Wall Street Wrap

Wall Street Wrap – Amazon and the Dollar Trade Up, Market Drops

By Robert Perrego, at 4:56 pm on October 26th, 2009

Amazon.com Inc. (NSDQ: AMZN) continued its earnings driven momentum higher today adding another 5.2% to the 27% it gained Friday, after announcing earnings Thursday after the market close.  Jim Cramer of ‘Mad Money’ fame stated today that Amazon is the “low cost producer on the web” and is now beating Wal-Mart Stores, Inc. (NYSE: WMT) at that game.  Most people view Amazon as an Internet retailer, but what sets Amazon apart is their technological edge.  Amazon is one of the dominant forces behind the development of cloud computing, a cutting edge area of Internet development, and when you have Ph.D.s on staff trying to figure out how to sell books and iPods better, you have an advantage.

Amazon closed up $6.15 (+5.19%, $124.64) while the rest of the market had a rough slide lower.  The market traded as much as 100 points higher off the open this morning, but at 11:08 a.m., a large block of shares were traded in the PowerShares Dollar Bull ETF (NYSE: UUP) which reversed the dollar ETF from being down 5 cents ($22.38) and after this the dollar traded up as high as $22.60, a 1% intra-day move before closing at $22.58 (+0.66%, +$0.15).  At 11:08 a.m. the Dow Jones peaked at the high of the day (10,070) and reversed to the day’s low (9,849) dropping 221 points intra-day.  The Dow closed down 104.22 points (-1.04%, 9,867.96) while the S&P dropped 12.65 points (-1.17%, 1,066.95).  The Nasdaq showed relative strength on the backs of Amazon and Microsoft, losing only 6.88 points (-0.39%, 1,746.75).

Finance led the sector race lower dropping 1.50% with the multi-line insurers getting clobbered.  Genworth Financial (NYSE: GNW) dropped 7.93% (-$0.84, $9.56) and American International Group (NYSE: AIG) dropped 6.81% (-$2.65, $36.25).  The energy sector was the second biggest loser dropping 1.47% with National Oilwell Varco (NYSE: NOV)dropping 5.43% (-$2.55, $44.34).

Gold, oil, commodities, commodity based stocks and the stock market as a whole dropped on this dollar strength.  The UUP traded 6.85 million shares today, second only to the 6.98 million it traded on September 22, 2008.  The UUP closed right up against the down trend line that has been the defining trend line in the dollar since its second peak of a double top on March 9, 2009.  Remember the significance of that day?  That was the market bottom for the major indexes – Dow 6,547, S&P 500 676, Nasdaq 100 1,044.

New York Spot Gold lost $16.60 an ounce (-1.57%, $1,038.20, 4:06 p.m.) and Nymex crude dropped $1.82 a barrel (-2.26%, $78.55, 4 p.m.)

How far the dollar can run will be in part influenced by this week’s record sale of $123 billion in Treasury Notes.  Also, the Fed is expected to end its $300 billion debt buyback program by the end of the week.  This completion of the debt repurchase plan and the planned sale of a large amount of debt, caused the 10-year to drop and interest rates rose to their highest level in two months.  The higher the rate paid by treasuries, the more the dollar is worth, relative to the rates other currencies earn.

The market seems to be liking the weak dollar, as since the UUP peaked on March 9th it dropped 16.6% to its low close last Thursday while the Dow rose 54% during this same time period.  If the dollar continues upwards from here, weakness in stocks would be the result if the recent ‘Dollar up, Dow down’ relationship continues.

Economic reports due out this week:

  • Tuesday: 10 a.m. Consumer Confidence (54 expected)
  • Wednesday: Durable Goods Orders 8:30 a.m. (1.5%) and New Home Sales 10 a.m. (440K),
  • Thursday: 8:30 a.m. GDP (3.0%) and Jobless Claims (525K)
  • Friday: 8:30 a.m. Personal Income and Outlays (0.0%, -0.5%) and Employment Cost Index (0.5%), at 9:45 a.m. Chicago PMI (48.5) and at 9:55 a.m. Consumer Sentiment (70.0).

Earnings due Tuesday (b = before the market opens, a = after market close):

ACE 1.97 a, AKS 0.00 b, ACL 1.45 a, APOL 1.04 a, AVY 0.57 b, BIDU 1.78 b, BP 1.03 b, CP 0.76 b, CRS -0.23 b, CE 0.43 b, CX 0.14 a, CHE 0.88 a, CPO 0.63 b, CTS 0.07 a, DAI -0.40 b, DV 0.65, DWA 0.16 a, ETFC -0.09 a, ECL 0.60 b, FE 1.03, FTI 0.63 a, FPL 1.43 b, BEN 1.32 b, HRS 0.77 a, IACI 0.13 b, JCI 0.50, LLL 1.85 b, LCAV -0.30 b, MEE 0.17 a, MCK 1.01 a, NSC 0.79 a, NTRI 0.24 a, ORB 0.10 a, PCAR 0.02 b, PDLI 0.26, PLT 0.31 a, RYN 0.41 b, SAH 0.24 b, TXT -0.03 b, X -2.87, VLO -0.33 b, V 0.72 b, WAT 0.77, WYNN 0.15 b

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Wall Street Wrap

Wall Street Wrap – Amazing Amazon and the Microsoft Revival

By Robert Perrego, at 4:59 pm on October 23rd, 2009

Two of the world’s biggest companies just got bigger, and they did it by executing and making money.  Amazon.com Inc. (NSDQ: AMZN) announced Q3 earnings of 45 cents a share vs. the 33 cents analyst’s expected, and this number propelled the stock to a new 52-week high (+26.79%, +$25.04, $118.49).  Amazon reported strong results across the board and that their number of ‘active users’ had risen to 98 million people.  And guess what?  The Christmas shopping season is right around the corner!

Microsoft Corp. (NSDQ: MSFT), that old stodgy PC based software company that Apple loves to poke fun at… you know, the ‘uncool’ tech giant that has a nerdy businessman on those TV advertisements… well that nerd is banking a LOT of profits.  Mr. Softy reported revenues at a mere $12.9 billion and their earnings were just $3.6 billion or 40 cents a share.  The street expected 32 cents, so this 25% beat jumped the company’s stock to $28.02 (+5.37%, +$1.43).  Hidden behind some good numbers is the fact that Microsoft did not book all the Windows 7 orders they received into this quarters numbers.  It has been eight years since XP came out, and with Vista being hailed as a disaster, most PC owners avoided it and are still running old operating system software.  A very strong upgrade cycle looms of users jumping straight to ‘7′, and now all the orders taken in Q3 that have not been booked into the Q3 numbers, are being pushed into Q4.

You would think that with two companies of this size reporting earnings like this the market would be up, right?  If I told you the dollar was up what would you think then?  In keeping with the latest trend; ‘Dollar Up – Dow Down’, the dollar ETF (NYSE: UUP) was up 12 cents (+0.53%, $22.43) and the Dow dropped 109.13 points (-1.08%, 9,972.18).  The S&P 500 dropped 13.31 points (-1.21%, 1,079.60) and the Nasdaq 100 lost 9.52 points (-0.53%, 1,753.63).

The dollar rallied against the pound sterling today on bad news released about U.K. GDP.  In response to this, the UUP broke above its short term down trend line that dates back to October 1st.  The UUP currently has two important down trend lines, one that shows the long term decline of the dollar and this one broken today, which has a steeper downward slope.  This break signals some near term strength in the dollar, and if the recent relationship with the Dow holds true, weakness for the stock market.  But not to worry, the long term down trend line looms above at about $22.55 (and as it is down sloping, this number gets lower every day).  According to my charts, by November 3rd, this line will come down to $22.43 and possibly reverse the dollar back to the downside.

Why the market seems to think a weak dollar is good news is beyond me.  Having the reserve currency for the world has kept our interest rates low and been a tailwind to our productivity for the last 50 years.  Right now our national debt is blowing up, and if we lose the relatively low interest rates we pay on this debt, the future costs of losing the dollar as the reserve currency are staggering to say the least.  The simple explanation for why the market is going up when the dollar drops is ’stock inflation’.  This smells like a bubble to me.

New York Spot Gold dropped $6.50 to $1,053.30 an ounce (4:39 p.m.) after trading as high as $1,068.50 prior to the stock markets open this morning.  Gold may trade in the commodity pits, but the wallop the Gold ETF (NYSE: GLD) packs from the stock market into the commodity pits is significant.  The GLD opened up at $104.50 but traded off most the day to close at $103.39.

Nymex crude dropped 69 cents a barrel (-0.86%, $79.65) and closed below $80 a barrel.  This weakness (as with gold’s) is most likely attributable to today’s strong dollar.  Many investment professionals are saying this high price for oil does not reflect the fundamentals of supply and demand properly, and that a move higher to the $100 area will cripple the economic recovery.

These days it seems watching the stock market is a lot more complicated; you have to keep an eye on the dollar, oil and gold as indicators.  Luckily we have the ETF’s for all of these now.

Numbers on the Week:

  • Dow Jones -23.73, -0.23%
  • S&P 500 -8.23, -0.75%
  • Nasdaq 100 +14.31, +0.82%
  • Gold ETF (GLD) +$0.31, +0.3%
  • Dollar ETF (UUP) -$0.04, -0.17%
  • Oil ETF (USO) +$0.46, +1.14%

Looks like that if you were in tech or commodities this week you were a winner.  If you were not, it is Friday.  Go enjoy your weekend and get ‘em next week!

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News

Market Wrap – Nasdaq’s Streak is broken on Microsoft’s soft Earnings

By Robert Perrego, at 4:31 pm on July 24th, 2009

The Nasdaq finished in the red today ending its positive gain days streak at 12.  Weakness in the tech sector was led by Microsoft Corporation, which posted total sales $1 billion less than expected and was also the first ever decline in Windows annual sales.  Amazon.com Inc. also came out after the bell yesterday with earnings that, while they beat expectations by a penny, were not as strong as many had thought they would be.

Amazon.com (NSDQ: AMZN) lost $7.38 a share (-7.86%, $86.49) and Microsoft (NSDQ: MSFT) lost $2.11 (-8.25%, $23.45) today.

The Dow closed up today by 23.95 points (+0.26%, 9093.24) with the S&P also marginally improving by 2.97 points (+0.30%, 979.26) and the red hitting the Nasdaq 100 losing 2.48 points (-0.15%, 1599.06).  After yesterday’s rally it was a positive event that we held these levels but no movement or a market stall like today could also be setting us up for a reversal next week.

Sector movement: Energy +1.03% followed by consumer cyclicals +0.91% with tech -0.01% and finance -0.08% the two losers.

Oil closed out the day with an 89 cent rally (+1.33%, $68.05/barrel) and Gold added $3.70 an ounce but seems to still be stalled out right around the $950 resistance level ($951.70/ounce at 4:15 p.m. est).

Leonardo Fibonacci, in 1202, introduced the 0 through 9 mathematical system to the west and also, through the study of Egypt’s pyramids, noticed ‘The Golden Ratio’ extension 0.618.  Many technical traders use what are called Fibonacci Retracements to measure the size of a reaction (bounce/pullback) to a stock or index move.  Scientists have also proven the existence, and many times for unexplained reasons, of this same ratio or Fibonacci number, in many instances of natural phenomena such as waves on a pond cause by a raindrop.  Regardless of various claims, if enough traders use it, it will become a self-fulfilling prophecy or it could just be that it works for a real reason.

The Dow peaked at 14,198 and bottomed at 6,469.  According to Fibonacci’s Retracement theory the first reaction level should be at;

14,198 – 6,469 = 7,729.

6,469 + (7,729 * (1-0.618)) = 9,421

Now 9,421 looks like another 328 points to the upside to me and I am sure the Bulls would agree.  Currently the market has bounced about 1/3 from the bottom (9,005) which is a level that I have seen many traders improperly use for the first Fibonacci level (1/3). Coincidence?

An important news event today was that the ‘Blue Dog’ Democrats in the House stated that Obama’s health plan will not pass in its current form.  The Bill, which needs to be cleared though three committee votes before going to vote on the floor of the House has been cleared by two, but is blocked by seven Blue Dog’s on the House Energy and Commerce Committee.  Health care companies performed well today and yesterday as a result, many believe, of the stalling of health care reform.  Pharmaceutical – MRK + $0.74 (2.44%, $30.99), Health insurer – UNH + $0.27 (0.99%, $27.32), Hospital Services – UHS + $1.52 (2.97%, $52.61).

On the housing front houses for rent rose 6% while houses for sale fell 9%.  This shows a shift from people not choosing to sell their house but rent it out to ride out the price swoon and hopefully get a better price later.  Also, banks are not putting a lot of foreclosed homes up for sale with speculation they are holding off to keep the housing market prices from dropping even further.  I got news for ya’ banks – you are going to have to sell them sooner or later.  It seems like a lot of people are holding off hoping for a better price.  This is like a game of chicken as there are all these people sitting around saying ‘nope, not selling yet’ but as soon as prices improve slightly someone tries to cheat and get their home out there and the prices drop right back down.  Time usually cures this ‘invisible’ supply but that is just the thing – this stretches out the low price time and consequently the bad economic times for all of us.  If all these stubborn sellers would just dump the homes we could make a volume bottom and get on with the recovery.

One main theme heard throughout all the latest earnings is that revenues or total sales have dropped significantly but that companies are beating the earnings numbers analysts expected them to hit.  Most of these beats were caused by ‘increasing efficiencies’ and cost cutting.  Putting this phrase into more immediate and descriptive terms, companies are cutting jobs and that means higher unemployment.  Can the consumer, which contributes to 70% of the economy, lead us out of this recession without having a job?  What will be the next job creation sector or where will the next job wave come from?  Efficiencies usually means less jobs.

Have a great weekend.  See you Monday.

Monday Economic Releases: 10:00 a.m. New Home Sales.

Tuesday: 9:00 a.m. S&P Case-Shiller HPI, 10:00 a.m. Consumer Confidence

Monday earnings Releases: ACE (1.94) after the close, ACV (0.29), GLW (0.32) before the open, EPD (0.41) bto, FCL (0.71) bto, HMA (0.10) atc, HON (0.60) bto, LO (1.43), MTH (-0.71) atc, OMI (0.63) atc, PRE (2.33) atc, PPD (1.64) atc, RSH (0.28) bto, SOHU (0.76) bto, TFX (0.88) bto, TLAB (0.06) bto, VZ (0.63) bto, TZOO (0.02) bto

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News

Morning in the Markets & News – 7/24/2009

By Mark Pason, at 8:05 am on July 24th, 2009

S&P 500 Futuers up +2 to 970.90

Futures are pointing higher as Wall Street digests earnings misses from Microsoft (NASDAQ:MSFT) and Amazon.com (NASDAQ:AMZN)  Overall market sentiment seems positive though, with doom and gloom starting to be replaced with optimism.  The S&P 500 has gained back 50% of the losses it suffered after Lehman went down.  This is the highest close since Election Day and the most impressive rally since the Great Depression.  So much for a quiet summer.  In Europe, we are seeing the longest rally since 2006.  The only negative news seems to be the the shrinking British economy.  This is the largest yearly decline since the Officer for National Statistics started keeping records in 1955.

Bloomberg reports that Goldman Sachs’ $1.1bb payment to Uncle Sam was a very good P.R. move for venerable Wall Street firm.  The payment is about 10% of the $11bb Goldman set aside for compensation.  Politicians and critics are warning that obscene pay packages will lead to unwise risk taking, the kind that got us into this mess in the first place.  One way Goldman keeps printing money is by High Frequency Trading, which is the new buzz term on the Street.  Meanwhile, buy-and-hold is far from dead as Warren Buffett’s Goldman Sachs investment is looking to be a home run.

Schlumberg reported a Q2 profit decline of 57%.  The oilfield-services firm reported $0.68 EPS vs. an expected EPS of $0.64.  Eriscsson (NASDAQ:ERIC) saw it’s net income drop by 56%.

Washington: The Federal Reserve’s balance sheet trimmed down for the first time since September 2008.  The GAO, a government watchdog group, criticizes the Administration’s mortgage plan.  Sen. Max Baucus, House Minority Leader John Boehner and House Majority Leader Steny Hoyer are backing a plan to reverse the decision by Chrysler and General Motors to close over 3,000 auto dealerships.  Meanwhile, President Obama is about to unveil a $4bb school improvement plan.  On the state level, the New York Times is reporting that sixteen states are paying unemployment claims with borrowed money.  With more claims coming in, the situation is slowly getting dire, especially for those claims which require review.

What would a day be without news on CIT Group?  The 100 year-old firm is telling America that its not seeking bankruptcy but would restructure intead.  To the surprise of no one, the Oracle of Omaha made a bid to buy pieces of the company, but CIT politely refused.

A new book out next month about Bernie Madoff reveals some great tidbits about the Ponzi scheming jailbird.  He reportedly wore two gold Rolexes, so he always knew the time in London.  That should have told investors something right away about the man’s basic math skills.

The best sign that things are coming back to normal: The New York Yankees are winning again and sitting pretty in first place.

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News

Amazon and Microsoft both get Hit after the Bell

By Robert Perrego, at 4:47 pm on July 23rd, 2009

Amazon (NSDQ: AMZN) beat expected earnings by 1 penny posting 32 cents a share on $142 in earnings on sales of $4.65 billion.  Last year this quarter they posted $158 million and 37 cents a share.  Shares and quickly traded lower and are trading at $86.11 at 4:47 pm est after closing at $94.03.

Microsofts (NSDQ: MSFT) revenues dropped 17% to $13.1 billion with profits of $3.05 Billion and 34 cents a share.  Last year same quarter profits were at $4.3 billion and 46 cents a share.  The stock was trading at $23.50 in the after market (4:45 pm est) after closing at $25.52 in the regular trading session.

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