Wall Street Wrap

Afternoon Rally Keeps Stocks From a Big Loss

By Robert Perrego, at 5:10 pm on February 25th, 2010

Over the past two weeks, workers filing for first time Jobless Claims have jumped 12% and stocks reacted by dropping steeply off the open this morning.  After the close yesterday, rumors flew that Coca-Cola Co. (NYSE: KO) was near striking a deal to buy their bottler’s North American business.  The official announcement came out this morning and this sent the shares of Coca-Cola Enterprises (NYSE: CCE) up by a whopping 32.84% (+$6.30, $25.48).  The cost of the acquisition dropped the shares of Coke down by $2.04 (-3.69%, $53.12), lopping about 14 points off the Dow Jones Industrial Average on its own.

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.

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Wall Street Wrap

Market Bounces Back as Bernanke Promises Low Rates

By Robert Perrego, at 5:01 pm on February 24th, 2010

Last week the Federal Reserve raised the discount rate to 0.75% sparking fears that the federal funds rate might be next in line for a hike.  JP Morgan Chase & Co. (NYSE: JPM) gained 2.43% and Bank of America Corp. (NYSE: BAC) added 2.44% to lead the Dow Jones Industrial Average higher on the day.  The market spiked higher just after 10 a.m. – minutes after Fed Chairman Bernanke began two days of testimony in front of a congressional panel.  As Bernanke stressed that last week’s move did not mean the federal funds rate was going higher anytime soon, stocks responded strongly, pushing the DJIA higher by almost 90 points within 25 minutes.

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.

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Week on Wall Street

Market Down on Poor Confidence Reports

By Robert Perrego, at 6:05 pm on February 23rd, 2010

Housing centric Home Depot Inc. (NYSE: HD) was the top performer in the Dow Jones Industrial Average today, gaining 1.41% (+$0.43, $30.75).  This is somewhat ironic as the DJIA dropped 0.97% (-100.97, 10,282.41) and to have a housing industry related stock the best performer while the market goes down is an about face from last February to say the least.  Only 3 of the 30 components of the Average were up with the other 27 closing down 0.28% to down 2.65%.  The stock market traded higher off the open this morning until 10 a.m., when the Consumer Confidence report was released.  The expected number was 55 with a 52 to 57 range and when the number came in at 46, the market thought about it for a second, and everyone started hitting the sell button.

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.

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News

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.

**********

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?

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News

Market Posts Gains on Economic Data, No Bad News from Greece

By Robert Perrego, at 4:49 pm on February 17th, 2010

Housing Starts came in above expectations and the Industrial Production number was also higher than expected today, and so was the stock market.  Home Depot Inc. (NYSE: HD) was one of the stronger stocks in the Dow Jones Industrial Average, rising 1.97% (+$0.58, $30.02), as the home improvement retailer’s stock broke out to its highest level in over 17 months.  The Federal Reserve released the minutes from their last meeting, shedding more light on the end of the quantitative easing program and the $1.425 trillion of toxic mortgage and Fannie and Freddie debt they have accumulated over the past year.

The Dow Jones Industrial Average gained 40.43 points (+0.39%, 10,309.24) with 20 of 30 stocks up on the day.  The broader S&P 500 added 4.38 points (+0.38%, 1,099.24) with biotech (+1.63%) leading the way.  The tech heavy Nasdaq 100 closed up 8.80 points (+0.48%, 1,810.86).  DJIA component Home Depot broke out of a small bullish head and shoulders pattern yesterday and, with today’s move, is most of the way to the $30.68 target price level of the pattern.

Philadelphia Fed President Charles Plosser has been the dissenting voice on interest rate policy (he voted to raise rates this past meeting) and he is not a big fan of the fact that The Fed owns more toxic mortgage related paper than anyone else.  Both these stands on issues may be working towards the same goal, as when the Fed stops buying toxic mortgage securities soon AND if they started to sell them to decrease their holdings, the most likely result would be rising mortgage rates.  The Treasury market fell today (rising interest rates) with the 30-year rising by 7 basis points to 4.71%.  The 30-year fixed mortgage is currently at 5.08% and if you are thinking about refinancing or buying a home, the sooner the better.

There was a lot of news out about gold as George Soros, John Paulson and pension funds are reported to be buyers.  Soros commented last month that gold was in a bubble and turned around and bought so much of the SPDR Gold Trust (NYSE: GLD) he became the fourth largest holder.  I don’t think I will believe what he has to say too much anymore.  Paulson upped his exposure to gold by 10% and was buying the banks, as was Soros.  Yesterday, the euro strengthened against the dollar and gold was up over $16 an ounce.  Today the euro dropped back down to its lowest level against the dollar since May of 2009, giving up all of yesterdays gains, and New York spot gold dropped $3.80 an ounce.  This leaves the dollar-euro relationship right where it was last Friday with gold up $12+ an ounce.

Breaking News – 4:54 p.m. EST – New York spot gold drops another $8 an ounce ($1,106) as the IMF announces they will be selling the remaining 191.3 tonnes of gold in the open market.  Last fall India bought 200 tonnes from the IMF out of an allocated 400 tonnes to be sold.

Nymex crude was up again, rising 43 cents (+0.53%, 4:12 p.m.) to $77.44 a barrel.  Since October, oil has risen to over $80 a barrel twice and then retraced to $70.  The latest move back above $75 looks like another inevitable move to $80+.

Tomorrow’s economic reports are the Producer Price Index (0.8%, 0.1%) and Jobless Claims (440k) at 8:30 a.m., Leading Indicators (0.5%) and the Philadelphia Fed Survey (17.0) at 10 a.m. and a whole lot of bond auctions for the 3-Month, 6-Month, 2-Year, 5-Year, 7-Year and 30-Year TIPS maturities.  Two Fed Presidents and one Fed Governor will be speaking Thursday as Elizabeth Duke speak at 5 p.m., Dennis Lockhart at 7 p.m. and James Bullard at 9 p.m.

Selected earnings estimates for February 18, 2010:

AEE 0.27 before market open, APA 1.96 bmo, ABX 0.57 bmo, CBS 0.25, DAI 0.02, DDR 0.32 after the close, HRL 0.52 atc, IM 0.52 atc, KEG -0.13, PDE 0.17 bmo, PEG 0.60 bmo, RS 1.02 bmo, SFY 0.28 bmo, WMT 1.12 bmo, WCG 0.44 bmo, WMB 0.34 bmo.

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