Insights

Another Slow Week On Wall Street

Stocks went up and down this week on Wall Street as they always do and the net result on the broadest stock index, the S&P 500, was a loss of 0.36% or 3.94 points.  On Monday, the S&P 500 closed at its highest level of 2009 at 1114.11.  On Tuesday the dollar jumped higher and the markets sold off.  The biggest moves of the week were the fossil fuels as inventory data and a cold front sweeping North America drove natural gas higher by 10.97% and crude started the week below $70 and finished above $73 for a 4.73% gain.

For over a month the S&P 500 has been in a narrow sideways trading range between 1087 and 1110, with exception for Monday when a short-lived breakout was attempted.  The S&P 500 closed out Friday near the middle of this range at 1102.  While the S&P 500 is the broadest stock index, the tech heavy Nasdaq 100 closed out the week at 1807, nearer to the high end of its trading range (1767 to 1810) showing that tech is less susceptible to a rising dollar.  The weakest index, relatively, has been the Dow Jones Industrial Average which closed nearest to the lows of its range at 10,328 (10,300 to 10,480).

The connection the dollar has to stocks is via the much talked about carry trade.  With U.S. interest near zero the weak dollar has been shorted by the ‘carry trade cowboys’ and those funds put to work buying stocks and other ‘risky’ assets.  The relative strength of tech stocks shows that when the dollar rises and the shorts need to cover, the stocks they are least willing to sell to replace these funds are technology stocks.

At the start of the week the biggest story was a monster deal in oil and gas with Exxon Mobil Corp. (NYSE: XOM) buying XTO Energy (NYSE: XTO).  Exxon’s fossil fuel portfolio is heavily weighted towards oil and XTO towards natural gas.  This buyout may be a large play to hedge the historically wide spread between the costs on natural gas and oil.  Thus far the 10% rise in natural gas and 4.73% rise in oil has proven this strategy correct.  Monday also saw Citigroup Inc. (NYSE: C) get clearance from the U.S. Treasury to repay their TARP funds.

The Federal Open Market Committee held their last two-day meeting of the year on Tuesday and Wednesday, and announced they were standing pat on interest rate policy.  Comments on the decision to leave rates unchanged indicated that the Fed saw job losses slowing, but jobs were still being lost.  Of most importance in this announcement may have been that they were ending their quantitative easing program (purchases of agency backed mortgage debt) on February 1, 2010.

Wednesday also saw the Federal Trade Commission file a suit against Intel Corp (NSDQ: INTC).  The lawsuit cites bundling practices and even a secretly redesigned compiler software that makes their competitors chips run a little slower.  Intel competitors Nvidia Corp. (NSDQ: NVDA) and Advanced Micro Devices (NYSE: AMD) traded higher on this news.

On Thursday, Standard and Poor’s downgraded the government debt of Greece to BBB- causing investors to flee to the safety of the dollar and dump their riskier assets.  This caused the largest losses of the week for stocks as the DJIA dropped 132 points, which comprised most of its total loss for the week.  Citigroup sold 5.4 billion shares and the Treasury, as the secondary price was too low for its liking, decided not to sell any of their shares.  Gold dropped $40 an ounce on the dollar strength.  The SPDR Gold Trust (NYSE: GLD) closed below its 50 day exponential moving average for the first time since August.

On Friday the dollar traded higher but reversed course and closed flat.  Gold bounced back $15 an ounce and the GLD regained the 50 day EMA, closing just above.  Common technical analysis theory states one of the conditions for a break in a support level to be two consecutive closes below it.  The bounce back in gold saved the technical picture and also, now that the support level has been shown to hold, the bullish picture for gold is a bit stronger.  Beware, this might seem like the bottom of the ‘dip’ that all the gold bulls say you should buy, as the next few days will give a clearer picture as to whether the dip drops or pops.

Friday was a quadruple options expiration day and the action in the last 20 minutes contained more volatility than all day long.  The last 20 minutes saw the stock indexes run up into the close.  Once again, tech was relatively strong as the Nasdaq 100 rose all day long on earnings announcements by Oracle Corp. (NSDQ: ORCL) and Research in Motion Ltd. (NSDQ: RIMM) Thursday after the close.

On the week the action was in the fossil fuels and gold.  Below are some ETF and stock index movements that sum up the week.

Dow Jones Industrial Average  -143 points, -1.36%

S&P 500  -3.94 points, -0.36%

Nasdaq 100  +15.26 points, +0.85%

Gold ETF (GLD) -$0.37, -0.34%

Copper ETN (JJC)  -1.3 cents, -0.03%

Coal ETF (KOL)  +14 cents,  +0.4%

Oil ETF (USO)  +$1.18, +3.33%

Natural Gas ETF (UNG)  +$1.05, +10.97%

Steel ETF (SLX)  -11 cents, -0.18%

Agriculture ETF (DBA)  -1 cent, -0.03%

Dollar ETF (UUP)  +$0.33, +1.45%