News

China and Massachusetts Drive the Market Lower

By Robert Perrego, at 5:15 pm on January 20th, 2010

Mining stocks got hit today as the market took back what was gained Tuesday on the hopes of a Republican win in Massachusetts.  Hardest hit was Silver Standard Resources, Inc. (NSDQ: SSRI), which dropped 8.72% (-$2.02, $21.15).  Yesterday we tacked on 116 points on the hopes of a 41st vote for the Republicans in the U.S. Senate.  Well, the party was last night, the Republican candidate Scott Brown won and today the market posted its worst loss since November.  Hangover.  The party was being all happy about the possibility the Repub’s could block the Dem’s grand spending plans which would keep the debt, spending and taxes down.  The hangover is realizing that if Obama does not print the greenback into oblivion, if all of a sudden the trillion dollar health plan may not pass, then the expectations for a weak dollar will decrease.  Now ask yourself what the carry trade cowboys, who are short the dollar and long stocks and commodities, are going to do?

The Dow Jones Industrial Average dropped 122.28 points today (-1.14%, 10,603.15) with 24 of 30 components finishing lower. The S&P500 lost 12.19 points (-1.06%, 1,138.04) and the Nasdaq 100 led the charge lower as weak tech caused the index to close down 27.53 points (-1.45%, 1,867.95)

International Business Machines (NYSE: IBM) reported after the close yesterday and beat earnings, and also took first place in leading the DJIA lower today losing $3.89 (-2.89%, $130.25).  They sold the Intel Corp. (NSDQ: INTC) earnings after beating estimates and, starting in the after-market yesterday, they sold the IBM earnings beat as well.  Keep an eye on what happens to the eBay Inc. (NSDQ: EBAY) earnings announced after the close today and Google Inc. (NSDQ: GOOG), which reports after the close tomorrow.  If both these companies beat, and they sell the stock off after, this quarters reporting play is to sell tech earnings after the announcement.

The banks were strong today relative to the rest of the market as Bank of America Corp. (NYSE: BAC) reported a loss of 60 cents.  This loss included a one-time charge of $4 billion for a TARP payment spurring an Oppenheimer analyst to raise his rating on the stock.  BofA led the DJIA higher today gaining 17 cents (+1.04%, $16.49).  Bank of New York Mellon Corp. (NYSE: BK) posted a 49 cent per share profit after charges and 60 cents before, which beat the analysts’ estimate of 51 cents, powering the  stock higher by 4.84% (+$1.43, $30.96).  Wells Fargo & Co. (NYSE: WFC) posted an 8 cent per share profit with the analysts expecting a 1 cent loss.  Wells Fargo stock dropped 1.62% (-$0.46, $27.82).  Morgan Stanley (NYSE: MS) posted 29 cents per share profit with the analysts expecting 36 cents, causing the stock to drop 1.70% (-$0.53, $30.63)

Other than a Republican winning the Senate seat long occupied by Ted Kennedy, the big news today was a report that Chinese authorities asked some commercial banks to stop giving loans for the rest of the month of January.  China’s top banking official denied the report, but then again they had nothing to do with the Google hack last week right?  The Shanghai Composite dropped 2.9% on the report and a tightening of the loans in China will slow growth there and here as well.  The more buildings China builds the more Caterpillar, Inc. (NYSE: CAT) tractors they buy.

The combined news of the election in Massachusetts and the loan tightening in China caused the PowerShares DB US Dollar ETF (NYSE: UUP) to gap higher this morning on the open.  The UUP gained 1.22% on the day (+$0.28, $23.12) and broke its short term down trendline.  The stochastics for the UUP are reversed at a low level and heading higher so, with this breaking of a trendline and the stochastics all bullish, the chart points up for the dollar.

As a result of the report that China is slowing down their economic growth and that the dollar might be given a reprieve from death row, commodities got hit hard today.  Steel got hit for 3.11%, coal lost 2.86%, copper down 2.68% and gold down 2.39%.  New York spot gold lost $27.20 an ounce (-2.39%, $1,1140.40, 4:50 p.m.) and Nymex crude was down $1.59 a barrel (-2.00%, $77.73)

UPDATE: eBay earnings came in at 44 cents a share vs. the expected 40.  Revenue was reported to be $2.4 billion with expectations of $2.29.

Selected earnings for Thursday, January 21, 2010:

ACS 0.99 after the close, AXP 0.56 atc, APH 0.49, BNI 1.22 atc, COF 0.45 atc, CMA -0.49 before the open, ED 0.76, CAL -0.07 bmo, ELX 0.16 atc, FCS 0.17 bmo, FITB -0.31 bmo, GS 5.20 bmo, GOOG 6.45 atc, ISRG 1.71, ESI 2.36 bmo, KEY -0.39 bmo, LM 0.31 bmo, PNC 0.77, PPG 0.73 bmo, PCP 1.64 bmo, UNP 1.04 bmo, UNH 0.73 bmo, WDC 1.36 atc, XRX 0.22 bmo

Economic reports for Thursday:

Jobless Claims 8:30 a.m. 440K expected

Leading Indicators 10 a.m. 0.7%

Philadelphia 10 a.m. Fed Survey 18.0

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Week on Wall Street

Weak Week for Commodities on Dollar Strength, Stocks see less Action

By Robert Perrego, at 10:07 am on December 12th, 2009

With the end of the calendar year so close it looks like a few of the players have gone to the sidelines and are thinking more about gifts to buy for the holiday season than stocks.  The Dow Jones Industrial Average gained 83 points on the week while the S&P 500 and the Nasdaq 100 had net movement of less than one point.  In percentage terms, the PowerShares DB US Dollar Index (NYSE: UUP) climbed 0.88% while gold dropped 3.9%.  Oil began the week above $74 and finished out below $70 for the first time in since September,

The year has been a wild ride with the stock market dropping to below 7,000, bottoming out in March and then commencing a huge rally to the 10,000+ level we are at today.  This movement gave traders plenty of action to build their performance on, but that is only if you are on the right side of the trade.  With three trading weeks to go before 2010, funds that have hit their numbers for the year have packed it in and this could be responsible for the decreases in volume and volatility the market has experienced.

Monday saw the DJIA experience a net movement of less than 2 points and gold lost a few dollars.  The market must have had the cross-hairs on oil as the slippery black gold dropped over 2%.  CNBC was ripe with traders, economists and pundits debating the future of gold.  The Friday before saw a $48 an ounce drop in the price of gold as the Dubai World problems became public.  Fed Chairman Ben Bernanke gave a speech that watchers interpreted to mean no rate hikes would be coming anytime soon.  Again.  Intel Corp. (NYSE: INTC) dropped plans to produce a stand alone graphics chip and Advanced Micro Devices (NYSE: AMD) and Nvidia Corp. (NSDQ: NVDA) rallied on this news.

Tuesday brought a little action as the dollar rallied and the DJIA dropped 104 points.  The close Tuesday would mark the low close for the market for the week.  The financial news flow slowed but that was made up for by the news out of Washington D.C.  Obama stated in a speech he wanted to use repaid TARP funds to generate more jobs.  Theoretically, some think government spending generates zero jobs as taking $60,000 out of the economy via taxes and spending that same amount to pay someone a $60,000 salary leaves a net zero economic effect.  If there is any waste or frivolous spending (everyone knows the government would not do that) then you end up with a net negative economic effect.  As it may be politically unpopular to pass ‘Stimulus, The Sequel”, Obama seems to be looking around for any available funds, TARP, as a viable source for more spending.

Wednesdays big news was Citigroup Inc. (NYSE: C) stating they wanted to repay the funds they received from TARP.  Bank of America Corp. (NYSE: BAC) did it the week before by issuing a massive secondary offering that raised $19.3 billion.  Analysts estimate that Citigroup would dilute their stock by as much as 20% by doing this.  Fed Secretary Tim  Geithner extended the TARP program by a year, possibly to keep the program open so Obama could tap the fund for other spending.  Commodities were weak across the board.  Gold traded higher, then lower and then back to where it started and oil got hit for another 2.68% down to $70.69 a barrel.

The biggest moves Thursday were in health care stocks as the Senate Democrats backed off their plans to require a public option in health care reform.  UnitedHealth Care (NYSE: UNH) and Cigna Corp. (NYSE: CI) jumped up over 6%.  Some very positive news surfaced that household wealth increased by $2.7 trillion in the third quarter as housing prices actually rose and the run up in the stock market put more dollars into trading and retirement accounts.

Friday gave us strong Retail Sales data and showed Consumer Confidence was on the rise propelling the stock market higher.  This bodes well for the economy as the consumer and consumption drives our economy.  The DJIA climbed 66 points which turned out to be most of its weekly gain.  The dollar was strong again and commodities weak with oil closing below $70.  Regulatory reform moved along as the House passed their latest attempt to avert another financial problem via more regulation.  The problem here is, historically such attempts only seem to fix a past problem and have seemed to only cause the next one.

So, with three trading weeks to go to finish out 2010 we are still above Dow 10,000, oil is below $70 and hopefully the consumer is getting stronger.

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Week on Wall Street

Gold Moves Higher, Tech Dips

By Robert Perrego, at 10:44 am on November 21st, 2009

Last week saw gold trade another all time high while the overall market inched higher.  The tech sector, as represented by the Nasdaq 100, performed the worst with a weak day on Thursday accounting for most of the loss.  A downgrade of eight stocks in the semiconductor industry, which affected $126 billion in market cap, caused leader Intel Corp. (NSDQ: INTC) to lose over 4%.  The downgrade came on a day that saw the Mortgage Bankers Association report that 14.4% of all homes with a mortgage were either at least one month delinquent on their mortgage payments or in foreclosure, an all time high.

The Dow Jones industrial Average gained 0.46% this week while the S&P 500 lost 0.19%.  The Nasdaq 100 moved the most, but in the wrong direction, slipping 1.35%.  Gold continued its march higher with a 2.9% gain for the week and an all time high close on Friday.

The week started with Fed Chairman Ben Bernanke speaking to the Economic Club of New York.  The dollar peaked this year as the stock market bottomed in March, but has been dropping steadily ever since.  Bernanke controls short term interest rates and this interest rate has a lot to do with the strength of the dollar as denominated in other currencies.  The Fed is in a tight spot here as unemployment is above 10% and if you have noticed an ‘economic recovery’ you are one of the few.  The stock market has rebounded enough to be put in the same sentence as ‘bubble‘, and GDP stopped dropping like a stone, but for most the country times are tough.  The dollar is inherently political too.  If Bernanke defended the dollar by raising rates with the 2010 elections a year out, any negative effect this could have on the ‘economic recovery’ might get him fired.

Bernanke gave the all clear signal to people shorting the dollar, stating that interest rates were to remain low for the foreseeable future.  The dovish interest rate stance Bernanke gave fired up the bulls and they started shorting the dollar and buying stocks.  The Dow Jones rose 136 points and the market broke out to new 2009 highs.

Tuesday and Wednesday saw little movement in the market indexes as San Francisco Fed President Janet Yellen commented to her audience in Hong Kong about whether or not The Fed should get involved with the financial markets.  Obama’s visit to China, and his pledge to ask that the yuan be appreciated, centers on the dollar again.  There are more than a few Chinese officials that are blaming the very low interest rates here in the U.S. with creating bubbles in real estate and the market IN CHINA!

On Wednesday the Mortgage Bankers Association came knocking with their first set of bad numbers.  Purchase Applications came in below expectations as no houses being sold means no mortgages applied for.  New York Spot Gold traded an all time high of $1,153.90 an ounce.

Before the open on Thursday, Merrill Lynch downgraded the semiconductor sector and the Mortgage Bankers were back with that huge 14.4% number.  The market plunged off the open and by 11 a.m. the Dow Jones Industrial Average was trading 10,256, down over 150 points.  The market crept back and with a spike up at the end of the trading day losses were cut to less than 100 points.  Microsoft came out with an update on Windows 7, stating that sales were at a record pace.  Then something strange happened… on Thursday the dollar rose AND so did gold.

Thursday after the close Dell Inc. (NSDQ: DELL) reported weak earnings.  This added more selling  pressure to the tech sector after Thursday’s semiconductor rout and Friday opened with a gap down in the market.  The market traded lower until about 11 a.m. but then trended upwards for the rest of the day.  By the close of the day the Dow Jones Industrial Index had pared its loss to 14 points .  The dollar rose again on Friday and the PowerShares DB US Dollar Index (NYSE: UUP) gained 0.54% on the week.

This gave gold a 2.9% gain on the week and the dollar tacked on 0.54%.  For the most part, the dollar and gold are inversely related as gold is traded in dollars.  The dollar carry trade has linked gold to the market as the carry trade cowboys are shorting the dollar to buy the market, and to buy gold.  These days if the market is up so is gold and if the market is up the dollar is down.

This week the dollar was up, gold was up and the Dow Jones Industrial Average was up.  The broader S&P 500 was down slightly so the inverse dollar-market relationship held.  Gold moved higher on two days that the dollar moved higher.  Strange things like this can happen when you reach an all time high as it sometimes seems all everyone says is ‘gold, gold, gold’.  While a mania might be building around gold and one of the other things you hear with gold is ‘bubble’ bubble, bubble’, the fact that central bankers from Russia to Mauritania to Chile are buyers tells me all I need to know.  Gold is going higher.

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Wall Street Wrap

Wall Street Wrap – Goldman ups Gold to $1,200

By Robert Perrego, at 5:44 pm on November 11th, 2009

Goldman Sachs Group Inc. (NYSE: GS) raised their price target on gold to $1,200, citing continued low interest rates and central bank buying.  The interesting shift over the past year or so has been that central banks are now net buyers of gold, where in the past they were sellers.  “Gold conspiracy” allegations exist, due in part to central bankers being such traditional sellers of gold.  The “conspiracy” is that the world’s central banks are suppressing the price of gold to hide the true rate of inflation.  Goldman has noticed that central banks are now deciding that even if their government needs money, and the gold they have had on hand for decades now has a very large profit built in, the perception is that a) it is going higher, and b) that it is a good way to diversify from paper currency, most importantly the dollar.  Governments from India to China to Chile are now net buyers of gold.

China reported that their industrial production was up 16% showing that somewhere on the planet an economy is doing well.  Next week Obama travels to China and he has stated he will ask them to appreciate their unit of currency, the yuan.  China has seen decent internal economic growth but a large share of their jobs still rely on the export business.  Appreciating the yuan will make U.S. goods cheaper relative to Chinese goods, and thus hopefully create more jobs here at home.  Sounds good right?  Appreciating the yuan also depreciates the dollar even more, and that means the trillion dollars plus the Chinese are holding will be worth less.  The Chinese may agree to appreciate the yuan even though they lose jobs and dollars, as they would like to see the U.S. consumer back on their economic feet and buying Chinese goods like locusts as we did in the good old days.

The reason I am so bullish on gold, and pretty much every other commodity, is that if this economic recovery remains tepid and jobs are hard to find worldwide, we could end up with a spiral race to the basement among the world’s currencies.  Each government will be trying to steal jobs from the others by devaluing their currency to make their products cheaper worldwide.  As the currencies are devalued, relatively, commodities increase in value.  It is not easy to run a printing press and have a gold bar pop out the other end.

The Dow Jones Industrial Index was up 44.29 points today (+0.43%, 10,291.26) with the S&P 500 gaining 5.5 points (+0.50%, 1,098.51) and the Nasdaq 100 put in the strongest performance rising 9.78 points (+0.55%, 1,782.95)

New York Spot Gold is up $11.90 an ounce (+1.08%, $1,117.70, 4:54 p.m.) and traded an all time high of $1,119.60 this morning.  Something VERY unusual happened today as both the Dow and gold rose AND the dollar was UP!  For quite some time now the Dow and gold would go exactly opposite the dollar.  I can see the Goldman stamp of approval on gold hyping up some buyers but the Dow rising too?  This is very strong relative performance for gold, and my chart of the iShares Gold ETF (NYSE: GLD) shows me that gold has now broken out to the topside of the ‘return’ or ‘reaction’ line of its trend channel.  This is very bullish as this means there is NO MORE resistance to the upside.

Nymex crude was up 23 cents to $79.20 a barrel today.  Hurricane Ida turned into tropical storm Ida and is no longer threatening oil production in the gulf.

The home-builders were on fire today with Toll Brothers (NYSE: TOL) saying business jumped a greater than expected 42% year over year.  This had all the home-builders up over 5%.  TOL +16.42%, BZH +12.35%, PHM +8.13%, DHI +5.73% and LEN +5.73%.

Tomorrow we get Jobless Claims.  Let’s look at this positively, Thursdays are always an adventure now.

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News

Wall Street Wrap – Google, Gold, Apple all Close at 52 Week Highs

By Robert Perrego, at 11:03 am on September 15th, 2009

This mornings Retail Sales number came in at up 2.7%, well above the expected 2%, sparking a rally in retail.  This rally propelled Apple Inc. (NSDQ: AAPL) to a 52 week high at $175.16 (+$1.44, +0.82%).  I bet you thought Apple was a technology company, but with their wildly successful iPhone’s and iPod’s, Apple is a force among consumer products whether you classify them as a retailer, a manufacturer, a technology company or music broker.   Advertising sells products, and this pushed the stock of the King of Online Advertising, Google Inc. (NSDQ: GOOG), to a new 52 week high as well, closing at $477.54 (+$2.42, +0.50%).

The dollar got hit again on worries of a trade war with China, as the Obama Administration slapped 35% tariffs on Chinese tires.  The Chinese immediately retaliated with threats of tariffs on U.S. poultry and auto exports, alleging government subsidies that violated trade agreements.  I would have to side with China on this one as the massive bailout of General Motors and Chrysler clearly involved a whole lot of money going from The U.S. Government to the auto makers.  All these tariffs are going to do is make these products more expensive in both countries.  With the consumer reeling from the financial meltdown and heavy job losses, is making the cost of tires higher going to help?  Is it wise at this economic point in time to start a trade war with your number one creditor over some tires?

As the United States has always been the champion of free trade, it might seem to a country that signed a free-trade agreement with us, that the U.S. slapping tariffs on one of their exports to be a double-cross.  Since this spat started, the Chinese blogs and online news sources have been calling the U.S. “shameless” among other things.

The United Steelworkers Union was the impetus behind the Obama Administration move, alleging that the tripling of Chinese tire imports between 2004 and 2008 had cost the U.S. more than 5,000 jobs.  Last I checked we shed millions of jobs this year and starting a trade war over 5,000 jobs seems to me to be overkill, even if they are from your political power base and are union jobs.

The DXY, which is a dollar index based on a basket of foreign currencies, traded slightly higher in the morning but started getting hit around 11:00 a.m.  The DXY closed at a new 52 week low, losing 0.22%.  This drop in the dollar rallied commodities across the board with the Market Vectors Steel ETF (NYSE: SLX) gaining 2.37%.  Remember, there are steel belts in tires.  Oil, copper, natural gas and gold all rallied on the drop in the dollar, which could have also taken it on the chin as the Producer Price Index came in this morning above expectations.  While worries of inflation are subdued currently, when a price index increase is expected to be 0.8% and comes in more than double at 1.7%, those worries start to get a second look.

Throw a trade war and an economic number that gives a whiff of inflation together and you get a new 52 week high close in the SPDR Gold ETF (NYSE: GLD).  The GLD closed at $98.90 gaining 94 cents on the day while the New York Spot price for gold traded as high as $1011 today and was last seen trading at $1007.30 (+$7.70, +0.77%, 4:26 p.m.).  You have to go back to March of 2008 for a higher close with only one days close at $99.17, exceeding today by a mere 27 cents.

After all that doom and gloom and dollar slap down, the markets closed at 2009 highs with the Dow gaining 56.61 points (9683.41, +0.58%) and the S&P 500 rising 3.29 points (1052.63, +0.31%) while the Nasdaq 100 added 5.77 points (1699.53, +0.34%).

The sector kicking in the most to push the market up was energy.  Energy stocks posted strong gains with the sector up 1.65% today as oil rose $2.07 a barrel to $70.49 (4:43 p.m.).  While 2009 high closes on the indexes are nice, wait till you get to the gas pump.

Tomorrow we get the CPI at 8:30 a.m., The Consumer Price Index, and expectations are for a 0.4% rise.  If the PPI from today is any indication, we could very well exceed this number possibly pushing gold to even higher highs.

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