Insights

Airlines Down on Terror Attempt, Rising Oil

The failed bombing of Northwest Airlines Flight 253 to Detroit on Christmas may not have been successful as a terror attack, but it did lead to a rout of U.S. based airline stocks today.  Hardest hit was U.S. Airways Group Inc. (NYSE: LCC) which dropped 6.69% (-$0.36%, $5.02) with AMR Corp. (NYSE: AMR) second on the down ladder losing 4.79% (-$0.39, $7.75).  The cost of oil has long moved inversely with airline stocks, as it is the largest cost of doing business comprising 22% of the industry’s total costs.  Of the eight largest airlines by market cap traded domestically, all five of the domestic carriers were down while the three foreign carriers traded here were up on the day.

The rise of the foreign airlines on a day that oil was up could be a result of three factors; a) the weak dollar has made U.S. firms more susceptible to the price of oil than foreign companies, b) terrorists target U.S. companies and interests more, and c) funds that sold a domestic carrier may have shifted into a foreign carrier in order to keep exposure to the industry.  Completing the list of airlines and their performances: Delta Airlines Inc. (NYSE: DAL) down 4.07% (-$0.48, $11.29), UAL Corp (NSDQ: UAUA) down 3.43% (-$0.45, $12.64) and Continental Airlines Inc. (NYSE: CAL) down 3.13% (-$0.58, $17.92), foreign firms – TAM S.A. (NYSE: TAM) up 4.43% (+$0.95, $22.39), China Southern Airlines Ltd. (NYSE: ZNH) up 1.80% (+$0.29, $16.35), and China Eastern Airlines Ltd. (NYSE: CEA) up 1.50% (+$0.52, $35.86).

A late day surge in the Dow Jones Industrial Average accounted for the entire move for the day as the index rose 27 points in the last 20 minutes of trading to close at 10.547.08 (+0.25%), a new high for 2009.  The S&P 500 gained just over a point (+1.30, +0.11%,1,127.78) and the tech-heavy Nasdaq 100 continued to outperform the rest of the market rising 9.03 points (+0.96%, 0.48%) and setting another 2009 high close.

The preliminary numbers on the holiday shopping season are coming in and showing a slight upside surprise.  Holiday shopping in 2008 was a disaster year for retailers, so the increase is coming off a low base but still, the 3.6% increase rallied the retail stocks today.  Stocks across the retail sector rallied with the ‘Apparel’ space performing the best.  Apparel retailer’s stocks that were strong today included; New York & Co Inc. (NYSE: NWY) was up 6.36% (+$0.25, $4.18). The Finish Line Inc. (NSDQ: FINL) gained 4.86% (+$0.54, $11.64), Hot Topic, Inc. (NSDQ: HOTT) added 3.05% (+$0.19, $6.40) and American Eagle Outfitters (NYSE: AEO) climbed 2.94% (+$0.48, $16.80).

The New York Spot gold price climbed 60 cents, which on a $1,105 item is basically unchanged.  The SPDR Gold Trust (NYSE: GLD) gapped up on the open as gold was trading up in the early morning.  The GLD opened above its 50 day exponential moving average, traded off for the first hour and recovered to post a 19 cent gain on the day.  What is of note here is that the GLD closed above its 50 EMA ($108.374) at $108.55.

Nymex Crude gained 52 cents (+0.67%, $78.57, 4:30 p.m.) on economic optimism supplied by the retail sales report and a slightly weaker dollar. The dollar index dropped 6 cents (-0.07%, $77.63).

The late surge today may have been large market players trying to prop up the market on thin holiday trading.  There are only three trading days left in 2009, and if you are a large mutual fund and have, for example, a large position in Microsoft (NSDQ: MSFT), you might buy 200,000 shares in the last 10 or 20 minutes of the market on days that are not showing weakness.  As Microsoft is a very widely held stock, what happens when 30 or so other mutual fund managers with large Microsoft holdings do the same thing?  Remembering that mutual fund managers are paid bonuses on their performance, relative to other mutual fund managers performances, even thinking that another manager might do this and it might work, may be enough motivation to follow on into this trade.  Net-net, these 30 managers buying 200,000 apiece generates 6 million shares in buy orders that are driven not buy a desire to own the stock, but by the desire to get paid a bigger bonus for 2009.  With the indexes at or near 2009 highs, light holiday volume and the calendar year about to end, the conditions are prime for a bonus market play.

Tomorrow we get the ICSC-Goldman Store Sales Index at 7:45 a.m., the Redbook is out at 8:55 a.m., the S&P Case-Shiller Home Price Index at 9 a.m., and the Consumer Confidence (53.0) and the State Street Investor Confidence Index at 10 a.m.

The week is a shortened trading week with Friday off for New Years.