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

Caterpillar Hits Paydirt, McMoRan Strikes Oil

By Robert Perrego, at 5:00 pm on January 11th, 2010

The Dow Jones Industrial Average rose to a new high powered by Caterpiller Inc. (NYSE: CAT), which rose $3.79 (+6.28%, $64.13) on news out of China that imports rose to a record level.  The stimulus funds injected into the Chinese economy by the Government is spurring an infrastructure/building boom, and the first things you buy to build are the large earth-moving machines Caterpillar manufactures.  The rule of thumb for the DJIA is each point a component stock moves results in about 7 points in the index, so Caterpillar pushed the Dow up about 28 points on its own today.  The biggest percentage mover today was McMoRan Exploration Co. (NYSE: MMR) which jumped over 50% (+$4.81, 14.00) on news that their Davey Jones ultra-deep drilling project could have hit the largest oil deposit found in the Gulf of Mexico in decades.

The DJIA closed up 45.80 points (+0.43%, 10,663.99) on the Caterpillar strength, but also chipping in was a 2.03% move up in Coca-Cola Co. (NYSE: KO) and a 2.16% move in United Technologies Corp. (NYSE: UTX).  The S&P 500 closed up 2.00 points (+0.17%, 1,146.98) and the Nasdaq 100 fell 6.35 points (-0.33%, 1,886.24).

Traders were selling the dollar today on lower fears that a rate hike could be coming soon as a result of last Friday’s weak employment number and comments by various Fed President’s.  The dollar index future spot price (.DXY) dropped 0.25% (-0.19, $76.99).  The fall in the dollar strengthened commodities, especially the metals, with a 0.59% rise in the Copper ETF (NYSE: JJC) and New York spot gold was last seen trading up $14.60 an ounce (+1.28%, $1,152.30, 4:12 p.m.)

A very popular trade in 2009 was to short the dollar and use the funds to buy ‘riskier’ assets, such as stocks and commodities.  This ‘carry-trade’ was put on hold for awhile as the dollar began a three week long rally in early December.  The chart of the PowerShares DB US Dollar Index (NYSE: UUP) looks to have peaked for now, and has been declining since closing at its rally high of $23.16 on December 22nd.  Since then, the ETF has declined to $22.72, and traded as low as $22.65 today.  If these carry trade cowboys get comfortable shorting the dollar again, as they are not afraid of a rate hike by The Fed anytime soon, the sector that should benefit the most are the commodities.

Even though the dollar fell, oil dropped 42 cents (-0.51%, $82.33, 4:14 p.m.) as warmer temperatures are expected across the United States in the coming days.  The cold snap that saw orange juice futures jump and freezing temperatures in Austin, Texas, is expected to ease and so today did the prices of coal (-0.61%), natural gas (-4.61%) and oil.

Earnings season has officially started as Alcoa, Inc. (NYSE: AA) reported after the close today.  Analysts expected 6 cents a share and Alcoa reported 1 cent, but excluding charges came in at 7 cents.  Revenues for Q4 2009 were reported at $5.4 billion with analysts expecting $4.9 billion. Alcoa stated that higher energy costs and currency effects are the reason earnings missed before charges.  During regular trading today Alcoa rose 2.52% (+$0.43, $17.45) and closed at a 52 week high on speculation earnings would be strong.  The stock is trading lower by $0.95 in the after market at $16.50 (4:51 p.m.)

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Wall Street Wrap

Health Care Stocks Strong On 60 Votes

By Robert Perrego, at 4:57 pm on December 21st, 2009

The U.S. Senate advanced their health care package as the Democrats finally managed to get the needed 60 votes, sending health care stocks higher.  Health insurance company Aetna Inc. (NYSE: AET) added 4.70% (+$1.53, $34.04) as the Senate plan provides for 30 million new customers for the HMO’s without having them compete against a government option.  The health care plan passed by Congress included a government option, but as the Senate’s plan has moved forward without it, the HMO’s have been in rally mode.  Since December 4th, Aetna is up 17.5%, UnitedHealth Care Group Inc. (NYSE: UNH) is up 17.2%, Cigna Corp. (NYSE: CI) is up 15.6% and Wellpoint Inc. (NYSE: WLP) is up 11.4%.

The health care sector easily outdistanced the market as a whole as the Dow Jones Industrial Index only rose 0.82% (+85.25, 10,414.14).  The broader S&P 500 gained 1.05% (+11.58, 1,114.05) and the tech heavy Nasdaq 100 was up 1.18% (+21.43, 1,828.79).  The Nasdaq 100 closed at new 2009 highs today as it broke out of a six week trading range, showing the relative strength tech stocks have had recently.

Sanofi Aventis (NYSE: SNY), a $100+ billion pharmaceutical company, is buying Chattem, Inc. (NSDQ: CHTT) for $93.50 a share in an all-cash deal, causing the shares to rise 33%.  Chattem produces over the counter pain relievers, personal care items and dietary supplements.  The deal diversifies Sanofi away from prescription drugs and into the over the counter market as competition from generic manufacturers threatens some of the older drugs in their portfolio that have expiring patents.  The deal makes sense for Chattem as the stock price was up $23.16 (+33.09%, $93.14) a share today.

The news for health and drugs does not stop there are Walgreen Co. (NYSE: WAG) reported their first quarter profits rose by 20%.  The swine flu scare had customers lining up for vaccines as the drug store chain sold 5.4 million seasonal flu shots in the quarter.  This was a boon to drug stores as it got customers in the door and Walgreen stated that their prescription drug sales also improved.  In retail you have to get them in the store first and there is nothing like a health care scare to drive sales at a drug store that also hopes to sell you a magazine and a candy bar.  Walgreen beat by a penny ($0.49 vs. $0.48) but investors must have expected more as the stock dropped 3 cents today and Citigroup issued a sell rating on the stock.

The dollar rally continued as the index future spot price gained 29 cents (+0.37%, 78.06) and put pressure on oil and gold prices, while copper and steel scratched out small gains.  Nymex WTI crude was up earlier in the trading day on increasing hopes for an economic recovery, but was last seen trading down $1.05 a barrel (-1.41%, $73.37, 4:16 p.m.)   Steel and copper managed to hold onto their gains as they are also viewed as economically sensitive.  The Market Vectors Steel ETF (NYSE: SLX) rose 1.38% (+$0.83, $60.73) while the iPath Copper ETF (NYSE: JJC) was up 2 cents at $43.05.

The New York Spot Price for gold fell $21.60 an ounce on the strong dollar closing below $1,100.  The SPDR Gold Shares (NYSE: GLD) reversed early gains and lost $2.00 (-1.83%, $106.95), closing below its 50 day exponential moving average and slightly lower than the low set by the sell off last Thursday.  Lower lows are never a good sign.

Tomorrow starts the parade of economic releases we have this week with the ICSC-Goldman Store Sales at 7:45 a.m., GDP (2.7% expected) and Corporate Profits at 8:30 a.m., Redbook at 8:55 a.m., and Existing Home Sales (6.25 million) and the FHFA House Price Index at 10 a.m.

We have a shortened trading week this week, with the markets being closed on Friday in observance of Christmas.

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News

Tech Strong, Gold Bounces Back

By Robert Perrego, at 5:09 pm on December 18th, 2009

Oracle Corp. (NSDQ: ORCL) reported after the close yesterday, that earnings rose year-over-year to $1.46 billion or 29 cents a share vs. last years 25 cents a share.  When exchange rate effects were backed out of earnings and revenue, both were flat with last years results, but at least they were not falling.  This announcement powered the stock higher by $1.46 (+6.38%, $24.34) as most companies, tech and non-tech, have seen either their earnings, revenue, or both decline.  Research in Motion Ltd. (NSDQ: RIMM) jumped 10.30% (+$6.54, $70.00) on their earnings announcement as revenues increased 11% while Palm Inc. (NSDQ: PALM) reported a decline of revenues of 59.2%.

Besides the earnings driven technology sector and a bounce back in commodities, the market was flat with the Dow Jones Industrial Average gaining 20 points (+0.19%, 10,328.89), the S&P 500 up 6.31 points (+0.57%, 1,102.47).  Looking at the intra-day charts of both these indexes shows you that the Dow gained 45 points and the S&P 500 rose 4 points, all in the last 20 minutes of trading.  The Nasdaq 100 was up over 29 points (+1.63%, 1,807.32) and strong all day.

Gold and commodities got hit hard yesterday on a strong dollar and today they bounced back while the dollar stayed flat.  New York Spot Gold was down $40+ yesterday but recouped $14.70 an ounce today to $1,111.80 (+1.34%, 4:18 p.m.).  This morning, oil jumped almost $2 a barrel to $74.33 on news that Iranian soldiers took over an Iraqi oil well.  By 4:12 p.m. this rise had traded down to $73.18 (+$0.53, +0.73%) as it seems this  is not an uncommon occurrence.

The carry trade and the recent strength in the dollar has caused much concern that the stock market would get hit if the dollar started to rise.  Over the past few years, ETF’s have made it possible for the common investor to diversify into commodities.  Let’s take a look at what kind of effect this week’s strong dollar had on the stock market and select commodities;

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%

Looking at these numbers you can see that while the DJIA and the S&P 500 maintained their inverse relationship to the dollar, the tech heavy Nasdaq 100 is bucking the trend.  Also, it seems that the dollar strength did not translate into as much commodity weakness as you may have thought.  The worst performer of the above listed commodities is gold down 0.34% while the dollar strengthened over four times as much, up 1.45%.  Natural gas and oil crushed the dollar effect as natural gas actually rose seven times as fast as the dollar dropped and oil was up more than twice the drop.  Completing the fossil fuels sector, coal finished positive on the week and the strength of these three may be attributed to the cold weather sweeping North America.

In the Tracked.com’s ‘Strange-but-true-irony’ category it is freezing and snowing heavily in Copenhagen as politicians gather to discuss ‘global warming’ and Former Vermont Governor and consummate left-winger Howard Dean says he would not vote for the current health-care reform bill.  A little advice for the pro-global warming crowd; start holding your conferences in the desert in August as all the ones we keep seeing are during ice storms, blizzards and cold weather and this hardly makes for the press you want.  Advice for Howard Dean; run for office and win, then we just might care what you would vote for and then you could actually vote.

So up is down, down is up and who cares – the weekend is here.

Have a great weekend.

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Wall Street Wrap

Wall Street Wrap – The G20 puts Stocks and Commodities on Steroids

By Robert Perrego, at 5:09 pm on November 9th, 2009

On Saturday in London, finance ministers and central bankers from the world’s 20 largest economies agreed to keep the current coordinated stimulus measures in place until global economic conditions recover.  Here in the U.S., this means The Fed keeps the Fed Funds rate at near zero… as if they planned on raising them anyway.  This ‘all clear’ on the interest rate front sparked a rally in the stock market with the Dow Jones Industrial Average gaining 203.52 points on the day (+2.03%, 10,226.94) and closing at a new 2009 high.  American Express Co. (NYSE: AXP) led the charge in the Dow 30, up $1.84 (+4.94%, $39.05).

Last week after The Fed kept interest rates at 0-0.25%, their comments that the recovery was expected to be too weak to raise rates anytime soon caused a rally.  Now, with basically all the central banks agreeing to this course of action for the ‘forseeable future’, the rally took hold across the board in stocks.  This worldwide interest rate ‘all clear’ also caused the ‘carry trade cowboys’ to jump in with both boots and hit the dollar, dropping the buck to its lowest level in 15 months.  This drop in the dollar juiced commodities and the next thing you know everything is going up.

The Nasdaq 100 put in a 2009 high close, gaining 37.64 points (+2.17%, 1,768.40) while of the three, the S&P 500 is the only index that did not make a new 2009 high close, but still rose 23.78 points (+2.22%, 1,093.08).  Finance led the sector race gaining 3.48% with the consumer cyclical companies up 2.82%.

The commercial real estate market has been scheduled for execution by many a commentator on TV lately.  Today was a strong day for commercial real estate, with the iShares FTSE NAREIT Industrial/Office Corp Index (NYSE: FIO) gaining 5.48% (+$1.14, $21.94).

Gold topped $1,100 overseas before most alarm clocks even went off in New York.  New York Spot Gold traded as high as $1,110.60 an ounce before trading off to $1,103.20 (+0.57%, +$6.30, 4:12 p.m.).  The Spdr Gold ETF (NYSE: GLD) opened trading above its recent trend channel but traded off to close right at the top uptrend line, otherwise known as the ‘reaction or return line‘.

Nymex crude traded up $2.00 (+2.59%, $79.27, 4:12 p.m.) on the weak dollar as well as news that Hurricane Ida (downgraded to a tropical storm) is making landfall on U.S. gulf states.  Memories of Katrina and the resulting jump in oil and gas prices have traders a little hair triggered as far as Mother Nature in the Gulf of Mexico is concerned.

Coal led the commodity rally with the coal ETF (NYSE: KOL) up 4.82%.  Steel followed on at 4.12% (NYSE: SLX) with the gold miners ETF (NYSE: GDX) in third up 3.48%.  The copper ETF (NYSE: JJC) lagged the pack (+0.85) but finished just ahead of the agricultural ETF (NYSE: DBA) up 0.78%.

Looking forward on the Dow Jones Industrial chart, only one minor bottom resistance level at 10,365 is seen.  After 10,365, it looks like clear sailing up to 11,000 and with the latest pullback retrenching the stochastics, which are now bullish and pointing higher, it looks good for a rally into year end.

Radio Shack caught an upgrade from Credit Suisse and gained 14.26% (+2.53, $20.27) while retail was strong in front of the all important Christmas shopping season.  The S&P Retail Index was up 1.95% and closed at a 2009 high.

This looks like good news across the board, but consider that this is all happening on the back of very cheap money as the world’s central banks leave the liquidity spigot on full blast.  Many experts are already saying this is the inflation of the next bubble, something everyone so adamantly declared was a past pattern not to be continued.  Everyone likes it when the stock market goes up, but is abandoning the dollar and inflating the stock market the way to go with a jobless recovery underway?

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