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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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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Wall Street Wrap

Market Up on Strengthening Consumer Data

By Robert Perrego, at 5:25 pm on December 11th, 2009

Retail Sales for November were released at 8:30 this morning and sent the pre-market futures higher.  The Retail Sales month-over-month change was expected to come in up 0.9% and the range was 0.6% to 1.2%.  The actual number came in even above the range at 1.3% and it looks like the consumer is not dead, or too unemployed, to shop.  Then at 9:55, the Reuters/University of Michigan Consumer Sentiment Index was released and this number beat expectations by a large amount (73.4 vs. 67.4).  These two numbers seemed to confirm each other as the Dow Jones Industrial Average opened higher and never looked back.  The big mover in the DJIA was Alcoa Inc. (NYSE: AA), up 8.22% today (+$1.11, $14.61).  JP Morgan Chase & Co. (NYSE: JPM) upped their price target on Alcoa to $25 from $22 and it looks like some players got caught short.

The market finished ’split’ as the Dow Jones Industrial Average (+65.67, +0.63 %, 10,471.50) and S&P 500 (+4.06, +0.63%, 1,106.41) closed higher while the Nasdaq 100 finished lower (-7.31, -0.40%, 1,792.06).  The DJIA closed less than one point from closing at a new 2009 high, gaining 82.6 points (+0.80%) on the week.  The broader S&P 500 was basically flat on the week gaining less than a point and the Nasdaq 100 added 7.46 points this week, which is a 0.42% gain.

It was not all good news out of Washington D.C. as a financial reform package cleared the House.  You wouldn’t be risking much if you bet that whatever is in this new raft of regulations, our brilliant politicians will be regulating for the last problem and not the next one.  The last big set of regulations created mark-to-market after Enron and their ilk cooked their books, and some of the ’solutions’ for the last problem had to be suspended in March as the ‘market’ mortgage bonds were being marked to, was not functioning.  Of course, Barney Frank (D-Mass) was on TV blaming the Republicans for pretty much everything he could and going on about how this new set of regulations would fix everything.  Sorry Barney, I am not buying it.  I have seen this movie too many times before.

The dollar had a strong day and the market was up!  This has not happened too often as of late, as the carry trade has caused a reverse correlation between these two.  The Dollar Index Future was up 50 cents or 0.66% to $76.55.  This rising dollar took its toll on the commodity space as oil and gold both dropped.  New York Spot Gold dropped $15.40 an ounce (-1.36%, $1,114.40, 4:48 p.m.) on the stronger dollar.  The SPDR Gold Trust (NYSE: GLD) closed down $1.50, its sixth negative day in a row, and is now $9.86 off its all time high close.  The GLD traded as low as $108.72 today, which was 35 cents above its 200-day exponential moving average.  Most analysts and traders are bullish long term on gold and talk about buying the dip.  Moving averages act as support and if this 200-day holds, the GLD is near the bottom of its ‘dip’.

Nymex crude broke down through the $70 level as it is currently trading $69.60 a  barrel (-$0.67, -0.95%, 4:54).  This is the eighth straight losing session for oil with many talking heads naming the rising dollar as the culprit.

Well, it took over a year but it finally happened.  CNBC published a story today discussing a value-added tax and a national sales tax.  Why this took so long is a mystery to me as every politician in the country seems to be running around spending like a drunken sailor during the day and dreaming up new taxes on soda, the number of miles you drive and whatever you currently have in your back pocket at night.  Nothing I like better than more taxes seeing as I live in New York City, one of the highest taxed places in the country.  One day a few of these politicians might wake up and maybe take an economics course or buy a clue.  If this keeps up, all the people working hard at their jobs for less and less money as they are being taxed to death from every direction, may actually decide a welfare check, day time soap operas and government cheese looks like a stress free life and a good time.  Then who would we tax?

Have a great weekend.

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News

Gold, Gold, Gold! How High Can it Go?

By Robert Perrego, at 11:35 am on December 2nd, 2009

The news of the day is all-time new highs for gold.  The news yesterday was all-time new highs for gold.  How high can gold go?  When will it be time to sell?  There are a lot of people that want to know the answer to this as the talking heads argue about it all day long on television.  I did a study using the gold rallies from 2005 and 2007 to come up with a prediction for the gold rally of 2009.

Using the SPDR Gold Trust (NYSE: GLD) as a guide to the past two rallies, this gold rally will propel the GLD to between $137 and $155.  This peak will occur between February 8th, 2010 and April 20th, 2010.  This roughly correlates to spot gold at $1,396 and $1,575 an ounce.

The 2005 Rally

On September 8th, 2005 the GLD broke out and began its rally from a base price 0f $44.33.  This rally lasted 169 trading days and carried the GLD to its high of $72.15 on March 17th, 2006.

The 2007 Rally

On September 6th, 2007 the GLD broke out and began its rally from a base price of $67.56.  This rally lasted 132 trading days and carried the GLD to its high of $100.44 on May 11th, 2006.

The 2009 Rally – Two Case Scenario

Case 1 involves averaging the trading days and percentage gains from the two previous rallies.  This yields 150 trading days and a 55.71% return.  Therefore, the GLD will rise to $155.57 (spot gold = $1,575) and will peak about April 20th, 2010.

Case 2 involves using a decaying look at the current rally.  The first gold rally in 2005 ran up longer and rose farther than the second.  Using the percentage change reduction from the 2005 to the 2007 rally yields the 2009 rally of a 37.74% gain and a duration of 105 trading days.  This gives us a peak in the GLD of $137.62 (spot gold = $1,396) on about February 8th, 2010.

Case 3 – Ahhhh, there is a case 3?

Case 3 is the optimist case that the current rally carries for, and goes as far as the 2005 rally.  This would give us a GLD price of $162.60 (spot gold = $1,646) and will peak on March 17th, 2010.

This is a medium term prediction for THIS rally.  Longer term I think gold hits $3,000 an ounce but that is another story.

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Wall Street Wrap

If You Have Gold it is a Happy Thanksgiving!

By Robert Perrego, at 4:04 pm on November 25th, 2009

Today I sat here and watched gold melt up all day long.  The talking heads on CNBC’s Fast Money have been saying they see a large short position out there in gold, and if this is true, the shorts are getting the screws turned on them today.  India bellied up to the bar for a second shot of gold, with reports out this morning they were looking to buy the remaining 203 tonnes of gold from the IMF.  Then news came out that Sri Lanka bought 10 of those tonnes and the remaining overhang in the market seemed to be evaporating.  The SPDR Gold Trust (NYSE: GLD) marched steadily upwards all day long as the ETF is now in rarefied air – no resistance to the upside of any type.  The GLD finished up $1.89 (+1.64%, $116.62).

The rest of the market saw light trading action and little movement to speak of.  The Dow Jones Industrial Average closed up 30.31 points (+0.29%, 10,464.02), the S&P 500 gained 4.92 points (+0.44%, 1,110.57) and the Nasdaq 100 rose 6.72 points (+0.37%, 1,793.67).

Gold was the rage of the day as it was the only real action of the day.  New York Spot Gold traded as high as $1,192.30 an ounce (+$24.10) as there were buyers, buyers and more buyers.  Real interest rates are negative right now and the Fed is not expected to move until late 2011 according to one market prognosticator on CNBC.  His case was theoretically sound; as long as interest rates remained so low, gold would continue to move higher.  Not a good time to be short.

Regular contributor to CNBC, Art Cashen, chimed in with an interesting but dire point.  The dollar keeps dropping as interest rates are so low.  The carry trade cowboys keep shorting the dollar and putting that money to work buying stocks.  Should some type of event occur, such as another war breaks out somewhere or another major bank melts down, that causes investors to flee to the dollar, we could see this stock market drop 1,000 points in a day.  There is an awful lot of carry trade money pumped into the market right now and that is fuel for a big fire.

The stock market closes at 1 p.m. Friday and I think it is time for me to follow my trading brethren out the door and get to that long weekend.

Happy Thanksgiving everyone!  Enjoy the long weekend, here is wishing you all safe travel to your families, a full belly and a smile on your face all weekend long.

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