Thursday, June 16, 2011

Markets tired climbing higher on late day buying

Stocks began the day strong, but sellers took averages down to breakeven after midday. Buyers returned late in the day (first time this week) to give oversold Dow a gain. Dow rose 64, but decliners were ahead of advancers 4-3 & NAZ was off 7. Banks stocks tried to mount a rally with only limited success.

S&P 500 Financials Sector Index

Value	198.99
Change	1.13 (0.6%)

The MLP index had another very bad day, dragging the index down towards the 350 resistance level (its low last month). If it beaks thru, more selling can be expected. The REIT index was up almost 3 to the 234s, after a weak recent performance. Junk bond funds sold off, some down 1-2%. Treasuries were strong (even though the end of QE2 approaches) on the confusing situation over Greek debt issues. The yield on the 10 year Treasury is at a new 6 month low. Oil was flattish, but down from $100 at the end of last week when a trader said it had performed well holding above $96. So much for that call. Gold rose for the 3rd straight day as volatility in currency markets boosted demand for the precious metal as an alternative investment.

Alerian MLP Index

Value	355.86
Change	-3.80 (-1.1%)

Below is a link on how the major markets did today:

Treasury yields:

U.S. 3-month	0.036%
U.S. 2-year	0.375%
U.S. 10-year	2.908%

CLN11.NYM

...Crude Oil Jul 11

...94.65

...

0.16

(0.2%)

The shock waves from a default on Greece's debt could be amplified by links in the global financial system to hurt stocks even though its economy is not large. European lenders could suffer serious losses & the resulting market turmoil could strain the European Union's backstop fund. The exact effects of an implosion are hard to anticipate but forced losses of 50% would be one thing, a voluntary stretchout of repayment another. Beyond the immediate hit to banks, the biggest fear is that of contagion, a difficult-to-predict chain reaction that could roil markets & make it harder for other indebted countries to cope with their debts, with the result being higher borrowing costs for eurozone countries. While it's not clear how sweeping a default would be, it might be like Lehman's collapse when the damage was greater than expected. Financial trouble can hit the wider economy if banks suffer losses that make them afraid or unable to lend to businesses. The IMF has identified bank trouble as the biggest risk to Europe's recovery.

Greek Default Could Trigger Chain Reaction- AP

After intense demand drove up the price for the Pandora (P) IPO to $26, the shares plunged today into the red for those who bought the IPO. P closed at $13.26 on 15M shares, substantially below the $16 IPO yesterday. The excitement enabled P to sell for twice as much as an $8 target price set 2 weeks ago. P has 94M users & streams music over high-speed Internet connections, using computer formulas to tailor individual songs for listeners. But their approach hasn't been profitable. The company has lost $92M during its 11-year history because its main source of revenue, advertising, hasn't been growing fast enough to cover the royalties for playing music. This IPO came less than a month after the stock market debut of LinkedIn (LNKD) evoked memories of the dot-com boom in the late 1990s. It more than doubled on the first day of trading to give the company with a market value of $9B. The stock has lost nearly a quarter of its value since then, although at $68.27 (down 6.35 today), it remains above the $45 IPO. Bigger picture, a dismal performance by IPOs tells us that the markets are in in bad shape.

Pandora Falls Below IPO Price, Reversing Gain

LinkedIn Corporation (LNKD)

The price of gas at the pumped inched up, pushing on $3.69. More increases can be expected, but will likely be modest for the time being,.

Source: AAA

Today buyers returned in the last hour, giving the markets a much needed boost. With all the confusion over Greek defaults & its implications, it's difficult to make much of these gyrations, However, the decline for MLPs is getting serious. Rumors last month about altering the tax advantage for their distributions shook units, those fears have not gone away. Brown Foreman (BF-B), a Dividend Aristocrat, had another good day, up 1.02 to $71.86. With the way markets have been behaving, they should be selling a lot more Jack Daniels.