News

Market Drops on Good Earnings. Buy on Rumor, Sell On News?

By Robert Perrego, at 4:48 pm on January 15th, 2010

Intel Corp. (NSDQ: INTC) traded to a 52 week high yesterday and then reported a 33% earnings beat (40c vs. 30c) after the close, beat their revenue number by $400 million and promptly sold off 3.16% today (-$0.68, $20.80).  Welcome to the world of stock trading.  After announcing earnings, Intel traded up in the after-market by 50 cents yesterday and everything looked like a go for semiconductor and technology stocks today.  This is the third Friday of the month and that means it is an options expiration day, which can add volatility to the market and exacerbate moves.

After buying some Intel in the after-market yesterday you would be all ready for what could happen today – an Intel rally.  Well, what did happen is that the semiconductor space got sold off across the board with Micron Technology Inc. (NYSE: MU) dropping 5.59% (-$0.60, $10.13), Analog Devices Inc. (NYSE: ADI) down 3.37% (-$1.01, $28.96), Maxim Integrated Products Inc. (NSDQ: MXIM) losing 3.21% (-$0.62, $18.65), ST Microelectronics (NYSE: STM) falling 2.74% (-$0.25, $8.87) and Texas Instruments (NYSE: TXN) hanging in there but still off 0.84% (-$0.21, $24.50).  Buying into an earnings announcement but not waiting around for the numbers seems to be working as the news is getting sold.

The Dow Jones Industrial Average had 27 of 30 stocks finishing lower and lost 100.90 points (-0.94%, 10,609.65) for the day.  The DJIA sold off hard right out of the open, trading down until finally finding a bottom at 1 p.m. at 10,561.  The afternoon session brought the index back by 48 points as bargain hunting and short covering started.  The S&P 500 dropped 12.43 points (-1.08%, 1,136.03) and the Nasdaq 100 lost 22.00 points (-1.16%, 1,864.52).

The good news for JP Morgan Chase & Co. (NYSE: JPM) was that they beat earnings solidly (72c vs. 61c) and had their revenues come in up 32% year-over-year.  The bad news was that they reported large losses on mortgage and credit card loans and that they increased their loan loss reserves.  Bad news also came out today from Bank of America Corp. (NYSE: BAC) as they stated that their credit card charge-offs rose and Capital One Financial Corp. (NYSE: COF) had their credit card charge-offs top 10%.  Did everyone make their November payment, buy Christmas gifts on plastic as a last hurrah and lock up the checkbook?  All the market saw was three strikes and the bank stocks are out!  Bank of America lost $3.32% (-$0.56, $16.26), JP Morgan dropped 2.26% (-$1.01, $43.68) and Capital One fell 1.29% (-$0.54, $41.13).  Dick Bove, a well known bank analyst, was on CNBC after the close and stated that the banks would have $40 to $45 billion of write offs by the end of 2010.  So now you tell us?

E-Trade Financial Corp. (NSDQ: ETFC) ripped from $1.71 to $1.82 within the last 20 minutes of trading today as more rumors of someone buying them hit the market.  These rumors hit every few weeks but this time the rumor says these talks are so far along that E-Trade is not longer accepting new accounts.  Well E-Trade could be no longer accepting new accounts for another reason too – bankruptcy.

Baidu.com Inc. (NSDQ: BIDU) is up $81.19 since Google Inc. (NSDQ: GOOG) announced that they were hacked and pulling out of the Chinese market.  The interesting second story on this is that Google hacked the hackers back and found some evidence the Chinese Government may be involved.  Nonetheless, the clear winner from this digital espionage is Baidu, as the 21% jump has put the stock back above the uptrend line it held since July of 2009.  Whether or not it stays above the trendline is not known, but I doubt the Chinese Government is backing down and now, after making such a big stink, Google would lose face (and the respect of a lot of people who think they are the good guys for taking a stand) if they go back into China.  Baidu is a buy.

The PowerShares DB US Dollar ETF (NYSE: UUP) gapped higher and commodities sold off.  In recent columns I have written about this ETF dropping below its 50 day exponential moving average ($22.745) and looking weak.  Today the UUP closed above its 50 day EMA, gaining 13 cents (+0.57%, $22.27).  If the carry trade cowboys started getting short the dollar the last few days they are in losing positions now, but they may be shorting more and averaging their price higher.  This is because the UUP has a nicely defined downtrend line off the peak of December 22nd.  Until the UUP closes above this downtrend line the short trade is still looking good.  As usual the dollar and the DJIA went in opposite directions today.

Oil dropped on warmer weather and a strong dollar.  Nymex crude dropped $1.44 a barrel to $77.95 (-1.81%, 4:14 p.m.).  New York spot gold also got hit on the strong dollar losing $11.50 an ounce (-1.01%, 1,130.00, 4:19 p.m.)

Have a great weekend.

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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

Citigroup Throwing off the TARP, Gold Flips Back and Forth All Day

By Robert Perrego, at 5:03 pm on December 9th, 2009

Citigroup Inc. (NYSE: C), the bank that couldn’t punch its way out of a paper bag nine months ago, is actually going to pay back the TARP program.  After seeing Bank of America Corp. (NYSE: BAC) successfully issue $19.3 billion worth of stock to get Uncle Sam off their backs, Citigroup figured they can do the same.  There are still plenty of banking analysts that think the bank stocks are overpriced and some even think they are still zombie banks – as in the walking dead.  So what would you do if your stock was overvalued?  Sell it, of course! A few talking head analysts on TV today said that this secondary would dilute the Citigroup stock by close to 20%.  These banks want to get out from under the TARP as Vito the loan shark and his buddies (Tim Geithner and Ken Feinberg) keeps putting the screws to them and telling them how to run their business.  No big bonuses.  You can only pay that person this much.  Wipe your shoes on the mat and brush your teeth before you go to bed.  Wells Fargo & Co. (NYSE: WFC) also has plans in motion to get that TARP off their back but first they have a $5 billion debt to pay off to Prudential Financial Inc. (NYSE: PRU).

Speaking of the TARP, Treasury Secretary Tim Geithner has extended it a year.  Now the money that is being repaid can be loaned out again or better yet – given away!  Obama would like to recycle this money as no politician likes to see an election cycle approach when there are a lot of people out of work.  Let’s make sure we don’t just pay back some of those bonds we issued to float this monstrous program, that would only be what we said we would do.  I am waiting for all the cool new programs names all giddy right now.  After the brilliantly named cash-for-clunkers, that really had no net effect but to pull sales forward and waste government money, I am looking forward to green-for-golfers and bucks-for-boats.  I bet we are going to get money-for-mortgages though.

The stock market traded inverse of the dollar today as everyone seems very sensitive to the effect the carry trade cowboys have.  The dollar Index Future spot price (DXY) peaked and started trading off at about 2 p.m., and at the same time the Dow Jones Industrial Average made its whole move for the day.  The DJIA finished up 51.08 points (+0.49%, 10,337.05) while the S&P 500 added 4.01 points (+0.36%, 1,095.95) and the Nasdaq climbed 16.97 points (+0.95%, 1,789.70).  For the last few days the Nasdaq has been outperforming the other two major averages on the upside and downside.

Gold was all over the place today.  New York Spot Gold was up $16 in the pre-market, opened up about $10, traded up a bit and then at 11 a.m., got sold off for well over 3 straight hours.  Spot was down over $10 an ounce when the dollar reversed and, at the same time the DJIA and the other stock indexes started to climb, gold rallied and NY Spot was last seen trading up 30 cents an ounce ($1,128.60, 4:42 p.m.).

Nymex crude got hit again.  Today the market took the barrel down $1.95 and was last seen trading $70.69 (-2.68%, 4:40 p.m.).

Tomorrow we get the biggest economic number of the week, the Jobless Claims number.  460,000 are expected with the range running from 450 to 500.  After that strong number on Friday, another big beat of the expected number may really fire the dollar up, while a weak number may make last Friday look like a one-time event and possibly even a bad number.  This release may be carrying a heavier importance than ever before as how goes the dollar, so (inversely) goes the stock market and commodities.

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Wall Street Wrap

Dollar Climbs, Market Drops

By Robert Perrego, at 4:41 pm on December 8th, 2009

The ‘Dixie’, the US Dollar Index Future Spot Price or the ‘DXY’, climbed today causing  short covering by the carry trade cowboys.  This caused these players, that are long ‘risky’ assets such as stocks and commodities, to sell.  This selling drove the Dow Jones Industrial Index down 104.14 points (-1.00%, 10,285.97) and to close at its lowest levels since November 11th.  The DJIA, which has been in a sideways trading range between 10,300 and 10,500 for the last 15 trading days, is now showing weakness and the chart is breaking down.  The weakest stock in the DJIA today was Bank of America Co. (NYSE: BAC) which dropped 3.02% (-$0.48, $15.41) and the only stock that was up of the 30 was Verizon Communications Inc. (NYSE: VZ) which gained 14 cents (+0.42%, $33.39).

The S&P 500 dropped 11.31 points (-1.02%, 1,091.94) and the Nasdaq 100 lost 10.92 points (-0.61%, 1,772.73).  The tech heavy Nasdaq held up best and also has the strongest looking chart by not looking like it is about to break down.

Both the Dixie and the PowerShares DB US dollar Index ETF (NYSE: UUP) traded up today with the Dixie gaining 0.60% (+0.45, 76.22) and the UUP up 0.48% (+$0.11, $22.59).  For months the dollar has been declining gradually and with U.S. short term interest rates near zero, the trade has been to short the dollar and take those proceeds to buy stocks and commodities.  With the short covering in order to lock gains in on their short trade, these market players have had to cover the other side of their trading ledger and sell what they bought – stocks and commodities.  Today, this has caused a broad based sell off in stocks.  Also, with Greece getting their bond rating cut and rumors of a re-evaluation of the U.S. and U.K. rating, a flight to quality caused buying in the dollar.  You need to own dollars first to buy Treasuries so when a flight to Treasuries occurs, the dollar strengthens.  Add this all up and it spells bad news for stocks.

In a backwards way, a speech by President Obama strengthened the market for a brief period today as he stated that he wanted to use TARP funds for loans to small businesses, among other spending programs, and what basically amounts to a second stimulus act.  The original legislation for the TARP involved having all unspent monies and repaid funds to go directly back towards paying off the national debt, which would strengthen the dollar.  Obama’s indication that debt will not be paid by these repayments and unused funds, caused the dollar to weaken and the market moved higher.  Obama actually said the nation must continue to “spend our way out of this recession”.  This is how the market is backwards these days as a stronger dollar was traditionally thought to be bullish for stocks.  With the carry trade involving the dollar itself, a stronger dollar is bearish these days.

New York Spot Gold got hit for 2.44% and dropped $28.20 an ounce to trade at $1,129 at 4:19 p.m.  Gold has always traded inversely to the dollar but now this effect has been magnified in its effect as gold is one of the ‘risky’ assets bought by the carry trade cowboys.  The SPDR Gold Shares  (NYSE: GLD) started a steady decline today at about noon and traded lower for the next three hours as there was constant selling pressure.  This steady sell-off took the GLD from $112.90 to $110.21 before rebounding to $110.93 on the close.

Oil continued its sell-off with Nymex crude dropping $1.31 a barrel to $72.60 (-1.77%, 4:15 p.m.).  Nymex crude has now steadily traded down from $78 to $72.60 in the last 5 trading days.

Other commodities were weak as well with the iPath Copper Exchange Traded Notes (NYSE: JJC) dropping 1.51% (-$0.664, $43.198), the Market Vectors Steel ETF (NYSE: SLX) down 2.79% (-$1.66, $57.82), the Market Vectors Coal ETF (NYSE KOL) losing 2.03% (-$0.69, $33.25) and the PowerShares DB Agriculture fund (NYSE: DBA) off 0.49% (-$0.13, $26.03).

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News

Market Wrap – Day of the Walking Dead

By Robert Perrego, at 4:46 pm on August 5th, 2009

On a day that the S&P had to fight to keep holding onto its recently gained 1,000 level, five of the top seven stocks on top of the RakedIn Top Gainers Board jumped 20 to 83% percent today and these four ‘walking dead’ had at one point all traded in the stock graveyard below $1.

Radian Group, Inc. (NYSE: RDN) sells “Credit Risk Management Services” which basically means it is an insurance company that was waist deep in the derivatives mess and traded as low as $0.70 last July, reported earnings and today was up over 83% (+$3.05, $6.72) and has returned 860% from its trading low in the last 12 months.  Zombie left for dead stock number two on today’s top percentage gainers list is good ole’ AIG (NYSE: AIG) which was up 63% today (+$8.48, $22.00), not forgetting their reverse 1-for-20 split we see that AIG traded as low as $0.33 and has returned 233% since its low on March 9, 2009.  AIG gets a new CEO so add this in with some short covering and viola! 63%!  The newest Zombie, CIT Group Inc. (NYSE: CIT) was up 38% today (+$0.38, $1.39) and has returned 348% since trading its low less than a month ago on July 16, 2009.  This rise was on no particular news today so maybe the other Zombies dug them up.  To continue the ‘no way, that stock is up?’ list we go to Fannie Mae, yes, Fannie Mae (NYSE: FNM).  This stock is the original Zombie and was up 30% today on news their housing regulator was stepping down (+$0.17, $0.74) and adding this news to all the rest of the great news on this gem of a stock has it up only 146% from its trading low on November 21, 2008.  These were the top four stocks and now we have to jump all the way to number 7 (skipping GRMN +24% and CBL +20%) to get to MGIC Investment Corporation (NYSE: MTG) which added a tiny 20% (+$1.24, $8.57) today on news they are delaying an investment into a subsidiary.  MTG is up a whopping 1,124% since trading $0.70 on March 12, 2009.  The King of the Zombies!

Even more shocking is that these Zombies all jumped up on a day the market was down with the Dow losing 38.22 points (-0.42%, 9280.97) and the S&P 500 traded below the 1,000 level but regained it to close down 2.93 (-0.29%, 1002.72) while the Nasdaq 100 dropped 17.31 points (-1.05%, 1614.44).

As this must be either Bizarro world or the Twilight Zone, looking across other performing stocks we see that Genworth Financial (NYSE: GNW +10.79%), Bank of America (NYSE: BAC +6.52%), American Express (NYSE: AXP +5.74%) and Citigroup (NYSE: C +10.15%) all had strong days.  Ok, now all you have to do is tell me Apple Inc. (NSDQ: AAPL) was down today and this must be a chemically induced illusion.  Apple closed down 44 cents at $165.11.

Before even looking for the top sector my money is on finance.  Leading the sector race was, surprise, finance up 2.25% on a day when no other sector was positive.  Consumer non-cyclicals led the losers dropping 1.24% with energy coming in a close second losing 1.12%.

New York Spot Gold traded as high as $969.70 today but was trading down $3.10 at 4:32 p.m. est at $964.60.  NYMEX WTI Oil added 52 cents to trade at $71.79.

To put my last two cents in on the Cash-for-Clunkers fiasco, has anyone considered the amount of power or the carbon footprint it takes to manufacture an automobile?  I am talking about the energy to mine the iron ore, transport, smelt, manufacture, build the factories, etc… All the inputs it takes to build a car.  I found a site online that says the material inputs for a car costs approximately 10% of all the oil a car will burn in its lifetime.  This 10% does not even include the carbon footprint to build the plant to build the car and the gaseous releases of the auto workers while helping build that car (hey, if it’s good enough for cows, it works for humans too).  Throw all this in with the fact that 17 mpg cars are being swapped for 21 mpg cars (in some cases) and this is a big loser of a program as if they didn’t even build that second car we could all be better off environmentally and less of our tax dollars would be wasted.  While 17 for 21 might be the worst case scenario, if there are other valid reasons to debate this program and if it just plain does not save us anything on the environmental front it is a useless program unless you want to admit it is flat out welfare for the auto industry.  Think about it.

If we are going to proclaim this Cash-for-Clunkers a victory then I would like to propose Dollars-for-DELL’s, Bucks-for-Beer, Greenbacks-for-Golfing, Mint-for-Magazines, Paychecks-for-Politicians (oops we already have that one), etc…

WASTE OF TAXPAYER DOLLARS!  Get the idea yet?

Tomorrow we have Jobless Claims before the open and we are expecting another 575,000 people to have lost their jobs.

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