Wall Street Wrap

Big Pharma Strong, Google vs. China?

By Robert Perrego, at 5:31 pm on January 13th, 2010

Merck & Co. (NYSE: MRK) was upgraded on a strong drug pipeline by Credit Suisse and the stock responded by running up 3.67% (+$1.38, $38.93) to close at its highest level in 20 months.  During a day that saw “Wall Street CEOs” grilled by the Financial Crisis Inquiry Commission (FCIC), stocks staged a rally that carried the Dow Jones Industrial Average to new highs not seen since early October of 2008.  While the market was focused on the big news about the banks and Google’s China conflict, Big Pharma staged a stealth rally which carried not only Merck, but Johnson & Johnson (NYSE: JNJ) and Pfizer Inc. (NYSE: PFE) to new closing highs.  All three of these companies are Dow Jones components and J&J and Pfizer are the two largest pharmaceutical companies by market capitalization traded in the United States.  J&J closed up 41 cents at $64.97 (+0.63%) and Pfizer added 44 cents to $19.21 (+2.34%).

The Dow Jones Industrial Average rose 53.51 points (+0.50%, 10,680.77) with 22 of 30 companies positive for the day.  Two tech components of the DJIA, Cisco Systems Inc. (NSDQ: CSCO) and Intel Corp. (NSDQ: INTC), did their part gaining 1.81% and 1.70% respectively.  The strongest major index on the day was the Nasdaq 100, which gained 24.34 points (+1.30%, 1,886.13) and the S&P 500 rose 9.46 points (+0.86%, 1145.68)

Google Inc. (NSDQ: GOOG) is considering pulling out of China after getting Gmail accounts of human rights activists hacked.  Google said the hacks were very sophisticated and may have even led to the theft of some company proprietary technology.  A distant second in the search market to Baidu.com in China, Google has feuded with the Chinese Government over censorship and the privacy of their data and the data of their users for some time now, and this may be the last straw.  The big question is whether or not Google is bluffing and will they actually leave the largest consumer market on the planet that also has the hottest economy right now?  Walking away from 25% of the world’s population is never an easy thing to do, no matter how good your reasons are.  Baidu, Inc. (NSDQ: BIDU) jumped $52.99 (+13.71%, $439.48) on the news while Google dropped $3.39 (-0.57%, $587.09)

Oil dropped to under $80 a barrel on warmer weather as Nymex crude lost $1.16 to $79.63.  Gold opened up a few dollars after yesterday’s slide resulting from China raising their interbank interest rates and then started trading lower.  By lunch the shiny yellow metal had formed an intra-day double bottom and New York spot gold trended higher for the rest of the day finishing higher by $9.80 an ounce (+0.87%, $1,137.60, 4:54 p.m.)

The Fed beige Book was released at 2 p.m. and provided some upward momentum for stocks as it stated that 10 of 12 Fed regional districts reported economic conditions are improving.  The growth is slow with pockets of weakness and concern about consumer spending and credit.  Credit quality is deteriorating and loan demand is dropping as economists worry about a double-dip recession.  Current debate is how well the economy will do on its own, once the governmental stimulus ’sugar-high’ is over.

Just dumping stimulus money into an economy does not mean a recovery as stimulus spent wisely is an investment with returns, while pork stimulus or non-investment spending does not spur job creation and the positive effects fade with time.  This is very similar to the old proverb; “Give a man a fish he eats for a day, teach a man to fish he eats for a lifetime.”  Give the economy wasteful stimulus spending and we have a bounce in the market and a double-dip recession, spend those trillions wisely and hopefully we get a full blown recovery.

Tomorrow we get the Retail Sales (+0.4%, +0.2%) and Jobless Claims (437K) numbers at 8:30 a.m. and then Business Inventories (+0.2%) at 10 a.m.

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Wall Street Wrap

Is the Google Nexus One Cannibalizing Android? DJIA and S&P set 52 Week Highs

By Robert Perrego, at 4:48 pm on January 7th, 2010

The Dow Jones Industrial Average managed a small gain of 33.18 points today and closed at a new 52 week high at 10,606.86 (+0.31%).  Not to be outdone, the S&P 500 also tacked on a small gain of 4.73 (+0.41%, 1,141.87) points, which was enough to push the broader index up to its highest close in a year.  General Electric Co. (NYSE: GE) posted the largest DJIA component percentage gain (+5.17%, +$0.80, $16.25) as J.P. Morgan Chase & Co. (NYSE: JPM) raised its price target to $22 from $20.  The Nasdaq 100 split the market by finishing lower, losing 1.70 points and closed at 1,876.72.

Weighing on the Nasdaq 100 was Google Inc. (NSDQ: GOOG), as the tech behemoth lost $14.16 today bringing its two day drop to $29.89 (-4.79%, $594.10).  Was this drop a ‘buy on rumor, sell on news’ fatality as the new Google phone, the Nexus One, was announced yesterday morning?  Google’s stock is down from its 52 week high at $629.51 set three days ago, with the biggest news on the company being a new product which is positioned to go into head-to-head competition with the iPhone.  Some industry executives are saying that now that Google has its own handset, other phone manufacturers will be less likely to use the Google Android operating system on fears that the company will prioritize its own hardware.  So is the Nexus One cannibalizing the Android or is it simply ‘buy on rumor, sell on news?’

Looking at the Google chart gives more reason to worry with today’s close breaking down through an uptrend line in effect since July 7, 2009.  The stock closed at $595.10 today and has support just below from its 50 day exponential moving average at $582.38.  A break down through the 50 day targets support levels at $550 and then $500 where the 200 day EMA is.

The debate on when the U.S. needs to raise interest rates is heating up again.  Over the past few months Fed officials have come out and stated that interest rates will remain at their present 0-0.25% level for an “extended period of time.”  Of course it would be just too easy if all the Fed officials agreed so the market had a clear picture, as Thomas Hoenig, President of the Kansas City Fed stated today that the Fed should start raising interest rates “sooner rather than later.” With the Fed’s purchase of mortgage bonds ending on February 1st, interest rates, at least on the mid to long end, may get a mind of their own and start to rise right after the Fed buying stops.

Oil ended its 10-day winning streak as Nymex crude dropped 51 cents to $82.67 a barrel (-0.61%, 4:11 p.m.) and the New York spot price of gold also dropped, losing $6.40 an ounce (-0.56%, $1,131.70, 4:26 p.m.).  The usual suspect here is the rising dollar, as the dollar index future spot price was up 45 ticks (+0.58%) to 77.94.

This morning we got the initial Jobless Claims report, which came in better than expected with only 434,000 people registering to get their unemployment checks vs. the 450,000 expected.  Tomorrow morning we are going to get the headline employment number at 8:30 a.m., with the expectation that the unemployment rate will rise to 10.1% from 10%.  Non-farm month-over-month payrolls are expected to drop by 10,000.  A good number tomorrow on the unemployment rate and this market, which just closed at 52 week highs, could take off.  Funny thing about being up this high though, as this also means a bad number and we have farther to fall.

One last piece of news to report – it seems that at the 2010 International Consumer Electronics Show in Vegas, every single vendor has unveiled a new e-reader, tablet, three-ringed binder, netbook, notebook and someone even brought pen and paper and gave demonstrations.  Just how many of these things do we need anyway?

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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

Helicopter Ben at the Controls, Dollar Drops, Market Pops

By Robert Perrego, at 10:46 pm on November 16th, 2009

Federal Reserve Chairman Ben Bernanke spoke to the Economic Club of New York today about the dollar, unemployment and the economic recovery.  Nicknamed ‘Helicopter Ben’ after a speech he gave on deflation, which cited a statement by Milton Friedman about using a ‘helicopter drop’ of cash, Bernanke appeared none too optimistic on the economy and stated exceptionally low interest rates would be needed for an ‘extended period’.  Then, to make the bulls and the carry trade cowboys break out the champagne, Bernanke said “It’s extraordinarily difficult to tell, but it’s not obvious to me … there are any large misalignments currently in the U.S. financial system.”

In plain English, Helicopter Ben does not see any bubbles.  This type of statement basically supercharges any asset class that is currently thought to be in ‘bubble conditions’, such as stocks, bonds and commodities, as now the world’s most powerful central banker is on their side.  As a result, we got 2009 highs in the market indexes, all time highs in the price of gold and a confirmation signal of a bull market from The Dow Theory.

The Dow Jones Industrial Index ran up 136.49 points (+1.32%, 10,406.96) and the S&P 500 broke 1,100 and rose 15.82 points (+1.44%, 1,109.30).  The Nasdaq 100 broke 1,800 gaining 18.95 points (+1.05%, 1,807.56).  All three of these indexes closed at 2009 and 52 week highs.

One of the signals of a bull market from Dow Theory is that one average confirms another.  The two averages used here are the Dow Jones Industrial Average and the Dow Jones Transportation Average.  The Industrial Average has been ahead as of late, setting new highs as recently as November 9th, while the last time the Transportation Average set a new high was October 20th.  Today, both the Transportation and Industrial Averages closed at 2009 and 52 week highs when the Transports closed at 4046.30.

A stock in both these averages, Boeing Co. (NYSE: BA) did not sell any airplanes over at a Dubai airshow, but they made some noise by signing a development deal with Abu Dhabi’s state investment vehicle Mubadala Development Co., to help the country diversify away from the oil patch and build an aerospace industry.  Boeing was the biggest gaining component of the Dow Jones Industrial Average up $1.80 (+3.55%, $52.48).

New York Spot Gold traded up as much as +25.80, at all time high of $1,144.40 an ounce.  At 12:15 p.m., gold was up about $17 an ounce when Bernanke started speaking.  Ben’s first comments seemed pro dollar strength and the PowerShares Dollar ETF (NYSE: UUP) spiked higher on heavy volume immediately.  At the same time gold and all three of the market averages started dropping as dollar shorts were bought in and long stock positions liquidated.  Fifteen minutes later the plunge reversed, gold bottomed out up about $11 an ounce and then took off for another $15 an ounce to trade $1,144 at about 2:30 p.m.  New York Spot Gold settled up $20.20 an ounce (+1.81%, $1,138.70, 4:08 p.m.)

Nymex crude went down on Friday while the rest of the market enjoyed an up day on a bad Consumer Confidence number.  Today, oil made up for lost time gaining $2.55 a barrel (+3.34%, $78.86, 4:17 p.m.) on a weakening dollar.

Economic reports this week may make the market seem like topsy-turvy world.  Right now the market run is being fueled by a dollar carry trade, so any reports that the economy is weak means interest rates (and the dollar) will remain low.  Tomorrow we get the Producer Price Index at 8:30 a.m. (0.5%, ex. food and energy 0.1% expected) and then Industrial Production at 9:15 a.m. (0.4%, 70.7%).  Wednesday bring the Consumer Price Index (0.2%, 0.1%) and Housing Starts (600K), both at 8:30 a.m.  and Thursday is good ole Jobless Claims (504k) at 8:30 a.m. and Leading Indicators (0.4%) and The Philly Fed Survey (12.0) at 10 p.m.

With the CPI and PPI, low numbers means no inflation so no need to raise interest rates.  This is bullish for the carry trade cowboys.  On the other hand, high numbers that indicate inflation will bring more pressure to raise rates and cause the shorts to get nervous.  This is the same in one way or another with all the releases coming out this week.  If all of a sudden we get a large drop in Jobless Claims, this too would also build pressure for a rise in rates.

Welcome to investing and trading 2009, where because of the dollar carry trade, down is up.

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