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%

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Wall Street Wrap

Dollar Up, Everything Else Down

By Robert Perrego, at 5:05 pm on December 17th, 2009

Standard and Poor’s downgraded Greece’s credit rating to BBB- causing investors to flee to the safety of the dollar and dump their riskier assets.  Unfortunately, the riskier assets are stocks and commodities, two of the asset classes that have seen the biggest bounces since the March market bottom.  All year as the dollar has declined after the Fed lowered interest rates to near zero, market players have been shorting the dollar and using the proceeds to buy stocks and commodities.  This carry trade results in the buying of stocks and commodities which pushed them higher, while the dollar goes lower under the pressure of all the shorting.  The ticking time bomb here is that once you get a whole lot of shorts in the same trade, when it reverses, it does so quickly as everyone runs to cover their shorts and to sell the longs they bought with the short proceeds.

The PowerShares DB US Dollar Index (NYSE: UUP) gained 1.05% today and is up 1.68% over the last four days.  As this run-up in the dollar occurred, the Dow Jones Industrial Average has lost 1.83% and the SPDR Gold Shares (NYSE: GLD) ETF has lost 2.63%.  One of the biggest gold mining companies on the planet, Agnico Eagle Mines Ltd. (NYSE: AEM) is down 11.6% as the movement of the mining companies themselves are usually much larger than their underlying commodity.

Stocks did not fare much better than commodities as the Dow Jones Industrial Average lost 1.27% today (-132.86, 10,308.26) and the broader S&P 500 dropped 1.18% (-13.10, 1,096.08).  The tech heavy Nasdaq 100 lost 1.25% (-22.55, 1,778.27).

Citigroup Inc. (NYSE: C) sold 5.4 billion shares yesterday at $3.15 apiece in order to raise money to exit the TARP program.  The United States Treasury, holder of one-third of Citibank’s shares prior to this offering, decided not to sell any of their shares and the stock fell 25 cents to $3.20 a share.  The Government bought in at $3.25, and assuming they are not trying to make a profit and break even (have you seen the U.S. budget lately, if these guys do anything for a profit it is the best kept secret in the world) the stock now has a lid on it at $3.25.  Citigroup announced that the Treasury would not sell any stock for 90 days in order to clear the perception of that these shares are out there hanging over the stock, but don’t be fooled, they are there.

FedEx Corp. (NYSE: FDX) reported their quarterly results, which are closely followed as a bell-weather on economic activity, and posted $1.10 a share vs. expectations of $1.05.  Year-over-year earnings dropped from $1.58 a share to $1.10 as lower surcharges and lower prices more than offset an increase in number of packages shipped.  The stock dropped $5.48 (-6.09%, $84.47) but also brought trading partner United Parcel Service (-1.30%) and the Dow Jones Transportation Index (-1.19%) lower with it.

New York Spot Gold dropped $40.10 an ounce to $1,097.40 (-3.53%, 4:53) on dollar strength but oil held tough gaining 2 cents a barrel to $72.68.

Tomorrow there are no economic releases as it is a quadruple witching Friday.  The options expirations can cause a decent amount of volatility so economic reports are not released on these days so as not to have an outlying number rocket the market in one direction or other.

Tags: , , , , , , , , , , , , , , , , , , , , ,

News

Market Wrap – Berkshire gets Downgraded at a Possible Top

By Robert Perrego, at 4:42 pm on August 10th, 2009

Berkshire Hathaway Inc. (NYSE: BRK.A) has run up from $85,125 a share on July 10th to a high at $108,450 on Friday for a 27% gain in one month.  Today the stock got hit for 3.79% on a downgrade as the entire market sold off from last week’s rally.  Maybe it was just a fear of heights or the Bulls just got tired (most likely both) but the Dow Jones was down as much as 80 points intra-day and rallied back to close down only 32.27 points.  Berkshire lost $4,100/share (-3.79%, $104,000).

Berkshire Hathaway is Warren Buffet’s holding company for many different businesses including Coca-Cola (NYSE: KO), American Express (NYSE: AXP), Johnson & Johnson (NYSE: JNJ) and wholly owned insurer Geico of the marketing famed English accented gecko lizard.  While a large percentage of Berkshire is in financials of some type, Warren has bought a wide variety of companies based upon his value oriented stock picking method.  Berkshire can be watched as a proxy on the market and especially the finance sector which has been particularly strong as of late.  On the same note – when someone goes out and downgrades Berkshire it is best to pay attention.

What may have analysts and traders spooked is that The Federal Reserve is meeting tomorrow.  While it is highly unlikely that the Fed raises rates tomorrow (it would actually be political suicide for Bernanke right now), the statements accompanying the “we have decided to leave rates alone” could move the markets substantially.  A statement that sounds something like this; “Even though the economy remains weak The Fed now regards inflation a more significant future threat” would move the markets.  This type of statement would mean rate hikes are coming and the Treasury market will begin to react immediately pricing a rate hike in which means interest rates will rise (cost of money) and most likely a sell off in stocks would result.  No trader wants to be caught too long of stock with such an event being possible.  Right now credit is a long lost memory to a lot of companies and small businesses and if the cost of this credit is increased that loan becomes an even more distant dream.  This is a two day meeting and The Fed announces their decision on Wednesday at 2:15 p.m.

Inflation is a worry as Washington D.C. has been spending an awful lot of money lately and on top of that they have plans to spend a whole lot more.  I would think that when you are up to your neck in credit card debt and mortgage bills, the roof is leaking and the boiler just blew, not a lot of rational people would be out shopping for a new car.  To pay for all this and the ‘new car’, Treasury Secretary Timothy Geithner asked congress to increase the Federal Governments debt ceiling.  I guess $12.1 trillion is not a big enough credit card for the new Administration.  All this extra debt and dollar bills is what is worrying the Fed as far as that inflation thing is concerned.

The Dow Jones Industrials dropped 32.12 (-0.34%, 9337.95) but did recover from lower levels in the last two hours of trading.  The S&P 500 lost 3.38 points (-0.33%, 1007.10) and the Nasdaq 100 lost 9.06 points (-0.55%, 1610.43).

New York Spot Gold was down $9.50 an ounce and trading at $945.90 at 4:18 p.m. and NYMEX Crude traded flat and lost only 8 cents at $70.87.

On the sector watch consumer cyclicals got hammered for 2.03% and finance was down 1.24% with energy up 0.68%.  Consumer non-cyclicals were up 0.44% while the cyclicals were getting hit and this shows traders getting defensively positioned.

In other headlines Southwest Airlines Co. (NYSE: LUV) submitted a cash bid of $170 million for Frontier Airlines, Carl Pickens and all his hot air decided not to farm wind, State Street (NYSE: STT) finally decided, just maybe, their loan portfolio might be as crappy as everyone elses and, just maybe, they did not set aside enough in loan loss reserves.

Paul Krugman brought up the second stimulus option this morning and the talking heads on TV were all over it all day.  I am no big fan of more spending especially in light of being $12.1 trillion in debt and I am very leary of every dollar this Administration spends as the last stimulus program of some $787 billion was mostly wasteful spending and even the Congressional Budget Office (all appointed by Congress’s controlling Democrats) analysis of the first one said it would be harmful to the overall economy in the long run.  So this means we need another one?

Tags: , , , , , , , , , , , , , , , , , , , , , , ,