Wall Street Wrap

Yo-Yo Market Back Down on China and Greece

By Robert Perrego, at 4:34 pm on February 12th, 2010

Remember the days when the U.S. stock market was about the U.S. economy and companies?  If not for a Chinese credit tightening and the Germans deciding the Greeks need to get their own house in order, I might be writing about Warren Buffet and the fact that Berkshire Hathaway closed the Burlington Northern Santa Fe deal.  Instead, the topics du jour are China raising their bank reserve requirements and that the deal out of Europe everyone was expecting might be falling apart.  The bottom line is that your portfolio most likely dropped in value today as the stock market closed lower on news from two OTHER continents.

The Dow Jones Industrial Average lost 45.05 points (-0.44%, 10,099.14) today and the S&P 500 gave up 2.95 points (-0.27%, 1,075.51).  The Nasdaq 100, the strongest of the three over the past two days, closed up 3.37 points (+0.18%, 1,779.11)

After the credit markets fell apart last year the Federal Reserve dropped interest rates to near zero making the dollar a shiny new candidate for the carry trade.  China tightened credit, Asian and European stock markets dropped, Merkel caught flak from the German voters not to keen on bailing out another country and the European markets dropped lower.  Then, before our markets even opened, the carry trade cowboys were buying in their dollar short positions and entering sell orders for stocks here at home.

The market opened lower and the DJIA dropped 144 points in the first 10 minutes of trading.  Market players started putting a positive spin on the news as analysts said the gradual tightening in China would be a good thing over time and Blackrock Inc. came out and said they are increasing their Greek bond holdings.

Market players tried to put a positive spin on the China news saying a gradual tightening will keep a bubble from forming.  Another factor cited in the tightening of credit in China is that investment money is flooding in and the reserve raise is trying to sop up some of that extra cash.  It looks like money is chasing investments looking to catch that near vertical phase before the bubble pops.  If that is supposed to be the good news, here is the bad news – 50% of the commercial space in Beijing is vacant.  They are building buildings just to build something and keep the jobs.  This means there is already a bubble in China and that business is not keeping up with the stimulus generated building supply.  No tenants means no rent collected, which means no payment back of the loan taken to build the building.  When that loan comes due – crash.

Surprisingly, Caterpillar Inc. (NYSE: CAT) was up today (+$0.05, $56.20) after my picking it as a proxy trade for China yesterday.  CAT opened over a point lower and spent the rest of the day trading up.  My other China-economic news proxy trade, the iPath Dow Jones-UBS Copper ETN (NYSE: JJC) lost 1.40% (-$0.60, $42.10) but is up nicely this week (+6.91%).  The Chinese markets closed today for two weeks for New Year’s celebrations and the tightening after the close yesterday was a pretty sly move by the government.

The dollar shot up on the news that the German’s were backing away from the deal with Greece.  This caused commodities to drop as New York spot gold traded as low as $1,076.10 an ounce but spent all day recovering as the dollar dropped.  NY spot was last trading down 50 cents at $1,092.10 (4:25 p.m.).  The PowerShares DB US Dollar ETF (NYSE: UUP) gapped up on the market open and traded as high as $23.74 (+$0.19) before closing at $23.63 (+$0.08).  This is the highest close for the UUP, excluding last Friday’s close at $23.65, since July 29, 2008.  Gold holding in here solid while the dollar inches up is showing some very solid relative strength.

Nymex crude dropped $1.15 a barrel to $74.13 (-1.53%, 4:14 p.m.).  A slower China means less oil demanded and possibly the two week New Years vacation over there will also crimp demand as factories are shut down.

Next week the markets are shut for Presidents’ Day so that means a THREE DAY WEEKEND!  Hope you have the day off Monday and have a great weekend.

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News

Germany and France step up to the plate for Greece – Market Rallies

By Robert Perrego, at 5:02 pm on February 11th, 2010

The yo-yo we call the stock market went back up today as news came out of Europe that will help Greece get back on track handling their debt load.  While the European Central Bank itself is prohibited from lending Greece money, individual countries can and finance ministers are working on setting up a lending facility with each country chipping in according to their percentage of EU GDP.  This is more important just as a political and structural statement that the EU will keep its economic house in order and the framework being set up for Greece can be used for other problem economies.  Currently, Ireland, Spain and Portugal are on economic life support with large budget deficits and debt loads.  As details were sparse, the euro fell early in the day but rallied as market players gained confidence a solid plan was forming.

The Dow Jones Industrial Average gained 105.81 points (+1.05%, 10,144.19) powered by strong gains in Caterpillar Inc. (NYSE: CAT) which climbed 5.64% (+$3.00, $56.15).  The S&P 500 closed up 10.34 points (+0.97%, 1,078.47) and the Nasdaq 100 was the strongest of the three adding 25.98 points (+1.48%, 1,775.74)

Two hot Chinese stocks today, JJC and CAT, were strong on news inflation in China eased in January.  Traders were betting the drop in inflation to 1.6% from 1.9% in December would mean that officials may not tighten credit as much allowing the economy to run.  CAT, of course, is Caterpillar and as American a company as you can get, but this stock fires up every time good economic news comes out of China.  Of course the downside to this is that CAT also craters when news of government credit tightening hits the tape.  The iPath Dow Jones-UBS Copper ETF (NYSE: JJC) jumped up 4.58% (+$1.87, $42.70) today as everyone knows China builds everything out of copper – or so the market would have you believe.  The move in copper may have been magnified as the plumbing and wiring staple has been beaten down badly since peaking on January 6th.

The market vectors Gold Miners ETF (NYSE: GDX) gained 4.13% (+$1.64, $43.99) as New York spot gold fired up $22.60 an ounce (+2.11%, $1,093.30, 5:13 p.m.) and the companies that dig the shiny yellow stuff out of the ground usually find a lot of copper right next to it.  NY Spot traded as high as $1,097.60 today and is knocking on the door of $1,100 again.  After backing off to bottom out on support at $1,060, gold looks poised to break out and revisit its highs at $1,214 for a variety of technical reasons.

Looking at the chart of the SPDR Gold ETF (NYSE: GLD) we see that the close today at $107.13 is just 82 cents below its 50 day exponential moving average at $107.95.  At almost the same level is the down trendline gold has been following since its top on December 3rd of last year.  This trendline is a three point ‘confirmed’ trendline, which means when it is broken the computer buy programs will spit out higher probabilities of success associated with a long gold trade and buy more.  If gold closes above $1,100 the GLD will be through the trendline and at the 50 day EMA, and any climb higher from there has breakout written all over it.  Throw in breaking through a round number ($1,100), the fact that the GLD has been forming a descending bullish wedge formation and that the euro might strengthen more against the dollar as more details come out of the Greece deal and you have a recipe for $1,200 gold and $118 or so on the GLD.

Home builders were strong on good housing data and Lennar Corp. (NYSE: LEN) jumped 8.84% (+$1.38, $16.99) and pulled off a great trade by buying into about $1.2 billion of distressed mortgages at 20 cents on the dollar.  As these loans are secured by the homes themselves, Lennar just bought a slug of houses and being a housing company you would think they know how to sell any homes they repossess (if it comes to that).  Lennar stock broke out today through the $16.40 level and has a loosely defined ascending triangle that could be pointing to the stock rising to as high as $21.40.

Nymex crude advanced 85 cents (+1.14%, 5:05 p.m.) to $75.37 a barrel.  Traders figured with all the good economic news out of Europe, China and solid housing data here at home, owning the slippery black stuff that powers the economy is not a bad idea.

On top of all this good news, Washington D.C. took the day off yesterday and this means none of our politicians spent a gazillion dollars on a bridge to nowhere or an airport without passengers.  Now that is great news.  Of course today they got right back into the swing of things and started working on spending another $87 billion on creating jobs.  The Republicans seem to be getting on board as the plan also comes with tax cuts.  When these guys play nice we get spent to death and when they don’t we have to listen to them argue!  We need jobs but even the Administration says the $87 billion would only create jobs on the margin and The Congressional Budget Office estimates that for every $1 million in taxes cut, 8 to 18 jobs will be created.  Assuming that they just cut taxes by the full $87 billion (yeah, I know – fat chance of that with these guys), this creates 696,000 to 1.566 million jobs.  That is not a bad start but leaves me with one question; what happened to the $787 billion we spent last year?  At 8 to 18, that money should have created 6.3 million to 14.1 million jobs and if that had happened we wouldn’t be in this mess in the first place and needing to spend another $87 billion!

This is why I am rooting for about 787 more snowstorms to be headed straight at Washington D.C.

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Wall Street Wrap

Pfizer Hiccups and Bond Hot Potato Starts

By Robert Perrego, at 5:24 pm on February 3rd, 2010

Pfizer Inc. (NYSE: PFE) announced lower earnings than analysts had expected ($0.49 vs. $0.51) and guided lower for 2010.  Pfizer and Merck & Co. Inc. (NYSE: MRK) had both enjoyed a nice run up in stock prices in the second and third weeks of January as analysts turned bullish on Merck’s drug pipeline (see Wall Street Wrap – January 13, 2010).  Pfizer gained almost 8.5% in 5 trading days on analyst comments about Big Pharma, before the broad market sell-off that started on the 20th of January dropped all stocks.  Pfizer was the worst performer in the Dow Jones Industrial Average today, dropping $0.44 (-2.30%, $18.62).  The drug stock traded as low as $18.42 before rising back to regain support just above their 50 day EMA ($18.57).

The Dow Jones Industrial Average dropped a mild 26.30 points (-0.25%, 10,270.55) during a slow trading day.  The S&P 500 closed 6.04 points lower (-0.54%, 1,097.28) and the Nasdaq 100 bucked the trend and finished up for the day, possibly in anticipation of a solid earnings report from Cisco Systems Inc. (NSDQ: CSCO).  The tech heavy index gained 7.78 points (+0.43%, 1,784.70)

Cisco reported immediately after the close, beating their sales number and trading higher in the after-market.  In what could cause a nice up day tomorrow for technology shares, Cisco reported $9.8 billion (estimate $9.4) in sales and $0.32 a share (estimate $0.35) and $0.40 (non-GAAP) in earnings.  Cisco closed the day at $23.06 (+$0.05, +0.21%) and was trading $23.82 at 5:12 p.m.

Visa Inc. (NYSE: V) also reported after the close and beat earnings estimates by 11 cents ($1.02 vs. $0.91).  About the only place in the credit-card industry you want to be invested is the transaction business as delinquencies are rising.  Visa closed the day at $83.52 (-$0.49, -0.58%) and was trading $85.02 at 5:12 p.m.

Remember that little problem we had with mortgage bonds a few months ago?  Well, it’s back!  If you thought those crappy bonds were written off and stored in a safe place, welcome to reality.  Bond and mortgage insurers such as MGIC Investment (NYSE: MTG) are refusing to pay out on delinquent loans telling the banks they misrepresented the loans they wrote and for breach of contract as they now know they insured a lot of bad paper.  The banks are saying ‘you ordered crap, you eat crap.’  Fannie Mae and Freddie Mac are trying to force the banks to repurchase billions of dollars worth and it looks like a huge game of hot potato.  Analysts say that this pile of crap could go higher than $10 billion.

Copper got hit for over 4% on a rising dollar and concerns about the Chinese Government trying to moderate their growth rate by tightening credit.  The iPath Dow Jones-UBS Copper ETF (NYSE: JJC) fell $1.72 (-4.06%, $40.64).  As recently as 20 trading days ago the JJC traded as high as $48.25 which is a 15.77% plunge to today’s close.

The dollar strengthened today, reversing a two day drop.  President Obama mentioned that China and Asia would be huge markets for U.S. exports, but first we needed to address currency rates.  This sounds an awful lot like a weaker dollar policy, which would increase inflationary pressures and interest rates.  The dollar, which dropped steadily from March 9th of last year before bottoming in early December, was the source of a great deal of concern and has only rallied 6% off its bottom.  It was interesting to see Obama talking weak dollar and see the dollar rally in the open market.  Maybe traders, noticing the trend of not getting health care legislation through (buy the beaten down health care stocks) and cap and trade (buy the beaten down utilities) are betting these statements will carry as little weight.

New York spot gold dropped $4.40 an ounce on a stronger dollar (-0.40%, $1,109.00, 5:12 p.m.) and Nymex crude dropped 33 cents a barrel (-0.43%, $76.90).  Big snowstorms are supposedly bearing down on cities from Indianapolis to New York City for Super Bowl weekend and this may have kept prices firmer.

Tomorrow we get the weekly Jobless Claims at 8:30 a.m. (445k expected) and I ran across an article today saying a revision to governmental unemployment data may increase the number of people without jobs by 824,000.  Surprise!  I don’t know if this number will be in tomorrow or Friday’s numbers, but if they are, do not be surprised to see unemployment jump to 10.4 or 10.5%.  That cannot be good for stocks.  How did this happen anyway?  Someone at the Bureau of Labor forgot to carry the 8?

Economic releases for Thursday, February 4, 2010:

Monster Employment Index at 6:00 a.m., Jobless Claims and Productivity and Costs (7.0%, -3.8%) at 8:30 a.m. and Factory Orders at 10 a.m. (0.3%).

Selected earnings estimates for Thursday:

AGN 0.77 before market open, ARJ -0.04 bmo, BEBE 0.01 after the close, BG 0.83 bmo, CME 3.43 bmo, CI 0.96 bmo, CLX 0.76, DB, DO 2.32, EW 0.85, FMC 0.90 atc, GFI bmo, HI 0.12 atc, HSP 0.69 bmo, K 0.49 bmo, LZ 1.77 bmo, MA 2.46, MCO 0.41 bmo, NCR 0.26 bmo, NOC 1.26, OPWV 0.01, PBI 0.62, RGLD 0.18 bmo, SLE 0.23 bmo, SNE 0.07, SE 0.33 bmo, HOT 0.22 bmo, SRCL 0.55, SUN -0.26 atc, TEN 0.12 bmo, TM, UIS 0.83 bmo.

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News

China and Massachusetts Drive the Market Lower

By Robert Perrego, at 5:15 pm on January 20th, 2010

Mining stocks got hit today as the market took back what was gained Tuesday on the hopes of a Republican win in Massachusetts.  Hardest hit was Silver Standard Resources, Inc. (NSDQ: SSRI), which dropped 8.72% (-$2.02, $21.15).  Yesterday we tacked on 116 points on the hopes of a 41st vote for the Republicans in the U.S. Senate.  Well, the party was last night, the Republican candidate Scott Brown won and today the market posted its worst loss since November.  Hangover.  The party was being all happy about the possibility the Repub’s could block the Dem’s grand spending plans which would keep the debt, spending and taxes down.  The hangover is realizing that if Obama does not print the greenback into oblivion, if all of a sudden the trillion dollar health plan may not pass, then the expectations for a weak dollar will decrease.  Now ask yourself what the carry trade cowboys, who are short the dollar and long stocks and commodities, are going to do?

The Dow Jones Industrial Average dropped 122.28 points today (-1.14%, 10,603.15) with 24 of 30 components finishing lower. The S&P500 lost 12.19 points (-1.06%, 1,138.04) and the Nasdaq 100 led the charge lower as weak tech caused the index to close down 27.53 points (-1.45%, 1,867.95)

International Business Machines (NYSE: IBM) reported after the close yesterday and beat earnings, and also took first place in leading the DJIA lower today losing $3.89 (-2.89%, $130.25).  They sold the Intel Corp. (NSDQ: INTC) earnings after beating estimates and, starting in the after-market yesterday, they sold the IBM earnings beat as well.  Keep an eye on what happens to the eBay Inc. (NSDQ: EBAY) earnings announced after the close today and Google Inc. (NSDQ: GOOG), which reports after the close tomorrow.  If both these companies beat, and they sell the stock off after, this quarters reporting play is to sell tech earnings after the announcement.

The banks were strong today relative to the rest of the market as Bank of America Corp. (NYSE: BAC) reported a loss of 60 cents.  This loss included a one-time charge of $4 billion for a TARP payment spurring an Oppenheimer analyst to raise his rating on the stock.  BofA led the DJIA higher today gaining 17 cents (+1.04%, $16.49).  Bank of New York Mellon Corp. (NYSE: BK) posted a 49 cent per share profit after charges and 60 cents before, which beat the analysts’ estimate of 51 cents, powering the  stock higher by 4.84% (+$1.43, $30.96).  Wells Fargo & Co. (NYSE: WFC) posted an 8 cent per share profit with the analysts expecting a 1 cent loss.  Wells Fargo stock dropped 1.62% (-$0.46, $27.82).  Morgan Stanley (NYSE: MS) posted 29 cents per share profit with the analysts expecting 36 cents, causing the stock to drop 1.70% (-$0.53, $30.63)

Other than a Republican winning the Senate seat long occupied by Ted Kennedy, the big news today was a report that Chinese authorities asked some commercial banks to stop giving loans for the rest of the month of January.  China’s top banking official denied the report, but then again they had nothing to do with the Google hack last week right?  The Shanghai Composite dropped 2.9% on the report and a tightening of the loans in China will slow growth there and here as well.  The more buildings China builds the more Caterpillar, Inc. (NYSE: CAT) tractors they buy.

The combined news of the election in Massachusetts and the loan tightening in China caused the PowerShares DB US Dollar ETF (NYSE: UUP) to gap higher this morning on the open.  The UUP gained 1.22% on the day (+$0.28, $23.12) and broke its short term down trendline.  The stochastics for the UUP are reversed at a low level and heading higher so, with this breaking of a trendline and the stochastics all bullish, the chart points up for the dollar.

As a result of the report that China is slowing down their economic growth and that the dollar might be given a reprieve from death row, commodities got hit hard today.  Steel got hit for 3.11%, coal lost 2.86%, copper down 2.68% and gold down 2.39%.  New York spot gold lost $27.20 an ounce (-2.39%, $1,1140.40, 4:50 p.m.) and Nymex crude was down $1.59 a barrel (-2.00%, $77.73)

UPDATE: eBay earnings came in at 44 cents a share vs. the expected 40.  Revenue was reported to be $2.4 billion with expectations of $2.29.

Selected earnings for Thursday, January 21, 2010:

ACS 0.99 after the close, AXP 0.56 atc, APH 0.49, BNI 1.22 atc, COF 0.45 atc, CMA -0.49 before the open, ED 0.76, CAL -0.07 bmo, ELX 0.16 atc, FCS 0.17 bmo, FITB -0.31 bmo, GS 5.20 bmo, GOOG 6.45 atc, ISRG 1.71, ESI 2.36 bmo, KEY -0.39 bmo, LM 0.31 bmo, PNC 0.77, PPG 0.73 bmo, PCP 1.64 bmo, UNP 1.04 bmo, UNH 0.73 bmo, WDC 1.36 atc, XRX 0.22 bmo

Economic reports for Thursday:

Jobless Claims 8:30 a.m. 440K expected

Leading Indicators 10 a.m. 0.7%

Philadelphia 10 a.m. Fed Survey 18.0

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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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