Tuesday, September 7, 2010

Markets tumble on more European debt worries

Stocks sank out of the gate & remained on that lower plateau for the rest of the session. Dow fell 107 closing near its lows, decliners over advancers 5-2 & NAZ was off 24. But volume continued very low (above 0.8B shares on the NYSE floor). Banks lost ground with the Financial Index finishing at its lows!


Value190.56One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-4.63 (-2.4%)

The MLP index dropped 1+ to 326 while the REIT index fell 3½ to the 210s. Junk bond funds were a little higher & the VIX gained 10%, 2½ to the 23s on all the nervousness about European debts. The € dropped almost 2 pennies to $1.27.

Alerian MLP Index -- 2 months

Dow Jones REIT Index -- 2 months

VIX -- 2 months

10 Year Treasury Yld Index -- 2 months

Oil remained lower in the PM on the weaker € & worries about European debts. But those worries are helping gold rise to near record levels, risk averse is a key driving force for investors.

CLV10.NYM..Crude Oil Oct 10..73.81 ..Down 0.79

GCU10.CMX..Gold Sep 10..1,258.00..Up 8.80

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The $33B 3-year note Treasury auction drew a record low yield as investors renewed concern that Europe’s sovereign-debt crisis will undermine the global economic recovery. The 2-year note yield decreased 3 basis points to 0.49% after touching the all-time low of 0.4542% 2 weeks ago & the 3-year note yield dropped 4 basis points to 0.75%. There are worries that Europe’s recent stress tests of major banks understated some lenders’ holdings of risky debt. Some European banks excluded certain nations’ debt from their totals, while others reduced amounts to account for short positions, according to a report published on the Wall Street Journal. The European Union tested 91 lenders in Jul, giving 84 of them passing grades. The problem for stock markets is that money going into Treasuries is not being used to buy stocks.

Treasuries Rise After Three-Year Auction on Renewed European Bank Concern

Treasury Securities

U.S. 3-month
U.S. 2-year
U.S. 10-yeao

Home Depot (HD), a Dow stock, plans to sell debt for the first time since 2006, joining Burlington Northern Santa Fe, Dell (DELL) & Aon (AON) borrowing long term at low rates. HD may issue $1B of notes as soon as today. The company plans to repay 4.625% senior notes that matured Aug 15. Bloomberg said companies are borrowing $10.3B, the highest levels since Aug 17. Investment-grade bond yields fell to 3.91% yesterday, according to Bank of America Merrill Lynch’s US Corporate Master index, near the record 3.74% on Aug 24 (the lowest dating back to Oct 1986). Investors are willing to accept the risk of holding bonds over the long term in pursuit of higher yields today. HD fell 52¢ in a down market.

Home Depot Plans Debt Sale as Issues Surge on Record-Low Borrowing Costs

Home Depot --- 2 years

With a lack of significant news & low volume, it's difficult to read too much into today's decline. Maybe some traders are still on holiday. There are 2 key points to keep in mind. European debt issues have not gone away even though they have been out of minds for more than a month. Secondly, the Dems are trying to come up with quick fixes to patch the economy so they can keep their jobs. But meddling by DC will increase confusion in the markets. Months ago Dow was hoping to reach 11K, that seems a long way off now.

Dow Jones Industrials -- 2 months

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