tags: , , , , , , , , , , , , , , , , , , , , , , ,

« Older Entries