News

China Tightens, Alcoa Light on Earnings and The Market Drops

By Robert Perrego, at 4:33 pm on January 12th, 2010

China inched up their interbank rates for the second time this week and increased bank reserve requirements in order to control what more and more people are seeing as a real estate bubble.  Last week, hedge fund billionaire Jim Chanos hit CNBC saying a huge bubble was forming in China that would make the Dubai crisis look 1000 times smaller.  Of course there were other voices, notably hedge fund legend Jim Rogers, saying Chanos was wrong.  The actions by the Chinese Government to slow the economy down caused investors to think that maybe there is something to what Chanos had to say, driving the markets down as they lightened up on equities.  Last night Alcoa Inc. (NYSE: AA) missed their 6 cents estimate reporting a 1 cent per share profit AFTER charges.

I love it when a company says “well, we made a penny a share, and we know that’s less than the six cents we were supposed to make, but if you take out these costs we made more, we made seven!”  Yeah right, and if you take out all your costs you can always say you made more money, but Wall Street was not hearing it from Alcoa’s management as they hit the stock for 11.06% today (-$1.93, $15.52).

The Dow Jones Industrial Average gapped down on the open and recovered through the early morning only to sell off at lunchtime.  The bulls held tough as the decline was halted and the afternoon brought a small rally as the DJIA closed down only 36.73 points (-0.34%, 10,627.26) which basically just took back most of the points gained yesterday.

The major indexes have all been marking new 52 week highs this year, with small moves upwards almost every day.  The bears tried to push the market down today and succeeded only slightly, with the bounce-back in the afternoon and the buying on the close being testament to the power of the bulls.  The S&P 500 dropped 10.76 points (-0.93%, 1,136.22) and the tech heavy Nasdaq 100 took the biggest hit, losing 24.45 points (-1.29%, 1,861.79)

Forecasts for mild weather and the Chinese tightening caused oil to pull back as Nymex crude dropped $1.91 a barrel (-2.31%, $80.61, 4:21 p.m.).  The dollar was flat on the day after dropping early but rebounded in the afternoon.  A swift sell off in gold started at about 12:30 p.m., accelerated at 12:55 and was attributed to the move by the Chinese.  New York spot gold lost $23.90 an ounce (-2.08%, $1,126.80, 4:31 p.m.) with $10 of this drop happening in under 5 minutes.

The PowerShares DB US Dollar ETF (NYSE: UUP) was looking very weak in the morning and traded as low as $22.63 before rebounding to close where it opened at $22.72.  The technical picture of UUP was looking weak as yesterday it closed below its 50 day exponential moving average, and early today it looked as if it was heading lower.  The rebound and close at $22.72 leaves it slightly below the 50 EMA which is at $22.75, but that is close enough to be called holding the average for now.  A close below today’s low ($22.63) will signal further weakness, while regaining the 50 day will be a bullish sign and could establish a second major bottom higher than that of December 1, 2009.  Should the dollar hold here and head upwards again, these two bottoms will mark an uptrend line that supports the case that December may have been the low for the dollar for some time to come.

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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.

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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

Unemployment Drops to 10%, Commodities Get Hit, Dollar Climbs

By Robert Perrego, at 4:36 pm on December 4th, 2009

The number came in at 8:30 this morning and what was expected to be a loss of 100,000 jobs was a loss of only 11,000.  Pre-market futures rocketed higher and gold started to drop.  The dollar rally today took it off lows not seen in over a year against all currencies, as the PowerShares DB US Dollar Index (NYSE: UUP) added a whopping 1.48% (+$0.33, $22.48).  New York Spot Gold dropped $45.20 (-3.74%, $1,162.30, 4:17 p.m.) as what was a fast climb higher, reversed and started unwinding rapidly.  The top ten gold companies by market capitalization lost about 5% each with Barrick Gold Corp. (NYSE: ABX) leading the retreat down 8.84% ($4.14, -$42.70).

The dollar run-up was supposed to spell the beginning of the end for the carry trade as the short dollar positions got squeezed, had to buy their shorts in and sell their long positions that were funded by shorting the dollar.  A lot of these positions were thought to be stocks and the expectations were that the dollar rally would spell a decline for the stock market.  Pre-market futures and the open carried the Dow Jones Industrial Average up 150 points by 9:50, but at about 10:45 a.m. the spike up abruptly ended as the next hour saw the index decline by over 130 points.  The Dow Jones Industrial Average managed to recover from that drop and finished up 22.75 (+0.21%, 10,388.90) after trading as high as 10,516 (+150) and as low as 10315.14 (-26).  The S&P 500 added 6.06 points (+0.55%, 1,105.89) and the tech heavy Nasdaq 100 gained 9 points (+0.50%, 1,791.97).

Not only did the Employment report show fewer jobs lost than expected, but revisions of losses from previous months were revised upwards (less jobs lost equals up from more negative numbers).  Expectations for the drop from 10.2% to 10% were on the nose as the forecasters proved smarter than I this time (see past posts where I called for 10.2 or higher).  While this does not spell the end of the jobs crisis, hopefully it does mark the beginning of getting people back to work.

Looking at the dollar ETF (UUP) chart shows a massive volume spike today with 13 million shares traded.  The UUP recorded a high trade of $22.52 today which was just shy of its 50-day exponential moving average at $22.535.  The big question going forward is whether or not this is the bottom for the dollar in the longer term.  The volume of today’s action does show conviction on the part of the buyers, but these buyers could all just be short covering and they may put these shorts back on in the future at the first sign of weakness.  Whether they do this at a higher price than today’s close or they start shorting again Monday morning, only time will tell.

The rally today does break the down trend line for the dollar.  Breaking a down trend line does not mean an up trend; this only means the down trend has been broken and that the dollar could now trend sideways, start an uptrend or even resume its down trend.  The breaking of the down trend is addiction by subtraction, as the conviction of the traders that short the dollar because of weakness shown by a clearly defined down trend has now been disrupted.

Gold got hammered across the board and the SPDR Gold Trust (NYSE: GLD) traded 78 million shares, a new single day record.  Over the past five trading days the GLD is only down $2 (approx $20 an ounce), as the rocket ship that was gold Monday through Thursday probably has a lot of cursing customers that were buyers on those days.  Much has been said about how crowded the dollar short trade was and the gold long trade was probably getting quite crowded as well.  The old saying on Wall Street states that ‘Fear is stronger than Greed’, which is why stocks seem to drop a lot faster than they go up.  Gold plunged today as sellers threw positions out the window fearing lower prices, which by the way, causes lower prices.

For a commodity, oil held up reasonably well as the carry trade dollars that bought oil and may have been selling were counter balanced by the expectations of economic strengths on less job losses.  Nymex crude dropped 99 cents (-1.29%, 4:17 p.m.) to $75.72 a barrel.

Numbers on the week:

GLD:  down $1.30, -1.1%

UUP:  up $0.22, +1%

Dow Jones Industrial Average:  up 78.98, +0.77%

S&P 500:  up 14.49, +1.32%

Nasdaq 100:  +32.45, +1.84%

Have a great weekend.  See you Monday.

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