Week on Wall Street

Another Slow Week On Wall Street

By Robert Perrego, at 1:20 pm on December 19th, 2009

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%

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Week on Wall Street

Weak Week for Commodities on Dollar Strength, Stocks see less Action

By Robert Perrego, at 10:07 am on December 12th, 2009

With the end of the calendar year so close it looks like a few of the players have gone to the sidelines and are thinking more about gifts to buy for the holiday season than stocks.  The Dow Jones Industrial Average gained 83 points on the week while the S&P 500 and the Nasdaq 100 had net movement of less than one point.  In percentage terms, the PowerShares DB US Dollar Index (NYSE: UUP) climbed 0.88% while gold dropped 3.9%.  Oil began the week above $74 and finished out below $70 for the first time in since September,

The year has been a wild ride with the stock market dropping to below 7,000, bottoming out in March and then commencing a huge rally to the 10,000+ level we are at today.  This movement gave traders plenty of action to build their performance on, but that is only if you are on the right side of the trade.  With three trading weeks to go before 2010, funds that have hit their numbers for the year have packed it in and this could be responsible for the decreases in volume and volatility the market has experienced.

Monday saw the DJIA experience a net movement of less than 2 points and gold lost a few dollars.  The market must have had the cross-hairs on oil as the slippery black gold dropped over 2%.  CNBC was ripe with traders, economists and pundits debating the future of gold.  The Friday before saw a $48 an ounce drop in the price of gold as the Dubai World problems became public.  Fed Chairman Ben Bernanke gave a speech that watchers interpreted to mean no rate hikes would be coming anytime soon.  Again.  Intel Corp. (NYSE: INTC) dropped plans to produce a stand alone graphics chip and Advanced Micro Devices (NYSE: AMD) and Nvidia Corp. (NSDQ: NVDA) rallied on this news.

Tuesday brought a little action as the dollar rallied and the DJIA dropped 104 points.  The close Tuesday would mark the low close for the market for the week.  The financial news flow slowed but that was made up for by the news out of Washington D.C.  Obama stated in a speech he wanted to use repaid TARP funds to generate more jobs.  Theoretically, some think government spending generates zero jobs as taking $60,000 out of the economy via taxes and spending that same amount to pay someone a $60,000 salary leaves a net zero economic effect.  If there is any waste or frivolous spending (everyone knows the government would not do that) then you end up with a net negative economic effect.  As it may be politically unpopular to pass ‘Stimulus, The Sequel”, Obama seems to be looking around for any available funds, TARP, as a viable source for more spending.

Wednesdays big news was Citigroup Inc. (NYSE: C) stating they wanted to repay the funds they received from TARP.  Bank of America Corp. (NYSE: BAC) did it the week before by issuing a massive secondary offering that raised $19.3 billion.  Analysts estimate that Citigroup would dilute their stock by as much as 20% by doing this.  Fed Secretary Tim  Geithner extended the TARP program by a year, possibly to keep the program open so Obama could tap the fund for other spending.  Commodities were weak across the board.  Gold traded higher, then lower and then back to where it started and oil got hit for another 2.68% down to $70.69 a barrel.

The biggest moves Thursday were in health care stocks as the Senate Democrats backed off their plans to require a public option in health care reform.  UnitedHealth Care (NYSE: UNH) and Cigna Corp. (NYSE: CI) jumped up over 6%.  Some very positive news surfaced that household wealth increased by $2.7 trillion in the third quarter as housing prices actually rose and the run up in the stock market put more dollars into trading and retirement accounts.

Friday gave us strong Retail Sales data and showed Consumer Confidence was on the rise propelling the stock market higher.  This bodes well for the economy as the consumer and consumption drives our economy.  The DJIA climbed 66 points which turned out to be most of its weekly gain.  The dollar was strong again and commodities weak with oil closing below $70.  Regulatory reform moved along as the House passed their latest attempt to avert another financial problem via more regulation.  The problem here is, historically such attempts only seem to fix a past problem and have seemed to only cause the next one.

So, with three trading weeks to go to finish out 2010 we are still above Dow 10,000, oil is below $70 and hopefully the consumer is getting stronger.

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Wall Street Wrap

Oil Catches Up Going Down, Gold Bulls Dig In

By Robert Perrego, at 4:51 pm on December 7th, 2009

The big news Friday, and last week, was the jobs report which caused the sagging dollar to rally 1.48%, and seemed to spell the end for the commodities trade, especially the exploding gold market.  Friday, Nymex crude lost only 99 cents a barrel while gold got hammered for $46 an ounce after falling over $70 at one point.  Today, New York Spot Gold was trading lower by only 0.32% (-$3.70, $1,157.70, 4:25 p.m.) while oil extended its losses by 2.04% (-$1.54, $73.96, 4:10 p.m.).  The dollar jump that was sparked by Friday’s move in the headline unemployment rate to 10% from 10.2%, was slowed by a speech Ben Bernanke gave that traders interpreted to mean that a rate hike was not coming anytime soon.

The stock market had a short run up early, but came back in and spent the rest of the day going nowhere. The Dow Jones Industrial Average closed up just 1.21 points (+0.01%, 10,390.11) while the S&P 500 dropped 2.73 points (-0.24%, 1,103.25).  The Nasdaq 100 lost 8.26 points (-0.46%, 1,783.65).

The TV talking heads focused on when the fed rate hikes would come and also about hedge funds moving to the sidelines for the rest of the year.  After this year’s massive drop and pop in the stock market, any hedge fund managers that avoided dissolving and have met their numbers for the year (or even come close), are speculated to be moving to the sidelines for the rest of the year.  The volatility in stocks has dried up as of late, and the last big momentum trade and market action was in commodities.  The SPDR Gold Trust (NYSE: GLD) traded a massive 79 million shares Friday, which may have been all the ‘hot’ money getting out, while the longer term bulls were buying the dip.  Star hedge fund managers George Soros and John Paulson are gold bulls and they are investing for the long term.  Most the talking heads interviewed today were still of the opinion that in the longer term, gold is going higher.

The gold market had been heating up for a few months sparked by various news stories about central bank purchases, John Paulson splitting off a special fund for gold and Barrick Gold Corp. (NYSE: ABX) buying back in billions of dollars worth off hedges.  This created a feeding frenzy and that inevitable game of chicken a market gets into when players smell profit.  The small loss in gold today, after dropping so much early in the trading day, showed no follow through on Friday’s selling.  This buying might be indicating the underlying strength in a longer term move.

On the tech side, Intel Corp. (NSDQ: INTC) dropped plans to roll out a stand-alone graphics chip and this boosted Nvidia Corp. (NSDQ: NVDA) by 12.8% (+$1.83, $16.09), which is the dominant player in the space.  Advanced Micro Devices Inc. (NYSE: AMD) got a foothold in the graphics chip market by merging with ATI Technologies, and gained 8.4% on the news (+$0.66, $8.52).

The economic calendar is light this week as the market takes a seasonal slow-down going into the holiday period.  We get no major economic releases until Thursday with the weekly Jobless Claims and International Trade numbers at 8:30 a.m.  Federal Reserve Governor Elizabeth Duke speaks to the Chicago Fed’s mortgage foreclosure policy conference in Chicago at 12:45 p.m. on Thursday.

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Wall Street Wrap

Housing Numbers Bad, Gold Good. Again.

By Robert Perrego, at 11:03 pm on November 18th, 2009

So this is not a daily “gold to the moon” column, it just so happens that gold keeps going higher while housing gets worse.  The SPDR Gold Trust (NYSE: GLD) traded a new high at $113.09 while spot gold hit $1,153.90.  This morning at 7 a.m., the Mortgage Bankers’ Association Purchase Applications report showed they dropped 4.7%.  Last week it dropped 11.7%.  Applications are declining less quickly, but are still declining, and are now at their lowest level since 1997.  Then the CPI came out higher than expected at 0.3% vs. the 0.2% expected, meaning inflation may be kicking in.  My favorite part about this number is when they say “less food and energy”, because of course food and energy are not important.  Then Housing Starts were reported at a disappointing 529k vs. the 600k expected.  The new home buyer tax credit has been extended  and it seems like the U.S. Government will give you (or promise you) Rhode Island if you buy a new house, and still – low activity.  So what is a trader to do?  Buy gold.

After trading as low as 10,360, the Dow Jones industrial Average rebounded to close down just 11.11 points (-0.10%, 10,426.31).  The broader S&P 500 was off fractionally, dropping 0.52 points (-0.04%, 1,109.80) and the tech heavy Nasdaq 100 lost 10.47 points (-0.57%, 1,801.74)

Goldman Sachs call last week that central banks were becoming buyers of gold was dead on as yesterday Mauritania bought 2 tonnes of gold off the IMF.  This comes on the heels of India backing up the truck for 200 tonnes last week.  Hedge Fund superstar John Paulson has bought a lot of gold already, but he wants more.  Paulson is starting a new fund for gold and gold derivatives in 2010.  So what do you do when the smart people and the biggest buyers in the world, central banks, are buying?  You buy.  Period.

New York Spot Gold traded an all time high of $1,153.90 before settling back lower and was last seen trading $1,144.80 an ounce (+$4.20, +0.37%, 4:25 p.m.).  In the last 15 trading days, gold is up about $115 an ounce or 11.4%.  Is this the top?  Is gold in a bubble?  Well, they said $1,000 was too high and before that $900 was a bubble.  No one really knows what the fair value for gold is, but looking to the desires/needs to own it tells you 3 things; 1) it is perceived as being better than holding dollars, 2) the central banks of China, India, Chile and Mauritania have shown they think it is better to hold than dollars, and 3) John Paulson, a very smart guy, wants to spend more dollars to buy gold and gold stocks at a time when gold is at an all time high.  My conclusion – gold is going higher.

Now from gold to Goldman.  Charlie Gasparino from CNBC was on TV calling for Lloyd Blankfein to resign.  I hate to flack Charlie as he set me up for my first Wall Street interview and job, but… shaddup already!  Charlie was complaining that Goldman used the government guarantee to issue Goldman bonds during the depths of the crisis and was now a commercial bank.  Of course they did!  The U.S. Government rolls out a plan to help refinance the banks as SOME of them were about to collapse and Goldman got in on it for low cost financing.  What do you expect them to do?  Then the Government allows Goldman access to the Fed window for cheap short term financing.  So Goldman jumps on it and uses very cheap money from the Fed window and pumps it into the market to make more money.  What do you expect them to do?  Goldman paid the TARP money back.  Goldman is doing what they always do – make money.  Hey Lloyd, stop apologizing, and until the country starts spelling it Amerika – do what you do best, make money.

Advanced Micro Devices (NYSE: AMD) jumped up 10.42% today and some news sources were reporting this was because of the settlement with Intel Corp. (NYSE: INTC) for $1.25 billion.  I have another few news flashes for you then, ’sand found on beach’ and ‘water is wet’ as this news is as old as, well, November 12th.  If this was not the easiest 10% everyone missed (including myself), I don’t know what is.  Ok, maybe the 11.4% in 15 trading days for gold was pretty obvious, but I did not miss that one.

Looking ahead for the next big percentage move most of us will miss, we have Jobless Claims on the calendar tomorrow.  Jobless Claims, always the life of the party, are expected to be 504,000.

On Friday Philadelphia Federal Reserve President Charles Plosser speaks in Singapore.  Today, St. Louis Fed President James Bullard remarked that if the Fed reacts like it has to past recessions, interest rates were not going up until into 2012.  In the last week, every other Fed President, Chairman, janitor and bottle washer has said interest rates will probably stay low for a long time, a jobless recovery is likely and inflation may end up becoming a problem.  Friday we find out what Charlie (not Gasparino) thinks.

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Wall Street Wrap

Wall Street Wrap – Intel and AMD Settle, Wal-Mart Digs In

By Robert Perrego, at 4:57 pm on November 12th, 2009

Up and down chip maker Advanced Micro Devices (NYSE: AMD) struck a settlement with Intel Corp. (NSDQ: INTC) for $1.25 billion.  In return AMD drops all the outstanding legal disputes it has against Intel and the two chip manufacturers agreed to a new five-year cross-licensing deal.  Back in the fall of 2002, AMD was a sub $4 stock but they were just about to leapfrog Intel with their new generation of 64-bit chips.  AMD stock went from a low of $3.10 to a high of $42.70 in 41 months as the underdog started giving Intel a real battle.  In March of 2006 the top for the stock was in, and from there AMD’s stock and sales dropped until a new low was put in at $1.62 one year ago.  On the news today, AMD’s stock closed up $1.17 or $21.80% at $6.48.  Intel traded down 16 cents to $19.68.

Possibly the last AMD decline had something to do with Intel’s business practices, which have raised the eyebrows of various regulators and governmental agencies from The European Union to The New York State Attorney General, both of whom have filed suits against the company.  This settlement helps AMD out with their $3 billion in debt while possibly helping Intel get some leeway with antitrust regulators.  European regulators levied a $1.4 billion fine against Intel recently and Intel appealed the fine.  If this settlement gets that fine reduced, or eliminated, this settlement pays for itself.

Wal-Mart Stores Inc. (NYSE: WMT) reported earnings of 84 cents a share against analyst expectations of 81.  The world largest retailer also raised its fourth quarter forecast but issued a warning of sorts.  In comments on their customers, Wal-Mart warned that unemployment and concerns about the economy may cause shoppers to become cautious heading into the very important holiday shopping season.  Wal-mart traded as high as $53.74 before settling lower and closing up 27 cents at $53.24 (+0.50%).

Overall the market took it on the chin today with the Dow Jones Industrial index dropping 93.79 points (-0.91%, 10,197.47) while the S&P 500 lost 11.27 points (-1.02%, 1,087.24).  The Nasdaq 100 performed best by losing only 9.81 points (-0.55%, 1,773.14).

The dollar turned in a strong performance today with the PowerShares DB US Dollar Bull ETF (NYSE: UUP) gaining 1.42% or 32 cents to $22.80.  The U.S. Dollar Index Future spot price (the ‘dixie’ or DXY) was only up 0.70%, which is strange as the UUP usually trades very closely, but did not today.  The UUP has become very popular as a dollar trading vehicle.  The demand for shares in this ETF is so high that a registration was filed for an additional 100,000,000 shares which will not be available until sometime in the future.  Until this registration is approved, the ETF managers have decided not to issue additonal shares, and this has caused a change in supply and demand for the ETF’s shares and is probably what has knocked it out of whack with the DXY.  You might want to stay away from the UUP until this all sorts itself out.

Of course this dollar strength caused commodities and commodity based stocks to drop and contributed to the selling pressure which brought the market lower.

New York Spot Gold cooled off after a 9 day hot streak that added $70 per ounce and ticked all time highs.  At 4:20 p.m. the cool yellow metal was down $13.40 an ounce (-1.20%, $1,103.40).   The iShares Gold ETF (NYSE: GLD) chart shows that it is back to trading inside the uptrend channel and the stochastic oscillators have peaked and are cycling lower.  The chart shows support at $105 for the GLD (about $1,070 for gold spot) and a pullback is expected here.

Nymex Crude dropped $2.34 a barrel (-2.96%, 4:30 p.m.) to $76.68 on a strong dollar and slightly higher inventory levels.  This rise in inventories and a decrease in demand for gasoline were cited as causes for the move lower.

The big number tomorrow is Consumer Confidence at 9:55 a.m. (71.0 expected).

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