Liquidity Is a Problem, But There Are Positive Signs Nonetheless

[Excerpted from Bill Cara's Daily Report]

U.S. equity markets rallied late in the session on Friday after a disappointing November employment report early in the day. Later, traders watched the CEOs from the U.S. automakers testify to the lame-duck Congress in continuing efforts to seek bridge financing or bailout similar to the TARP. [http://en.wikipedia.org/wiki/Troubled_Assets_Relie...]

Commodity prices were driven down as Crude Oil ($WTIC) traded off its session low of 40.50 to close at 40.81, down -$5.77/bbl, and $GOLD closed down -$14.75/oz at 752.20. Economic forces are now driving the unwinding of debt, a process started 18 months ago by the banks.

In the biggest economic news of the day, November non-farm payrolls fell -533,000, which was much more than expected. The job loss is the single worse month of decline since 1974. Unemployment is reported to have dropped -0.2% to -6.7%, which is the highest rate since October 1993.

The DJIA equity futures, which had been flat up to the release of the Jobs Report, then plunged about -200 points, and that’s where the DJIA index traded for the first couple hours of the session.

But gradually the market index levels firmed as the Broker-Dealers ($XBD +11.1%) and REITs ($DJR +10.3%) picked up the Financials (XLF +7.9%) to boost the market to a strong close.

At the close for the week, the DJIA (+259.18 +3.09% to 8635.42), S&P 500 (+30.85 +3.65% to 876.07), and NASDAQ Composite (+63.75 +4.41% to 1509.31) closed on a high note.

In Canada, there was much less enthusiasm as the Toronto Composite (+59.91 +0.73% to 8117.03) and Venture Board (-13.55 -1.94% to 684.31) were mixed. Crude Oil, base metals and precious metal prices, being down hurt the market. In addition, traders are now wondering if the Bank of Canada is in charge of the country as the Prime Minister arbitrarily shut down Parliament for seven weeks until his Minister of Finance Jim Flaherty can deliver a Budget. That postponement of the nation’s business blocked a vote in the House by the country’s three minority parties from joining their vote to gain control of the government, something that the voters had clearly rejected a few weeks earlier. I refer to it as the politics of money where underhanded politicians are playing on the emotions of the populace during tough economic times.

In NY on Friday, all ten market sectors lifted. In addition to the very strong Financials (+7.9%), the Tech sector (XLK +3.9%) was a leader. Utilities (XLU +0.6%) was a laggard as traders sought the safety of Treasury instruments rather than yield.

The losers among industry groups Friday were NatGas ($XNG -0.18%) and Goldminers ($XAU -0.14%), but these were minor losses.

In the Cara 100, there was a hodge-podge of tech, consumer discretionary and financial stocks of two U.S.-based and three India-based companies in the lead: SanDisk (SNDK) +14.2%, Cognizant (CTSH) +12.0%, Brunswick (BC) +10.2%, Tata Motors (TTM) +9.7% and ICICI Bank (IBN) +9.6%. Heading the list of just 13 Cara 100 losers on the session were Teekay LNG (TGP) -6.1%, Statoil (STO) -4.3%, Goldcorp (GG) -2.5%, Teck Cominco (TCK) and Barrick Gold ABX -2.2%, and Silver Wheaton (SLW) -1.5%. Four of these six and 6 of the 13 losers were commodity-based producers from Canada.

After five of the previous six days where traders fled to the safety of the U.S. Treasury market (and Wednesday was only a small loss), the U.S. 30-year long bond ($USB -0.24% to 134.61) dipped a bit. The T-Bill yield improved from a dismal 0.005% to a still dismal +0.010%, capping a week of the lowest market rates in memory.

In M&A news, Merrill Lynch (MER) and Bank of America (BAC) shareholders approved the BoA acquisition of Merrill.

Earlier in the day, the Asia-Pacific equity markets were mixed: Australia (-1.18% to 3427.2), Shanghai (+0.86% to 2018.7), Hong Kong (+2.49% to 13846.1), India (-2.87% to 8965.2) and Japan (-0.08% to 7917.5). The European bourses slumped badly after the U.S. Jobs Report was published, where the French CAC, German DAX and UK FTSE closed down -5.48% (2988.0), -4.00% (4381.5) and -2.74% (4049.4). The U.S. rally occurred after the close in Europe, as it usually does.

The DJIA equity futures closed the week at 8620, which was strongly up from the noon report of 8214.

The precious metals were hammered immediately after the U.S. Jobs Report was issued. Compared to the 6:45am ET prices in brackets, presently (11:57am ET) the gold, palladium, platinum and silver spot prices were: 744.93 (770.15), 160 (171), 784 (800), and 9.26 (9.49). By the close, the spot prices of gold, palladium, platinum and silver were 754.65, 163, 801, and 9.505 respectively.

The liquidity is a problem, but there are positive signs nonetheless, particularly in technology and the U.S. Retailers.

For those who didn’t read Friday noon’s report, I stated that my colleague Pascal Willain continues to advise that big money has not yet returned to the U.S. equity market. Here is the link to his latest Report. [http://www.effectivevolume.eu/content/Reports/MA_1...]

Pascal does, however, see a potentially positive situation developing at Southern Peru Copper (PCU). [http://stockcharts.com/charts/gallery.html?pcu]

Comments

[Pacio:]

What's happening in the commodity market is really funny now with the barril forecasted @ $25. A few months ago all the bankers refused to recognize it was mainly driven by speculation (they it was driven by fundamentals...), and that all the hedge funds face huge redemptions, nobody tries to face the reality: it was pure speculation my friends !
Pacio - www.ibankee.com

2008 Dec 07 11:54 AM

[kianator:]

Yep, I concur with the author. Big money still has not returned to the markets as the QQQQ's & SPYs total volume on Friday's job reversal rally was lower than the so-called bottom rallies on Oct 10th, Oct 28, and even the Nov 21st (Fri. options exp) rally. Volume decreased after each of these days.

This coming week will be a good market participation test as a weekly close above S&P 900/Dow 8850 would mean we are setting up for a possible test of the 50 day MAs.

2008 Dec 07 01:25 PM

[E Nuff Sed:]

I have feeling that late day volatility spikes (usu. in the last hour) are driven by ultrapro short type of funds. A lot of newbies and daytrader types are dabbling in these funds. The sponsors of these funds usually end up selling or buying securities at the end of the day to bring the NAV's in sync with the prices.

2008 Dec 07 02:12 PM

[Greg Pinelli:]

E Nuff Sed...very nice..of course, as the Georealist well knows is a tip of the hat to Nuff said McGreevy..an icon of baseball lore whose group of hooligans helped the Boston Pilgrims win a World Series they shouldn't have..nuff said...
As for the article..it simply misses the point all around..Liquidity (as we are now seeing at its nascent dawn) is NOT a thing..it's a process. It's a tidal wave of future money that is well out at sea but will require higher ground to survive....Head for gold and other stuff...real stuff....

2008 Dec 07 08:19 PM

[NOWHEREMAN:]

"nascent dawn" ? what is a "nascent dawn"?

Liquidity(as we are seeing at its start start)?

The Article has a point which you have missed entirely probably because you did not understand it. So you tossed in a bunch of nonlinear sentences which make no sense.

And to top it off: "its a tidal wave of future money which is well out to sea" Give me a break, if its "future money" and its still "well out to sea" What is the impact on the Here and Now? The Article above talks about the Here and Now. IMO

Duh, Nuff Sed

2008 Dec 07 11:58 PM