Traders Were Looking for More Stimulus Plan Details

Traders Tuesday sold risk in the US equity market, particularly the Banks ($BKS -13.9%), moving into havens like TreasuryBonds ($USB +1.78% to 127.91), US Dollars ($USD +1.05% to 85.71) and Gold ($GOLD (+$21.40/oz to 914.20). There was a period of 30 minutes starting at 11:00am ET, which happened to coincide with the Treasury Secretary unveiling of TARP II, where bank stocks got hammered.

If this was the Administrations financial rescue plan, apparently the plan has not been well negotiated with the banks, or effectively communicated, as the case may be.

Financial editors Wednesday are opining that “the plan, which has not been fully detailed, could cost over $1 trillion through a mixture of government and private capital to help further stabilize the US financial system. Traders had been looking for more details regarding the plan, and in absence of details, became wary of how or what the potential plan will effect.” These edits appear to be news releases from Humungous Bank & Broker.

Also causing the market's uncertainty is the fact that while the Senate has approved a $838 billion stimulus package, that bill must now go to a conference committee where the final legislation will be worked out between members of the House and Senate. The public is upset that the pork spending in this bill is excessive, and will not lead to the jobs that spending of this magnitude ought to result in..

By the end of the session, the S&P 500 (-42.73 -4.91% to 827.16), the DJIA (-391.99 -4.62% to 7888.88), and the NASDAQ Composite (-66.83 -4.20% to 1524.73) indexes sold off sharply. The Toronto Composite (-227.39 -2.54% to 8817.89) also closed down, but nearly as weak, while the Venture Board (+0.99 +0.11% to 902.09) took another breather.

Earlier Friday, the Asia-Pacific equity markets were all down, as expected, but the surprise was that only Hong Kong (-2.46% to 13539.2) was off more than -0.31%, which really is a modest loss after what the US equity markets suffered yesterday. Australia (-0.31% to 3418.1), Shanghai (-0.19% to 2260.8); and India’s Sensex BSE 30 (-0.30% to 9618.5%) were small losers. The Tokyo Nikkei was closed.

Also Wednesday (at 7:23am ET), the French CAC (-0.59%), German DAX (-0.15%), and UK FTSE 100 (-0.37%) were modestly soft.

In New York Tuesday, all the sectors and industry groups, and 98 of the Cara 100, made losses. Financial (XLF -10.2%) was by far the worst, pulled down by the Banks ($BKX -13.9%), REITs ($DJR -9.3%) and Broker-Dealers ($XBD -7.9%). The Utilities ($XLU -2.8%) was the leading sector, and it was down almost -3%.

$GOLD, which had dropped -$21.50/oz on Monday, turn 180 degrees and made back +$21.40/oz to close at 914.20.

After the previous day's loss, I remarked in this space, the loss was “probably the weight of central bank selling ahead of the big money spending plans that surely depreciate the value of the $USD.” Ergo, the gain yesterday, and the reason I am bullish on precious metals.

Crude Oil ($WTIC) lost -$2.01/bbl to 37.55. There is still a large gap between the March futures contracts of West Texas Intermediate and European Brent that must be closed one way or the other. The selling pressure, I believe, is coming from within the banks that hold these contracts.

In the Cara 100, the action was extreme, on heavier volume. There were only two winners: Mobile TeleSystems (MBT +3.1%) and Goldcorp (GG +0.1%). The 98 losers were led by Teck (TCK -10.9%), Electronic Arts (ERTS -9.4%), Gerdau Steel (GGB -9.2%), likely on lower demand from China, and BHP (BHP -9.1%), on big selling volume, which surprisingly occurred after rating upgrades to BUY from Goldman Sachs and Royal Bank of Scotland.

The bond market was booming as traders sought a haven from risk. Monday had been very quiet and we were expecting a break-out up or down, and that occurred, but may have been a trap. The long Treasury Bond rallied ($USB +1.78% to 127.91).

The forex market turned noisy: the US Dollar (+1.05% to 85.71) was hot, and so was the Yen (+1.18% to 110.60), while the Euro (-0.76% to 129.07), Pound (-2.52% to 145.31) and Cdn Loonie (-2.25% to 80.36) were very weak.

Wednesday morning at 7:37am ET (compared to Tuesday morning at this time and to the close last week), the spot prices of gold, palladium, platinum and silver were: 922.22 (897.23) (909.90); 207 (209) (210) 1040 (1025) (998); and 13.32 (12.9625) (13.10), respectively. Precious metals appear to have held up to yesterday's sharp sell-off.

Comments

[Conan the B...:]

Gld and Gold: back to the drawing board.

If you missed the physical, get into the junior/midsized miners.

Since, I already own a few, I will list what I have but not the reasons why since all of them had their own compelling views at one time or another: AUY, EGI, EGO, NXG and TGB(Copper/Gold).

These are my holdings, do your own DD. Only EGI is does not have production but they do own some very important Mongolian Leases.

Feb 11 12:24 PM