Wall Street Wrap

Wall Street Wrap – What a Difference One Number Makes – GDP

By Robert Perrego, at 5:05 pm on October 29th, 2009

Yesterday everyone was throwing the towel in, yours truly included.  Bill Gross from PIMCO was calling a top, Cramer on Mad Money was turning cautious, which given his naturally bullish direction says something.  The charts looked ugly with uptrend line breakdowns from Apple Inc. (NSDQ: AAPL) to Zix Corp. (NSDQ: ZIXI).  All seemed lost and the market rally we have been enjoying since March, was about to become the market we did not enjoy before last March.

Well GDP to the rescue! Last night when thinking about today’s GDP release I had two thoughts; 1) 3%, Really?, and 2) Ok, maybe we are coming off a lower base that could bounce back.  Also, Goldman Sachs Group Inc. (NYSE: GS) had just pulled their estimate down to 2.7% from 3%, and these guys usually get it right.  Well, maybe Randolph and Mortimer did not pay Beeks enough to get the numbers ahead of time, as the announcement at 8:30 this morning had Goldman with egg in their face for pulling their horns in just prior to a surprise upside beat – 3.5%!

The cash for clunkers program kicked into this number significantly as motor vehicle output added 1.66% to the 3.5%.  There was a lot of discussion about the fact that the ‘clunkers’ program pulled forward future purchases, so this 1.66% might be at the expense of Q4’s number.  Also, with 2% of this 3.5% attributed to stimulus spending, what do we have when those dollars run out?  Not to sound like a math whiz here, but that would be about 1.5%, and that is slow but better than nothing.

Once the GDP number came out the futures took off like a rocket.  Gold jumped as did oil, and just about the only thing that dropped was that pesky counter-trend dollar.  The Dow Jones Industrial Index closed up 199.89 (+2.04%, 9,962.58) while the S&P 500 beat all the major indexes gaining 23.48 points (+2.25%, 1,066.11).  The Nasdaq 100, the ‘tech trade’, added 29.21 points (+1.73%, 1,711.27).  Finance was the hot sector up 3.89%, with consumer cyclicals coming in second at  +2.84%.  Even with a 3% plus jump in the per barrel price of oil, the energy sector was only up 1.81%.

New York Spot Gold was up $19.40 an ounce (+1.89%, $1,047.10, 4:28 p.m.) as Newmont Mining Corp. (NYSE: NEM) reported their earnings were up 75% over last year’s same quarter number.  With gold above $1,000 for just about all of October, Newmont is most likely having a very good fourth quarter as well.

Nymex crude got back to its tricks jumping $2.41 a barrel (+3.11%, $79.97, 4:22 p.m.) as more growth means more energy demanded.  I would guess that it did not hurt that the dollar got hit as the PowerShares Bull Dollar ETF (NYSE: UUP) dropped 16 cents or 0.70% to $22.57.  The ‘risk trade’ is back on it seems, as the good GDP number seemed to hint it was safe to short the dollar and take those funds and buy the big banks, tech, developing markets stocks, gold, and just about anything other than bonds.  This ‘risk trade’ was being unwound over the last few days as the shorts being bought back in on the dollar caused it to rally off the bottom sharply.

If we get the ‘carry risk trade cowboys’ back en mass here, and they hammer away at this dollar, we could see higher highs for the indexes.  Note (not a pun) that by shorting the dollar and taking those funds to buy stocks, these risk ropers are creating money to trade with by increasing their leverage on funds invested as well as having a nominal price upward effect on stocks by decreasing the relative value of the dollar.  So, not only does the knocking down of the dollar create paper stock inflation, but the creation of the funds via margin and shorting creates more dollars technically and hence more inflation.  In the opposite, when this trade is unwound, the removing of this double edged liquidity causes more rapid drops.  An old saying on Wall Street goes; “Fear is stronger then greed”, and if they start to sell and unwind this dollar trade the move lower will be swift.  Stay on your toes.

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Wall Street Wrap

Wall Street Wrap – The Selloff Gains Steam as The Dollar Rallies

By Robert Perrego, at 5:23 pm on October 28th, 2009

The inverse correlation between the dollar and the market continues to hold as the Dow Jones Industrial Average sold off 1.21% (-119.48, 9,762.69) while the PowerShares Dollar ETF (NYSE: UUP) gained 0.40%.  Leading the Dow 30 into the tank was Caterpillar, Inc. (NYSE: CAT) which dropped $2.26 (-3.98%, $54.43) as the Durable Goods report this morning missed expectations coming in at up 1% while expectations were for up 1.5%.  New Home Sales also disappointed (402K vs. 440 exp.) and the Dow Jones Industrial Index uptrend line, that has been in effect since the market bottom in March, was broken to the downside.

The Nasdaq 100 was the weakest of the three indexes, dropping 2.34% (-40.40, 1,682.06) as technology was hit hard.  Apple Inc. (NSDQ: AAPL) lost $4.97 (-2.51%, $192.40) as the uptrend line in effect for that stock since July 7th was broken today.  The next two support levels for Apple are $191 and $186.  Intel Corp. (NSDQ: INTC) broke its uptrend line in effect since February 23rd and also broke down through its 50 day exponential moving average (EMA) at $19.51, dropping $0.71 (-3.59%, $19.03) with minor support in the $18.60 area and gap support at $18.  The S&P 500 dropped 1.95% (-20.78, 1,042.63).

Since the market bottom on March 9th, the Dow has enjoyed a nicely confirmed uptrend line that was set by three points; the bottom, July 10th and October 2nd.  The close below the uptrend line on Monday was the first cause for worry, and yesterdays close below this line was a second day break, which is one indicator or confirmation the trend line would fail.  To technical analysts, today’s sell-off comes as no surprise and to those watching the dollar rally, today’s stock performance was expected.

As I have mentioned in many previous ‘Wraps’, the dollar bottomed out last Thursday and has been rallying since.  The major market indexes all peaked last Thursday and the S&P 500 has dropped 4.6% since.  The UUP has its 50 day EMA just above it at $22.84 as resistance while the Dow has its 50 day EMA just below it at 9,667 as support.  The S&P 500 has 50 day EMA support at 1047 while the Nasdaq 100’s was broken today (1,688 vs 1,682 close).

Going Down?

Going Down?

Bill Gross, a Managing Director at PIMCO, the largest bond fund in the world, called the market top yesterday in his monthly market commentary.  The big question is whether or not this is just another correction or is it a reversal in market trend and heading lower?  While the S&P 500 and Nasdaq 100 broke their longer term uptrend lines awhile ago, now with the Dow Jones Industrial Index break, all three indexes are showing weakness.  The Dow, which was most likely oversold in March, ran up 54% bottom to top, and that is a nice move.

The economic and fundamental reasoning behind the decline of the dollar was a $1.4 trillion current budget deficit, all the money spent and/or committed to attempt to haul the country (approx $12 trillion) out of recession and future spending programs being debated now in D.C.  These factors still exist and the longer term trend for the dollar could be lower, so if the relationship continues to hold, the stock market should find a bottom soon and head higher again.  This could all be nothing but ’stock inflation’ and not be creating real value as the drop in the dollar kills purchasing power while stock prices increase.  Given the choice between higher and lower stock prices, most people would choose higher.

The dollar rally hit gold and oil prices with New York Spot Gold dropping $11.90 an ounce (-1,14%, $1,027.70, 4:54 p.m.) and Nymex crude lost $2.09 a barrel (-2.63%, $77.28, 4:50 p.m.)

Remaining Economic Reports expected this week:

  • Thursday: 8:30 a.m. GDP (3.0%) and Jobless Claims (525K)
  • Friday: 8:30 a.m. Personal Income and Outlays (0.0%, -0.5%) and Employment Cost Index (0.5%), at 9:45 a.m. Chicago PMI (48.5) and at 9:55 a.m. Consumer Sentiment (70.0).

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News

Market Wrap – Housing and The Fed spark a Rally

By Robert Perrego, at 4:40 pm on August 12th, 2009

The Mortgage Bankers’ Association said that their purchase index rose 1.1 percent last week and Toll Brothers Inc. (NYSE: TOL) announced that their quarterly net signed contracts rose for the first time in four years.  These two positive pieces of information sent most every home builder up over 4% with Toll jumping over 14%.

Home sales are directly impacted by the cost of the mortgage used to buy the home, unless of course you have the cash money on hand to buy a home outright, with which very few people do.  So all we need now to keep this positive news flow on housing going is expectations that interest rates will stay low.  Where would we get such news?  Enter stage left – The Fed…

At 2:15 p.m. the Fed announced no change in its interest rate policy and with this one line;

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

BUY! BUY! BUY!

The Dow Jones Industrial Index, which was up over 100 points at the time of the announcement, got one ear on that statement and after a quick shake out move back to +107 rallied to as high +185 before finally reversing to close up only 120.16 points.  The dollar initially shot up right after the announcement but then sold off to right about where it had been trading before the announcement and the corresponding move in gold was exactly opposite that of the dollar.  Both the dollar and gold finished up where they started before the announcement.

The Fed did not change rates, the dollar and gold ended where they started, the Dow returned to where it started and rates dropped marginally.  Yawn.  Basically all that happened was that the traders gunned their race cars around the track for awhile and then went home for dinner.

At 1 p.m. the $23 billion 10-year Treasury Note auction went decently well with a bid-to-cover ratio of 2.49 vs. a 2.48 recent average and a high yield of 3.734%.  The cover ratio indicates that there was not an unusually large amount of bonds demanded and the yield was lower than where currently issued 10 year paper was trading.  This means that the government had to pay more (higher rate) to get bidders to buy their debt.  The last bid-to-cover ratio for the 10-year note was 3.28 that went at 3.365% in July.  The drop in the b-t-c and the rise in interest paid says, as far as the ten year maturity is concerned, that buyers were less interested in U.S. Government debt.  Well, those that bought into that $23 billion at 3.734% were rewarded for stepping up to the plate as after the announcement the current 10-year note traded 3.72% turning a nice little profit for the 1 p.m. buyers.

Emdeon inc. (NYSE: EM) priced their IPO at $15.50 and opened trading at $17.75.  Cramer told his audience that he liked the stock in the $13.50 to $15.50 area but not to chase the stock above $17 or so.  Well Jimmy was spot on with this one thus far.  The stock opened at $17.75 and immediately traded up to $18.24 then proceeded to roll over and close on the day low at $16.52 making every buyer on the day a loser.  Today it paid to listen to Mad Money’s mouth.

All day long with housing a front-line issue, the talking heads have been croaking about whether or not the housing market has bottomed.  I will  cast my vote right here – not a chance!  Cramer was right about Emdeon but he was dead wrong and called a housing bottom in June and prices are still dropping and have a ways to go.  The MBA index ticked up today as prices dropped and more buyers pulled the trigger.  The Toll brothers statements showed that they are selling more lower priced homes.  As any security drops in price, demand increases, but prices will go lower from here.  Why do I say this?  Easy – unemployment is still headed higher.  Last weeks statistical drop from 9.5% to 9.4% was misleading as more people’s employment insurance ran out (and they were taken out of that number) than new people got fired (put into the number).  Economists consensus is unemployment goes above 10% before it peaks and maybe we bottom out in housing a few months before we peak in jobs lost, but not much before.  Simply put – people need jobs to pay mortgages.  These talking heads and prognosticators on TV need a reality check before their optimism gets the best of your investing dollar.

iStock Analyst put out a nice piece today about Cramer and his housing call along with stating that the market PE’s right now are predicated on 5% GDP growth coming in the next few quarters.  If that is the case and 5% is priced in, stocks are in for a rude awakening.

The Dow closed up 120.16 points (+1.30%, 9361.61) and the S&P 500 added 11.46 points (+1.15%, 1005.81) with the Nasdaq 100 up 24.90 points (+1.56%, 1619.59).

The strongest sectors today were finance +1.91% and industrials +1.89%.  The weakest industries were consumer non-cyclicals still returning a positive 0.66%.

NYMEX Crude added $1.07 a barrel and was trading at $70.19 at 4:34 p.m.

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News

Market Wrap – When Minus 1% is Good News

By Robert Perrego, at 5:14 pm on July 31st, 2009

The big number came out today and the U.S. economy contracted by 1% in the second quarter of 2009.  Contracting 1% is good news when you compare it to the 6.4% (revised down from 5.5%) contraction of the first quarter.  This -1% is the fourth quarter in a row of negative growth.  Here are the four negative GDP quarter number; Q3 2008 -0.3%, Q4 2008 -3.8%, Q1 2009 -6.4%, Q2 2009 -1.0% which total to the U.S. economy shrinking by 11.13% in the past year.  In the last four quarters a full 1/9th of the U.S. economy has disappeared.

Since the recession began we have lost about 6.5 million jobs and another number that came out today was a decline in consumer spending which fell 1.2% vs. a forecast loss of 0.5%.  The U.S. consumer fuels 71% of the economy and with jobs disappearing like they have, consumer spending is bound to drop, but this drop is more than double what we expected.  The greater loss along with the revision (-5.5 to -6.4) downward to Q1 GDP caused the dollar to drop to its lowest closing level since September 22, 2008.  This drop in the dollar spiked the prices of commodities from aluminum to zinc with commodity related stocks being the big movers today.

The iShares gold ETF (NYSE: GLD) rose modestly off the open but took off at at about 11:44 a.m. today as the dollar started to break down.  At 11:28 the Powershares Dollar ETF (NYSE: UUP) traded to a new low on the year briefly and then bounced off this level.  At 11:44 a.m. the the gold buyers had a feeding frenzy driving the GLD from $92.59 to $94.03 which corresponds to roughly an increase in the price of gold of $14.44 an ounce.  On the day the GLD finished up $1.73 (+1.88%, $93.35) and the shiny yellow stuff itself was last seen trading at $954.50/ounce (+$20.80, +2.23%) at 4:47 p.m. est.  NYMEX WTI Crude gained $2.09 a barrel trading at $69.03 at 4:49 p.m. est..  If nothing else, that signal at 11:28 from the dollar trading a new multi-month low was a screaming BUY GOLD signal and trades of buying the GLD or many of the gold miners would have made you good money.  Agnico Eagle Mines (NYSE: AEM) took off at 11:44 a.m. as well.

The Dow Jones Industrial Average closed up 17.55 points today (+0.18%, 9171.61), gaining 0.82% for the week and 8.6% for the month of July.  The S&P 500 closed up 0.73 points (+0.07%, 987.48), gaining 0.84% on the week and 7.4% for July.  The Nasdaq 100 lost 6.51 points today (-0.40%, 1603.36) and gained 0.27% on the week and for the month of July was up 8.5%.

As mentioned, other than commodities, the markets did not move much today with the lead sector being energy tacking on 0.91% with the next highest gainer being consumer non-cyclicals up 0.41%.  Tech was the down most sector losing 1.03%.

The politicians in D.C. had a winner and they didn’t even know it.  their ‘cash-for-clunkers’ program has already burned through the budgeted $1 billion in one week alone.  Now who would have thought that a government program that gives away money would catch on?

This program is supposed to encourage people to trade in their less fuel efficient gas guzzling cars and buy a shiny new gas nibbling car.  Over 200,000 of these trade ins have happened with one dealer reporting the average car traded in got 15 mpg and the cars the buyers drove off with averaged 27 mpg.   On top of all this the dealerships are selling more cars, the car makers are making more cars and the cars parts makers are making more parts.  More jobs, less oil, free money!  This is great!  Ohhh the wonders of socialism!

OK wait – where is the money coming from?  Oh yeah – taxes, debt, future taxes, the printing press?  There is no free lunch and as free money programs are always popular with the voters Congress promptly voted to approve more money to give away.  I think these vote junkies would throw billions of dollars out the window, regardless of whether or not it is good for the country, if they thought it might get them re-elected.

While you get all excited about some type of bail out or some type of free something or other from the Government remember this – the money needs to come from somewhere.  Here are a few quotes to think about over the weekend;

“Socialism works until they run out of other peoples money to spend.” –  Margaret Thatcher

“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money. “- Alexis de Tocqueville

Have a great weekend.

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News

Market Wrap – MasterCard, Motorola and General Electric spark a rally

By Robert Perrego, at 4:41 pm on July 30th, 2009

Cell phone maker Motorola (NYSE: MOT) posted a profit when a loss was expected, MasterCard (NYSE: MA) beat their earnings number by almost 10% and General Electric (NYSE: GE) got saluted by Goldman Sachs with an upgrade on speculation the government would not make GE dump their finance arm today sparking a rally of 83.74 points in the Dow.

MA +$5.56 (+2.94%, $194.11), GE +$0.85 (+6.93%, $13.11), MOT +$0.62 (+9.43%, $7.19).

All week the bears have been attacking the market trying to push it down, but each day an afternoon rally ran the indexes back up and cut what could have been mid-sized to large losses to small losses each day.  The market hung in there this week until today, when a raft of good news took us to new highs on the year and to our highest since November 5th of last year – the day after election day which was Day One of November’s brutal 1600 point, three week collapse in the market.  Today’s market action ran counter to the past three days, as the market was up over 160 points within the first ninety-minutes of trading, but a sell off in the last half hour took 80 points off sending the close of the Dow right back into the general range of closes of the past four trading days.

The economy stayed out of the stock market’s way today as the Jobless Claims number came in right where expected (-584,000 vs. -585,000) and the $28 billion 7-year Treasury note auction went reasonably well with a 2.63 bid-to-cover at 3.369%.  Looking at the last six monthly 7-year auctions shows that the yields on this note have increased from 2.748% to 3.369% showing that rates are increasing.  The 1 p.m. auction went better than yesterdays 5-year and that kept the treasury market from throwing water on a stock market rally that was in full bloom by that time.

All eyes will be on the GDP release tomorrow which will be the first release of Q2 productivity.  The importance and respect the market is showing this number is being illustrated by the sell off late today, as traders do not want to be holding too much stock when this number is released before tomorrow’s open.  In the disastrous first quarter of 2009 the revised final GDP came in at -5.5% and the expected number for tomorrow is -0.7%.  This would mark quite an improvement and put us with an economy that is contracting at a rate of less than 1% showing a huge move in terms of the rate of growth (or shrinking loss) in percentage terms as a move from -5.5 to -0.7 is quite significant.  Also, tomorrow is the last trading day of the month so be ready for some crazy-makes-no-sense action as traders square their books and there also may be some minor window dressing going on.

The S&P 500 was the percentage gain leader today coming within 4 points of 1,000 at its peak closing up 1.18% (+11.60, 986.75) with the Dow Jones Industrial Average in second up 0.92% (+83.74, 9154.46).  The Nasdaq 100 had the smallest percentage increase but still had a nice day up 0.64% (+10.26, 1609.87).

Oil surged back almost making up all of yesterdays losses with NYMEX WTI Crude adding $3.42 a barrel trading to $66.77 a barrel at 4:16 p.m. est..  Oil traders could also be setting up for the GDP number tomorrow as if that number comes in where expected it will be showing the economy getting back on its feet and moving towards positive growth once again.  Gold was up as much as $9 an ounce but got hit in the late day sell-off that caught the rest of the market.  New York Spot Gold closed up $3.50 an ounce ($932.90/ounce at 4:19 p.m. est).

The sector watch shows the hot sector today was finance up 3.03% followed by energy on the bounce in oil up 2.48%.  All sectors were in the green with tech and the consumer cyclical sector bringing up the rear up 0.28% and 0.21% respectively.

At 6 p.m. Obama has beers with Henry Gates and Sgt. James Crowley as everyone tries to make nice after the incident up in Cambridge, Massachusetts on July 16th.  There has been much written that this debacle is taking attention away from the task at hand, which is socializing (or destroying – your choice) our health care system.  They will be drinking a beer that, while an American icon and a good friend of mine, is now owned by InBev from Belgium.  Over the past few years we have seen Miller sold off to South Africa, Coors sold to Canada and now good ole’ Budweiser is housed in Europe.  I think if the bailout happy politicians in Washington D.C. want to get on better relations with the voters they should stop spending billions upon billions bailing out banks and ailing car companies and buy us back one of our breweries!  Now that is a socialization plan I could get behind!  Problem is, if the government got involved it would probably end up just like that sign at my favorite watering hole; “Free Beer Tomorrow”

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