Wall Street Wrap

Steel Jumps Higher and the FOMC Minutes

By Robert Perrego, at 4:33 pm on January 6th, 2010

The commodities surge continued from last year and steel led the charge today.  Fueled by a comment from Goldman Sachs Group Inc. (NYSE: GS) stating that steel should be up 8% in 2010, the Market Vectors Steel ETF (NYSE: SLX) climbed 2.19% (+$1.42, $66.14) and closed at its highest level since September 22, 2008.  Worthington Industries, Inc. (NYSE: WOR), a steel manufacturer and processor, blew away estimates this morning posting 29 cents of profit vs. the expected 9 cents, and the stock gained 20.5% (+$2.85, $16.73) on the day.

The Federal Open Market Committee released the notes from their last meeting at 2 p.m. today and the market instantly reacted.  Gold jumped to new highs on the day as the minutes were released and the market became more aware that The Fed is worried about the economy after government stimulus ends.  The coming end to The Fed’s purchase of mortgage bonds has some worried as Jim Cramer commented on CNBC today that once these purchases that are supporting the mortgage bond market end, he sees mortgage rates moving higher.  Another wave of resets for adjustable rate mortgages are expected soon and the market is afraid that this added pressure to the housing market, at a time when the Fed stops supporting it, may cause a double dip in housing.

The Dow Jones Industrial Average floated around unchanged all day and closed up a 1.66 points (+0.01%, 10,573.68) while the S&P 500 also had no direction (-0.29, -0.03%, 1,136.16).  The Nasdaq 100 lost 10.01 points (-0.53%, 1,878.42).

The Volatility Index (VIX) is trading at levels not seen since the pre-Lehman days indicating a lack of fear in the market.  For the past few months the unemployment reports have been getting ‘less bad’, which is a trend in the right direction and market players are less worried about the economy as a whole.  This complacency could be signaling a top in the market as the market loves to disappoint.  The trend of the VIX could also continue and the market could continue to climb, but, just when you think it’s safe to go back in the water…

Looking at today’s chart of the SPDR Gold Trust (NYSE: GLD) shows two spikes in volume and price action.  At 10 a.m., the ISM Non-Manufacturing Index was released and the GLD moved higher on high volume from $110.53 to $111.40 within thirty minutes.  The ISM number came in at 50.1 vs. the 50.4 expected.  At 2 p.m., on the release of the FOMC minutes, the GLD once again jumped higher moving from $111.35 to $111.65 in five minutes on high volume. The GLD closed at $111.51 (+1.64%, +$1.81) after trading at its highest level since December 16th.

With the steel move today possibly igniting an interest in the commodity space again, gold gained $20.40 an ounce (+1.83%, $1,137.60, 4:11 p.m.) while most non-commodity stocks hovered around unchanged all day.

Nymex crude traded up $1.27 a barrel to levels not seen since the fourth quarter of 2008.  Nymex crude was below $70 a barrel briefly in mid-December and has climed to the current level of $83.04 (4:02 p.m.) in under a month, a move of over 18%.

The moves in gold and oil came amid a falling dollar that opened higher in the morning and traded off all day long, with the PowerShares DB US Dollar Index (NYSE: UUP) closing at its lowest level since December 16th.  The correlation between the dollar and commodities remains very much intact, as shown by the action in gold and oil.

Tomorrow the Monster Employment Index is released at 6 p.m. and the Weekly Jobless Claims at 8:30 a.m. (450K expected).

There is a laundry list of bill, note and bond announcements tomorrow with reports on the 3-Month Bill, the 30-Year Bond, the 6-Month Bill, the 52-Week Bill, the 3-Year Note, the 10-Year Note, the 10-Year TIPS, and Treasury Strips expected throughout the day.  That is a lot of debt reports.

Also, two regional Fed Presidents are expected to speak, with James Bullard of the St. Louis Federal Reserve speaking at the Shanghai Jiao Tong University Forum and Kansas City Fed’s Tom Hoenig speaking at the Central Exchange in Kansas City.

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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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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

Citigroup Throwing off the TARP, Gold Flips Back and Forth All Day

By Robert Perrego, at 5:03 pm on December 9th, 2009

Citigroup Inc. (NYSE: C), the bank that couldn’t punch its way out of a paper bag nine months ago, is actually going to pay back the TARP program.  After seeing Bank of America Corp. (NYSE: BAC) successfully issue $19.3 billion worth of stock to get Uncle Sam off their backs, Citigroup figured they can do the same.  There are still plenty of banking analysts that think the bank stocks are overpriced and some even think they are still zombie banks – as in the walking dead.  So what would you do if your stock was overvalued?  Sell it, of course! A few talking head analysts on TV today said that this secondary would dilute the Citigroup stock by close to 20%.  These banks want to get out from under the TARP as Vito the loan shark and his buddies (Tim Geithner and Ken Feinberg) keeps putting the screws to them and telling them how to run their business.  No big bonuses.  You can only pay that person this much.  Wipe your shoes on the mat and brush your teeth before you go to bed.  Wells Fargo & Co. (NYSE: WFC) also has plans in motion to get that TARP off their back but first they have a $5 billion debt to pay off to Prudential Financial Inc. (NYSE: PRU).

Speaking of the TARP, Treasury Secretary Tim Geithner has extended it a year.  Now the money that is being repaid can be loaned out again or better yet – given away!  Obama would like to recycle this money as no politician likes to see an election cycle approach when there are a lot of people out of work.  Let’s make sure we don’t just pay back some of those bonds we issued to float this monstrous program, that would only be what we said we would do.  I am waiting for all the cool new programs names all giddy right now.  After the brilliantly named cash-for-clunkers, that really had no net effect but to pull sales forward and waste government money, I am looking forward to green-for-golfers and bucks-for-boats.  I bet we are going to get money-for-mortgages though.

The stock market traded inverse of the dollar today as everyone seems very sensitive to the effect the carry trade cowboys have.  The dollar Index Future spot price (DXY) peaked and started trading off at about 2 p.m., and at the same time the Dow Jones Industrial Average made its whole move for the day.  The DJIA finished up 51.08 points (+0.49%, 10,337.05) while the S&P 500 added 4.01 points (+0.36%, 1,095.95) and the Nasdaq climbed 16.97 points (+0.95%, 1,789.70).  For the last few days the Nasdaq has been outperforming the other two major averages on the upside and downside.

Gold was all over the place today.  New York Spot Gold was up $16 in the pre-market, opened up about $10, traded up a bit and then at 11 a.m., got sold off for well over 3 straight hours.  Spot was down over $10 an ounce when the dollar reversed and, at the same time the DJIA and the other stock indexes started to climb, gold rallied and NY Spot was last seen trading up 30 cents an ounce ($1,128.60, 4:42 p.m.).

Nymex crude got hit again.  Today the market took the barrel down $1.95 and was last seen trading $70.69 (-2.68%, 4:40 p.m.).

Tomorrow we get the biggest economic number of the week, the Jobless Claims number.  460,000 are expected with the range running from 450 to 500.  After that strong number on Friday, another big beat of the expected number may really fire the dollar up, while a weak number may make last Friday look like a one-time event and possibly even a bad number.  This release may be carrying a heavier importance than ever before as how goes the dollar, so (inversely) goes the stock market and commodities.

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Wall Street Wrap

Dollar Climbs, Market Drops

By Robert Perrego, at 4:41 pm on December 8th, 2009

The ‘Dixie’, the US Dollar Index Future Spot Price or the ‘DXY’, climbed today causing  short covering by the carry trade cowboys.  This caused these players, that are long ‘risky’ assets such as stocks and commodities, to sell.  This selling drove the Dow Jones Industrial Index down 104.14 points (-1.00%, 10,285.97) and to close at its lowest levels since November 11th.  The DJIA, which has been in a sideways trading range between 10,300 and 10,500 for the last 15 trading days, is now showing weakness and the chart is breaking down.  The weakest stock in the DJIA today was Bank of America Co. (NYSE: BAC) which dropped 3.02% (-$0.48, $15.41) and the only stock that was up of the 30 was Verizon Communications Inc. (NYSE: VZ) which gained 14 cents (+0.42%, $33.39).

The S&P 500 dropped 11.31 points (-1.02%, 1,091.94) and the Nasdaq 100 lost 10.92 points (-0.61%, 1,772.73).  The tech heavy Nasdaq held up best and also has the strongest looking chart by not looking like it is about to break down.

Both the Dixie and the PowerShares DB US dollar Index ETF (NYSE: UUP) traded up today with the Dixie gaining 0.60% (+0.45, 76.22) and the UUP up 0.48% (+$0.11, $22.59).  For months the dollar has been declining gradually and with U.S. short term interest rates near zero, the trade has been to short the dollar and take those proceeds to buy stocks and commodities.  With the short covering in order to lock gains in on their short trade, these market players have had to cover the other side of their trading ledger and sell what they bought – stocks and commodities.  Today, this has caused a broad based sell off in stocks.  Also, with Greece getting their bond rating cut and rumors of a re-evaluation of the U.S. and U.K. rating, a flight to quality caused buying in the dollar.  You need to own dollars first to buy Treasuries so when a flight to Treasuries occurs, the dollar strengthens.  Add this all up and it spells bad news for stocks.

In a backwards way, a speech by President Obama strengthened the market for a brief period today as he stated that he wanted to use TARP funds for loans to small businesses, among other spending programs, and what basically amounts to a second stimulus act.  The original legislation for the TARP involved having all unspent monies and repaid funds to go directly back towards paying off the national debt, which would strengthen the dollar.  Obama’s indication that debt will not be paid by these repayments and unused funds, caused the dollar to weaken and the market moved higher.  Obama actually said the nation must continue to “spend our way out of this recession”.  This is how the market is backwards these days as a stronger dollar was traditionally thought to be bullish for stocks.  With the carry trade involving the dollar itself, a stronger dollar is bearish these days.

New York Spot Gold got hit for 2.44% and dropped $28.20 an ounce to trade at $1,129 at 4:19 p.m.  Gold has always traded inversely to the dollar but now this effect has been magnified in its effect as gold is one of the ‘risky’ assets bought by the carry trade cowboys.  The SPDR Gold Shares  (NYSE: GLD) started a steady decline today at about noon and traded lower for the next three hours as there was constant selling pressure.  This steady sell-off took the GLD from $112.90 to $110.21 before rebounding to $110.93 on the close.

Oil continued its sell-off with Nymex crude dropping $1.31 a barrel to $72.60 (-1.77%, 4:15 p.m.).  Nymex crude has now steadily traded down from $78 to $72.60 in the last 5 trading days.

Other commodities were weak as well with the iPath Copper Exchange Traded Notes (NYSE: JJC) dropping 1.51% (-$0.664, $43.198), the Market Vectors Steel ETF (NYSE: SLX) down 2.79% (-$1.66, $57.82), the Market Vectors Coal ETF (NYSE KOL) losing 2.03% (-$0.69, $33.25) and the PowerShares DB Agriculture fund (NYSE: DBA) off 0.49% (-$0.13, $26.03).

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