US Bank Shares Rise On “Bad Bank Bailout”

Buoyed by the “bad bank bailout” the new administration is floating, financial stocks shot ahead from the opening gun, lifting the broad market to 2% gains in early morning trading. Goldman Sachs (GS) exploded over 7.7 points on the opening before settling up +12.6%; Bank America (BAC) gapped up 15% and closed +13..69%; and Wells Fargo (WFC) opened 25% higher and closed up +30.88%.

By the end of the session, the DJIA (+200.72 +2.46% to 8375.45), S&P 500 (+28.38 +3.36 to 874.09) and NASDAQ Composite (+53.44 +3.55% to 1558.34) all closed sharply higher. So too did the Toronto Composite (+146.60 +1.67% to 8906.23), but not the Venture Board (+2.05 +0.24% to 869.92). On a strong week otherwise, the Venture Board is up +1.0%.

But the equity market may have moved to a new, higher trading range. The S&P 500 broke out above 850-855, and the NASDAQ is now above many short-term Moving Averages that are important points of resistance for technically-oriented traders.

Overnight, the equity markets were mixed: the Nikkei 225 gained +1.79% to 8152.1; Australia was up +0.76% to 3461.3; and Hong Kong, which had been closed three days for Chinese Lunar New Year celebrations, soared +4.58%, in catch-up mode. But Shanghai, which also had been closed, dropped -0.71% to 1990.7, despite monetary authorities there pointing to a +8% economic growth pattern for 2009. India’s Sensex BSE 30 was down -0.23% to 9236.3.

Earlier in the day, at 7:30am ET, the European bourses were selling off (taking profits is the expression): French CAC down -1.3%; German DAX -1.0%; and UK FTSE 100 -1.8%.

On balance, traders are focused on corporate earnings reports, which are more negative than positive. The fact that the FED maintained the same basic posture on monetary policy and rates was already discounted in the market.

Volume in NY was still low, but did pick up a bit.

The winning sectors were Financials (XLF +12.8%) and Consumer Discretionary (XLY +4.3%). Utilities (XLU +0.6%), although rising, was the laggard.

Among industry groups, the action was mostly in the financials: Banks ($BKX +14.4%); Broker-Dealers ($XBD +10.4%); and REITS ($DJR +8.8%), were well ahead of the rest. Goldminers ($XAU -1.6%) were soft, as expected.

As for the Cara 100, there were 92 winners and just 8 losers. The losers included precious metals companies Goldcorp ((GG) -2.9%), Kinross Gold ((KGC)  -0.6%), and (SLW) -0.5%. Bristol Myers ((BMY) -3.3%) was the weakest. The leaders were mostly banks: Germany’s Deutsche Bank ((DB) +23.6%), India’s ICICI Bank ((IBN)  +15.0%), Korea’s Kookmin Bank ((KB) +12.9%), and the UK’s HSBC ((HBC) +10.4%).

Nucor (NUE +11.9%) was also hot. NUE was down -5.0% the previous day when I noted that “traders were told steel demand is lowest now in years, dropping rapidly”. This is yet another example of media being used as a take-out party by deceitful traders.

Today, WSJ reported that Ford Motor announced a 4Q08 net loss of -$5.9 billion, but reiterated their position the company doesn’t plan to seek a government bridge loan unless it is hit by “a significantly deeper economic downturn or a significant industry event,” such as the bankruptcy of a competitor.

Yesterday, US Treasury Bonds pulled back again. The 30-year $USB dropped sharply -1.74% to 128.92. Yield on the 30-, 10- and 5-year Treasuries ended at 3.434%, 2.656%, and 1.681%, respectively. T-Bill yields have lifted (a lot) from 0.100% to 0.180%.

The $USD strengthened +0.37% to 84.64, and the Euro also lifted +0.08% to 131.77. That is the second day in a row where the $USD and Euro both moved in the same direction. The Yen dropped, losing -1.44% to 110.78, but the Pound soared again +0.91% to 142.70, for an incredibly volatile two-week ride. The Loonie also soared +1.56% to 82.62.

The gold futures ($GOLD) dropped for the second day in a row, -$9.30/oz on Tuesday and -$11.40/oz on Wednesday, closing at 890.00. As I pointed out two days ago, when I started selling out my gold positions because I didn’t like the risk, “This is a crucial level, which if it holds could challenge the 935 level next, but could also back down here to shake traders’ confidence in precious metals.”

Crude Oil (March) futures today are lower at 9:10am at 40.60, down from 40.95 at 7:30am.

Spot prices for gold, palladium, platinum and silver, at 9:27am ET (compared to 7:30am are): 881.68 (880.05), 189 (188), 951 (947), and 11.85 (11.77), respectively. Actually, because of the currencies, looking pretty good, despite the added risk.

The $USD futures has backed off a tad (compared to 7:30am), to 84.855 (84.885), and the Euro has lifted a bit as well at 131.45 (131.30) in the past two hours.

This Thursday morning (9:30am ET), the DJIA futures are down -88 at 8234, down from 8264 at 7:30am.

Qualcomm (QCOM) earnings disappointed.

Commentary from the CTAB trader’s conference call:

Clearly the financial sector took over the upside leadership from the semiconductor sector, which encountered profit taking after an +8% romp higher the past two sessions. This was not unexpected and simply more of the same sector rotation that has characterized the market rally off the November lows

Oil stocks outperformed crude again as valuations have become compelling for many portfolio managers regardless of whether crude rallies sharply from current levels. Reported oil inventory numbers again pointed to excess supply and muted demand, prompting a knee-jerk sell-off that for the third week in a row was met by fresh buying and ultimately a higher close. Crude looks to still be bottoming and we continue to sell puts on declines to average into the commodity at lower prices.

The Treasuries nearly reached our short sale target (mentioned here last night as between 110 to 111 in TLT) falling short by a mere 20 cents before crashing almost -4% to mid afternoon lows. We see much higher US interest rates over the intermediate and long term and once again would use rallies in treasuries to add to short positions.

The market has cleared the 855 level on S&P, yet we need follow through on volume to feel comfortable putting cash to work in a more aggressive manner. We collared our long QCOM position before the earnings release Wednesday afternoon, added a little ABX, closed our short position in XLF puts, and exited HBC, expecting the financial sector to stall as it encounters overhead resistance.

Coming out of a prolonged slump normally takes some time so we will continue to take profits after sharp rallies, write calls against long positions as stocks stall out and lose momentum, or hit upside resistance targets. Over time, in a more normal trading environment, we can envision initiating short positions against existing longs to hedge against market risk, creating pairs strategies to better deploy cash reserves and enhance returns.

Today wasn’t too bad, clients up +1.25%, and comfortably ahead of popular averages for the first few weeks of 2009.

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Comment by almonte Picarillo

2009-01-29 16:55:40

Washington Mutual bond holder.
My Statement from the Broker showed a $20,000.00 worth $1,800.00 in Nov. and it goes up and dowm as the market.
My bdrker says that some one may be interested in them.
What is your take,
Almonte Picarillo
picals26@msn.com

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