Markets needed a rest

Since Apr 8, Dow has been creeping forward. But without dramatic news today, it took a breather. After sputtering in the AM, it closed at a new 18 month high. Dow gained 21, advancers & decliners were even while NAZ picked up 10. Bank stocks also ran into profit taking. But after the 40+ gain by the Financial Index in the last 2 months (shown in the chart below), bank stock buyers deserved a day off to enjoy their profits.


S&P 500 FINANCIALS INDEX

Value 228.64

Change -1.11

% Change -0.5%

The MLP index was down a fraction in the 312s while the REIT tumbled 5½ following its big rise 2 days ago. Junk bond funds fell fractionally off their 2 year highs. The yield on the 10-year Treasury bond fell 1 basis point to 3.85%. Aside from the REIT fall, not much going on here.


Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





This was also a boring days for commodities. Traders have to rethink whether they had taken them too high, too fast.

CLK10.NYM

..Crude Oil May 10

..85.50

.. 0.34 ......(0.4%)

GCJ10.CMX

..Gold Apr 10

..1,159.40

.. 0.40 ......(0.0%)

Ambac (ABK), the troubled bond insurer, has had a wild ride this week, starting below $1 & shooting up to $3 at its highs. Today it dropped only 3¢ to $1.83 with a range of 25¢. Gamblers who made money are very happy. But investors should worry that this type of activity is becoming more common, not a good sign for regular stocks.

Ambac --- 1 year





The S&P 500 is back over 1200 (1211 to be exact), last seen in early Oct 2008. Now bulls are looking for it to reach 1300 by year's end. That would bring it to almost double off the low in Mar 2009, its greatest rise in history. Increased speculation is becoming an important factor with Ambac being a glaring example. Even junk bonds, stocks with high yields, are benefiting from speculative buying. Bulls are still in charge, but there are limits on how far they can take these markets.

Dow Jones Industrials --- YTD




S&P 500 --- 2 years

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Bank stocks lead markets higher

Dow shot up 103, advancers were ahead of decliners 3-1 & NAZ gained 38 (helped by Intel earnings & Apple reaching another record). But the big story was with the banks. The chart for the Financial Index has been soaring for over 2 months (see chart below) after lagging behind advancing stock markets for 6 months. Even the new bill debated in the Senate for more regulations has not been able to stop this climb. Today's gain, almost 6, was very impressive.

S&P 500 FINANCIALS INDEX

Value 229.75

Change 5.92

% Change 2.6%

The Alerian MLP Index rose .57 in the 313s while the REIT inched up pennies in the 210s. Junk bond funds keep marching ahead to prices not seen in many, many months. But the yield on the 10-year Treasury Index went up 4 basis points to 3.86% keeping it in high & worrisome territory.


Alerian MLP Index --- YTD




Dow Jones REIT Index - YTD




10-Year Treasury Yld Index - YTD





Commodities took the hint from the stock markets & went higher. Oil is back above the important 85 level, keeping its positive momentum. Gold is also looking good, it may want to top its record high above 1200.

CLK10.NYM

..Crude Oil May 10

..85.87

.. 1.82 ......(2.2%)

GCJ10.CMX..

Gold Apr 10

..1,156.50

.. 3.70 ......(0.3%)

Gold Super Cycle!!
Click Here

The Federal Reserve's new survey is consistent with chairman Ben Bernanke's view that a modest recovery is unfolding, but it won't be strong enough to quickly drive down the 9.7% unemployment rate. 11 of the 12 FED regions (except for St. Louis) said "economic activity increased somewhat." That was an improvement from the last survey released in early Mar when only 9 regions reported modest economic advances. The St. Louis region said economic conditions had "softened," a downgrade from the previous report when the region reported mixed economic conditions. But trouble spots for the economy remain. The housing market is still fragile & commercial real-estate activity stayed "very weak" in most parts of the country. In addition, job prospects are still bleak for the nation's 15M unemployed.

•Fed Says Economy Expanded `Somewhat' in Most of U.S. as Spending Increased



Below are charts for 4 stocks which have been flying pretty high this year. Apple (AAPL), with the 3rd largest market cap, has done well (up 3 to the 245s today) because its business is going full steam. Ambac (ABK), Fannie Mae (FNM) & AIG (AIG) have made a lot of money for short term traders who made good bets on big swings. If AAPL, among others, stumbles, its chart could look more like the rest. Today ABK was up 15%, FNM up 8% while AIG slipped 1%. For a contrast, the chart for Wal-Mart (WMT), Dow stock & Dividend Aristocrat, was added. Even though it has a smaller market cap than APPL, it has been doing well & increased the div in 2010. Maybe it, along with other Dividend Aristocrats, should be getting more respect if this is truly a recovery period for the economy.

Apple --- YTD




Ambac --- YTD




Fannie Mae --- YTD




AIG --- YTD




Wal-Mart --- YTD





After finding it so difficult to break thru, Dow has established 11K as a new floor. Greek debt problems are fading away slowly, the € is up to nearly $1.37 reflecting more optimism about Greek muddling by. But I'm disturbed by has-been stocks like AMK getting so much attention when companies with a history of delivering earnings (& div) growth are largely ignored. For the time being, the bulls are back in charge & most investors are happy.

Dow Jones Industrials - YTD

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Dow inches over 11,000

Dow broke into the black at the start of trading today, but then failed to get traction. It ended with a modest gain, good enough to break 11K (the first time in 19 months) but that was all it could manage. Dow rose only 8, advancers over decliners 4-3 & NAZ gained 3. Hardly an inspiring day! Bank stocks are still in demand. The 2 month run for the Financial Index in the chart below tells it all for bank stocks.

S&P 500 FINANCIALS INDEX

Value 223.83

Change 1.01

% Change 0.5%

The Alerian MLP) Index continued strong all day, ending with a gain of .90 to the 314s. However, the REIT index dropped 1½ to the 205s. Junk bond funds were higher to levels not seen in a very long time. Treasuries were strong, driving the yield on the 10-year Treasury down 4 basis points to 3.85%.


Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





Like the stock markets, oil & gold had modest changes. Only in their case it was to the downside.

CLK10.NYM

..Crude Oil May 10

..84.46

.. 0.46 ......(0.5%)

GCJ10.CMX

..Gold Apr 10

..1,156.00

.. 4.40 ......(0.4%)

The Treasury said the deficit for Mar totaled $65B compared to $192B last year. However, $115B of that improvement occurred because the administration lowered its estimate of costs for TARP. The deficit through the first 6 months of this budget year totals $717B, a drop of 8.2% from the same period last year. The administration is also projecting that the deficit for all of 2010 will hit an all-time high of $1.56T, up from last year's record of $1.4T. Higher spending comes from the costs of the bailout to help financial firms, auto companies & homeowners facing foreclosure. The spending has also soared because of the economic stimulus program passed in Feb 2009 with an original price tag of $787B plus the added demands on such programs as unemployment benefits & food stamps. For the first 6 months of the current budget year, gov receipts total $954B, down 3.6% from last year. Massive gov borrowings will continue for what seems like forever!

• March budget deficit declines to $65.4B- AP

Palm (PALM) shares jumped more than 20% after announcing it hired advisers to explore several options, including a sale of the company. The company has not done well against its rivals like the iPhone & Blackberry. It is projected that PALM could fetch more than $1B. The stock, which had been under $4 on Wed, closed today up 88¢ at $6.04. Speaking of speculation, troubled Ambac (ABK), doubled today, taking it over $2. Great for speculators, but bad for the markets.

Palm --- 2 years




Ambac --- 1 week






Greece got a promise of as much as €45B ($61B) in loans from the euro-region & IMF to help cover its financing needs & avoid a default. The agreement may remove a concern that helped drive the € lower against the dollar this year. Even though the € rallied to $1.36 in recent days, it remains far below $1.51 reached months ago. Buyouts like a possible one for Palm & China Petroleum & Chemical, Asia’s biggest refiner, agreeing to buy ConocoPhillips’s stake in oil-sands producer Syncrude Canada for $4.65B, send positive signals to stock buyers. But buyers did not respond today. Alcoa (AA), Dow stock, kicks off earnings season after the close. Markets are nervous.


Dow Jones Industrials --- YTD

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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

Stocks rally on company news

Stocks rallied on better news from companies & earnings reports. Dow was up 86 (after being up 150 earlier), advancers ahead of decliners 3-2 & NAZ was 24. It didn't hurt that commodities pulled back highlighted by oil dropping 2 to 116. Overall a pretty good day but volume continues to drag along at 1.45B. Bloomberg News reported after an interview with the head of troubled AMBAC (ABK) that they were in great shape & expecting to maintain their AAA debt rating. Pretty good trick after losing billions in 6 months, sending the stock down over 90%. Merrill Lynch (MER) said they had ample cash to maintain the div. In addition, the favorable unemployment report this AM helped bring back buyers looking past dreary economic news.

Not all company news has been favorable. The Microsoft (MSFT) - Yahoo (YHOO) dispute drags on. Starbucks (SBUX) is at the lowest level in almost 5 years, maybe that's because I don't drink coffee. Aetna (ET) reported lower Q1 earnings, down 83¢. Sales beat expectations & EPS was up on lower earnings because of fewer shares. They also maintained guidance of $4 for the year. Let's see what tomorrow brings.

Boeing send stocks higher

Boeing's (Dow stock) favorable earnings sent stocks higher despite other tough stories. Dow was up 43, but advancers just barely beat decliners while NAZ had a good day, up 28. While BA's news sent the stock up 3.53 accounting for chunk of the gain in the Dow, other news was mixed. Credit problems are starting to weigh on regional banks signaling losses will continue & probably grow. Speaking of credit problems, AMBAC (ABK) had another brutal day, down 60%+ to 3.46. About a year ago the stock traded at 96. This is one of the major credit agencies which had to come up with extra financing & beg to keep their AAA credit status (one of just a few companies in the US with that rating) 3 months ago. The Financial Times has a good review of their loss. They've lost $13 per share in the last ½ year, making the current AAA rating for them to be a joke. They should be downgraded soon as will their rivals. These are bond insurers. If the bond insurers are in trouble, it makes you wonder what value their insurance has! This kind of thinking can cause bond yields to rise due to less certainty about the future. Not good.

Amazon (AMZN) had a very good Q1, but.... They had been up 1.40 for the day but in after hours trading they're down 4.05. Too many companies when reporting even good figures have been following with a but.... Their earnings were 34¢ beating the street by 2¢, pretty good. Sales rose 37% worldwide over last year worldwide . But margins were weak & sales in the US only grew 31%, slower than in the rest of the world. Problems in the US economy continue. It's difficult to see them ending without some resolution to the credit mess that seems to be getting worse.