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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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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News

Tech Strong, Gold Bounces Back

By Robert Perrego, at 5:09 pm on December 18th, 2009

Oracle Corp. (NSDQ: ORCL) reported after the close yesterday, that earnings rose year-over-year to $1.46 billion or 29 cents a share vs. last years 25 cents a share.  When exchange rate effects were backed out of earnings and revenue, both were flat with last years results, but at least they were not falling.  This announcement powered the stock higher by $1.46 (+6.38%, $24.34) as most companies, tech and non-tech, have seen either their earnings, revenue, or both decline.  Research in Motion Ltd. (NSDQ: RIMM) jumped 10.30% (+$6.54, $70.00) on their earnings announcement as revenues increased 11% while Palm Inc. (NSDQ: PALM) reported a decline of revenues of 59.2%.

Besides the earnings driven technology sector and a bounce back in commodities, the market was flat with the Dow Jones Industrial Average gaining 20 points (+0.19%, 10,328.89), the S&P 500 up 6.31 points (+0.57%, 1,102.47).  Looking at the intra-day charts of both these indexes shows you that the Dow gained 45 points and the S&P 500 rose 4 points, all in the last 20 minutes of trading.  The Nasdaq 100 was up over 29 points (+1.63%, 1,807.32) and strong all day.

Gold and commodities got hit hard yesterday on a strong dollar and today they bounced back while the dollar stayed flat.  New York Spot Gold was down $40+ yesterday but recouped $14.70 an ounce today to $1,111.80 (+1.34%, 4:18 p.m.).  This morning, oil jumped almost $2 a barrel to $74.33 on news that Iranian soldiers took over an Iraqi oil well.  By 4:12 p.m. this rise had traded down to $73.18 (+$0.53, +0.73%) as it seems this  is not an uncommon occurrence.

The carry trade and the recent strength in the dollar has caused much concern that the stock market would get hit if the dollar started to rise.  Over the past few years, ETF’s have made it possible for the common investor to diversify into commodities.  Let’s take a look at what kind of effect this week’s strong dollar had on the stock market and select commodities;

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%

Looking at these numbers you can see that while the DJIA and the S&P 500 maintained their inverse relationship to the dollar, the tech heavy Nasdaq 100 is bucking the trend.  Also, it seems that the dollar strength did not translate into as much commodity weakness as you may have thought.  The worst performer of the above listed commodities is gold down 0.34% while the dollar strengthened over four times as much, up 1.45%.  Natural gas and oil crushed the dollar effect as natural gas actually rose seven times as fast as the dollar dropped and oil was up more than twice the drop.  Completing the fossil fuels sector, coal finished positive on the week and the strength of these three may be attributed to the cold weather sweeping North America.

In the Tracked.com’s ‘Strange-but-true-irony’ category it is freezing and snowing heavily in Copenhagen as politicians gather to discuss ‘global warming’ and Former Vermont Governor and consummate left-winger Howard Dean says he would not vote for the current health-care reform bill.  A little advice for the pro-global warming crowd; start holding your conferences in the desert in August as all the ones we keep seeing are during ice storms, blizzards and cold weather and this hardly makes for the press you want.  Advice for Howard Dean; run for office and win, then we just might care what you would vote for and then you could actually vote.

So up is down, down is up and who cares – the weekend is here.

Have a great weekend.

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Wall Street Wrap

Exxon Gets Gas, Dubai World Bailed Out, Citi Escapes

By Robert Perrego, at 4:30 pm on December 14th, 2009

The big news the market woke up to this morning was that Exxon Mobil Corp. (NYSE: XOM) was shelling (not the other oil company) out $41 billion for XTO Energy (NYSE: XTO).  XTO is more deeply involved in natural gas than oil and Exxon is more concentrated in oil than natural gas, so the combination makes the combined company more diversified.  Currently, the ratio in prices of oil to natural gas is at a historically high levels and by looking at the buyout through this lens, the deal makes even more sense.  ExxonMobil is shorting oil (selling their shares) and  going long natural gas (buying XTO) in order to bet that the very high ratio reverts to the norm over the long term.  Exxon is a hedge fund now?  No, just a company that knows a LOT about energy.  Another factor in the buyout may be the cap and trade legislation, possible carbon taxes and the fact that natural gas is much cleaner burning fuel than coal or oil.

News out of the Middle East had a positive effect on the market as Abu Dhabi pulled a 180 and announced a $10 billion bailout of Dubai World.  After saying they were not going to stand behind Nakheel a few weeks ago, the reaction to this news was possibly reason enough to reverse course as UAE stocks took off on the news.  One market that really likes this bailout news is the gold market, as the dollar dropped today as investors nerves were soothed by the bailout and the appetite for risk increased.

Even with such a major deal being done the Dow Jones Industrial Average was only up 29.55 points (+0.28%, 10,501.05) and the S&P 500 gained 7.70 points (+0.69%, 1,114.11).  The Nasdaq 100 outperformed the other indexes adding 17.03 points (+0.95%, 1,809.09).

I am seeing a few chart indicators that the pullback in gold may be just about over, opening a window for a favorable entry point into the gold trade.  Gold trades inverse of the dollar and on the day Dubai World announced their debt problems and gold dropped $46 an ounce the PowerShares DB US Dollar Index (NYSE: UUP) traded their all time high volume of 12.9 million shares.  The dollar shot up, gold got hit and it looked like volume was marking the bottom for the dollar.  Last Friday the UUP traded 15.2 million shares on the peak of their run up and traded lower today.  The SPDR Gold Shares (NYSE: GLD) has pulled back to trade just 30 cents above its 50 day exponential moving average, which represents a support level, and traded higher today.  The stochastic oscillator for the GLD has fallen, and while it has not turned upwards yet, we are approaching an area where it is likely to.

The GLD closed today at $110.24 (+0.84%, +$0.92) and watching for a breakout above $111 before entering may be a safer trade.  If the GLD trades below where the 50 EMA is ($108.44) get out and take a $2.56 loss (-2.3%) while the upside to this trade, if you hold just back to its all-time high for the GLD, is $8.54 or 7.7%.  Many traders regard a 3-to-1 ratio of a trade’s success to be what they look for.  (7.7 / 2.3 = 3.35).

New York Spot Gold gained $8.90 an ounce (+0.80%, $1,124.00, 4:10 p.m.) as the dollar dropped today.  The UUP lost 5 cents (-0.22%, $22.63) as the Dubai World news eased investor fears and they moved money to riskier currencies and in effect, put the ‘risk trade’ back on again.  The big question is whether or not this Dubai bailout will embolden the carry trade cowboys enough to bottom gold out here and cause the dollar bounce to be short lived.

Citigroup Inc. (NYSE: C) got clearance from the Fed to repay their TARP loan causing the shares to drop 6.32% (-$0.25, $3.70).  Citigroup is planning a huge secondary to raise the money and this could dilute Citigroup stock by as much as 20%.  Looks like Uncle Sam is going to come out of this deal with a tidy little profit as well, as analysts estimate a $13 billion profit.  This of course is if you ignore the hundreds of billions of dollars of toxic paper the Fed bought off Citibank and the Citigroup debt that got U.S. Government guarantees.  Then again, those guarantees did not do Fannie and Freddie’s bondholders a whole lot of good.

Nymex crude dropped 21 cents (-0.30%, $69.66, 4:10 p.m.), even with the big oil patch deal.  This drop in oil may be what kept the market from rising on the XTO announcement, as the dropping commodity worked against the merger news in the oil stocks.  The Nasdaq 100 did have a strong day and there are few (if any) oil stocks in that index.

The big economic event this week is a Fed meeting that starts tomorrow with the announcement on interest rates scheduled for Wednesday at 2:15 p.m.  The view on the Street is that with this time of year being a thin trading time, the Fed will not alter their statement at all, and no one expects a hike in interest rates.

Friday is a quadruple witching day for options.

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Wall Street Wrap

Wall Street Wrap – Cisco calls a Bottom, Jobless Claims Down, Hello Dow 10,000

By Robert Perrego, at 5:08 pm on November 5th, 2009

Cisco Systems Inc. (NSDQ: CSCO) reported after the bell yesterday and posted 39 cents per share, beating estimates by 13 cents.  More importantly, CEO John Chambers stated he believes that business conditions have bottomed, and that the customers that have put off large investments as a result of the economic conditions were now starting to buy more of their high ticket items to cope with growing internet traffic.  These comments by Chambers agree with reports that companies are now holding very high levels of cash, most likely as a result of seeing the commercial paper market stumble last year.  Want to scare a CFO to death?  Tell him that the commercial paper market is not working and if he does not jump out a window, he will start hoarding cash to make sure the company can meet its short term obligations.

On top of the good news from Cisco, this morning the initial Jobless Claims numbers declined by 20,000 and the Productivity increase of 9.5% blew away the 6.3% estimate.  Lump all this good news together and we got a 203.82 point rally in the Dow Jones Industrial Average, closing back above 10,000 at 10,005.96 (+2.07%).  The S&P 500 added 20.13 points (+1.92%, 1,066.63) while the Nasdaq 100, on the back of Cisco solid numbers, rose the most in terms of percentage, adding 2.4% or 40.42 points to 1,721.09.

There is good news and bad news about that 20,000 drop.  The good news is that this is a decline in jobless claims, the bad news is that jobs are still being lost.  The productivity number is huge and means companies will be seeing a higher profit margin, but the number got this high by firing people and belt tightening.  If you have a job now you might be working harder to keep it as the work done by your buddy in the next cubicle is now being left on your desk as he sleeps late and collects unemployment.

We are nearing the end of Q3 earnings and the pattern has been that companies are beating their earnings estimates but posting less revenues.  The numbers from the U.S. economy line right up with the company reports, as companies are beating earnings by firing all non-crucial employees.  This raises the unemployment rate and the revenue declines are the losses we saw to GDP.

If Chambers is right and companies start to spend more of that cash hoard the bottom could be in.  When that cash starts flowing freely again, hiring will rise and this country can get back to work.  The problem here is, as in past economic slowdowns, when a company eliminates a position and learns to do without, either through better technological implementation or management techniques, when the hiring starts again it is rare the same number of positions are ‘refilled’.  Detroit is a sparkling example of the permanent job destruction of a slowdown in the business cycle.  When the automakers had to choose between hiring back previously laid-off workers or buying another machine, they bought machines and many of those jobs are never coming back.

Nymex crude dropped 78 cents (-0.97%, $79.67, 4:31 p.m.) and New York Spot Gold lost $1.70 an ounce ($1,090.20, -0.16%, 4:38 p.m.)

Tomorrow we get the October Jobs Report and the unemployment rate is expected to rise from 9.8% to 9.9%.  The consensus is that we lost a net 175,000 jobs in October and we lost 263,000 in August.  This is a 33% drop in jobs lost which is a nice decline.  Should we hit this number, even though the headline 9.9% for the unemployment rate will be a tick up, the market should rally and could even take us to new 2009 market highs.  If that jobs lost number comes in anywhere above 220,000, which would represent a sizable miss, and the unemployment rate jumps to 10%, we could easily give up all of today’s gains.  The charts look bullish for the major indexes, with low and upwards turning stochastics and support at the lows of this most recent pullback put in by the 50 day exponential moving averages.

Tune in tomorrow at 8:30 a.m. for the exciting trading conclusion to the first week of November 2009.

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