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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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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Week on Wall Street

Market Down on Poor Confidence Reports

By Robert Perrego, at 6:05 pm on February 23rd, 2010

Housing centric Home Depot Inc. (NYSE: HD) was the top performer in the Dow Jones Industrial Average today, gaining 1.41% (+$0.43, $30.75).  This is somewhat ironic as the DJIA dropped 0.97% (-100.97, 10,282.41) and to have a housing industry related stock the best performer while the market goes down is an about face from last February to say the least.  Only 3 of the 30 components of the Average were up with the other 27 closing down 0.28% to down 2.65%.  The stock market traded higher off the open this morning until 10 a.m., when the Consumer Confidence report was released.  The expected number was 55 with a 52 to 57 range and when the number came in at 46, the market thought about it for a second, and everyone started hitting the sell button.

The S&P 500 lost 13.41 points (-1.21%, 1,094.60) and the Nasdaq 100 dropped 23.81 points (-1.3%, 1,793.82).

Low confidence seems to be a global problem as Germany, Europe’s largest economy, reported their Ifo Business Index unexpectedly dropped from 95.8% to 95.2% while analysts were expecting a rise to 96.4%.  Strikes, walk-outs and protests are occurring all across Europe as workers, unhappy with delayed retirements and just about everything else economically, vent their frustrations.  Here in the United States not a lot of people are going on strike as a quick look at the news headlines shows people are still getting laid off and fired left and right.  The Metropolitan Transit Authority in NYC is cutting 1,000 jobs, including top managers while San Francisco prepares to let 900 teachers and other school employees go.

No jobs means no paychecks.  No paychecks means no purchases and that means no need for workers to make no products being sold.  I saw a news headline with the word ‘deflation’ in it today, which is the first time for this in about a month as most economists thought we averted that disaster.  Guess again.  I would not advise going on strike or protesting your pay as the latest estimates are that 19.9% or 1 in 5 workers are under-employed.  Supply and demand for jobs right now is in the employers favor as, chances are, there is someone out there willing to do your job for less.

Anyone looking for good news can notice that Ford Motor Co. (NYSE: F) was up 3.47% today (+$0.39, $11.60), and to see an auto company and Home Depot up in a down market like this lets you know anything can be turned around.  Remember when General Motors was going out of business and Toyota Motor Corp. (NYSE: TM) was king of the hill?  Today, Toyota executives testified to a hostile Congressional Committee about their 8 million vehicle recall, a pesky sticking accelerator and cars that can turn into a 100 mph run away horse with a mind of its own.  Toyota stock finished down 1.89% (-$1.38, $71.55).

Trading screens were mostly red as nothing seemed to escape the broad selling.  Stocks, oil, gold, commodities all finished lower with the dollar a tiny island of green on my trading screen.  The PowerShares DB US Dollar Index (NYSE: UUP) closed up $0.13 (+0.54%, $23.81), New York spot gold dropped $$9.60 an ounce (-0.86%, $1,103.00, 4:37 p.m.) and Nymex crude gave up the $80 level dropping $1.23 to $79.08 a barrel (-1.53%, 4:30 p.m.)

Former Fed Chairman Alan Greenspan gave a very disturbing picture of the economy, saying the recovery was ‘unbalanced’ and that high-income consumers were one of the main drivers of consumption.  These consumers are spending more as the market is up but, if this market starts to drop again and they clam up their wallets, it could accelerate the drop.  Federal Deposit Insurance Corp. Chairwoman Sheila Bair stated the agency now has 702 banks on their ‘distressed’ list, up from 552 at the end of September.  This time around the problems are driven mostly by trouble with commercial real estate.

To end with at least an attempt to have a positive attitude – it’s not Monday.

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Wall Street Wrap

The Markets – little movement after the Rate Hike

By Robert Perrego, at 4:58 pm on February 19th, 2010

The surprise hike in the discount rate by The Federal Reserve after the close yesterday turned into much ado about nothing today.  Pfizer Inc. (NYSE: PFE) was the largest gainer in the Dow Jones Industrial Average today, rising a mere 26 cents (+1.46%, $17.99).  The markets traded themselves to a standstill with the areas you might expect to see impacted; gold, oil and stocks ending up pretty close to where they were at yesterday’s close.  The Dow Jones Industrial Average saw all component stocks but three finish with less than a 1% move up or down with an even split of 15 logging gains, 14 losses and 1 unchanged.

The Dow Jones Industrial Average finished with a gain of 9.45 points (+0.09%, 10,402.35) while the S&P 500 tacked on 2.42 points (+0.22%, 1,109.17).  The Nasdaq 100 closed down less than a point at 1,823.32.

Traditionally, the stock market rises as The Fed raises rates.  The fact that rates are going up is signaling the economy is heating up and this is good for stocks.  The one bogeyman we have in the mix this time is that with interest rates coming off a base of near zero, the dollar has been used for the carry trade for the first time in history.  In the after-market yesterday, the dollar traded up as much as 1% (a big move for the greenback) and if there are still large carry positions on, unwinding them to buy the dollar shorts in could cause significant selling pressure.

The PowerShares DB US Dollar Index (NYSE: UUP) opened up 0.76% ($0.18) this morning and traded as high as up 1.06% ($0.25), before declining for much of the day to close up only 0.29% ($0.07).  The response to the move in the dollar was that when the dollar was near its highs, the S&P 500 was logging its low trading range of the day.  This leads me to believe that the carry trade is still an important factor in the stock market.  As The Fed fired this ’shot across the bow’ of the carry trade cowboys, the best outcome possible would be that these carry trade positions are unwound in an orderly fashion over time and do not create heavy selling that brings the market down. New York Fed President William Dudley commented after the hike yesterday that the current accommodating interest rate policy will remain in place for an ‘extended’ period of time.

Goldman Sachs upped their outlook on discount brokers and specifically upgraded Charles Schwab Corp. (NSDQ: SCHW) to neutral from sell, causing the stock to jump 5.16% (+$0.92, $18.73).  Tradestation Group Inc. (NSDQ: TRAD) gained 50 cents (+7.65%, $7.03), Options Express Holdings Inc. (NSDQ: OXPS) added 60 cents (+4.02%, $15.49) and Ameritrade Holding Corp. (NSDQ: AMTD) finished higher by 44 cents (+2.50%, $18.03).

The online broker with the hilarious baby and “the lottery is not a retirement plan” commercials, E-Trade Financial Corp. (NSDQ: ETFC), seems to still be mired in toxic trouble with their mortgage portfolio as the market only saw fit to buy the stock higher by a penny (+0.64%, $1.58).  Could the more favorable outlook for the business of online brokerage bring buyers calling at E-Trade’s door?  This still remains to be seen as rumors have floated around trading desks for months about Ameritrade swooping in, but there has been no official action thus far.

New York spot gold was up $8.10 an ounce to $1,116.20 (+0.73%, 4:04 p.m.), and note that the later ‘close’ of the gold market after the stock close yesterday included the rate announcement.  Gold was up as much a $18.60 an ounce during the day.  Nymex crude closed strong to finish up 88 cents a barrel (+1.11%, $79.94, 4 p.m.) and is tickling $80 a barrel again.  News out of the Middle East regarding surface to air defensive missile sales to Iran is putting a window on when a nuclear facility air strike could be launched by anyone.  This could be either adding to the strength in oil this cycle up, or could just be a very good reason why you should not get short oil now.

Finally, Tiger Woods was on TV today apologizing for what happened in Vegas that did not stay in Vegas.  President Obama was also in Vegas today hanging out with shady characters (other politicians) after dragging the town’s name through the mud over the past year.  I doubt Obama is going to have as much fun as Tiger did there.  What Tiger did, or did not do, is none of my business and hopefully he just gets back to playing golf and minding his own business – much like all the rubbernecks that have been watching his life collapse are not.  Given the choice I would take the billion dollars, golden golf stroke and public ridicule, and I think you would too.

Have a great weekend.

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News

Market Jumps in the Afternoon, Fed Raises Rates after the Close

By Robert Perrego, at 5:03 pm on February 18th, 2010

The Dow Jones Industrial Average jumped about 50 points within 15 minutes at 2:15 p.m. this afternoon, adding to slight gains earlier in the day to finish up a solid 83.66 points (+0.81%, 10.392.90).  Travelers Companies Inc. (NYSE: TRV) led the Dow higher gaining 1.91% (+$0.99, $52.).  Wal-Mart Stores Inc. (NYSE: WMT) reported $1.17 per share in earnings before the open this morning, with analysts expecting $1.12.  The world’s largest retailer missed on revenues though ($113.65 billion vs. 114.56) and the market sent the stock into the penalty box, dropping it 1.09% (-$0.59, $53.47).

The S&P 500 gained 7.24 points (+0.85%, 1,106.75) on the day with gains in most all industries except transportation and finance.  The Nasdaq 100 climbed 12.53 points (+0.51%, 1,823.39).

The market traded slightly higher early in the day but with no volatility or major movements.  At 2:15 p.m. there was a jump that one market player attributed to possible short covering.  A software engineer in Texas flew a small plane into a building containing an IRS office, and with the market these days, there were short positions put on in the event a terrorist connection was found.  It turns out that the pilot was more than a little frustrated with the IRS (what a surprise) and left a seven page online rant describing what was (or was not) going on in his head.  As soon as it was apparent that the plane crash was not a hidden terrorist cell or something more sinister, the market pop could have been a short squeeze as all those speculative short positions ran for the exits.  Who says the IRS and short side traders are bad?  On a down note, the IRS is expected to announce new taxes on software engineers to pay for a new building (just kidding).

Microsoft Corp. (NSDQ: MSFT) and Yahoo Inc. (NSDQ: YHOO) got clearance from regulators in both the United States and Europe to combine their search and advertising mojo in an attempt to mount a real challenge to the Goliath of the space, Google Inc. (NSDQ: GOOG), which controls some 66% of the market.  Microsoft gained $0.38 (+1.32%, $28.97) and Yahoo closed higher by $0.10 (+0.65%, $15.54).  Analysts think this combination could have legs as Microsoft’s ‘Bing’ search seems to deliver the goods and Yahoo can now free up some extra time to figure out why they passed on the $34/share buyout offer from Microsoft in 2008.

With today’s gain, the DJIA has closed significantly higher than its 50 day exponential moving average and has some clear sailing ahead of it to the upside.  There is minor resistance in the 10,430 area, but after that it looks like blue skies back towards the 52 week high at 10,725.  It looks like the U.S. stock market has broken free of the Greek tragedy, finally.

Looking at the gold chart shows it is right up against resistance formed by an island reversal, which involves horizontally lined up gaps.  A close above $1,130 in the spot price or $111 by the SPDR Gold Trust (NYSE: GLD) should signal a breakout and a run at its all time highs.  New York spot gold gained $14.20 an ounce today (+1.28%, $1,121.00, 4:16 p.m.)

Nymex crude jumped $1.85 to $79.18 a barrel (+2.39%, 4:19 p.m.).  It is looking like the February 9 call of trading the trend channel of the United States Oil Fund (NYSE: USO) between $35 and $41 is working out.

**********

BREAKING NEWS – The Federal Reserve just raised the discount rate by 0.25% to 0.75%.  This is not the more important federal funds rate.  To put this in perspective, the federal funds rate is what banks lend to each other at for overnight loans, while the discount rate is what rate the Fed lends to banks at.  While raising the discount rate does increase the cost of money, the fact that the federal funds rate is still at 0.25% still allows depository banks access to the cheaper loan.

The big news here is the surprise jack in rates.  The Fed used to always make these changes after a Fed meeting in order to be more predictable.  With the bottom dropping out of the credit markets in 2008, the Fed cut rates without meeting and now it seems they are going to raise them in the same manner.  This is one tool Bernanke can use to keep market players from getting too juiced up on the all the liquidity that has been injected into the system.  Also, this unexpected rise will put the carry trade cowboys on notice to stop shorting the dollar as now they will be less sure as to when a hike in the federal funds rate will come.  This uncertainty will scare them into lightening up on their dollar shorts.

The bad news is, if these cowboys buy their shorts in as now they are afraid of higher rates (which strengthen the dollar), they will be selling their ‘riskier’ assets – stocks and commodities.

Remember those comments earlier in this article about the clear sailing to the old highs – WHOLE NEW BALLGAME NOW FOLKS.

New York spot gold was at $1,121 before the announcement – now it is trading $1,110.90.  The Dow ‘Diamonds’, the ETF for the Dow Jones Industrial Average closed today at $104.17 and are now trading $103.45 in the after-market – translates to down about 72 points on the DJIA.

Do you think those guys that put the short positions on when they heard a plane hit a building with the IRS in it wish they were still short?

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