Dow fails to top 11,000 again

Dow rose 70 with a very strong close, but it still finished 3 short of 11K. Advancers were over decliners a relatively modest 2-1 & NAZ gained 17. Banks have been doing well this week even after officials had to give troubling testimony in DC. The Financial Index is near its post Lehman collapse high.

S&P 500 FINANCIALS INDEX

Value 222.99

Change 0.82

% Change 0.4%

The Alerian MLP Index shot up another 1.30 to the 313s, another high since mid 2007. The Dow Jones REIT Index gained 3½ to the 206s, taking it close to the yearly highs set this week. Junk bond funds inched up, all near their 2010 highs. The yield on the 10-year Treasury bond slipped back 1 basis point to 3.89%, still very high.

Alerian MLP Index --- YTD



Dow Jones REIT Index - YTD





Oil went below the key support line of 85. That has pretty much the upper end of its trading range for since its plunge from 2008 record prices. A 2 month chart for gold shows how it has been moving up without a lot of attention. While 1200+ would require another major leg up, it's not impossible after this strength.

CLK10.NYM

..Crude Oil May 10

..84.88

.. 0.51 ......(0.6%)

GCJ10.CMX

..Gold Apr 10

..1,159.90

.. 7.70 ......(0.7%)

OIL (ETF) --- 1 year




GLD (ETF) --- 2 months

Gold Super Cycle Click Here

After their biggest gain in history with many junk bonds funds doubling or tripling off their depressed lows, strong demand for these securities continues. They now make up the biggest share of corp debt sales on record even though yields are only moderate. Global high-yield bond sales already reached $92B in 2010, or 12% of total issuance (almost double last year’s share) according to Bloomberg. Yields on the debt fell to within 583 basis points of Treasuries this week, about the lowest since late 2007 & down from 666 basis points at the end of 2009. First-time issuers are eager to buy these securities, a very dangerous sign.

Junk Bonds Grab Record Share as Yields Tumble: Credit Markets



Ambac Financial Group (AMK) a bond insurer with tons of problems is now a dollar stock. Not today, it jumped an amazing 77% to $1.14 after reporting Q4 net income of $558M amid a tax benefit & unrealized gains on derivatives. The company also said it has “insufficient capital” to finance itself past the Q2 of 2011 & may need to file for bankruptcy. The market reaction is considered "dumbfounding," just another sign of excessive speculative fervor in markets which can precede a significant market decline.

Ambac Soars ‘Dumbfounding’ 86% After Reporting Profit


Ambac --- 1 week






The markets have problems. After trying all week, the Dow couldn't manage to top 11K. The bulls know how important that symbolism is, that's why they were buying into today's close. Speculative fervor is clearly on the rise, highlighted when a "has been" but now dollar stock can pretty much double in a day based on vague thoughts. Continued strong interest in junk bonds by new investors is another sign of trouble down the road. This weekend will give us a chance to reflect on what happened & get ready for earnings season next week. The last one did not get good reviews.

Dow Jones Industrials - YTD