Germany and France step up to the plate for Greece – Market Rallies
By Robert Perrego, at 5:02 pm on February 11th, 2010The 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.
