Friday, February 25, 2011

Markets rise after suffering one bad week

Stocks were strong out of the gate & remained near those levels for the rest of the day.  Dow finished up 61 (although it was still down 260 for the week), advancers ahead of decliners 4-1 & NAZ gained 43 (again, down 52 this week).  Bank stocks also were in recovery mode today, which limited the weekly loss for the Financial Index to about 6 points.


Value 225.51 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   2.92  (1.3%)

The Alerian MLP Index shot up 4+ to 380, making for a very big daily gain.  It only needs pennies to set another new  record high.  Meanwhile the REIT index rose almost 5 (another large gain) to 236, needing another 2 to record another post Sep 2008 high.  Junk bond funds edged higher, not too far from highs recorded last year.  Treasuries also saw limited buying, taking the yield on the 10 year Treasury bond down 1+ basis point to 3.43%.  The yield has fallen over 25 basis points in 3 weeks.


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

Alerian MLP Index   ---   YTD

Dow Jones REIT Index   ---   YTD

10-Year Treasury Yield Index   ---   YTD

Oil climbed by the end of the day after having one of its wildest weeks in some time (see chart below).  Gold fell for the first time in 2 weeks on sales by investors following the longest rally since Aug.

CLJ11.NYM...Crude Oil Apr 11...98.18 ...Up 0.90 (0.9%)

GCH11.CMX...Gold Mar 11....1,408.70 ...Down 6.50  (0.5%)

$$$ Gold Super Cycle $$$  

CLJ11  (oil contract)   ---   1 week

Johnson & Johnson (JNJ), a Dow stock & Dividend Aristocrat, had another recall, this one caused by a typo that inserted a double negative into dosing instructions on more than 667K Sudafed packages.  Customers don’t need to return the products, which have the correct wording on the blister packs that hold the tablets & no adverse events have been reported as a result of the typo.  JNJ has had 16 product recalls (if my count is correct) recently which have cost the company almost $1B in lost sales.  These are ugly times when questions are raised about the competency of company management.  But JNJ is strong & will persevere.  Troubled times ahead could bring lower stock prices.  At some point, higher yields will win out & attract savvy investors.  Today the stock fell 4¢ (30¢ above its lows) to a 6 month low, at a time most stocks have been in a solid rally mode.

J&J Recall Watch: Sudafed Label Includes Double Negativeat The Wall Street Journal

Johnson & Johnson   ---   2 years

Constellation Energy Partners (CEP), another troubled company - only this is an MLP, reported Q4 & full year 2010 results. During Q4, the company completed 13 net wells & recompletions in the Cherokee Basin with total capital spending of $2.1M. Total capital spending in 2010 was $8.5M resulting in 31 net wells & recompletions in the Cherokee Basin.. CEP  had an additional 5 net wells & recompletions in progress at year end. CEP also acquired interests in 36 wells (8 net wells) in the Central Kansas Uplift for $5.9M. But the company had a net loss of $6.8M in Q4 & reported a net loss before charges of $4.4M for all of 2010, which excludes non-cash asset impairment charges of $272.5. Adjusted EBITDA for Q4 was $11.7M, which resulted in Adjusted EBITDA of $54.1M in 2010.The company has $30M of borrowing capacity under its loan agreement & expects capital expenditure to be $10-12M in 2011.  CEP said the distribution will remain suspended thru all of 2011.  The chart shows the units have gone nowhere in the last 2 years but they are a play for those who want ot bet on a long term recovery.  The units were up a few pennies, sloshing around $2.80.

Constellation Energy Partners Reports Fourth Quarter and Full Year 2010 ResultsBusiness Wire

Constellation Energy Partners  --  2 years

This was an unusually wild week, not only for oil, but for the stock markets as well.  On balance, oil & gold rose while stocks fell.  The reduced growth rate for GDP is a preview of things to come.  Reductions in state & local spending (not to mention federal budgets) & high prices will crimp the recovery in 2011.  Latest forecasts expect this to be a recovery year, but the expected rate of growth will be reduced which will aggravate problems with high unemployment  & the troubled housing markets.  In addition, oil supplies from the Mideast can not be taken for granted.  Next week could see more selling pressure in the stock  markets which remain very overbought.

Dow Jones Industrials   ---   YTD

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