The Nasdaq 100 turned in the best performance for the month of February among the three major indexes, gaining 4.47% to the second place S&P 500’s 2.86%.  Everyone must have read the summary numbers for February over the weekend and then came in as buyers today as the Nasdaq 100 continued on its winning streak up 1.52% (+27.72, 1,846.40).  The S&P 500 closed up a solid 1.01% (+11.22, 1,115.71) and the Dow Jones Industrial Average gained 0.76% (+78.53, 10,403.79) on the day.

Merger Monday was in full gear as four deals were announced last night and this morning and TrackedInsights Taryn Cooper covered them all earlier today.  Rumors of the biggest deal on the planet, Germany bailing Greece out with loans, prompted the Greek 10-year bond to drop 9 basis points (6.34% to 6.25%, +0.64) and stabilized equity markets around the world.  The Chilean IPSA Index fell 1.7% to 3,761 in reaction to the 8.8 magnitude earthquake Saturday morning, which was the fifth largest recorded since 1900.

When an earthquake hits Chile, what do you buy?  The answer is not peppers, it is copper.  Chile produces 35% of the world’s copper and if any of those mines collapsed this will slow the production and supply of the base metal, sending prices higher.  The iPath Dow Jones-UBS Copper ETN (NYSE: JJC) jumped 2.73% in the first five minutes of trading this morning but faded back, closing up 1.76% (+$0.79, $45.49).

Economists expected Personal Income and Consumer Spending to increase by 0.4% month-over-month, but we got income going up 0.1% and spending up 0.5%.  This means the consumer must have been taking on debt over the last month.  In general, the market likes it when the consumer spends more, even though signs point to them taking on more debt.  If the consumer is out there spending, that means the stocks they trade are doing more business.  Damn the torpedoes!  Who is paying their debts back these days anyways?  There is a problem here though, as Personal Income increased only 0.1% (0.4% expected) with the prior M-o-M increase being 0.4% and before that 0.5%.  The growth trend we have experienced over the past few months is slowing down as workers are receiving less income, which can be attributed to less people working.

The ISM manufacturing Index was reported at 10 a.m. and missed expectations (56.5 vs. 57.4, prior 58.4).  A reading over 50 indicates manufacturing is expanding but the number below that of last month shows it is expanding less quickly.  Construction Spending was also released at the same time and was down 9.3% Year-over-Year and down 0.6% Month-over-Month.  The MoM expectation was -0.8%, so the number was beat, but it is still declining.  While a decline in construction spending means less construction workers on the job, this is probably good in the long run as a contraction in housing supply (or a slower expansion), will mean a lower relative supply of homes in the future and a firming of home prices.

Gold had an uneventful day, gaining marginally, as all the metals action seemed to be in copper today.  The fact that gold did not drop is a story on its own as the dollar traded its highest level since last July, before fading back to gain just 0.38%.  Even the news of Germany buying Greek debt did not hold the euro up as the pound dropped sharply against the dollar with the summer election for Prime Minister in the U.K. is too close to call.  The U.K. has deficit problems of their own, and it seems once you throw in the weak economies of Spain, Portugal and Ireland, the chances of another bailout being needed seems almost certain.  Italy’s budget is always an adventure and it is starting to look like the only decent economy left in Europe is Germany.

Nymex crude dropped 78 cents as the $80 a barrel level is proving to be a difficult fence to jump.  The barrel was trading at $78.88 (-0.98%) at 4:48 p.m.

The Dow Jones Industrial Average edged up 4.23 points to 10,325.26.  The S&P 500 tacked on a small 1.51 point gain (+0.13%, 1,104.49) and the Nasdaq 100 was up 5.77 points (+0.31%, 1,818.68).  On the month the DJIA added 257 points (+2.55%), the S&P 500 climbed 30.71 points (+2.86%) and the Nasdaq 100 showed that the place to be in February was in technology, gaining 77.75 points (+4.47%).

Across all markets, bonds and commodities did the best with interest rates dropping in 14 of 17 major economies worldwide.  EVEN the Greek 10-year was lower by 30 basis points as bond prices rose on news the German Government might buy Greek debt through a state owned bank.  This strengthened the euro against the dollar causing commodities to rise.

Yesterday, I mentioned the CurrencyShares Euro Trust (NYSE: FXE) was something to keep your eye on thinking that the news in Greece has got to get better sometime.  The timing was spot-on (better to be lucky than good sometimes, but being right gets paid) as the FXE closed higher today than all but one day in the last two weeks of trading.  If the bad news has washed itself out, any further positive developments about the Greek Tragedy of 2010 will be bullish for the euro, commodities and stocks.

On the flip side of this, the PowerShares DB US Dollar Index (NYSE: UUP) closed lower than all days but one in the past two trading weeks.  Looks like the dollar is a bit high here, and with the possibility of Washington D.C. passing the $1 trillion health care bill next week via ‘reconciliation’, the path of least resistance for the greenback is down.  If the carry trade cowboys get involved here, shorting the dollar and buying stocks, March may indeed come in like a lion.

New York spot gold rose $10.00 an ounce to $1,116.60 (+0.90%, 4:22 p.m.).  A break out here would be at about the $1,130 level with support at $1,060.  The SPDR Gold Shares (NYSE: GLD) chart is starting to look very interesting with resistance at $111.  The only thing I do not like about the chart is the stochastics are too high, but a close (2 closes even better) through $111 and I am a buyer.  The GLD closed up $1.12 (+1.03%, $109.43).

Nymex crude is pushing $80 again up $1.51 today to $79.68 a barrel (+1.93%, 4:26 p.m.).  Analysts think that crude will trade more off of supply and demand fundamentals and less as a reaction to the dollar in the future.  This sounds like it means that oil will trade on the premise of a better functioning economy and not on gloom and doom and fiscal nightmares.

Existing Home Sales were reported this morning at down 7.2% (January) to a seven month low (5.05M vs. 5.5M expected).  Last month sales dropped off a cliff (-16.7%) and analysts did not have to think too hard as to why.  NO JOBS.  An economy can turn up or down on simple expectations.  You have a job and things are good, but then a friend gets the axe and your brother calls to tell you his company just shut down.  You may still have a good job, but you are not dying to go buy a new house at this point.

The federal tax credit for new home buyers seems to not have helped as much lately and I have a theory – all the new home buyers that were going to buy a home already did.  I do not think they are going to squeeze a lot more out of that program.  Also, in December you go Christmas shopping not house shopping and it is cold in January.  Hopefully, sales pick up in the coming months but with all this snow in February I would not bet on a strong number.

I saved this for last to go out on a good note: The USA Men’s Hockey Team beat Finland 6 -1 in the semifinals today and will play the winner of tonight’s Canada-Slovakia game for the Gold.  Team USA vs. Canada will be a great game to watch.  Win or lose that one, Team USA is cranking out the medals faster than Freeport-McMoran (NYSE: FCX) and this has been a great Winter Olympics for our athletes and for us.

Have a great weekend.

The Dow Jones Industrial Average traded as low as 10,185 (-188, -1.82%) before staging an impressive 137 point rally off the lows to finish with a loss of only 53.13 points on the day (-0.51%, 10,321.03).  The S&P 500 dropped 2.30 points (-0.20%, 1,102.94) and the Nasdaq 100 showed some relative strength, closing in the green fractionally (+0.40, +0.02%, 1,812.91)

The ‘non-partisan’ politicians were at it again in Washington D.C. as top Republicans and Democrats got together for a televised health care summit.  If you watched this it was an exercise in people talking and not listening.  While this is not unusual with our hot-air oversupplied elected officials, the ‘discussion’ turned a bit hostile at times with Obama interrupting McCain, McCain snapping back with ‘let me finish’ and other unpleasantness.  My favorite part had to be when Obama criticized Cantor for bringing all 2,400 pages of the bill to the meeting discussing that bill.  I never knew how thick a document that is 2,400 pages was until today and it seemed Obama did not want the rest of the country to see it either.

At the $1 trillion price tag put on the health care bill, each page is worth (spends) about $417 billion.  Maybe the U.S. Treasury should just start printing copies of the health care bill and forget about printing dollars.  We could pay off the national debt in no time but just try carrying the change home when you go buy a six-pack of Coke.

Goldman Sachs Group Inc. (NYSE: GS) is in hot water over the role they played in structuring a large loan to Greece in 2001 such that it looked like a currency transaction.  Greece no doubt did this to hide the debt from the European Union and Goldman did it for a very large commission.  Goldman stock dropped $1.89 to $156.44.

Apple Inc. (NSDQ: AAPL) CEO Steve Jobs told shareholders the company was going to sit tight on its $40 billion cash hoard as having that kind of money in the bank provides “tremendous security and flexibility.”  Apple has never been too active in buying other companies, preferring to develop their own technology, rarely buys stock back and does not pay a dividend.  With economic times like these sitting on a mountain of cash is a great idea but just try keeping track of the 160,000 accounts you need to keep $250,000 or less in for FDIC protection.

New York spot gold bounced back for a gain today for the first time in three days.  The precious yellow metal added $8.20 to $1,105.40 (+0.75%, 4:39 p.m.).  Over the past few days I have seen a lot of stories and heard chatter on the financial TV shows about the coming demise of gold.  With central banks worldwide being net buyers, a $1.56 trillion budget deficit and U.S. national debt skyrocketing I don’t believe it for a second.  Want to see gold go through the roof?  If that health care plan gets passed or that massively deficient budget gets ratified hang on tight – we are going for a wild upside ride.

I commented yesterday to keep a close eye on the SPDR Gold Shares ETF (NYSE: GLD) and a support level of $104.  The GLD closed slightly above its 50 day exponential moving average today ($108.31 vs. $108.15) and this is a positive sign.  The numbers to watch on the GLD are $104 and $111.  A close above $111 would be signaling a possible break out and a close below $104 a possible break down.

Nymex crude does not seem to be able to hold the $80 level as the barrel dropped $1.74 today on weaker economic expectations (-2.18%, $78.26, 4:44 p.m.).

The PowerShares DB US Dollar Index (NYSE: UUP) gapped up on the open but traded lower all day long losing 0.21% (-$0.05, $23.71).  If you think this Greek tragedy is blowing over keep an eye on the CurrencyShares Euro Trust (NYSE: FXE).  A very large volume spike last Friday could have marked this as a reversal low and it has pretty much been trading sideways all week.  If it rises above $136 I would get very interested.  Besides, how many more days can they strike in Greece anyway?  All the bad news could be out.

Tomorrow we have GDP at 8:30 a.m. (5.7%, 0.6%), Chicago PMI at 9:45 a.m. (60.0), Consumer sentiment at 9:55 a.m. (73.7) and Existing Home Sales at 10 a.m. (5.5M)

Fed Presidents Naranyana Kocherlakota (Minneapolis), William Dudley (New York), Charles Evans (Chicago) and Fed Gov. Daniel Tarullo speak at the annual U.S. Monetary Policy Forum in New York tomorrow.

The Dow Jones Industrial Average regained some of yesterday’s lost ground closing higher by 91.75 points (+0.89%, 10,374.16).  The S&P 500 added 10.64 points (+0.97%, 1,812.51) and the tech heavy Nasdaq 100 led the three indexes, up 18.69 points (+1.04%, 1,812.51)

The finance sector responded strongly as Bernanke spoke and on news that key senators are opposed to limits on commercial banks making bets with their own capital.  More trading news was made today as an SEC panel voted 3-2 to limit short selling on a down-tick on stocks that are down more than 10% on a day.  The new rule would make short positions only able to be entered on an uptick if a stock is down over 10% from its previous daily close in one day, and for all of the next trading day.  Quite frankly, this rule change is more for political cover for the SEC as they try to look like they are doing something.  The markets dropped drastically last year and all of a sudden, people looking for someone to blame pointed fingers at short sellers and the SEC.

The Effects of Short Selling

Fact is, short-selling adds liquidity to the market and just like with any trade, if the short-seller is wrong they can lose money.  An all to common public perception that short sellers cause stocks to go down too much is unfounded as there has to be a reason to bet that stock is going lower in the first place.  Short sellers will put a short position on if they think the stock is too expensive.  Some reasons for this might be that the company’s fundamentals are bad, the economy is headed lower or the stock has risen too far, too fast.

A way to think about short selling is; 1) Stocks are competing with each other for invest-able funds, and those that have better reason to be invested in get those funds and go higher, 2) Current investors in short-seller favored stocks may sell them to buy the more attractive stock, 3) The company that loses this invest-able funds ‘popularity contest’ are judged to be weaker and with no buying interest to counter-act regular selling, the stock goes lower, 4) On their own, short sellers would not be able to push a stock lower, as they have to ‘buy-in’ these shorts sooner or later, creating a ‘built-in’ demand for the stock.  Only the sellers of ‘long stock’ can sell the stock and walk away.  The short sellers have to be there to buy the stock back in and are nothing but future demand potential for that stock.

So if short selling cannot, by itself, make a stock go down, what is the SEC actually accomplishing here?  As long as their is sufficient liquidity in a stock, short selling is not the reason a stock is going down.  The SEC dropped the ball on policing ‘naked short selling.’  Naked short sales increase the supply of an issuer’s (company’s) effective outstanding stock, and is also illegal.  A lot of people should either be in jail right now, or should have paid large fines made money on naked short selling over the past few years.  If the SEC had done their job properly with the naked short sellers they would not be trying to save face right now by tinkering with legitimate short selling.  Period.

New York spot gold dropped $6.80 an ounce to $1,096.70 (-0.62%, 4:30 p.m.) and Nymex crude regained the $80 a barrel plateau, up $1.31 to $80.17 a barrel (+1.66%, 4:23 p.m.).  The PowerShares DB US Dollar Index (NYSE: UUP) dropped 0.20% (-$0.05, $23.76) and this throws a red flag.  Gold dropped and is acting weak while the dollar is dropping, which says to me gold has internal weakness.

Looking at the chart of the SPDR Gold Shares ETF (NYSE: GLD) we see that it failed to take out the resistance level at $111 and has rolled over and traded down to $107.36.  The stochastic oscillator looks to be topping out and rolling lower too.  The GLD did break the downtrend line from it’s all time high and this is a positive.  The next technical test for the GLD will be to see if it closes below $104 (twice in a row).  If this happens we have a lower low and strong trading stocks do not do that.  I suspect the ETF is going to trade sideways for awhile and consolidate.  The GLD will head down to $104 and flirt with breaking it – if it breaks for two consecutive sub $104 closes that is a sell signal.  If it holds and starts to head back up – buy more.

The S&P 500 lost 13.41 points (-1.21%, 1,094.60) and the Nasdaq 100 dropped 23.81 points (-1.3%, 1,793.82).

Low confidence seems to be a global problem as Germany, Europe’s largest economy, reported their Ifo Business Index unexpectedly dropped from 95.8% to 95.2% while analysts were expecting a rise to 96.4%.  Strikes, walk-outs and protests are occurring all across Europe as workers, unhappy with delayed retirements and just about everything else economically, vent their frustrations.  Here in the United States not a lot of people are going on strike as a quick look at the news headlines shows people are still getting laid off and fired left and right.  The Metropolitan Transit Authority in NYC is cutting 1,000 jobs, including top managers while San Francisco prepares to let 900 teachers and other school employees go.

No jobs means no paychecks.  No paychecks means no purchases and that means no need for workers to make no products being sold.  I saw a news headline with the word ‘deflation’ in it today, which is the first time for this in about a month as most economists thought we averted that disaster.  Guess again.  I would not advise going on strike or protesting your pay as the latest estimates are that 19.9% or 1 in 5 workers are under-employed.  Supply and demand for jobs right now is in the employers favor as, chances are, there is someone out there willing to do your job for less.

Anyone looking for good news can notice that Ford Motor Co. (NYSE: F) was up 3.47% today (+$0.39, $11.60), and to see an auto company and Home Depot up in a down market like this lets you know anything can be turned around.  Remember when General Motors was going out of business and Toyota Motor Corp. (NYSE: TM) was king of the hill?  Today, Toyota executives testified to a hostile Congressional Committee about their 8 million vehicle recall, a pesky sticking accelerator and cars that can turn into a 100 mph run away horse with a mind of its own.  Toyota stock finished down 1.89% (-$1.38, $71.55).

Trading screens were mostly red as nothing seemed to escape the broad selling.  Stocks, oil, gold, commodities all finished lower with the dollar a tiny island of green on my trading screen.  The PowerShares DB US Dollar Index (NYSE: UUP) closed up $0.13 (+0.54%, $23.81), New York spot gold dropped $$9.60 an ounce (-0.86%, $1,103.00, 4:37 p.m.) and Nymex crude gave up the $80 level dropping $1.23 to $79.08 a barrel (-1.53%, 4:30 p.m.)

Former Fed Chairman Alan Greenspan gave a very disturbing picture of the economy, saying the recovery was ‘unbalanced’ and that high-income consumers were one of the main drivers of consumption.  These consumers are spending more as the market is up but, if this market starts to drop again and they clam up their wallets, it could accelerate the drop.  Federal Deposit Insurance Corp. Chairwoman Sheila Bair stated the agency now has 702 banks on their ‘distressed’ list, up from 552 at the end of September.  This time around the problems are driven mostly by trouble with commercial real estate.

To end with at least an attempt to have a positive attitude – it’s not Monday.

The market traded sideways most of the day until 3:30 p.m. when selling drove the Dow Jones Industrial Average down 18.97 points (-0.18%, 10,383.38) and the S&P 500 lost 1.16 points (-0.10%, 1,108.01).  The Nasdaq 100 was weakest dropping 5.69 points (-0.31%, 1,817.63).

Looking at the charts of the HMO’s and I see ‘buy, buy, buy’.  Humana had the biggest gain today but also the best chart when you balance risk and return.  Humana traded off to its 50 day exponential moving average over the last month, held it as support, and rose today on heavy volume.  The stochastic oscillator has bottomed out and is heading up and the short term down trendline was broken to the upside.  Looks like the stock could easily reach its previous high close of $51.94 soon, which would give you an 8.5% return.  The charts are similar for all the major HMO’s (AET, WLP, CI, UNH) but Humana’s chart offers the least amount of upside resistance, safety of support and percentage return combination.

Oil stocks were weak today which was unusual as the dollar was down slightly, Nymex crude broke $80 a barrel for the first time in a month and Schlumberger Ltd. (NYSE: SLB) officially announced their takeover of Smith International Inc. (NYSE: SII).  Last Friday rumors of this deal flew around Wall Street trading desks driving the stock of Smith up 13% (+$3.33, $41.03).  Today’s official announcement of the $11 billion deal added another 8.8% for a two day gain of 23%.  New York spot gold dropped $5.00 to $1,112.10 an ounce (-0.45%, 4:25 p.m.)

Two good reasons to stay away from the municipal bond market are the very low current interest rate environment (with bonds, when rates are low prices are high) and news out from the National Governors Association that for 2011 states are seeing total cumulative budget deficits of $53.6 billion, rising to $61.6 billion in 2012.  If you find a bond with a yield and credit you like and buy with the intention to hold until maturity, municipals might still be for you.  The problem here is that with these deficits and tax receipts weak as a result of the high unemployment rate, any bond you buy may get downgraded and drop in value.  States cannot print their own money and many are finding it politically difficult to cut spending, so without raising taxes the budget deficits will weaken the credit behind the bonds.  I do not think buying a municipal bond and hoping they raise my taxes to make my bond not drop in value is a strategy for me as one giveth and one taketh away, leaving me with nothing-eth.

Speaking of being left with nothing-eth, one of the new taxes proposed in the resurrection of health care reform is a Medicare tax on capital gains.  When I was studying economics in graduate school, commonly accepted good practice was to tax the area of the economy that the tax revenues were going to be used for.  This is thought to be a more efficient way of instituting tax policy as when you ignore this proper practice you eventually end up with a million taxes coming from this area and going to that area, or a massive spider web of tax and effect confusion.  When you levy a tax somewhere it distorts the way that taxed item functions, so the idea is if you have to tax, use the tax to shape what you are taxing in a more desirable manner.  You do not just run around like it’s an Easter egg hunt going “Hey look, there’s money over here – tax it!”

The current Administration has already announced their intention to raise the capital gains tax so this would be an additional tax on top of the new tax hike.  Why do I get the feeling there is a guy in Washington D.C. with a dartboard, a blindfold on and a handful of darts that say ‘new taxes’ on them?  Also, didn’t Obama promise that if you made less than $200,000 a year your taxes would not go up ‘one penny?’  If you own any stocks outside of an IRA or 401(k) plan and do not make that kind of money, your taxes are going up.

The Dow Jones Industrial Average finished with a gain of 9.45 points (+0.09%, 10,402.35) while the S&P 500 tacked on 2.42 points (+0.22%, 1,109.17).  The Nasdaq 100 closed down less than a point at 1,823.32.

Traditionally, the stock market rises as The Fed raises rates.  The fact that rates are going up is signaling the economy is heating up and this is good for stocks.  The one bogeyman we have in the mix this time is that with interest rates coming off a base of near zero, the dollar has been used for the carry trade for the first time in history.  In the after-market yesterday, the dollar traded up as much as 1% (a big move for the greenback) and if there are still large carry positions on, unwinding them to buy the dollar shorts in could cause significant selling pressure.

The PowerShares DB US Dollar Index (NYSE: UUP) opened up 0.76% ($0.18) this morning and traded as high as up 1.06% ($0.25), before declining for much of the day to close up only 0.29% ($0.07).  The response to the move in the dollar was that when the dollar was near its highs, the S&P 500 was logging its low trading range of the day.  This leads me to believe that the carry trade is still an important factor in the stock market.  As The Fed fired this ’shot across the bow’ of the carry trade cowboys, the best outcome possible would be that these carry trade positions are unwound in an orderly fashion over time and do not create heavy selling that brings the market down. New York Fed President William Dudley commented after the hike yesterday that the current accommodating interest rate policy will remain in place for an ‘extended’ period of time.

Goldman Sachs upped their outlook on discount brokers and specifically upgraded Charles Schwab Corp. (NSDQ: SCHW) to neutral from sell, causing the stock to jump 5.16% (+$0.92, $18.73).  Tradestation Group Inc. (NSDQ: TRAD) gained 50 cents (+7.65%, $7.03), Options Express Holdings Inc. (NSDQ: OXPS) added 60 cents (+4.02%, $15.49) and Ameritrade Holding Corp. (NSDQ: AMTD) finished higher by 44 cents (+2.50%, $18.03).

The online broker with the hilarious baby and “the lottery is not a retirement plan” commercials, E-Trade Financial Corp. (NSDQ: ETFC), seems to still be mired in toxic trouble with their mortgage portfolio as the market only saw fit to buy the stock higher by a penny (+0.64%, $1.58).  Could the more favorable outlook for the business of online brokerage bring buyers calling at E-Trade’s door?  This still remains to be seen as rumors have floated around trading desks for months about Ameritrade swooping in, but there has been no official action thus far.

New York spot gold was up $8.10 an ounce to $1,116.20 (+0.73%, 4:04 p.m.), and note that the later ‘close’ of the gold market after the stock close yesterday included the rate announcement.  Gold was up as much a $18.60 an ounce during the day.  Nymex crude closed strong to finish up 88 cents a barrel (+1.11%, $79.94, 4 p.m.) and is tickling $80 a barrel again.  News out of the Middle East regarding surface to air defensive missile sales to Iran is putting a window on when a nuclear facility air strike could be launched by anyone.  This could be either adding to the strength in oil this cycle up, or could just be a very good reason why you should not get short oil now.

Finally, Tiger Woods was on TV today apologizing for what happened in Vegas that did not stay in Vegas.  President Obama was also in Vegas today hanging out with shady characters (other politicians) after dragging the town’s name through the mud over the past year.  I doubt Obama is going to have as much fun as Tiger did there.  What Tiger did, or did not do, is none of my business and hopefully he just gets back to playing golf and minding his own business – much like all the rubbernecks that have been watching his life collapse are not.  Given the choice I would take the billion dollars, golden golf stroke and public ridicule, and I think you would too.

Have a great weekend.

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.

**********

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?

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.

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.