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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Wall Street Wrap

Overall Market Flat – HMO’s and Finance Strong

By Robert Perrego, at 5:13 pm on February 22nd, 2010

On a day when the market indexes went nowhere, HMO’s logged nice gains as the public option is said to have been left out of the Obama Administration’s latest version of their proposed health care reform bill.  Humana Inc. (NYSE: HUM) climbed 5.55% (+$2.52, $47.87) while the nation’s largest HMO, UnitedHealth Group Inc. (NYSE: UNH) gained 3.56% (+$1.14, $33.08).  The top two components of the Dow Jones Industrial Average were banks as Bank of America Corp. (NYSE: BAC) was up 2.07% (+$0.33, $16.21) and JPMorgan Chase & Co. (NYSE: JPM) gained 2.04% (+$0.82, $40.85).

The market traded sideways most of the day until 3:30 p.m. when selling drove the Dow Jones Industrial Average down 18.97 points (-0.18%, 10,383.38) and the S&P 500 lost 1.16 points (-0.10%, 1,108.01).  The Nasdaq 100 was weakest dropping 5.69 points (-0.31%, 1,817.63).

Looking at the charts of the HMO’s and I see ‘buy, buy, buy’.  Humana had the biggest gain today but also the best chart when you balance risk and return.  Humana traded off to its 50 day exponential moving average over the last month, held it as support, and rose today on heavy volume.  The stochastic oscillator has bottomed out and is heading up and the short term down trendline was broken to the upside.  Looks like the stock could easily reach its previous high close of $51.94 soon, which would give you an 8.5% return.  The charts are similar for all the major HMO’s (AET, WLP, CI, UNH) but Humana’s chart offers the least amount of upside resistance, safety of support and percentage return combination.

Oil stocks were weak today which was unusual as the dollar was down slightly, Nymex crude broke $80 a barrel for the first time in a month and Schlumberger Ltd. (NYSE: SLB) officially announced their takeover of Smith International Inc. (NYSE: SII).  Last Friday rumors of this deal flew around Wall Street trading desks driving the stock of Smith up 13% (+$3.33, $41.03).  Today’s official announcement of the $11 billion deal added another 8.8% for a two day gain of 23%.  New York spot gold dropped $5.00 to $1,112.10 an ounce (-0.45%, 4:25 p.m.)

Two good reasons to stay away from the municipal bond market are the very low current interest rate environment (with bonds, when rates are low prices are high) and news out from the National Governors Association that for 2011 states are seeing total cumulative budget deficits of $53.6 billion, rising to $61.6 billion in 2012.  If you find a bond with a yield and credit you like and buy with the intention to hold until maturity, municipals might still be for you.  The problem here is that with these deficits and tax receipts weak as a result of the high unemployment rate, any bond you buy may get downgraded and drop in value.  States cannot print their own money and many are finding it politically difficult to cut spending, so without raising taxes the budget deficits will weaken the credit behind the bonds.  I do not think buying a municipal bond and hoping they raise my taxes to make my bond not drop in value is a strategy for me as one giveth and one taketh away, leaving me with nothing-eth.

Speaking of being left with nothing-eth, one of the new taxes proposed in the resurrection of health care reform is a Medicare tax on capital gains.  When I was studying economics in graduate school, commonly accepted good practice was to tax the area of the economy that the tax revenues were going to be used for.  This is thought to be a more efficient way of instituting tax policy as when you ignore this proper practice you eventually end up with a million taxes coming from this area and going to that area, or a massive spider web of tax and effect confusion.  When you levy a tax somewhere it distorts the way that taxed item functions, so the idea is if you have to tax, use the tax to shape what you are taxing in a more desirable manner.  You do not just run around like it’s an Easter egg hunt going “Hey look, there’s money over here – tax it!”

The current Administration has already announced their intention to raise the capital gains tax so this would be an additional tax on top of the new tax hike.  Why do I get the feeling there is a guy in Washington D.C. with a dartboard, a blindfold on and a handful of darts that say ‘new taxes’ on them?  Also, didn’t Obama promise that if you made less than $200,000 a year your taxes would not go up ‘one penny?’  If you own any stocks outside of an IRA or 401(k) plan and do not make that kind of money, your taxes are going up.

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Wall Street Wrap

Pfizer Hiccups and Bond Hot Potato Starts

By Robert Perrego, at 5:24 pm on February 3rd, 2010

Pfizer Inc. (NYSE: PFE) announced lower earnings than analysts had expected ($0.49 vs. $0.51) and guided lower for 2010.  Pfizer and Merck & Co. Inc. (NYSE: MRK) had both enjoyed a nice run up in stock prices in the second and third weeks of January as analysts turned bullish on Merck’s drug pipeline (see Wall Street Wrap – January 13, 2010).  Pfizer gained almost 8.5% in 5 trading days on analyst comments about Big Pharma, before the broad market sell-off that started on the 20th of January dropped all stocks.  Pfizer was the worst performer in the Dow Jones Industrial Average today, dropping $0.44 (-2.30%, $18.62).  The drug stock traded as low as $18.42 before rising back to regain support just above their 50 day EMA ($18.57).

The Dow Jones Industrial Average dropped a mild 26.30 points (-0.25%, 10,270.55) during a slow trading day.  The S&P 500 closed 6.04 points lower (-0.54%, 1,097.28) and the Nasdaq 100 bucked the trend and finished up for the day, possibly in anticipation of a solid earnings report from Cisco Systems Inc. (NSDQ: CSCO).  The tech heavy index gained 7.78 points (+0.43%, 1,784.70)

Cisco reported immediately after the close, beating their sales number and trading higher in the after-market.  In what could cause a nice up day tomorrow for technology shares, Cisco reported $9.8 billion (estimate $9.4) in sales and $0.32 a share (estimate $0.35) and $0.40 (non-GAAP) in earnings.  Cisco closed the day at $23.06 (+$0.05, +0.21%) and was trading $23.82 at 5:12 p.m.

Visa Inc. (NYSE: V) also reported after the close and beat earnings estimates by 11 cents ($1.02 vs. $0.91).  About the only place in the credit-card industry you want to be invested is the transaction business as delinquencies are rising.  Visa closed the day at $83.52 (-$0.49, -0.58%) and was trading $85.02 at 5:12 p.m.

Remember that little problem we had with mortgage bonds a few months ago?  Well, it’s back!  If you thought those crappy bonds were written off and stored in a safe place, welcome to reality.  Bond and mortgage insurers such as MGIC Investment (NYSE: MTG) are refusing to pay out on delinquent loans telling the banks they misrepresented the loans they wrote and for breach of contract as they now know they insured a lot of bad paper.  The banks are saying ‘you ordered crap, you eat crap.’  Fannie Mae and Freddie Mac are trying to force the banks to repurchase billions of dollars worth and it looks like a huge game of hot potato.  Analysts say that this pile of crap could go higher than $10 billion.

Copper got hit for over 4% on a rising dollar and concerns about the Chinese Government trying to moderate their growth rate by tightening credit.  The iPath Dow Jones-UBS Copper ETF (NYSE: JJC) fell $1.72 (-4.06%, $40.64).  As recently as 20 trading days ago the JJC traded as high as $48.25 which is a 15.77% plunge to today’s close.

The dollar strengthened today, reversing a two day drop.  President Obama mentioned that China and Asia would be huge markets for U.S. exports, but first we needed to address currency rates.  This sounds an awful lot like a weaker dollar policy, which would increase inflationary pressures and interest rates.  The dollar, which dropped steadily from March 9th of last year before bottoming in early December, was the source of a great deal of concern and has only rallied 6% off its bottom.  It was interesting to see Obama talking weak dollar and see the dollar rally in the open market.  Maybe traders, noticing the trend of not getting health care legislation through (buy the beaten down health care stocks) and cap and trade (buy the beaten down utilities) are betting these statements will carry as little weight.

New York spot gold dropped $4.40 an ounce on a stronger dollar (-0.40%, $1,109.00, 5:12 p.m.) and Nymex crude dropped 33 cents a barrel (-0.43%, $76.90).  Big snowstorms are supposedly bearing down on cities from Indianapolis to New York City for Super Bowl weekend and this may have kept prices firmer.

Tomorrow we get the weekly Jobless Claims at 8:30 a.m. (445k expected) and I ran across an article today saying a revision to governmental unemployment data may increase the number of people without jobs by 824,000.  Surprise!  I don’t know if this number will be in tomorrow or Friday’s numbers, but if they are, do not be surprised to see unemployment jump to 10.4 or 10.5%.  That cannot be good for stocks.  How did this happen anyway?  Someone at the Bureau of Labor forgot to carry the 8?

Economic releases for Thursday, February 4, 2010:

Monster Employment Index at 6:00 a.m., Jobless Claims and Productivity and Costs (7.0%, -3.8%) at 8:30 a.m. and Factory Orders at 10 a.m. (0.3%).

Selected earnings estimates for Thursday:

AGN 0.77 before market open, ARJ -0.04 bmo, BEBE 0.01 after the close, BG 0.83 bmo, CME 3.43 bmo, CI 0.96 bmo, CLX 0.76, DB, DO 2.32, EW 0.85, FMC 0.90 atc, GFI bmo, HI 0.12 atc, HSP 0.69 bmo, K 0.49 bmo, LZ 1.77 bmo, MA 2.46, MCO 0.41 bmo, NCR 0.26 bmo, NOC 1.26, OPWV 0.01, PBI 0.62, RGLD 0.18 bmo, SLE 0.23 bmo, SNE 0.07, SE 0.33 bmo, HOT 0.22 bmo, SRCL 0.55, SUN -0.26 atc, TEN 0.12 bmo, TM, UIS 0.83 bmo.

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News

Housing and Auto Data Send the Market Higher

By Robert Perrego, at 5:36 pm on February 2nd, 2010

Housing, financial and auto companies blazed the market path lower last year as the poster children for the economic nightmare that took the Dow Jones Industrial Average from its all time high of 14,198 to the low at 6,469.  Today, while Paul Volcker continued beating up on the banks, Ford Motor Co. (NYSE: F), General (Government) Motors and D.R. Horton Inc. (NYSE: DHI) released data giving the market optimism and also 117 points.  Ford reported their January sales increased 25% and GM was up 14% while Toyota and Chrysler dropped.  D. R. Horton actually posted a profit and the Pending Home Sales Index increased by a percentage point on a month-over-month basis, showing a flicker of strength in the housing sector.

The Dow Jones Industrial Average added 111.32 points (+1.09%, 10,296.85) with 28 of 30 companies finishing with gains while the S&P 500 rose 14.13 points (+1.30% ,1103.32).  The Nasdaq 100 lagged behind, gaining only 16.20 points or 0.92% (1,776.92)

Treasury Secretary Timothy Geithner defended the largest budget ever proposed in the history of the world, as Senators grilled him on President Obama’s new $3.8 trillion budget, fully loaded with a $1.56 trillion deficit.  At the same time, Paul Volcker was defending legislation to limit proprietary trading by banks.  Somehow, someone got the idea that proprietary trading caused the credit crisis.  Back when professional proprietary equity trading was taking off (prop day-trading), it seemed every evil deed within 50 miles of Wall Street was blamed on ‘proprietary trading’, ‘fast money trading’ and ‘day traders.’  I was a prop trader for six years and from what I remember, the people that knew the least about trading always blamed trading, even when it had absolutely nothing to do with trading.  “Deja vu all over again.” (Yogi Berra 1960)

New York spot gold added another $8.30 an ounce (+0.75%, $1,113.90, 4:32 p.m.) after popping up $25 yesterday as the PowerShares DB US Dollar ETF (NYSE: UUP) looks like its recent rally is over.  The UUP lost 0.34% today as it closed below its 200 day exponential moving average and also broke below the uptrend line that has been in effect since January 14th.  Nothing moves straight up or down in the financial markets so, while the UUP’s medium term trend is still up, the short term picture is down.  The UUP closed at $23.27 and the 200 day EMA is at $23.31.  The relevant support levels below are $23.16 (top support) and $22.90 (50 day EMA).

Oil is on fire, literally and figuratively, as a cold winter in the United States has propped prices up and Nymex crude gained $2.64 a barrel (+3.55%, $77.07, 4:32 p.m.) for a second straight very strong day.  Strength was seen in most commodities and the record $1.56 trillion proposed budget deficit cannot be ignored here.  If we start running the dollar printing presses like that budget says, while holding interest rates low to create jobs, some very nasty inflation will not be far behind.

PNC Financial Services Group (NYSE: PNC) is going to offer $3 billion of common stock in order to redeem $7.6 billion of preferred shares it gave the U.S Treasury for a TARP loan.  One by one the private firms are paying the TARP back with interest and click here for a great web page that tracks where all the money went.  From what I can see Fannie Mae, Freddie Mac, General Motors, Chrysler and AIG have all our tax money.  I hope Volcker makes sure the auto companies, government sponsored entities (Fannie and Freddie) and insurance companies are not engaged in proprietary trading to protect us from more economic calamities.

We have MBA Purchase Applications reporting at 7 a.m. tomorrow, the Challenger Job-Cut Report at 7:30 a.m., ADP Unemployment at 8:15 a.m., the ISM Non-Manufacturing Index at 10 a.m. (51.0 expected) and the EIA Petroleum Status Report at 10:30 a.m.  Watch the oil market around that EIA report as the 6% gain in crude in the last 2 days will set oil up for a plunge if the numbers do not come in bullish.

Selected earnings estimates for Wednesday, February 3, 2010:

AFFX -0.10 after the close, AKAM 0.43, AMP 0.75 atc, ARW 0.61, AIZ 1.01 atc, BDK 0.77, BRCM 0.44 atc, CSCO 0.35 atc, CMCSA 0.27 before market open, DBD bmo, FNF 0.22 atc, HNT 0.67 bmo, HMC bmo, IP 0.23 bmo, ITT 0.93 bmo, WFR 0.00, MWW -0.01 atc, NOV 0.77 bmo, ONNN 0.14 atc, PFE 0.50, RL 1.01 bmo, RVSN 0.17, R 0.47, SLAB 0.62, SPF 0.02 atc, TMX 0.40 atc, TMO 0.88 bmo, TWX bmo, V 0.91 atc, WWW 0.45 bmo, YUM 0.48 atc.

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News, Wall Street Wrap

Politics Plays Wall Street, Market Gets Hammered

By Robert Perrego, at 5:25 pm on January 22nd, 2010

The sum result of the election in Massachusetts on Tuesday, proposed banking regulations on Thursday and talk of Fed Chairman Ben Bernanke’s reappointment vote on Friday comes to 552 points – straight down.  The super traders from Goldman Sachs Group, Inc. (NYSE: GS) posted earnings on Thursday morning of $8.20 a share, a full $3.00 or 58% above expectations.  The net result was the stock is down 8.15% or $13.67 in two days, or ever since a fat chunk of kryptonite slammed into Wall Street with a note attached…

‘New trading limits, love always, Obama.’

The Dow Jones Industrial Average lost 216.90 points (-2.08%, 10,172.98) today, lost 552.45 in the last three days (5.2%) and is down 436.67 (-4.11%) for the week.  The S&P 500 was down 24.74 points on the day (-2.22%, 1,091.74), 58.49 points for three day period (-5.08%) and 44.29 points for the week (-3.90%).  The Nasdaq 100 fared the worst today and dropped 55.75 points (-3.01%, 1,794.82), 100.66 points (-5.31%) for the three day period and 69.70 points on the week (-3.74%)

To say this was all Obama’s fault would be an exaggeration, but not by much.  Maybe it is Scott Brown’s fault for winning the election in Massachusetts as the shock waves from a Republican in Ted Kennedy’s old seat is what is causing this market to fall.  ‘Cause and Effect’ defines the political whirlwind from Tuesday’s election as incumbent Democrats as far away as San Francisco were confronted with evidence that the voting public is pretty pissed off about a few things and itching to take it out on someone.  One resulting ‘effect’ was Obama’s new proposed trading restrictions and the second hit came today as politicians came out saying they would not vote to reappoint Bernanke to the Chair of the Fed.  Are these politicians, with an election less than ten months away, looking for a scapegoat to serve up as a sacrifice to the voting masses?

Bernanke is associated with Wall Street by most, even though he comes not from the polished halls of Goldman Sachs but the hallowed halls of academia, namely Princeton University.  Ben invented a whole new way to stabilize the market for the Fed with his quantitative easing program.  Some have taken exception to this as the amount of toxic debt bought, as a result of this program, and on the Fed’s off-government balance sheet is not only a secret, but possibly unconstitutional.  The way I see it, Chairman Bernanke is the leading expert on the Great Depression and did some fast and creative thinking on his feet so that depression he studied is still the only depression we have had.  Not allowing Ben to stay in control of the programs he has going at the Fed may not be a disaster, but it definitely should not be decided upon because some politician needs a sacrifice to the voting gods for their own personal job security.

I wrote yesterday that the DJIA broke down through its uptrend line effective since December 17th.  Where the Dow closed yesterday was right on top of two supports.  The 50 day exponential moving average is at 10,394, yesterday’s close was at 10,389 and the last remaining uptrend line for this rally was right at 10,390.  You can see this as the point where the ‘curvy’ blue line and the lower straight red line are on the following chart;

Dow Final

Breaking Support

The announcements today of politicians that are not going to vote for Bernanke caused the market to fall through the support that caught it yesterday, and as it was a Friday, the selling accelerated into the end of the day.  Traders do not like holding long positions into a weekend when the market is weak as that gives the world two days to come out with bad news that could cause these holdings to gap down on Monday morning.  As the market weakness floated into the afternoon session, you could see the orderly exiting of positions as traders lightened the boat and the decline accelerated.  A market that closes on, or very near its low is indicating weakness as it shows that what stopped it going down was not a let up in the selling, but the clock on the wall.  There may be more to sell Monday.

The DJIA has support at 10,090 and then at 9,830.  If the Dow breaks these, the next support is at its 200 day exponential moving average at 9,727.

As the whole market was being sold, New York spot gold dropped 80 cents to $1,092.30 an ounce.  On a $1,000+ price, this is meaningless.  Some of the few stocks up today on my trading screen were gold mining companies.  I think we are seeing a rotation into gold out of other stocks in a ‘flight to safety.’  Charts show support for gold at about $1,060.

Oil now looks headed to $50 as opposed to the $100 level traders were eyeing just a week ago.  Nymex crude dropped $2.05 a barrel to $74.02 (-2.71%, 5:05 p.m.)

Write your Senator and tell them to vote for Bernanke – might just help you get some money back.

Have a great weekend.

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