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Market Jumps in the Afternoon, Fed Raises Rates after the Close

By Robert Perrego, at 5:03 pm on February 18th, 2010

The Dow Jones Industrial Average jumped about 50 points within 15 minutes at 2:15 p.m. this afternoon, adding to slight gains earlier in the day to finish up a solid 83.66 points (+0.81%, 10.392.90). Travelers Companies Inc. (NYSE: TRV) led the Dow higher gaining 1.91% (+$0.99, $52.). Wal-Mart Stores Inc. (NYSE: WMT) reported $1.17 per share in earnings before the open this morning, with analysts expecting $1.12. The world’s largest retailer missed on revenues though ($113.65 billion vs. 114.56) and the market sent the stock into the penalty box, dropping it 1.09% (-$0.59, $53.47).

The S&P 500 gained 7.24 points (+0.85%, 1,106.75) on the day with gains in most all industries except transportation and finance. The Nasdaq 100 climbed 12.53 points (+0.51%, 1,823.39).

The market traded slightly higher early in the day but with no volatility or major movements. At 2:15 p.m. there was a jump that one market player attributed to possible short covering. A software engineer in Texas flew a small plane into a building containing an IRS office, and with the market these days, there were short positions put on in the event a terrorist connection was found. It turns out that the pilot was more than a little frustrated with the IRS (what a surprise) and left a seven page online rant describing what was (or was not) going on in his head. As soon as it was apparent that the plane crash was not a hidden terrorist cell or something more sinister, the market pop could have been a short squeeze as all those speculative short positions ran for the exits. Who says the IRS and short side traders are bad? On a down note, the IRS is expected to announce new taxes on software engineers to pay for a new building (just kidding).

Microsoft Corp. (NSDQ: MSFT) and Yahoo Inc. (NSDQ: YHOO) got clearance from regulators in both the United States and Europe to combine their search and advertising mojo in an attempt to mount a real challenge to the Goliath of the space, Google Inc. (NSDQ: GOOG), which controls some 66% of the market. Microsoft gained $0.38 (+1.32%, $28.97) and Yahoo closed higher by $0.10 (+0.65%, $15.54). Analysts think this combination could have legs as Microsoft’s ‘Bing’ search seems to deliver the goods and Yahoo can now free up some extra time to figure out why they passed on the $34/share buyout offer from Microsoft in 2008.

With today’s gain, the DJIA has closed significantly higher than its 50 day exponential moving average and has some clear sailing ahead of it to the upside. There is minor resistance in the 10,430 area, but after that it looks like blue skies back towards the 52 week high at 10,725. It looks like the U.S. stock market has broken free of the Greek tragedy, finally.

Looking at the gold chart shows it is right up against resistance formed by an island reversal, which involves horizontally lined up gaps. A close above $1,130 in the spot price or $111 by the SPDR Gold Trust (NYSE: GLD) should signal a breakout and a run at its all time highs. New York spot gold gained $14.20 an ounce today (+1.28%, $1,121.00, 4:16 p.m.)

Nymex crude jumped $1.85 to $79.18 a barrel (+2.39%, 4:19 p.m.). It is looking like the February 9 call of trading the trend channel of the United States Oil Fund (NYSE: USO) between $35 and $41 is working out.

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BREAKING NEWS – The Federal Reserve just raised the discount rate by 0.25% to 0.75%. This is not the more important federal funds rate. To put this in perspective, the federal funds rate is what banks lend to each other at for overnight loans, while the discount rate is what rate the Fed lends to banks at. While raising the discount rate does increase the cost of money, the fact that the federal funds rate is still at 0.25% still allows depository banks access to the cheaper loan.

The big news here is the surprise jack in rates. The Fed used to always make these changes after a Fed meeting in order to be more predictable. With the bottom dropping out of the credit markets in 2008, the Fed cut rates without meeting and now it seems they are going to raise them in the same manner. This is one tool Bernanke can use to keep market players from getting too juiced up on the all the liquidity that has been injected into the system. Also, this unexpected rise will put the carry trade cowboys on notice to stop shorting the dollar as now they will be less sure as to when a hike in the federal funds rate will come. This uncertainty will scare them into lightening up on their dollar shorts.

The bad news is, if these cowboys buy their shorts in as now they are afraid of higher rates (which strengthen the dollar), they will be selling their ‘riskier’ assets – stocks and commodities.

Remember those comments earlier in this article about the clear sailing to the old highs – WHOLE NEW BALLGAME NOW FOLKS.

New York spot gold was at $1,121 before the announcement – now it is trading $1,110.90. The Dow ‘Diamonds’, the ETF for the Dow Jones Industrial Average closed today at $104.17 and are now trading $103.45 in the after-market – translates to down about 72 points on the DJIA.

Do you think those guys that put the short positions on when they heard a plane hit a building with the IRS in it wish they were still short?

Wall Street Wrap

Market Runs up on Greece Bailout Speculation

By Robert Perrego, at 4:49 pm on February 9th, 2010

European Central Bank President Jean-Claude Trichet left a summit in Sydney a day early, sparking speculation that a deal was afoot to help Greece get back on their feet and in control of their debt problem. With the euro dropping last week on worries that Greece, Portugal and Spain were in trouble financially, world stock exchanges sold off as money flew to the relative safety of the dollar and U.S. Treasuries. At 11:30 a.m. est, rumors circulated that a deal involving Germany was imminent and the S&P 500 took off as the dollar got hammered. Within 50 minutes the S&P 500 jumped over 17 points as the PowerShares DB US Dollar ETF (NYSE: UUP) dropped almost a full percentage point in the same time period. Twenty minutes after the market run-up, a sharp drop of 8 S&P points occurred as all those involved denied there was any deal in place, but the fact that the wheels were seen to be in motion kept the market strong all day.

The Dow Jones Industrial Average closed up 150.25 points (+1.51%, 10,058.64) and regained the 5-digit, 10,000 level with 27 of 30 components finishing higher. The S&P 500 climbed 13.78 points (+1.30%, 1,070.52) and the high tech Nasdaq 100 gained 18.96 points (+1.09%, 1,753.84) but was the weakest of the three indexes as low tech airlines +8.49%, metals +3.23% and materials +3.01% led the market higher.

The airlines were very strong as United Airlines reported unit revenues in January that blew away Wall Street estimates. UAL Corp. (NSDQ: UAUA), the holding company for United Airlines, saw its stock rise by 17.52% (+$2.29, $15.36) and logged their strongest single day in the market since August of 2009. UAUA bottomed at $3.07 on July 10th of last year and has since performed fantastically rising 400% in just over 6 months. AMR Corporation (NYSE: AMR), the parent of American Airlines and American Eagle, closed up 13.79% (+$1.01, $8.33) and they are up 247% from their low trade of $2.40 last March. Airlines, once commonly referred to as flying holes in the sky for money, can be a nice investment but just like with everything in life, it is all about timing.

Commodities stocks and commodities were especially strong today as not only do they gain on a rising market, but they get supercharged by the fact that they are denominated in dollars. The dollar fell relative to the euro, but it would be more appropriate to say the euro gained against the dollar, as last week’s relative jump in the dollar had more to do with euro weakness on worries the Greek economy was sliding south.

The Market Vectors Junior Gold Miners (NSDQ: GDXJ) jumped 5.35% (+$1.19, $23.41) as the major miner index (NYSE: GDX) climbed 4.38% (+$1.79, $42.57). Hard commodity ETF’s easily outperformed even a strong day in the broader market as the falling dollar provided extra fuel for a bigger move.

SLX – Market Vectors Steel +4.35%

KOL – Market Vectors Coal +3.33%

JJC – iPath Dow Jones – UBS Copper +3.21%

USO – United States Oil Fund +3.07%

DBA – PowerShares DB Agriculture Fund +0.19%

New York spot gold was last seen trading at $1,075.50, up $14.10 an ounce (+1.33%, 4:09 p.m.). Gold is performing very logically according to the charts as it now has tested the support level at $1,060 and seems headed higher. The SPDR Gold Shares ETF (NYSE: GLD) is experiencing the same bounce (+$1.37, +1.31%, $105.41) and now has its 50 day exponential moving average over head at $108.10 as resistance. The rules of technical analysis say two closes above this level is a breakout, so if you did not buy the bottom on support another buy signal showing even more strength may be coming soon.

Nymex crude added $2.03 a barrel and was trading $73.95 (+2.84%) at 4:07 p.m. If oil makes another run at $80 it will continue the sideways trend channel ($67 to $80) it has been bouncing up and down inside in since last July. The USO has fluctuated between $35 and $41 a few times now and looks headed back up again.

Tomorrow we get the MBA Purchase Applications report at 7 a.m., International Trade numbers (-$35.7B) at 8:30 a.m. and the Treasury Budget (-$46B) at 2 p.m. Bernanke’s appearance in front of the House Financial Services Committee has been postponed due to severe weather. Left to guess I would say severe global warming with all the hot air in D.C., but they are due to get another major snowstorm. Philly Fed President Charles Plosser gives a speech to the World Affairs Council of Philadelphia at 12:45 p.m. and I guess people in Philly drive better in the snow because it is not canceled. Strangely, Fed Governor Daniel Tarullo’s testimony in front of the Senate Banking Committee in D.C. at 9:30 a.m. is not canceled, proving that either senators are better drivers than congressmen or they are full of more hot air.

Selected earnings estimates for Wednesday, February 10:

A quick look show it is ‘insurance day’ as quite a few insurance and reinsurance companies report tomorrow: RE, MMC, PRE, PL, PRU, ALL and TRH.

MT 0.27 before market open, BHP, BSX 0.13 after the close, CCE 0.21 bmo, CSC 1.23 bmo, CLB 1.20 atc, DF 0.37 bmo, ELN -0.08 bmo, RE 3.38 atc, ICE 1.14 bmo, LVLT -0.10 bmo, LPX -0.19 bmo, MMC 0.37 bmo, MICC, PRE 2.81 atc, PL 1.02, PRU 1.11 atc, SIAL 0.72, SON 0.50 bmo, S -0.19 bmo, ALL 1.01 atc, NYT 0.38 bmo, TRH 1.83 atc, VALE 0.32 atc, WYN 0.37 bmo.

Wall Street Wrap

Market Strong on ISM Number

By Robert Perrego, at 5:37 pm on February 1st, 2010

The Dow Jones Industrial Average has lost 6.1% over the past two trading weeks and closed out last Friday right on a support level. Futures were up in the pre-market and a favorable report from the ISM Manufacturing Index (58.4 vs. 55.0 expected) at 10 a.m. powered the market higher as the DJIA climbed 118.20 points (+1.17%, 10,185.53). Apple Inc. (NSDQ: AAPL) gained $2.67 (+1.38%, $194.73) after a two day slide at the end of last week that sliced $15.82 (7.61%) off its stock price. It seems that the sellers in the tech space were busy hitting Amazon.com (NSDQ: AMZN), as the recent dust-up with Macmillan brought the sellers out in force. The largest online retailers stock was down $11.59 at its low but rebounded to close down only $6.54 (-5.21%, $118.87)

The S&P 500 rose 15.32 points (+1.43%, 1,089.19) and the Nasdaq 100 gained 19.68 points (+1.13%, 1,760.72)

Commodities were strong as the dollar sold off. What we have most likely been seeing over the last couple of weeks is the unwinding of the dollar carry trade. The very low short term interest rates in the U.S. right now has made shorting the dollar and using those funds to buy stocks and commodities a very popular, and profitable trade since March 9th of 2009. As the dollar strengthened on gradually improving economic conditions domestically, the shorts started to get squeezed, bought their short positions in and then had to sell some stocks. As the dollar has reached a short term peak and the technical picture points to it selling off for now, these same ‘carry trade cowboys’ may be once again shorting the dollar and buying into the stock market.

New York spot gold ripped higher by $24.60 an ounce (+2.28%, $1,104.80, 4:40 p.m.) as the dollar declined, optimism rose about the global economy and on comments by St. Louis Federal Reserve President James Bullard that deflation was no longer a risk for the U.S. economy. Eliminating the possibly of deflation makes the probabilities of the economy experience inflation increase, and many economists have said that keeping the current near zero interest rates this low for long could even result in hyper-inflationary conditions in the next few years. This is not lost on the investing public as all one has to do to see an example of the belief that gold is an inflationary fighting vehicle, is to turn on any financial television station and count the number of advertisements about buying or selling gold you see per hour.

Inflation expectations also increased as President Obama unveiled the 2011 budget with a whopping $1.56 trillion deficit. Last week Obama was promising a spending freeze in 2011 during his State of the Union speech and this week we have the biggest spending budget in history and a record projected budget deficit. There oughta be a law! Actually I think there is one, but they passed another one exempting all the politicians in Washington D.C. from the first one.

Black gold had an even stronger day than yellow gold as Nymex crude gained $1.97 a barrel (+2.70%, $74.86, 4:35 p.m.) on optimism about the world economy, dollar weakness and cold weather in the United States. The Market Vectors Steel ETF (NYSE: SLX) rose 6.01% (+$3.28, $57.79) after getting sold off for almost 20% over the last three trading days. Sugar ticked a 29 year high ($30.40) on the Intercontinental Exchange, the iPath Dow Jones-UBS Copper ETF (NYSE: JJC) was up 2.10% (+$0.87, $42.38), the Market vectors Coal ETF (NYSE: KOL) gained 3.22% (+$1.06, $33.91) and the United States Natural Gas Fund (NYSE: UNG) was up 5.26%, (+$0.49, $9.80)

Tomorrow we get the number for Motor Vehicle Sales (8.37 M expected), the ICSC-Goldman Store Sales at 7:45 a.m., the Redbook at 8:55 a.m. and the Pending Home Sales Index at 10 a.m. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee on the fiscal year 2011 budget at 10 a.m. and at the same time Paul Volcker testifies on regulations to limit high-risk bank activities before the Senate Banking Committee.

Selected earnings estimates for Tuesday, February 2, 2010:

A quick scan will show you that we have a decent number of oil companies that are all reporting tomorrow – BP, MRO, SU, TSO and TDW.

ACE 1.93 after the close, AFL 1.15 atc, ADS 1.63, AMB 0.31 before market open, AXE 0.52 bmo, ADM 0.72 bmo, ADP 0.58 bmo, BEAV 0.31 bmo, BP 1.51 bmo, CMI 0.76, DHI -0.14, bmo, EMR 0.42 bmo, ETR 1.55, IRF -0.08 atc, JDSU 0.09 atc, LXK 0.63 bmo, MRO 0.51, MEE 0.27 atc, MET 0.95 atc, NWS atc, PBG 0.43 bmo, PRGO 0.66 bmo, SU 0.36 bmo, TSO -0.92 atc, DOW 0.11, HSY 0.60 bmo, SMG -0.83 bmo, TNB 0.63 bmo, TDW 1.20 bmo, UPS 0.74 bmo, UNM 0.64 atc, VRSN 0.34 atc, WHR 1.32 bmo.

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%

Wall Street Wrap

Dollar Up, Everything Else Down

By Robert Perrego, at 5:05 pm on December 17th, 2009

Standard and Poor’s downgraded Greece’s credit rating to BBB- causing investors to flee to the safety of the dollar and dump their riskier assets. Unfortunately, the riskier assets are stocks and commodities, two of the asset classes that have seen the biggest bounces since the March market bottom. All year as the dollar has declined after the Fed lowered interest rates to near zero, market players have been shorting the dollar and using the proceeds to buy stocks and commodities. This carry trade results in the buying of stocks and commodities which pushed them higher, while the dollar goes lower under the pressure of all the shorting. The ticking time bomb here is that once you get a whole lot of shorts in the same trade, when it reverses, it does so quickly as everyone runs to cover their shorts and to sell the longs they bought with the short proceeds.

The PowerShares DB US Dollar Index (NYSE: UUP) gained 1.05% today and is up 1.68% over the last four days. As this run-up in the dollar occurred, the Dow Jones Industrial Average has lost 1.83% and the SPDR Gold Shares (NYSE: GLD) ETF has lost 2.63%. One of the biggest gold mining companies on the planet, Agnico Eagle Mines Ltd. (NYSE: AEM) is down 11.6% as the movement of the mining companies themselves are usually much larger than their underlying commodity.

Stocks did not fare much better than commodities as the Dow Jones Industrial Average lost 1.27% today (-132.86, 10,308.26) and the broader S&P 500 dropped 1.18% (-13.10, 1,096.08). The tech heavy Nasdaq 100 lost 1.25% (-22.55, 1,778.27).

Citigroup Inc. (NYSE: C) sold 5.4 billion shares yesterday at $3.15 apiece in order to raise money to exit the TARP program. The United States Treasury, holder of one-third of Citibank’s shares prior to this offering, decided not to sell any of their shares and the stock fell 25 cents to $3.20 a share. The Government bought in at $3.25, and assuming they are not trying to make a profit and break even (have you seen the U.S. budget lately, if these guys do anything for a profit it is the best kept secret in the world) the stock now has a lid on it at $3.25. Citigroup announced that the Treasury would not sell any stock for 90 days in order to clear the perception of that these shares are out there hanging over the stock, but don’t be fooled, they are there.

FedEx Corp. (NYSE: FDX) reported their quarterly results, which are closely followed as a bell-weather on economic activity, and posted $1.10 a share vs. expectations of $1.05. Year-over-year earnings dropped from $1.58 a share to $1.10 as lower surcharges and lower prices more than offset an increase in number of packages shipped. The stock dropped $5.48 (-6.09%, $84.47) but also brought trading partner United Parcel Service (-1.30%) and the Dow Jones Transportation Index (-1.19%) lower with it.

New York Spot Gold dropped $40.10 an ounce to $1,097.40 (-3.53%, 4:53) on dollar strength but oil held tough gaining 2 cents a barrel to $72.68.

Tomorrow there are no economic releases as it is a quadruple witching Friday. The options expirations can cause a decent amount of volatility so economic reports are not released on these days so as not to have an outlying number rocket the market in one direction or other.

Insights

By the Tracked.com Team

Market Jumps in the Afternoon, Fed Raises Rates after the Close

Market Runs up on Greece Bailout Speculation

Market Strong on ISM Number

Another Slow Week On Wall Street

Dollar Up, Everything Else Down

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