Friday, July 30, 2010

Wobbly day, wobbly week, but good July for stocks

Stocks were near break even for much of the day & ended little changed. Dow lost 1, advancers over decliners better than 3-2 & NAZ was up 3. Volume was light, typical of Fri in the summer. The Financial Index also had a gain, but it has been under 200 for more than 2 months.


Value197.92One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-0.05 (-0.0%)

MLPs rebounded very strongly in the PM, including Enbridge Energy (EEP) which is cleaing up its oil spill into Lake Michigan. The index rose 5¼ to the 328s, recovering a good portion of its weekly loss & only 6 off its 335 high (at the start of the week). The Dow Jones REIT Index gained 1+ to the 206s & junk bond funds were also higher. The VIX slipped a fraction remaining near 24. Treasuries rallied sharply as they view the GDP news as bullish for their cause. The yield on the 10-year Treasury bond plunged 9 basis points to 2.91%, close to its recent lows. These low yields are troubling for the stock markets. The € is back at $1.30½. The graphs below are for the last year to give a longer term perspective of where they have come from.

Alerian MLP Index --- 1 year

Dow Jones REIT Index --- 1 year

VIX --- 1 year

10-Year Treasury Yld Index --- 1 year

Oil is still in the higher portion of its trading range over the last year. Gold finally found buyers who would like to take it back over 1200.

CLU10.NYM..Crude Oil Sep 10..78.85 ..Up 0.49

GCQ10.CMX..Gold Aug 10..1,181.40 ..Up 13.00

***Gold Super Cycle***
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Analysts concluded that the recovery is losing so much momentum that employers are unlikely to step up hiring anytime this year & unemployment could return to double digits. Economic growth crawled at a 2.4% pace in the spring, the economy's weakest showing in nearly a year. Many think growth is even slower now. Consumers spent less, companies slowed their restocking of shelves & the nation's trade deficit exerted a stronger drag on the economy in Q2. The economy is heading into Q3 with little momentum & about everything tracking weaker. However, the one exception is in equipment & software with companies investing in those areas last qtr at the fastest pace in 13 years & that's expected to continue. Of course, larger investments in technology can crimp the need to hire more workers!

Enbridge Energy (EEP), a prominent MLP, was ordered to take “corrective action” before it will be allowed to reopen its 268 mile pipeline. “Prior to resuming operation of the section of Line 6B pipeline segment,” according to the order issued by the Department of Transportation issued July 28. Enbridge must “submit a written restart plan for prior approval.” A press briefing will be held this PM to give an update on the situation.

Enbridge Ordered to Take `Corrective Action' Before It Can Restart Line

Enbridge Energy --- 1 week

Despite a dismal ending, Jul was a pretty good month for stocks. They started near the lows of their short term cycle. Dow gained almost 700 & the MLP index added 20, bringing it close to 343 (needed to set another record). Junk bonds also rose, but not in spectacular fashion. Next week will bring the auto sales for Jul which should be weak & the jobs report on Fri.

Dow Jones Industrials --- 1 year

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Markets little changed after Q2 GDP figures

Stocks have drifting sideways all week & decided to continue with that motion today. Dow fell 30, advancers over decliners 3-2 & NAZ dropped 3. The Financial Index inched higher.


Value 198.18 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change 0.21 (0.1%)

After substantial selling this week, MLPs found buyers. The index rose 1+ to the 324s. The REIT index was up a fraction in the 205s. Junk bond funds were also higher while the VIX was flat at 24 (near recent 3 month lows). Treasuries rallied, viewing the GDP news favorable for gov bonds. The yield on the 10 year Treasury bond dropped 6½ basis points to only 2.93%. The € finally weakened, dropping ½ a penny to $1.30½.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yld Index --- 2 weeks

The GDP news was a negative for oil, but it's it's still close to its highs in the last year. Gold is trying to build a base for more advances.

CLU10.NYM...Crude Oil Sep 10...77.38 ...Down 0.98

GCQ10.CMX...Gold Aug 10...1,172.70 ...Up 4.30

Gold Super Cycle!! Click Here

GDP recovery lost momentum in Q2 as growth slowed to a 2.4% pace, its most sluggish showing in nearly a year & too weak to drive down unemployment. Consumers spent less, companies slowed their restocking of shelves & the trade deficit dragged more on the economy in Q2. In a separate report, the Commerce Dept said the recession was deeper than previously estimated. Together, the reports raise doubts about whether employers will hire enough & consumers will spend enough to invigorate the economy. However, today's report also showed that the economy grew at a 3.7% pace in Q1, much better than the 2.7% pace estimated just a month ago.

U.S. Economy Grew 2.4% in Second Quarter, Below Forecast

The oil spill into Lake Michigan has prompted local health officials to call for the evacuation of as many as 50 homes & recommend residents living close to the Kalamazoo River stop using well water for drinking & cooking after the spill contaminated more than 20 miles of the river. There is plenty of finger-pointing between those leading the clean up & state & local officials who have described the response as inadequate & slow-footed. The pipeline, owned by Enbridge Energy Partners (EEP), is a 30-inch pipe that moves light synthetic, heavy & medium crude oil northeast about 1,900 miles. The affected section of the line stretches from Griffith, Ind, thru Michigan & just over the border to Sarnia, Ontario. EEP saw more selling at the opening, taking the price to 51. Buyers returned bringing it back to a gain of 33¢ in the 53s (although down almost 7 from its high on Mon). Traditionally these units are very low beta, this kind of volatility is eye popping.

Michigan Oil Spill Prompts Evacuations, Finger-Pointingat The Wall Street Journal

Enbridge Energy --- 2 weeks

Chevron (CVX), a Dow stock, had great earnings in Q2, easily beating expectations. EPS was $2.70 compared with 87¢ last year. Revenue jumped 32% to $53B. Expectations were for EPS of $2.44 on revenue of $52.5B. These results are similar to other major petroleum companies. But the stock fell 58¢ in the 75s.

Chevron 2Q income triples on higher energy prices

Chevron --- 2 years

Merck (MRK), a Dow stock, reported a 52% drop in Q2 net income, weighed down by big merger & restructuring charges from buying Schering-Plough , generic competition & other factors. MRK, the world's 2nd-biggest drug company, beat EPS expectations by 3¢ a share, but came up short on revenue & slightly reduced its sales forecast for 2010. EPS for Q2 was 24¢ down from 74¢ in 2009. Excluding a host of one-time items, EPS would have been 86¢, beating estimates of 83¢. MRK forecast full-year net income of 82¢-$1.16 per share or $3.29-3.39 excluding items, a slightly narrower range than before. Analysts are forecasting $3.37. Merck expects revenue of $45.4-46.1B, down slightly from its Apr forecast. The stock dropped 73¢ in the 34s.

Merck Profit Rises More Than Estimated on Cost Cuts

Merck --- 2 years

Earnings stories give mixed messages about the economic recovery & markets keep wandering, not knowing where to go. Dow was not able to charge forward to new highs this week as the 10½K ceiling is proving to be formidable. Maybe next week, with earnings season largely over, it will be able to climb again.

Dow Jones Industrials --- 2 weeks

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Thursday, July 29, 2010

Markets hesitate after indecisive economic news

The Dow began the day higher, fell to a 100 point loss, climbed back into the black but finished in the red. After those gyrations, stocks remained on the fence. Dow fell 30, advancers over decliners 5-4 & NAZ was off 12. Bank stocks were also fluctuating but the Financial Index finished with a modest gain.


Value197.97One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change0.65 (0.3%)

The Alerian MLP Index fell 2½ to the 323s (off 11 from its highs earlier this week). It was overextended after a stellar 2 month run & the Enbridge Energy (EEP) oil leak is not helping. The REIT was down 1¾ to 205 while junk bond funds inched their way higher. The VIX fell a fraction in the 24s near its 3 month lows. The yield on the 10 year Treasury bond dropped 2 basis points to just under 3.0%. These very low yields are troubling because they won't go away. The € rose to $1.31, a 3 month high.

Alerian MLP Index --- 3 months

Dow Jones REIT Index --- 3 months

VIX --- 3 months

10-Year Treasury Yld Index --- 3 months

Oil rose, primarily because of the weaker dollar (against the €). Oil is up 4% in Jul. Gold was also helped by the weaker dollar after it had fallen to a 3 month low.

CLU10.NYM..Crude Oil Sep 10..78.39 ..Up 1.40 ......(1.8%)

GCQ10.CMX..Gold Aug 10..1,168.00 ..Up 7.60 ......(0.7%)

$$ Gold Super Cycle $$
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Enbridge Energy (EEP), the MLP that owns the ruptured Michigan oil pipeline, has seen unprecedented selling in its units during the last 3 days, down over 10% from its highs, after news of its oil spill into the Kalamazoo River & Lake Michigan. The Environmental Protection Agency estimated last that the oil spill may have now surpassed 1M gallons. Political criticism is rising but the EPA said that the agency & EEP are doing everything possible to contain the oil spill. The 30" pipeline was built in 1969 & carries about 8M gallons of oil daily. The leak occurred near the Marshall, Mich, pump station. "This is our responsibility," Patrick D. Daniel, EEP CEO, said. "This is our mess. We're going to clean it up." EEP will hold a press briefing later today. The units fell $3.77 (8%) to 53.03, what must be a record daily decline for a low beta security.

Enbridge Selling Intensifies on Michigan Oil Spillat
TODAY: Enbridge Energy Partners to Hold Media Briefing on Enbridge Oil Spill

Enbridge Partners --- 1 week

Earnings season continues. The big oil stocks reported good earnings which brought only limited buying. The threat from the oil spill in the Gulf is easing but investors remain cautious towards the industry. The new spill in Lake Michigan is getting attention, hopefully that will be contained quickly. Bigger picture, a dreary picture of the economic recovery is not going away. Unemployment has not gotten better during this year. The Jul jobs report will be reported next Fri, more dismal numbers are expected. Technically it was important for Dow to plow thru the 10½K ceiling, but it stammered & stalled. Tomorrow could be another quiet Fri, deciding little. Traders will wait for the new month.

Dow Jones Industrials --- 3 months

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Markets continue wobbly after jobless claims

Stocks started higher & are losing steam. Dow is down 24, but advancers ahead of decliners 3-2 & NAZ is off 16. The Financial Index has also lost all of its earlier gains.


Value 197.33 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change 0.01 (0.0%)

The Alerian MLP Index dropped another 1½ to the 324s as profit taking is finally hitting MLPs. Enbridge Energy (EEP) is down 2.15 while it cleans up its oil leak into Lake Michigan. The REIT index fell a fraction to below 206. Junk bond funds were up fractionally while the VIX slipped slightly to 24. Treasuries are in demand, the yield on the 10 year Treasury bond fell 4 basis points to just below 3.0%. The € continues hot as it is nearing $1.31.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yield Index --- 2 weeks

Oil rose, maybe helped by Exxon's discussion of higher oil prices. Gold remains stuck in neutral (for the time being).

CLU10.NYM...Crude Oil Sep 10...78.35 ...Up 1.36

GCQ10.CMX...Gold Aug 10...1,162.50 ...Up 2.10

**Gold Super Cycle**
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Jobless Claims in U.S. Declined by 11,000 to 457,000

Photo: Bloomberg

New jobless claims fell for the 3rd time in 4 weeks but remain elevated. The Labor Dept said that first-time claims for unemployment insurance dropped 11K to 457K. The 4-week average dropped to 452K, the lowest since May, suggesting layoffs may be easing. Requests for unemployment insurance fell steadily last year from their peak of 651K in Mar 2009. But they have remained stuck above 450K for most of this year. In a healthy economic recovery, claims usually fall below 400K. The number continuing to claim unemployment benefits rose 81K to 4.57M which doesn't include an additional 3.67M of the unemployed receiving extended benefits paid for by the federal gov. More mixed news with the graphs below still looking dismal.

Jobless Claims in U.S. Declined by 11,000 to 457,000

Jobless claims - 1 year

One-Year Chart for Claims (INJCJC:IND)

# of continuing claims - 1 year

One-Year Chart for Unemployment SA (INJCSP:IND)

Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, said Q2 income nearly doubled to $7½B as oil prices increased from last year. EPS rose to $1.60 from 81¢ last year. Revenue increased 24% to $92.5B. Expectations were for EPS of $1.46 on revenue of $98.5B. XOM earned the majority of its income from exploration & production operations in foreign waters, particularly in Africa, Asia & the Middle East. Results showed a jump in profits across its exploration & production, refining & chemicals businesses. The stock was up 31¢.

Exxon Mobil Second-Quarter Profit Climbs After Oil Prices Rise

Exxon --- 2 years

Colgate-Palmolive (CL) posted revenue below expectations & said that Venezuela's currency devaluation would drag down full-year results more than expected, the 2nd straight qtr where news about the Latin American country (the company's largest market in the region) has hurt them. Venezuela's country's currency devaluation would drag down full-year EPS by 10-15¢. Elsewhere, though, things looked better. CL reported EPS of $1.17 in Q2 (ending in late June) up from $1.07 last year. Revenue rose almost 2% to $3.81B, up from $3.75B last year. The stock dropped $6 (7%).

Colgate-Palmolive Falls as Second-Quarter Sales Miss Analysts' Estimates

Colgate --- 2 years

Mortgage rates have eased to only 4.54% (following low yields on the 10-year Treasury bond) but that has not helped troubled housing. EEP's oil spill is starting to get ugly & the potential bad press has negative implications for all MLPs. Dow keeps muddling along. It's trying to blast to new highs but buyers are not following thru.

Dow Jones Industrials --- 2 weeks

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