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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