Wall Street Wrap

Market Edges Higher as Bonds, Finance and Commodities Strong

By Robert Perrego, at 5:06 pm on February 26th, 2010

The stock market tried to be bullish today but only managed a 4 point gain for the Dow Jones Industrial Average.  I say it was trying as the stocks posting gains were the names you would buy in a bull market.  Leading the DJIA was JP Morgan & Chase Co. (NYSE: JPM) which gained $1.38 (+3.25%, $41.97).  Looking at the components of the DJIA that were down today and it seemed as if they were selling the defensive names; Kraft Foods Inc. (NYSE: KFT) -1.35%, McDonalds Corp. (NYSE: MCD) -0.69%, Procter & Gamble Co. (NYSE: PG) -0.42%, Coca~Cola Co. (NYSE: KO) -0.35%, Johnson & Johnson (NYSE: JNJ) -0.21% and Wal-Mart Inc. (NYSE: WMT) -0.09%.

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.

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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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News

Caterpillar Hits Paydirt, McMoRan Strikes Oil

By Robert Perrego, at 5:00 pm on January 11th, 2010

The Dow Jones Industrial Average rose to a new high powered by Caterpiller Inc. (NYSE: CAT), which rose $3.79 (+6.28%, $64.13) on news out of China that imports rose to a record level.  The stimulus funds injected into the Chinese economy by the Government is spurring an infrastructure/building boom, and the first things you buy to build are the large earth-moving machines Caterpillar manufactures.  The rule of thumb for the DJIA is each point a component stock moves results in about 7 points in the index, so Caterpillar pushed the Dow up about 28 points on its own today.  The biggest percentage mover today was McMoRan Exploration Co. (NYSE: MMR) which jumped over 50% (+$4.81, 14.00) on news that their Davey Jones ultra-deep drilling project could have hit the largest oil deposit found in the Gulf of Mexico in decades.

The DJIA closed up 45.80 points (+0.43%, 10,663.99) on the Caterpillar strength, but also chipping in was a 2.03% move up in Coca-Cola Co. (NYSE: KO) and a 2.16% move in United Technologies Corp. (NYSE: UTX).  The S&P 500 closed up 2.00 points (+0.17%, 1,146.98) and the Nasdaq 100 fell 6.35 points (-0.33%, 1,886.24).

Traders were selling the dollar today on lower fears that a rate hike could be coming soon as a result of last Friday’s weak employment number and comments by various Fed President’s.  The dollar index future spot price (.DXY) dropped 0.25% (-0.19, $76.99).  The fall in the dollar strengthened commodities, especially the metals, with a 0.59% rise in the Copper ETF (NYSE: JJC) and New York spot gold was last seen trading up $14.60 an ounce (+1.28%, $1,152.30, 4:12 p.m.)

A very popular trade in 2009 was to short the dollar and use the funds to buy ‘riskier’ assets, such as stocks and commodities.  This ‘carry-trade’ was put on hold for awhile as the dollar began a three week long rally in early December.  The chart of the PowerShares DB US Dollar Index (NYSE: UUP) looks to have peaked for now, and has been declining since closing at its rally high of $23.16 on December 22nd.  Since then, the ETF has declined to $22.72, and traded as low as $22.65 today.  If these carry trade cowboys get comfortable shorting the dollar again, as they are not afraid of a rate hike by The Fed anytime soon, the sector that should benefit the most are the commodities.

Even though the dollar fell, oil dropped 42 cents (-0.51%, $82.33, 4:14 p.m.) as warmer temperatures are expected across the United States in the coming days.  The cold snap that saw orange juice futures jump and freezing temperatures in Austin, Texas, is expected to ease and so today did the prices of coal (-0.61%), natural gas (-4.61%) and oil.

Earnings season has officially started as Alcoa, Inc. (NYSE: AA) reported after the close today.  Analysts expected 6 cents a share and Alcoa reported 1 cent, but excluding charges came in at 7 cents.  Revenues for Q4 2009 were reported at $5.4 billion with analysts expecting $4.9 billion. Alcoa stated that higher energy costs and currency effects are the reason earnings missed before charges.  During regular trading today Alcoa rose 2.52% (+$0.43, $17.45) and closed at a 52 week high on speculation earnings would be strong.  The stock is trading lower by $0.95 in the after market at $16.50 (4:51 p.m.)

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News

Market Wrap – Health Care Healthy, All Other Stocks Sick

By Robert Perrego, at 5:11 pm on August 17th, 2009

Jim Cramer is always saying on his show that there is always a bull market out there somewhere and he is going to find it for you.  Today the bull market was in health care; from drugs to hospitals to health insurance, most of the green on your screen had something to do with health care.  The health insurance companies did especially well today as Obama seems to be losing the battle for his public option, and today’s abrupt change of pace and focus by the Administration could even be interpreted as a strategic retreat.

Before Wall Street even got to open for trading today, futures were in the tank as there was a worldwide sell off with China dropping 5.8%.  Bullish news was around as perma-bull Abby Joseph Cohen called the end to the recession and the Empire State Manufacturing Index beat expectations and indicated growth.  The prevailing group think seems to be that stocks got ahead of themselves so the bids disappeared and the Dow dropped 200 points straight down from the opening bell and stayed in the basement all day long.

The Health Insurance Companies popped as it is looking like the ‘public option’ competition from the government will not materialize.  Take away that 800 pound gorilla competitor and UnitedHealth Group Inc. (NYSE: UNH) was up 1.49% (+$0.42, $28.48), Cigna Corp. (NYSE: CI) added 2.98% (+$0.86, $29.68), WellPoint Inc. (NYSE: WLP) up 2.89% (+$1.51, $53.70), Humana Inc. (NYSE: HUM) +2.42% (+$0.84, $35.53) and the hospitals rallied as well with Universal Health Services (NYSE: UHS) +1.54% (+$0.91, $59.91) and Tenet Healthcare Corp. (NYSE: THC) adding 1.67% (+$0.08, $4.85).  The bull market was health care and everything else got sick.

The Dow dropped 186.06 points (-1.99%, 9135.34) with the S&P getting hit harder down 24.36 points (-2.42%, 979.73) and the Nasdaq 100 hit the hardest down 46.69 points (-2.89%, 1564.89).  Ouch.

The other headline story today was the dollar rally.  In a flight to safety, investors bought the dollar and Treasuries as the 10-year rallied 21/32 pushing yields down.  We have had a 5 month run and today it seemed the game was ‘last one out is a rotten egg’ and then stash the cash somewhere safe.

The Dow dropped out of the 247 point trading range we had been in for 8 days and minor support exists just below today’s close at around 9075 to 9100.  If we trade below that level the next, and much stronger, support area is in the 8800 to 8850 level and is formed by a convergence of the 200 day exponential moving average, the 50 day and the tops from mid-June.  (Support and Resistance lesson 1; Tops are Support in a dropping market and Bottoms are Resistance in a rising market).  The Bulls are saying this is nothing but a pullback and a chance to get in on the cheap, and if the 8800 support level holds it could very well be.  The Bears cite that even with some positive news out about the economy, stocks are very pricey in terms of their P/E as business is just plain slow.  The Q2 earnings had most every company miss on their top line revenue number but many companies still managed to beat guided down earnings estimates through inventory and cost control – and by firing a lot of people.

Gold and oil got hit on the strong dollar as did commodities across the board.  New York Spot Gold was trading down $14.40 an ounce at $933.20 at 4:29 p.m. and oil lost 76 cents on the day and was trading $66.79 a barrel at 4:19 p.m.

The worst performing sector of the day was finance, dropping 4.29% with energy second worst, down 3.49%.  Consumer cyclicals got lumped for 2.87% while non-cycs only dropped 1.04%.  Coca Cola (NYSE: KO) actually finished up 0.47% and this would be a very good example of a non-cyclical.  I guess no matter how broke you get you can still have a Coke and a smile.

The charts look ugly folks – today was a breakdown day and follow through selling tomorrow and into the week could mean a few hundred more points easy.  Keep your eyes on 9100 and 8800.  The good news is we had a great run but the bad news is September is coming – traditionally the worst month of the year for the market.  It looks like it is going to be a bumpy ride.

We get PPI (-0.3% expected) and Housing Starts (605K expected) tomorrow at 8:30 a.m. with Jobless claims (550,000) on the horizon, Thursday at 8:30 a.m.

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News

Market Wrap – Berkshire gets Downgraded at a Possible Top

By Robert Perrego, at 4:42 pm on August 10th, 2009

Berkshire Hathaway Inc. (NYSE: BRK.A) has run up from $85,125 a share on July 10th to a high at $108,450 on Friday for a 27% gain in one month.  Today the stock got hit for 3.79% on a downgrade as the entire market sold off from last week’s rally.  Maybe it was just a fear of heights or the Bulls just got tired (most likely both) but the Dow Jones was down as much as 80 points intra-day and rallied back to close down only 32.27 points.  Berkshire lost $4,100/share (-3.79%, $104,000).

Berkshire Hathaway is Warren Buffet’s holding company for many different businesses including Coca-Cola (NYSE: KO), American Express (NYSE: AXP), Johnson & Johnson (NYSE: JNJ) and wholly owned insurer Geico of the marketing famed English accented gecko lizard.  While a large percentage of Berkshire is in financials of some type, Warren has bought a wide variety of companies based upon his value oriented stock picking method.  Berkshire can be watched as a proxy on the market and especially the finance sector which has been particularly strong as of late.  On the same note – when someone goes out and downgrades Berkshire it is best to pay attention.

What may have analysts and traders spooked is that The Federal Reserve is meeting tomorrow.  While it is highly unlikely that the Fed raises rates tomorrow (it would actually be political suicide for Bernanke right now), the statements accompanying the “we have decided to leave rates alone” could move the markets substantially.  A statement that sounds something like this; “Even though the economy remains weak The Fed now regards inflation a more significant future threat” would move the markets.  This type of statement would mean rate hikes are coming and the Treasury market will begin to react immediately pricing a rate hike in which means interest rates will rise (cost of money) and most likely a sell off in stocks would result.  No trader wants to be caught too long of stock with such an event being possible.  Right now credit is a long lost memory to a lot of companies and small businesses and if the cost of this credit is increased that loan becomes an even more distant dream.  This is a two day meeting and The Fed announces their decision on Wednesday at 2:15 p.m.

Inflation is a worry as Washington D.C. has been spending an awful lot of money lately and on top of that they have plans to spend a whole lot more.  I would think that when you are up to your neck in credit card debt and mortgage bills, the roof is leaking and the boiler just blew, not a lot of rational people would be out shopping for a new car.  To pay for all this and the ‘new car’, Treasury Secretary Timothy Geithner asked congress to increase the Federal Governments debt ceiling.  I guess $12.1 trillion is not a big enough credit card for the new Administration.  All this extra debt and dollar bills is what is worrying the Fed as far as that inflation thing is concerned.

The Dow Jones Industrials dropped 32.12 (-0.34%, 9337.95) but did recover from lower levels in the last two hours of trading.  The S&P 500 lost 3.38 points (-0.33%, 1007.10) and the Nasdaq 100 lost 9.06 points (-0.55%, 1610.43).

New York Spot Gold was down $9.50 an ounce and trading at $945.90 at 4:18 p.m. and NYMEX Crude traded flat and lost only 8 cents at $70.87.

On the sector watch consumer cyclicals got hammered for 2.03% and finance was down 1.24% with energy up 0.68%.  Consumer non-cyclicals were up 0.44% while the cyclicals were getting hit and this shows traders getting defensively positioned.

In other headlines Southwest Airlines Co. (NYSE: LUV) submitted a cash bid of $170 million for Frontier Airlines, Carl Pickens and all his hot air decided not to farm wind, State Street (NYSE: STT) finally decided, just maybe, their loan portfolio might be as crappy as everyone elses and, just maybe, they did not set aside enough in loan loss reserves.

Paul Krugman brought up the second stimulus option this morning and the talking heads on TV were all over it all day.  I am no big fan of more spending especially in light of being $12.1 trillion in debt and I am very leary of every dollar this Administration spends as the last stimulus program of some $787 billion was mostly wasteful spending and even the Congressional Budget Office (all appointed by Congress’s controlling Democrats) analysis of the first one said it would be harmful to the overall economy in the long run.  So this means we need another one?

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