Wednesday, January 12, 2011

Financials lead market advance

Dow rose 99, advancers ahead of decliners 3-1 & NAZ added 17.  Higher markets come after a healthy bond sale in Portugal & signs of strength in the banking sector with the Financial Index at a new 8 month high.


Value 222.05 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   3.22  (1.5%)

The MLP index is up a fraction (setting another record high) with its eyes set on topping 370.  The REIT index gained 1½ to the 223s, still stuck in a sideways trading range.  Junk bond funds inched higher, still pretty much flat in the last 2 months.  Treasuries sold off with another debt auction today.  The yield on the 10 year Treasury bond rose 7 basis points to 3.41%

Treasury Yields:

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

Alerian MLP Index   ---   2 weeks

Dow Jones REIT Index   ---   2 weeks

10-Year Treasury Yield Index   ---   2 weeks

Oil extended gains after the Energy Dept reported stockpiles dropped 2+M barrels.  Gold is doing little.  But bulls, hoping to see 1500 soon, are buying on setbacks.

CLG11.NYM....Crude Oil Feb 11...91.66 ...Up 0.55  (0.6%)

GCF11.CMX....Gold Jan 11.......1,379.30 ...Down 4.70  (0.3%)

Gold Super Cycle Link!  

Tensions over Europe's simmering debt crisis eased slightly as ailing Portugal, viewed as the next bailout candidate, showed it can still raise money on intl markets & the EU proposed to boost the size & powers of its rescue fund.  However the relatively high interest rate demanded to lend Portugal €1.25B ($1.6B) shows the country, & the wider region, still face an uncertain outlook. EU officials seemed to accept the fact that the debt crisis is far from over & might even turn nastier if debt speculators target larger economies like Spain.  Markets are worried the existing fund might be too small & the € could become endangered if a bigger economy like Spain, 10% of the eurozone economy, runs into financial trouble.  Spanish banks have more than €30B ($39B) in debt coming due in the next 4 months, spurring investor doubt on their future profitability as higher financing costs eat into margins.  There were also fears that Portugal's first bond auction of the year might compound the eurozone's problems, with speculation that interest rates could be punishingly high or that investors might even stay away from the auction due to concerns about the debt-laden country's fiscal health.  However, Portugal was relieved to pay a far lower rate for its longer-term debt than previously. The gov debt agency sold €650M in bonds due in 2014 & €599M in bonds due in 2020. Demand for both was more than twice the amount on offer.  Portugal is getting good marks for bringing about its goals, reducing the deficit & bringing public accounts back into order.  Stay tuned for the next act in this important drama.

Spanish Banks' Surging Debt Costs Spur Doubt on Ability to Sustain Profit

The Trans Alaska pipeline was restarted yesterday & will operate at reduced rates for several days to keep the lines & tanks from freezing. But the line will be shut down in several days to install a bypass around a leak near Pump Station 1. They are being careful about bringing it back online. The 800-mile pipeline, closed following the leak at the pump station on Jan 8, suspending 95% of production from the North Slope area.  While temps are colder in Alaska, pipelines are a major asset for MLPS, & the they are vulnerable to problems causing shutdowns (& worse).

Trans-Alaska Oil Pipeline Restarts; Will Operate at Reduced Rates for Days

Bets against the S&P 500 Index fell to a one-year low.  Short sellers reduced speculation that technology & telephone stocks will decline. Short interest on the index dropped to 6.87B shares, 3.9% of shares available for trading, as of Dec 31, down 5.7% from 2 weeks earlier, according to Bloomberg. It was the 3rd straight period that S&P 500 short selling fell. For technology companies, it slid 8.1% to 1.3B shares & fell 16% to 368M shares for phone stocks. The S&P index completed its 6th straight weekly gain on Jan 7, the longest winning streak since Apr & has driven the S&P 500 to the highest level since the collapse of Lehman Brothers in 2008. 

Short Selling Against S&P 500 Companies Drops to One-Year Low

Markets are feeling good again, good enough to take the Dow to a legitimate high following the surge in the opening minutes on Jan 3.  The decline in shorting activity can be taken as a sign higher markets will continue or maybe they got it wrong & this could be near a market top.  Short term, the market run since Dec 1 has not suffered a setback.  Major earnings reports are due in the next 2 days.  They should be favorable, but the outlooks will have more to do with how the markets react.

Dow Jones Industrials   ---   2 weeks

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