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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Wall Street Wrap

Yo-Yo Market Back Down on China and Greece

By Robert Perrego, at 4:34 pm on February 12th, 2010

Remember the days when the U.S. stock market was about the U.S. economy and companies?  If not for a Chinese credit tightening and the Germans deciding the Greeks need to get their own house in order, I might be writing about Warren Buffet and the fact that Berkshire Hathaway closed the Burlington Northern Santa Fe deal.  Instead, the topics du jour are China raising their bank reserve requirements and that the deal out of Europe everyone was expecting might be falling apart.  The bottom line is that your portfolio most likely dropped in value today as the stock market closed lower on news from two OTHER continents.

The Dow Jones Industrial Average lost 45.05 points (-0.44%, 10,099.14) today and the S&P 500 gave up 2.95 points (-0.27%, 1,075.51).  The Nasdaq 100, the strongest of the three over the past two days, closed up 3.37 points (+0.18%, 1,779.11)

After the credit markets fell apart last year the Federal Reserve dropped interest rates to near zero making the dollar a shiny new candidate for the carry trade.  China tightened credit, Asian and European stock markets dropped, Merkel caught flak from the German voters not to keen on bailing out another country and the European markets dropped lower.  Then, before our markets even opened, the carry trade cowboys were buying in their dollar short positions and entering sell orders for stocks here at home.

The market opened lower and the DJIA dropped 144 points in the first 10 minutes of trading.  Market players started putting a positive spin on the news as analysts said the gradual tightening in China would be a good thing over time and Blackrock Inc. came out and said they are increasing their Greek bond holdings.

Market players tried to put a positive spin on the China news saying a gradual tightening will keep a bubble from forming.  Another factor cited in the tightening of credit in China is that investment money is flooding in and the reserve raise is trying to sop up some of that extra cash.  It looks like money is chasing investments looking to catch that near vertical phase before the bubble pops.  If that is supposed to be the good news, here is the bad news – 50% of the commercial space in Beijing is vacant.  They are building buildings just to build something and keep the jobs.  This means there is already a bubble in China and that business is not keeping up with the stimulus generated building supply.  No tenants means no rent collected, which means no payment back of the loan taken to build the building.  When that loan comes due – crash.

Surprisingly, Caterpillar Inc. (NYSE: CAT) was up today (+$0.05, $56.20) after my picking it as a proxy trade for China yesterday.  CAT opened over a point lower and spent the rest of the day trading up.  My other China-economic news proxy trade, the iPath Dow Jones-UBS Copper ETN (NYSE: JJC) lost 1.40% (-$0.60, $42.10) but is up nicely this week (+6.91%).  The Chinese markets closed today for two weeks for New Year’s celebrations and the tightening after the close yesterday was a pretty sly move by the government.

The dollar shot up on the news that the German’s were backing away from the deal with Greece.  This caused commodities to drop as New York spot gold traded as low as $1,076.10 an ounce but spent all day recovering as the dollar dropped.  NY spot was last trading down 50 cents at $1,092.10 (4:25 p.m.).  The PowerShares DB US Dollar ETF (NYSE: UUP) gapped up on the market open and traded as high as $23.74 (+$0.19) before closing at $23.63 (+$0.08).  This is the highest close for the UUP, excluding last Friday’s close at $23.65, since July 29, 2008.  Gold holding in here solid while the dollar inches up is showing some very solid relative strength.

Nymex crude dropped $1.15 a barrel to $74.13 (-1.53%, 4:14 p.m.).  A slower China means less oil demanded and possibly the two week New Years vacation over there will also crimp demand as factories are shut down.

Next week the markets are shut for Presidents’ Day so that means a THREE DAY WEEKEND!  Hope you have the day off Monday and have a great weekend.

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News

Germany and France step up to the plate for Greece – Market Rallies

By Robert Perrego, at 5:02 pm on February 11th, 2010

The 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.

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Wall Street Wrap

Market Runs up on Greece Bailout Speculation

By Robert Perrego, at 4:49 pm on February 9th, 2010

European Central Bank President Jean-Claude Trichet left a summit in Sydney a day early, sparking speculation that a deal was afoot to help Greece get back on their feet and in control of their debt problem.  With the euro dropping last week on worries that Greece, Portugal and Spain were in trouble financially, world stock exchanges sold off as money flew to the relative safety of the dollar and U.S. Treasuries.  At 11:30 a.m. est, rumors circulated that a deal involving Germany was imminent and the S&P 500 took off as the dollar got hammered.  Within 50 minutes the S&P 500 jumped over 17 points as the PowerShares DB US Dollar ETF (NYSE: UUP) dropped almost a full percentage point in the same time period.  Twenty minutes after the market run-up, a sharp drop of 8 S&P points occurred as all those involved denied there was any deal in place, but the fact that the wheels were seen to be in motion kept the market strong all day.

The Dow Jones Industrial Average closed up 150.25 points (+1.51%, 10,058.64) and regained the 5-digit, 10,000 level with 27 of 30 components finishing higher.  The S&P 500 climbed 13.78 points (+1.30%, 1,070.52) and the high tech Nasdaq 100 gained 18.96 points (+1.09%, 1,753.84) but was the weakest of the three indexes as low tech airlines +8.49%, metals +3.23% and materials +3.01% led the market higher.

The airlines were very strong as United Airlines reported unit revenues in January that blew away Wall Street estimates.  UAL Corp. (NSDQ: UAUA), the holding company for United Airlines, saw its stock rise by 17.52% (+$2.29, $15.36) and logged their strongest single day in the market since August of 2009.  UAUA bottomed at $3.07 on July 10th of last year and has since performed fantastically rising 400% in just over 6 months.  AMR Corporation (NYSE: AMR), the parent of American Airlines and American Eagle, closed up 13.79% (+$1.01, $8.33) and they are up 247% from their low trade of $2.40 last March.  Airlines, once commonly referred to as flying holes in the sky for money, can be a nice investment but just like with everything in life, it is all about timing.

Commodities stocks and commodities were especially strong today as not only do they gain on a rising market, but they get supercharged by the fact that they are denominated in dollars.  The dollar fell relative to the euro, but it would be more appropriate to say the euro gained against the dollar, as last week’s relative jump in the dollar had more to do with euro weakness on worries the Greek economy was sliding south.

The Market Vectors Junior Gold Miners (NSDQ: GDXJ) jumped 5.35% (+$1.19, $23.41) as the major miner index (NYSE: GDX) climbed 4.38% (+$1.79, $42.57).  Hard commodity ETF’s easily outperformed even a strong day in the broader market as the falling dollar provided extra fuel for a bigger move.

SLX – Market Vectors Steel +4.35%

KOL – Market Vectors Coal +3.33%

JJC – iPath Dow Jones – UBS Copper +3.21%

USO – United States Oil Fund +3.07%

DBA – PowerShares DB Agriculture Fund +0.19%

New York spot gold was last seen trading at $1,075.50, up $14.10 an ounce (+1.33%, 4:09 p.m.).  Gold is performing very logically according to the charts as it now has tested the support level at $1,060 and seems headed higher.  The SPDR Gold Shares ETF (NYSE: GLD) is experiencing the same bounce (+$1.37, +1.31%, $105.41) and now has its 50 day exponential moving average over head at $108.10 as resistance.  The rules of technical analysis say two closes above this level is a breakout, so if you did not buy the bottom on support another buy signal showing even more strength may be coming soon.

Nymex crude added $2.03 a barrel and was trading $73.95 (+2.84%) at 4:07 p.m.  If oil makes another run at $80 it will continue the sideways trend channel ($67 to $80) it has been bouncing up and down inside in since last July.  The USO has fluctuated between $35 and $41 a few times now and looks headed back up again.

Tomorrow we get the MBA Purchase Applications report at 7 a.m., International Trade numbers (-$35.7B) at 8:30 a.m. and the Treasury Budget (-$46B) at 2 p.m.  Bernanke’s appearance in front of the House Financial Services Committee has been postponed due to severe weather.  Left to guess I would say severe global warming with all the hot air in D.C., but they are due to get another major snowstorm.  Philly Fed President Charles Plosser gives a speech to the World Affairs Council of Philadelphia at 12:45 p.m. and I guess people in Philly drive better in the snow because it is not canceled.  Strangely, Fed Governor Daniel Tarullo’s testimony in front of the Senate Banking Committee in D.C. at 9:30 a.m. is not canceled, proving that either senators are better drivers than congressmen or they are full of more hot air.

Selected earnings estimates for Wednesday, February 10:

A quick look show it is ‘insurance day’ as quite a few insurance and reinsurance companies report tomorrow: RE, MMC, PRE, PL, PRU, ALL and TRH.

MT 0.27 before market open, BHP, BSX 0.13 after the close, CCE 0.21 bmo, CSC 1.23 bmo, CLB 1.20 atc, DF 0.37 bmo, ELN -0.08 bmo, RE 3.38 atc, ICE 1.14 bmo, LVLT -0.10 bmo, LPX -0.19 bmo, MMC 0.37 bmo, MICC, PRE 2.81 atc, PL 1.02, PRU 1.11 atc, SIAL 0.72, SON 0.50 bmo, S -0.19 bmo, ALL 1.01 atc, NYT 0.38 bmo, TRH 1.83 atc, VALE 0.32 atc, WYN 0.37 bmo.

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Wall Street Wrap

Financials Weak and Dow 10,000 No More

By Robert Perrego, at 5:06 pm on February 8th, 2010

The Dow Jones Industrial Average slid steadily all afternoon closing down 103.84 points today (-1.03%, 9,908.39) and closed below 10,000 for the first time since November 4th of last year.  All but 2 of the 30 components were losers today with the three weakest stocks all being finance related companies.  Bank of America Corp. (NYSE: BAC) dropped 3.46% (-$0.52, $14.48), American Express Co. (NYSE: AXP) lost 2.80% (-$1.06, $36.79) and the Travelers Companies Inc. (NYSE: TRV) finished lower in the red by 2.44% (-$1.23, $49.05).  Home Depot Inc. (NYSE: HD) was the strongest of the Dow components gaining 2.18% and also up were home builders Lennar Corp. (NYSE: LEN) +4.62%, Beazer Homes USA Inc. (NYSE: BZH) +3.64% and Pulte Homes Inc. (NYSE: PHM) +2.29%.

The S&P 500 dropped 9.45 points (-0.89%, 1,056.74) and the Nasdaq 100 was down 11.24 points (-0.64%, 1,734.88) and was the leader by being the smallest loser.

I guess the sky stopped falling over in Europe as the euro stabilized against the dollar and Greece was mentioned by the talking heads on CNBC slightly less than the babbling about former Merrill Lynch & Co. chief John Thain getting a new job over at CIT Group Inc.  Various cures for what ails Greece have been proposed from applying for loans from the International Monetary Fund to getting more on their credit card from other EU members.  I vote the EU members bail the EU members out as we pay into the IMF and the chances of Greece paying that money back anytime soon with a strike or protest every other day does not look to good to me.  The Greeks are proud of the fact they invented democracy and the rest of the world is pretty happy they gave it to us, but constantly striking, protesting and having your voice heard pays less taxes than actually going to work.

The dollar slipped marginally, but stayed up at level it has not seen since August of last year.  With the dollar at this relatively high level and basically scared up a tree by the crisis in Greece (and other countries), commodities are looking like a bargain if you think the dollar will come back down when (if) Europe stabilizes.

New York spot gold lost $2.70 an ounce and last traded at $1,062.30 (-0.25%, 4:24 p.m.) as this percentage loss outperforms the 1%+ the DJIA lost.  CNBC has had gold up all day over $10 an ounce and I am guessing the futures contract they are watching is longer dated than the spot market.  If you are invested in or trading the gold ETF’s you will find that they correlate more closely with the spot market than whatever CNBC decides to display.

Oil gained $0.48 to $71.65 a barrel (+0.65%, 4:27 p.m.) as the steep slide down from last Wednesday’s peak is halted.  Oil reversed in this general neighborhood last December with the United States Oil Fund (NYSE: USO) bottoming at $35.48 on December 11th before running up to $41.17 on January 8th (+16%).  For all you channel and range traders out there, today’s close at $35.09 does hit short term bottoms from last December, September and August.

We have a relatively light economic calendar this week with no speeches or testifying for Timothy Geithner.  Fed Chairman Ben Bernanke testifies in front of the house Financial Services Committee on Wednesday about how he is going to let all the air out of the liquidity balloon without crushing job creation (like that is happening now anyway).  As long as I don’t hear ‘then we pray’, it sounds like a plan to me.  Ben is a pretty smart guy and the fact that our economically challenged politicians are going to quiz him on whatever he decides to do and then possibly even understand his answer is comical.

Tomorrow at 7:45 a.m. we have the ICSC-Goldman Store Sales, at 8:55 a.m. we get the Redbook and Wholesale Trade numbers come out at 10.

Selected earnings estimates for Tuesday, February 9th:

AGU 0.24, AFG 0.98 after the close, BIDU 1.68 atc, BJS 0.04, CAM 0.53, CHD 0.80 before market open, CVH 0.56 bmo, EOG 0.98 atc, IT 0.26 bmo, IFF 0.62 bmo, LGF -0.23 atc, MLM 0.33, TAP 1.10, NYX 0.48 bmo, PCH 0.04 bmo, PHM -0.19 bmo, RNR 2.50 atc, TIN 0.03 bmo, KO 0.67 bmo, VSH 0.12 bmo, VMC -0.01, DIS 0.39 atc, XL 0.70 atc

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