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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Wall Street Wrap

Market Bounces Back as Bernanke Promises Low Rates

By Robert Perrego, at 5:01 pm on February 24th, 2010

Last week the Federal Reserve raised the discount rate to 0.75% sparking fears that the federal funds rate might be next in line for a hike.  JP Morgan Chase & Co. (NYSE: JPM) gained 2.43% and Bank of America Corp. (NYSE: BAC) added 2.44% to lead the Dow Jones Industrial Average higher on the day.  The market spiked higher just after 10 a.m. – minutes after Fed Chairman Bernanke began two days of testimony in front of a congressional panel.  As Bernanke stressed that last week’s move did not mean the federal funds rate was going higher anytime soon, stocks responded strongly, pushing the DJIA higher by almost 90 points within 25 minutes.

The Dow Jones Industrial Average regained some of yesterday’s lost ground closing higher by 91.75 points (+0.89%, 10,374.16).  The S&P 500 added 10.64 points (+0.97%, 1,812.51) and the tech heavy Nasdaq 100 led the three indexes, up 18.69 points (+1.04%, 1,812.51)

The finance sector responded strongly as Bernanke spoke and on news that key senators are opposed to limits on commercial banks making bets with their own capital.  More trading news was made today as an SEC panel voted 3-2 to limit short selling on a down-tick on stocks that are down more than 10% on a day.  The new rule would make short positions only able to be entered on an uptick if a stock is down over 10% from its previous daily close in one day, and for all of the next trading day.  Quite frankly, this rule change is more for political cover for the SEC as they try to look like they are doing something.  The markets dropped drastically last year and all of a sudden, people looking for someone to blame pointed fingers at short sellers and the SEC.

The Effects of Short Selling

Fact is, short-selling adds liquidity to the market and just like with any trade, if the short-seller is wrong they can lose money.  An all to common public perception that short sellers cause stocks to go down too much is unfounded as there has to be a reason to bet that stock is going lower in the first place.  Short sellers will put a short position on if they think the stock is too expensive.  Some reasons for this might be that the company’s fundamentals are bad, the economy is headed lower or the stock has risen too far, too fast.

A way to think about short selling is; 1) Stocks are competing with each other for invest-able funds, and those that have better reason to be invested in get those funds and go higher, 2) Current investors in short-seller favored stocks may sell them to buy the more attractive stock, 3) The company that loses this invest-able funds ‘popularity contest’ are judged to be weaker and with no buying interest to counter-act regular selling, the stock goes lower, 4) On their own, short sellers would not be able to push a stock lower, as they have to ‘buy-in’ these shorts sooner or later, creating a ‘built-in’ demand for the stock.  Only the sellers of ‘long stock’ can sell the stock and walk away.  The short sellers have to be there to buy the stock back in and are nothing but future demand potential for that stock.

So if short selling cannot, by itself, make a stock go down, what is the SEC actually accomplishing here?  As long as their is sufficient liquidity in a stock, short selling is not the reason a stock is going down.  The SEC dropped the ball on policing ‘naked short selling.’  Naked short sales increase the supply of an issuer’s (company’s) effective outstanding stock, and is also illegal.  A lot of people should either be in jail right now, or should have paid large fines made money on naked short selling over the past few years.  If the SEC had done their job properly with the naked short sellers they would not be trying to save face right now by tinkering with legitimate short selling.  Period.

New York spot gold dropped $6.80 an ounce to $1,096.70 (-0.62%, 4:30 p.m.) and Nymex crude regained the $80 a barrel plateau, up $1.31 to $80.17 a barrel (+1.66%, 4:23 p.m.).  The PowerShares DB US Dollar Index (NYSE: UUP) dropped 0.20% (-$0.05, $23.76) and this throws a red flag.  Gold dropped and is acting weak while the dollar is dropping, which says to me gold has internal weakness.

Looking at the chart of the SPDR Gold Shares ETF (NYSE: GLD) we see that it failed to take out the resistance level at $111 and has rolled over and traded down to $107.36.  The stochastic oscillator looks to be topping out and rolling lower too.  The GLD did break the downtrend line from it’s all time high and this is a positive.  The next technical test for the GLD will be to see if it closes below $104 (twice in a row).  If this happens we have a lower low and strong trading stocks do not do that.  I suspect the ETF is going to trade sideways for awhile and consolidate.  The GLD will head down to $104 and flirt with breaking it – if it breaks for two consecutive sub $104 closes that is a sell signal.  If it holds and starts to head back up – buy more.

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Wall Street Wrap

4 Good Economic Numbers and The Market STILL Sells Off

By Robert Perrego, at 5:01 pm on January 29th, 2010

If you were still wondering what direction the market was headed in, today should have answered that question for you.  We got a very good GDP number and three other solid economic reports today, but you wouldn’t know it looking at where the market closed.  Apple Inc. (NSDQ: AAPL) got hit again for another $7.23 (-3.62%, $192.06) bringing the two day drop to $15.82 (-7.61%).  Microsoft Corp. (NSDQ: MSFT) reported after the closing bell yesterday and beat analyst expectations, then got sold off all day long after gapping up on the open (-$0.98, -3.36%, $28.18).  Tech has been taken apart over the past two days with the Nasdaq 100 losing 77.86 points (-4.28%)

The Dow Jones industrial Average dropped 53.13 points (-0.52%, 10,067.33) and the S&P 500 closed lower by 10.66 points (1,073.87).  Usually the DJIA and S&P run at about a 10-to-1 ratio, but strength in Home Depot Inc. (NYSE: HD) and a Goldman Sachs upgrade for Wal-Mart Stores Inc. (NYSE: WMT) provided strength to the Dow Average.  Sadly, one of the reasons these stocks were strong and upgraded was they are both firing people, and therefore cutting costs.  About 8 out of 10 stocks on my trading screen finished in the red (lower) today with 12 of the 30 DJIA components finishing in the green (higher).

For the Nasdaq it was a whole different story with the only relative strength of a large cap stock provided by Amazon.com Inc. (NSDQ: AMZN).  Amazon avoided getting sold off too hard by announcing a $2 billion share buyback.  The Nasdaq 100 dropped 30.06 points (-1.69%, 1,741.04) and when the tide goes out, all the ships go down, so Amazon still closed lower by 62 cents (-0.49%, $125.41).  Why would a company announce a multi-billion dollar buyback when their stock is at an all time high, and the market is looking ripe for a retreat?  Maybe the guys running Amazon should go to their website and buy a book or two about technical analysis and trading, because if they started buying today, they stand a good chance of buying too high.

The silver lining to this cloud is that the indexes have all sold off into support levels.  The DJIA closed at 10,063 with 10,090 as support.  Two closes through support are needed to confirm a break and today is only one.  The S&P 500 is right on support at 1,071 and the Nasdaq 100 has support at 1,733.  The first half of next week’s trading will be important to show whether or not this drop is a just a pullback or the beginning of a larger decline.  The fact that the longer term uptrend lines for all three indexes have been broken leads me to believe that the market is done climbing for awhile.  When an uptrend is broken it does not mean the market is going down.  It could mean the market goes into a sideways trend or a downtrend, or it could mean sideways and then a resumed uptrend.  Only time will tell.  I think we go lower from here as it looks like the big boys are selling earnings and unloading stock.

The dollar ripped higher on the strong GDP number (5.7% vs. 4.5%) as the PowerShares DB US Dollar ETF (NYSE: UUP) gapped above its 200 day exponential moving average ($23.32) and traded even higher into its close (+0.77%, $23.45).  Commodities got hit on the dollar strength as copper was off 2.08%, coal dropped 4.56% on bad earnings from Arch Coal Inc. (NYSE: ACI), steel lost 1.62% and the ag’s were weaker by 1.09%.

Surprisingly, gold hung in there tough as now it may be trading as more of a safe haven and a currency than a commodity.  As the money rotates out of equities it looks like some of it is finding a home in the shiny yellow metal.  New York spot gold lost only $5.10 an ounce to $1,080.30, which is a 0.47% drop (4:47 p.m.)  It is unusual that the absolute percentage move in the dollar is greater than the corresponding percentage move in gold.

Oil dropped on the dollar strength as Nymex crude lost 98 cents and last traded at $72.65 a barrel (-1.28%, 4:42 p.m.)

Next week should be interesting, to say the least.  It is Friday now, after the close and high time to close the trading screen and go have a great weekend.

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News

Consumer Confidence is Up, So is the National Debt

By Robert Perrego, at 5:07 pm on January 26th, 2010

Consumer Confidence came in at 55.9 vs. an expected 53.5, giving a boost to the market this morning that is trying to make up the heavy losses sustained last week.  Since dropping 5.2% in the last three days of last week, the DJIA has tried to rally both yesterday and today, only to sell off into the close and the resulting two day ‘bounce’ is a whopping 21 points.  Early on it looked like we may grab a triple digit day back in the Dow and Apple Inc. (NSDQ: AAPL) was strong on their earnings report and the anticipation of the unveiling of their tablet computer tomorrow.  The DJIA traded as high as 10,285 (+88) but closed at 10,193.54 (-3.32, -0.03%) and Apple traded as high as $213.71 (+$10.64) but closed up only $2.86 (+1.41%, $205.94)

The S&P 500 closed down 4.61 points (-0.40%, 1,092.17) and the Nasdaq 100 was the hero on the day gaining a herculean 1.47 points (+0.06%, 1,803.86).  The light action and relatively unmoved indexes are not uncommon on a Fed Tuesday.  Even though the Fed is certain not to raise interest rates, the market hates uncertainty and the action will be slow until 2:15 p.m. tomorrow when the language of the ‘non-move’ will be sliced and diced and over-analyzed.  Where the economy is right now, if Ben Bernanke even dreamt that he raised interest rates and Obama found out, there would be a new Chairman of the Fed and Ben would be teaching economics at Princeton for the spring semester lickety-split.

As of January 22nd, the public debt of the U.S. Government is $12.3 trillion dollars.  The budget deficit for fiscal year 2009 was a mere $1.4 trillion dollars, more than triple that of fiscal 2008.  Who says we cannot afford health care reform?  According to my handy iPhone national debt app, each and every one of us Americans has a $41,765.93 share of that debt.  What?  You say you were born in Canada now?

The dollar was strong today as the PowerShares DB US Dollar ETF (NYSE: UUP) gained 0.43% ($23.15) and closed at its highest level in a month.  Looking at the UUP chart shows that resistance is not much higher from bottoms made in August ($23.24) and a gap down in September ($25.25).  Above this resistance level the 200 day exponential moving average looms at $23.32.

Gold has a decent inverse correlation to the dollar, so close resistance for the dollar and close support for gold means a long gold trade is setting itself up.  I mentioned in a previous post that there looks to be support for gold in the $1,060 to $1,070 level.  Whether or not gold goes that low, or the dollar rises high enough to tick resistance is any one’s guess, but you don’t need to pick the bottom clean, just be aware of the overall direction of the ride and get on.  New York spot gold barely budged today and was last trading at $1,097.30 (4:33 p.m.)

There was not much action in oil as Nymex crude dropped 66 cents (-0.89%, 4:26 p.m.) and a barrel is now going for $74.60.

Yahoo! Inc. (NSDQ: YHOO) reported after the close today and hit their 11 cent a share estimate and fourth quarter revenues fell to $1.26 billion from $1.38 billion.  When you think of all the major Internet stocks and companies, Yahoo! is probably glad AOL got spun off so they don’t look like the only lame Internet operation hoping someone buys their shares.  Oh wait – someone wanted to buy all of their shares at $34 but the brilliant board, and yes you can call them all “Yahoos”, refused right about the same time the market caved in.  Yahoo! closed today at $15.99 and on the earnings news was trading $16.26 in the after-market (4:51 p.m.)  Only $17+ to go to get to that $34 price!

Tomorrow we have MBA Purchase Applications at 7 a.m., New Home Sales at 10 a.m. (370k expected) and the Fed announcement at 2:15 p.m.

First blush for tomorrow’s earnings is that there are a lot of major oil producers, refiners, drillers, etc… reporting tomorrow.  COP, HES, MUR and VLO to note a few.

By the way – between the time that you read how much your share of the national debt was and now – you owe another dollar.

Selected earnings for Wednesday:

ABT 1.17 before market open, ATI 0.23 bmo, BLK 2.12 bmo, CBT 0.27 after the close, CAT 0.28 bmo, CTXS 0.52 atc, COP 1.13 bmo, ETFC -0.04 atc, FLEX 0.15, GD 1.57, HRS 0.94 atc, HES 0.91, ITW 0.72 bmo, LRCS 0.40, LSI 0.11 atc, MWV 0.23 bmo, MUR 0.85 atc, NFLX 0.45 atc, NE 1.58 atc, NSC 0.84 atc, PX 1.09 bmo, ROK 0.35 bmo, RYL -0.26 atc, SAP 0.94 bmo, STJ 0.62 bmo, BA 1.36 bmo, UA UA -1.47, UTX 1.14 bmo, VLO -0.47 bmo, WLP 1.02 bmo

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