Wall Street Wrap

Big Pharma Strong, Google vs. China?

By Robert Perrego, at 5:31 pm on January 13th, 2010

Merck & Co. (NYSE: MRK) was upgraded on a strong drug pipeline by Credit Suisse and the stock responded by running up 3.67% (+$1.38, $38.93) to close at its highest level in 20 months.  During a day that saw “Wall Street CEOs” grilled by the Financial Crisis Inquiry Commission (FCIC), stocks staged a rally that carried the Dow Jones Industrial Average to new highs not seen since early October of 2008.  While the market was focused on the big news about the banks and Google’s China conflict, Big Pharma staged a stealth rally which carried not only Merck, but Johnson & Johnson (NYSE: JNJ) and Pfizer Inc. (NYSE: PFE) to new closing highs.  All three of these companies are Dow Jones components and J&J and Pfizer are the two largest pharmaceutical companies by market capitalization traded in the United States.  J&J closed up 41 cents at $64.97 (+0.63%) and Pfizer added 44 cents to $19.21 (+2.34%).

The Dow Jones Industrial Average rose 53.51 points (+0.50%, 10,680.77) with 22 of 30 companies positive for the day.  Two tech components of the DJIA, Cisco Systems Inc. (NSDQ: CSCO) and Intel Corp. (NSDQ: INTC), did their part gaining 1.81% and 1.70% respectively.  The strongest major index on the day was the Nasdaq 100, which gained 24.34 points (+1.30%, 1,886.13) and the S&P 500 rose 9.46 points (+0.86%, 1145.68)

Google Inc. (NSDQ: GOOG) is considering pulling out of China after getting Gmail accounts of human rights activists hacked.  Google said the hacks were very sophisticated and may have even led to the theft of some company proprietary technology.  A distant second in the search market to Baidu.com in China, Google has feuded with the Chinese Government over censorship and the privacy of their data and the data of their users for some time now, and this may be the last straw.  The big question is whether or not Google is bluffing and will they actually leave the largest consumer market on the planet that also has the hottest economy right now?  Walking away from 25% of the world’s population is never an easy thing to do, no matter how good your reasons are.  Baidu, Inc. (NSDQ: BIDU) jumped $52.99 (+13.71%, $439.48) on the news while Google dropped $3.39 (-0.57%, $587.09)

Oil dropped to under $80 a barrel on warmer weather as Nymex crude lost $1.16 to $79.63.  Gold opened up a few dollars after yesterday’s slide resulting from China raising their interbank interest rates and then started trading lower.  By lunch the shiny yellow metal had formed an intra-day double bottom and New York spot gold trended higher for the rest of the day finishing higher by $9.80 an ounce (+0.87%, $1,137.60, 4:54 p.m.)

The Fed beige Book was released at 2 p.m. and provided some upward momentum for stocks as it stated that 10 of 12 Fed regional districts reported economic conditions are improving.  The growth is slow with pockets of weakness and concern about consumer spending and credit.  Credit quality is deteriorating and loan demand is dropping as economists worry about a double-dip recession.  Current debate is how well the economy will do on its own, once the governmental stimulus ’sugar-high’ is over.

Just dumping stimulus money into an economy does not mean a recovery as stimulus spent wisely is an investment with returns, while pork stimulus or non-investment spending does not spur job creation and the positive effects fade with time.  This is very similar to the old proverb; “Give a man a fish he eats for a day, teach a man to fish he eats for a lifetime.”  Give the economy wasteful stimulus spending and we have a bounce in the market and a double-dip recession, spend those trillions wisely and hopefully we get a full blown recovery.

Tomorrow we get the Retail Sales (+0.4%, +0.2%) and Jobless Claims (437K) numbers at 8:30 a.m. and then Business Inventories (+0.2%) at 10 a.m.

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Week on Wall Street

Another Slow Week On Wall Street

By Robert Perrego, at 1:20 pm on December 19th, 2009

Stocks went up and down this week on Wall Street as they always do and the net result on the broadest stock index, the S&P 500, was a loss of 0.36% or 3.94 points.  On Monday, the S&P 500 closed at its highest level of 2009 at 1114.11.  On Tuesday the dollar jumped higher and the markets sold off.  The biggest moves of the week were the fossil fuels as inventory data and a cold front sweeping North America drove natural gas higher by 10.97% and crude started the week below $70 and finished above $73 for a 4.73% gain.

For over a month the S&P 500 has been in a narrow sideways trading range between 1087 and 1110, with exception for Monday when a short-lived breakout was attempted.  The S&P 500 closed out Friday near the middle of this range at 1102.  While the S&P 500 is the broadest stock index, the tech heavy Nasdaq 100 closed out the week at 1807, nearer to the high end of its trading range (1767 to 1810) showing that tech is less susceptible to a rising dollar.  The weakest index, relatively, has been the Dow Jones Industrial Average which closed nearest to the lows of its range at 10,328 (10,300 to 10,480).

The connection the dollar has to stocks is via the much talked about carry trade.  With U.S. interest near zero the weak dollar has been shorted by the ‘carry trade cowboys’ and those funds put to work buying stocks and other ‘risky’ assets.  The relative strength of tech stocks shows that when the dollar rises and the shorts need to cover, the stocks they are least willing to sell to replace these funds are technology stocks.

At the start of the week the biggest story was a monster deal in oil and gas with Exxon Mobil Corp. (NYSE: XOM) buying XTO Energy (NYSE: XTO).  Exxon’s fossil fuel portfolio is heavily weighted towards oil and XTO towards natural gas.  This buyout may be a large play to hedge the historically wide spread between the costs on natural gas and oil.  Thus far the 10% rise in natural gas and 4.73% rise in oil has proven this strategy correct.  Monday also saw Citigroup Inc. (NYSE: C) get clearance from the U.S. Treasury to repay their TARP funds.

The Federal Open Market Committee held their last two-day meeting of the year on Tuesday and Wednesday, and announced they were standing pat on interest rate policy.  Comments on the decision to leave rates unchanged indicated that the Fed saw job losses slowing, but jobs were still being lost.  Of most importance in this announcement may have been that they were ending their quantitative easing program (purchases of agency backed mortgage debt) on February 1, 2010.

Wednesday also saw the Federal Trade Commission file a suit against Intel Corp (NSDQ: INTC).  The lawsuit cites bundling practices and even a secretly redesigned compiler software that makes their competitors chips run a little slower.  Intel competitors Nvidia Corp. (NSDQ: NVDA) and Advanced Micro Devices (NYSE: AMD) traded higher on this news.

On Thursday, Standard and Poor’s downgraded the government debt of Greece to BBB- causing investors to flee to the safety of the dollar and dump their riskier assets.  This caused the largest losses of the week for stocks as the DJIA dropped 132 points, which comprised most of its total loss for the week.  Citigroup sold 5.4 billion shares and the Treasury, as the secondary price was too low for its liking, decided not to sell any of their shares.  Gold dropped $40 an ounce on the dollar strength.  The SPDR Gold Trust (NYSE: GLD) closed below its 50 day exponential moving average for the first time since August.

On Friday the dollar traded higher but reversed course and closed flat.  Gold bounced back $15 an ounce and the GLD regained the 50 day EMA, closing just above.  Common technical analysis theory states one of the conditions for a break in a support level to be two consecutive closes below it.  The bounce back in gold saved the technical picture and also, now that the support level has been shown to hold, the bullish picture for gold is a bit stronger.  Beware, this might seem like the bottom of the ‘dip’ that all the gold bulls say you should buy, as the next few days will give a clearer picture as to whether the dip drops or pops.

Friday was a quadruple options expiration day and the action in the last 20 minutes contained more volatility than all day long.  The last 20 minutes saw the stock indexes run up into the close.  Once again, tech was relatively strong as the Nasdaq 100 rose all day long on earnings announcements by Oracle Corp. (NSDQ: ORCL) and Research in Motion Ltd. (NSDQ: RIMM) Thursday after the close.

On the week the action was in the fossil fuels and gold.  Below are some ETF and stock index movements that sum up the week.

Dow Jones Industrial Average  -143 points, -1.36%

S&P 500  -3.94 points, -0.36%

Nasdaq 100  +15.26 points, +0.85%

Gold ETF (GLD) -$0.37, -0.34%

Copper ETN (JJC)  -1.3 cents, -0.03%

Coal ETF (KOL)  +14 cents,  +0.4%

Oil ETF (USO)  +$1.18, +3.33%

Natural Gas ETF (UNG)  +$1.05, +10.97%

Steel ETF (SLX)  -11 cents, -0.18%

Agriculture ETF (DBA)  -1 cent, -0.03%

Dollar ETF (UUP)  +$0.33, +1.45%

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Wall Street Wrap

Fed Says Job Losses Abating, Leaves Rates Unchanged

By Robert Perrego, at 4:48 pm on December 16th, 2009

Well the good news is job losses are slowing down but the bad news is we are still losing jobs.  In the last meeting for 2009, the Federal Open Market Committee voted to keep interest rates “exceptionally low” for “an extended period of time” while noting that they are seeing some improvement in household spending.  This meetings statement was very similar to the past few except some comments were made on slowly improving areas of the economy such as household spending and decreasing job losses.  These statements strengthened the dollar with the US Dollar Index Future spot price trading up on the announcement.  You do not hear ‘The Fed’ without hearing ‘exit strategy’ these days and as it is widely thought that raising interest rates with 10% unemployment would not be greeted favorably by the Obama Administration, the first step towards the ‘exit’ would be to stop their quantitative easing programs.  So, The Fed also stated they will continue to purchase agency mortgage-backed securities through February 1, 2010 but after that ‘the store is closed.’

After The Fed announcement at 2:15 p.m., the Dow Jones Industrial Average dropped about 30 points net into the close to finish down 10.88 points (-0.10%, 10,441.12) while the S&P 500 dropped about 5 points on the announcement and finished up 1.25 points (+0.11%, 1109.18).  The Nasdaq 100 rose 2.61 points (+0.14%, 1,800.82).

The dollar traded up on the announcement and basically closed unchanged on the day.  Earlier in the day the usual relationships were acting as expected with the dollar down and stocks and commodities up.  Interestingly, the dollar rallied into the end of the day and erased its losses while gold and oil also closed near their highs on the day.  New York Spot Gold added $13.60 an ounce (+1.21%, $1,136.60, 4:14 p.m.) and the SPDR Gold Shares (NYSE: GLD) bounced off support and broke higher by $1.36 (+1.25%, $111.59).  The GLD’s chart looks very nice for more upside movement as the latest gold pullback may have seen its lows.  Paulson, Einhorn and most every other gold bull was saying they would be buying on dips and I wonder just how much they were able to add to their positions over the past 3 or 4 days.

Nymex crude added $2.03 a barrel (+2.87%, $72.72, 4:09 p.m.) as it seems the pullback in oil may be over with too.  We were below $70 a barrel on Monday but a nice run over the last two days has changed all that.  Copper, steel, coal and agricultural commodities were all up as well.

Another federal agency was in the news today as the Federal Trade Commission filed a lawsuit against Intel Corp. (NSDQ: INTC) for anti-competitive behavior.  I think the legal community founded Intel and they didn’t do it for semiconductor chips as this company generates lawsuits about every other day.  The lawsuit cites bundling practices and even a secretly redesigned compiler software that makes their competitors chips run a little slower.  Intel finished lower by 42 cents (-2.12%, $19.38).

Nvidia Corp. (NSDQ: NVDA) jumped higher as they are one of the firms that Intel is supposedly squeezing out of the chip market as the graphics chip company added $1.26 (+8.05%, $16.91).

Housing companies were strong today as Housing Starts were up 46k over last month and Permits were up 32k.  Beezer Homes USA Inc. (NYSE: BZH) gained 13.36% (+$0.60, $5.09), Pulte Homes Inc. (NYSE: PHM) gained 5.06% (+$0.45, $9.34), D. R. Horton (NYSE: DHI) gained 4.89% (+$0.48, $10.29) and Lennar Corp. (NYSE: LEN) was up 4.73% (+$0.57, $12.62).

The big economic news of the week was the FOMC meeting and with that out of the way we have Jobless Claims tomorrow at 8:30 a.m. with the expectations being 465k with a range from 460 to 470.  Friday is a quaruple witching day in the options market.

Tiger Woods name was only mentioned 232,000 times on CNBC today as something really important to all of our lives probably did not happen or have anything at all to do with Tiger Woods but CNBC was there to cover it.

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Week on Wall Street

Weak Week for Commodities on Dollar Strength, Stocks see less Action

By Robert Perrego, at 10:07 am on December 12th, 2009

With the end of the calendar year so close it looks like a few of the players have gone to the sidelines and are thinking more about gifts to buy for the holiday season than stocks.  The Dow Jones Industrial Average gained 83 points on the week while the S&P 500 and the Nasdaq 100 had net movement of less than one point.  In percentage terms, the PowerShares DB US Dollar Index (NYSE: UUP) climbed 0.88% while gold dropped 3.9%.  Oil began the week above $74 and finished out below $70 for the first time in since September,

The year has been a wild ride with the stock market dropping to below 7,000, bottoming out in March and then commencing a huge rally to the 10,000+ level we are at today.  This movement gave traders plenty of action to build their performance on, but that is only if you are on the right side of the trade.  With three trading weeks to go before 2010, funds that have hit their numbers for the year have packed it in and this could be responsible for the decreases in volume and volatility the market has experienced.

Monday saw the DJIA experience a net movement of less than 2 points and gold lost a few dollars.  The market must have had the cross-hairs on oil as the slippery black gold dropped over 2%.  CNBC was ripe with traders, economists and pundits debating the future of gold.  The Friday before saw a $48 an ounce drop in the price of gold as the Dubai World problems became public.  Fed Chairman Ben Bernanke gave a speech that watchers interpreted to mean no rate hikes would be coming anytime soon.  Again.  Intel Corp. (NYSE: INTC) dropped plans to produce a stand alone graphics chip and Advanced Micro Devices (NYSE: AMD) and Nvidia Corp. (NSDQ: NVDA) rallied on this news.

Tuesday brought a little action as the dollar rallied and the DJIA dropped 104 points.  The close Tuesday would mark the low close for the market for the week.  The financial news flow slowed but that was made up for by the news out of Washington D.C.  Obama stated in a speech he wanted to use repaid TARP funds to generate more jobs.  Theoretically, some think government spending generates zero jobs as taking $60,000 out of the economy via taxes and spending that same amount to pay someone a $60,000 salary leaves a net zero economic effect.  If there is any waste or frivolous spending (everyone knows the government would not do that) then you end up with a net negative economic effect.  As it may be politically unpopular to pass ‘Stimulus, The Sequel”, Obama seems to be looking around for any available funds, TARP, as a viable source for more spending.

Wednesdays big news was Citigroup Inc. (NYSE: C) stating they wanted to repay the funds they received from TARP.  Bank of America Corp. (NYSE: BAC) did it the week before by issuing a massive secondary offering that raised $19.3 billion.  Analysts estimate that Citigroup would dilute their stock by as much as 20% by doing this.  Fed Secretary Tim  Geithner extended the TARP program by a year, possibly to keep the program open so Obama could tap the fund for other spending.  Commodities were weak across the board.  Gold traded higher, then lower and then back to where it started and oil got hit for another 2.68% down to $70.69 a barrel.

The biggest moves Thursday were in health care stocks as the Senate Democrats backed off their plans to require a public option in health care reform.  UnitedHealth Care (NYSE: UNH) and Cigna Corp. (NYSE: CI) jumped up over 6%.  Some very positive news surfaced that household wealth increased by $2.7 trillion in the third quarter as housing prices actually rose and the run up in the stock market put more dollars into trading and retirement accounts.

Friday gave us strong Retail Sales data and showed Consumer Confidence was on the rise propelling the stock market higher.  This bodes well for the economy as the consumer and consumption drives our economy.  The DJIA climbed 66 points which turned out to be most of its weekly gain.  The dollar was strong again and commodities weak with oil closing below $70.  Regulatory reform moved along as the House passed their latest attempt to avert another financial problem via more regulation.  The problem here is, historically such attempts only seem to fix a past problem and have seemed to only cause the next one.

So, with three trading weeks to go to finish out 2010 we are still above Dow 10,000, oil is below $70 and hopefully the consumer is getting stronger.

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Wall Street Wrap

Oil Catches Up Going Down, Gold Bulls Dig In

By Robert Perrego, at 4:51 pm on December 7th, 2009

The big news Friday, and last week, was the jobs report which caused the sagging dollar to rally 1.48%, and seemed to spell the end for the commodities trade, especially the exploding gold market.  Friday, Nymex crude lost only 99 cents a barrel while gold got hammered for $46 an ounce after falling over $70 at one point.  Today, New York Spot Gold was trading lower by only 0.32% (-$3.70, $1,157.70, 4:25 p.m.) while oil extended its losses by 2.04% (-$1.54, $73.96, 4:10 p.m.).  The dollar jump that was sparked by Friday’s move in the headline unemployment rate to 10% from 10.2%, was slowed by a speech Ben Bernanke gave that traders interpreted to mean that a rate hike was not coming anytime soon.

The stock market had a short run up early, but came back in and spent the rest of the day going nowhere. The Dow Jones Industrial Average closed up just 1.21 points (+0.01%, 10,390.11) while the S&P 500 dropped 2.73 points (-0.24%, 1,103.25).  The Nasdaq 100 lost 8.26 points (-0.46%, 1,783.65).

The TV talking heads focused on when the fed rate hikes would come and also about hedge funds moving to the sidelines for the rest of the year.  After this year’s massive drop and pop in the stock market, any hedge fund managers that avoided dissolving and have met their numbers for the year (or even come close), are speculated to be moving to the sidelines for the rest of the year.  The volatility in stocks has dried up as of late, and the last big momentum trade and market action was in commodities.  The SPDR Gold Trust (NYSE: GLD) traded a massive 79 million shares Friday, which may have been all the ‘hot’ money getting out, while the longer term bulls were buying the dip.  Star hedge fund managers George Soros and John Paulson are gold bulls and they are investing for the long term.  Most the talking heads interviewed today were still of the opinion that in the longer term, gold is going higher.

The gold market had been heating up for a few months sparked by various news stories about central bank purchases, John Paulson splitting off a special fund for gold and Barrick Gold Corp. (NYSE: ABX) buying back in billions of dollars worth off hedges.  This created a feeding frenzy and that inevitable game of chicken a market gets into when players smell profit.  The small loss in gold today, after dropping so much early in the trading day, showed no follow through on Friday’s selling.  This buying might be indicating the underlying strength in a longer term move.

On the tech side, Intel Corp. (NSDQ: INTC) dropped plans to roll out a stand-alone graphics chip and this boosted Nvidia Corp. (NSDQ: NVDA) by 12.8% (+$1.83, $16.09), which is the dominant player in the space.  Advanced Micro Devices Inc. (NYSE: AMD) got a foothold in the graphics chip market by merging with ATI Technologies, and gained 8.4% on the news (+$0.66, $8.52).

The economic calendar is light this week as the market takes a seasonal slow-down going into the holiday period.  We get no major economic releases until Thursday with the weekly Jobless Claims and International Trade numbers at 8:30 a.m.  Federal Reserve Governor Elizabeth Duke speaks to the Chicago Fed’s mortgage foreclosure policy conference in Chicago at 12:45 p.m. on Thursday.

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