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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News

The 4 Economic Releases for Wednesday

By Robert Perrego, at 10:28 am on December 23rd, 2009

Today the economic calendar started with the Mortgage Bankers Purchase Applications release at 7 a.m.  This is a weekly index and the percentage change came in at down 11.6%.  While this is a sizable drop, it could be explained as going into the holidays, buyers may be more occupied with shopping for gifts than homes.  The numbers for this release should be watched carefully after the holidays to see if a trend resumes or if this drop is the beginning of a more noticeable slowdown.

Personal Income and Outlays was next up with the month-over-month change for Personal Income increasing 0.4% vs. its expected increase of 0.5%.  On a year-over-year basis personal income dropped 0.3%.  Compared to last month the consumer has more to spend which is a positive as 70% of our economy is supported by consumer spending.  The Consumer Spending number came in up 0.5%, just slightly above the rise in Personal Income but lower than the 0.6% expected.  This would seem to indicate, all else being equal, that spending is rising faster than income and could be explained by increased holiday purchases.  The Core PCE price index was expected to rise by 0.1% but stayed flat indicating prices are not experiencing any inflationary effects.

Consumer Sentiment was released at 9:55 a.m. and came in at 72.5, which is lower than was expected (73.5) and also lower then the previous number for November (73.4).

New Home Sales were released at 10 a.m. and missed by a wide margin, coming in at 355K vs. the 440k that was expected.  The consensus range was 415k to 460k, so the actual number even came in far below the range.  You would think economists to be cognizant of holiday effects when setting these estimates and ranges, so this large miss, at the very least, does not confirm yesterdays Existing Home Sales number, which came in strong.  Difficulty in the real estate market is no big surprise, but the ray of hope emanating from yesterdays report can more logically be looked at as less reliable.

The Dow Jones Industrial Average, which was at 10,474 before the New Home Sales Report, sold off and is currently trading 10,443 (10:27 a.m.).  At 9:55 a.m. the SPDR Gold Trust (NYSE: GLD) was trading $106.41 but took off on the two releases, trading up to $107.06 (10:34 a.m.).  The PowerShares DB US Dollar Index (NYSE: UUP) saw a sharp drop at 10 a.m. on the New Home Sales number.  The UUP dropped sharply from $23.115 to $23.0641 within the next 5 minutes.  This is an ETF where 5 cents can be a move for the whole day, but the reaction to the New Home Sales Number was 5 cents in 5 minutes.  Currently the UUP is trading at $23.02 (10:34).

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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 – AIG rips in the final trading Minutes

By Robert Perrego, at 4:19 pm on August 26th, 2009

American International Group (NYSE: AIG) ripped higher from $34 a share to close at $37.81 in the last 20 minutes of the trading day on very high volume.  With no recent news on AIG, and this kind of trading activity, I am expecting some type of announcement from the firm before tomorrows open.  I have seen this movie before folks, someone, somewhere, knows something.

Otherwise, from the Dollar to The Dow, the Market had no direction today.  The market indexes passed from negative to positive and back, as the Dow reversed polarity, no less than seven times today.  The U.S. Open does not start until August 31st but today’s market action was like watching a tennis match with the numbers changing from green to red and going back and forth across the net.

Morning news was headlined by the death of Senator Edward Kennedy (D-Mass), age 77, who had been battling brain cancer for a year.  The impact the death of Sen. Kennedy has on the market is that he has been a proponent of a public health care option for decades.  Ironically, his death may make passage of any socialized health care more difficult, as the senate now is only 59-40 in favor of the Democrats, as opposed to 60-40.  When Senator John Kerry (D-Mass) was the Democratic nominee for the 2004 Presidential election, Kennedy was instrumental in changing how Kerry’s vacated seat would be filled if he won.  At the time Mitch Romney was the Governor of Massachusetts, and picking Kerry’s successor would have been Romney, a Republicans, decision.  The process was changed, and now a special election needs to be held which could take up to 5 months, leaving one less Democrat voting on anything in the interim.

Does this make health care stocks a buy?  Looking at the HMO companies showed most all of them down on the day Kennedy passed away, so no correlation was seen immediately evident there.  The medical device makers were mostly up and the hospital companies were down.  The market, being split on health care in this way, might be saying that the death of even one of Washington’s longest tenured and most powerful senators in today’s health care debate, is not having a significant impact on stock prices.

We had two housing numbers released today with the MBA Purchase Applications showing a 1% increase week-over-week.  Durable Goods Orders were released next with the headline number up 4.9%, easily beating the expected 2.5%.  This better than expected number should have given the market a boost, but when you looked at the number ex-transportation, what you found was airplane and cash-for-clunker sales juiced the headline with the core up only 0.8% vs an expected 0.9%.  New Home Sales came in 11% higher than expected (433K vs. 390K) and increased 9.6% month-over-month.  This release at 10 a.m. ripped the Dow from its lows of the day (9485) to its highs (9582) in under 30 minutes.  That rip up was the best move of the day for intra-day traders as the 100 point move might have looked like a golf drive as opposed to a tennis match.  The rest of the trading day was back and forth, red and green, with the close being green and the Dow up a measly 4.23 points.

All the major indexes finished flat with the Dow up 4.23 (9543), the S&P 500 up 0.12 points (1028) and the Nasdaq 100 down 2.9 points (1637).

Gold opened the day trading lower then bounced back and finished, like most everything else, flat at $945/ounce.  Oil opened the day and quickly traded lower, but recovered as the day went on.  Oil was last seen trading at $71.41 a barrel, down 62 cents at 4:29 p.m.

UPDATE:  AIG is trading even higher in the after market last seen around $39 a share at 5:04 p.m. after trading as high as $40.24 at 4:41:27 p.m.  This kind of activity often is a footprint of professional momentum and day traders getting in on after-market action.

Two news stories found concerning AIG in Asia is most likely the source of this activity;  AIG is buying into a Philippine based insurance company, which could be a strategic acquisition alongside of their Asian based insurance business subsidiary, American International Insurance Co.  Another recent news story concerning AIG I found was about the IPO of AIG’s Asian life insurance unit, and that China Life might invest in it.  Possibly a decision has been made by China Life but there has been no news release yet.

Looking at AIG’s daily chart shows a Pennant pattern formed from August 5th to August 17th.  A Pennant pattern is a continuation measuring pattern, and this one predicts an eventual move to the $45 area.  After the stock broke out from this Pennant, a Flag pattern was formed (very similar to a Pennant pattern) between August 19th and the break out from this pattern happened today.  This smaller pattern also indicates an eventual move to the same $45 area.

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News

Market Wrap – $63 Billion and Counting

By Robert Perrego, at 4:39 pm on July 27th, 2009

What happened in the stock market today is not much compared to the Treasury Market.  Today the U.S. Government issued $63 billion in short term bills and also announced, in addition to their scheduled issuance, an additional $30 billion in 1-month bills to bring the grand total issuance this week to $235 billion – the most in one week in decades.

The auctions today met with strong demand (bid to cover ratios of 3.40 and 3.87) illustrating that a lot of people are not too concerned with the US debt level, at least not in the short term.  Short term debt is a lot less risky than longer term bonds as movements in interest rates do not impact the price of fixed income securities as much with shorter maturities as it does with longer term maturities (see convexity and duration here).  As interest rates go up the dollar value (price) of a bond declines and as it is called fixed income, there is very little risk involved with holding U.S. Government short term paper.  Should interest rates spike the debt holder just lets the debt mature in 3 months, 6 months, etc… and then they get their money back.

What does this tell us of the money buying this debt?  This says that there was, today, $63 billion worth of investable funds that was looking for safety not in stocks but in guaranteed debt.  This could be telling us that this money would rather take the very low yield given in the short term Treasury market as opposed to the stock market.  Is the stock market considered to be too high here causing this money to run for cover in short term U.S. debt?

New Home Sales numbers came out this morning very bullish growing 11% in the past June.  That is great news as the housing market is at the epicenter of this economic malaise and still, with great news in the housing market, the stock market went nowhere.  This news should have boosted the market yet the Dow only finished up marginally.

The Dow added 15.27 (+0.16%, 9108.51), the S&P 500 added 2.92 points (+0.29%, 982.18) and the Nasdaq 100 added 0.25 points (+.01%, 1599.31).

Looking at todays top performers list what stands out is that there are a lot of banks near the top.  The second surprise you will see is that The New York Times (NYSE: NYT) was up 15.76% ($1.05, $7.71).  That is a big move as only recently you couldn’t buy a weeks worth of the paper with a share of stock.  Now you could buy a week and give the paperboy a decent tip.  Looks like newspaper is not dead – yet.  Varian, Inc. (NSDQ: VARI) jumped 29.10% on a strong earnings report to lead the performance field, and oh yeah, Agilent (NYSE: A) is paying a 33% premium and buying the company.  A stock to keep on your radar might be E-Trade (NSDQ: EFTC) as their earnings report last week showed they are cleaning up their debt portfolios and have completed a secondary stock issuance to shore up their balance sheet.  E-Trade climbed 8.45% ($0.12, $1.54) and have been beaten down mightily since their stock was in the $20 area.  The last time E-Trade did this back in 2002 the stock rebounded from $4 to almost $30.  Can they do it again?

Sector Watch: Winners – finance +1.25%, industrials +0.49%.  Losers – Consumer cyclicals down 0.14%.

New York Spot Gold added $2.30 an ounce to $953.90/ounce (4:24 p.m. est) but the lack of a significant move above this $950 area over the past week of trading seems to point to a pullback soon.  Gold has been hovering in this area for days and the question is whether this is distribution or consolidation.  The oscillators on the iShares Gold ETF (NYSE: GLD) are approaching the overbought area which also points to a pullback most likely being the next move.  Oil climbed 22 cents to $68.27 a barrel.

Looking at the inflation-deflation debate, the Treasury auctioned 20-year TIPS (Treasury Inflation Protected Securities) today at 2.387%.  Right now the regular 20-year treasury is trading in the 4.60% area so that means in order to be protected against inflation investors are willing to give up 221 basis points – that is a lot of yield.  The closer the rate paid on the TIPS moves to the standard 20-year the less is paid to protect against inflation and therefore the less fearful of inflation the market is.  The January 2009 auction yield was 2.50% while the 20-year was trading at 3.85% (135 basis point spread) so this sale at 2.387% shows buyers are more worried about inflation currently vs. deflation than they were 6 months ago as they are paying an additional127 basis points spread (262 vs. 135) to own the inflation protection.

Unless you were in the bond pits or at the auction desk today, not much happened but look at it this way – at least the market didn’t go down.  Also, Obama was only on TV once today keeping his hitting streak alive at, like everyday, but no multi-base hits today.

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