Equities Update: Upward Mobility

4:25 PM, Nov 2, 2009 --

• NYSE up 45.5 (0.7%) to 6,784.94.
• DJIA up 76.7 (0.8%) to 9,789.
• S&P 500 up 6.63 (0.64%) to 1,043.
• Nasdaq up 4.1 (0.2%) to 2,049.

GLOBAL SENTIMENT

• Hang Seng down 0.61%
• Nikkei down 2.31%
• FTSE up 1.1%

UPSIDE MOVERS

(+) MOT gets analyst upgrade after last week's earnings beat.

(+) AEZS reports positive study data in ovarian cancer.

(+) F beats with results.

(+) HGSI reports positive Benlysta phase 3 trial data.

(+) AMLN inks pact, gets payment for obesity compound development.

(+) VRTX reports positive Phase 2 Hep C study.

(+) PRGO beats with earnings, selling Israel cosmetic business.

(+) CLX beats with earnings, guidance straddles Street.

DOWNSIDE MOVERS

(-) GTXI receives FDA complete response letter.

(-) CIT files for Ch. 11.

(-) RIMM gets analyst downgrade.

(-) BEAT gets negative news on Medicare, Medicaid pricing.

MARKET DIRECTION

A late-day charge landed all major averages in positive territory. The DJIA advances 0.7%. The S&P 500 is up 0.6%. The Nasdaq Composite is up 0.2%. Stocks were mixed Monday but did get an early boost from upbeat factory and housing reports before financial share declines sapped those gains and sent the DJIA down by as much as 100 points at one time. Gold closed above $1,050 an ounce and oil ended above $78 a barrel after the economic data.

Earnings news continues in evening trading. Among post-bell reports: SYKE, TXRH, CUTR, CGNX, HTCH.

Stocks traded in choppy fashion throughout Monday's session.

Pre-market gains gave way to mixed early stock trading but stocks regained their footing late morning after stronger-than-expected ISM manufacturing, consruction and housing data.

The Institute for Supply Management said the manufacturing industry grew at the fastest pace in October since April 2006. The ISM manufacturing index rose to 55.7, much better than the 53 economists had expected. It was the third month in a row the index came in above 50, which indicates growth.

Meanwhile, the National Association of Realtors says pending home sales increased for the eighth straight month in September. The index rose 6.1 percent from August to 110.1. It was the highest reading since December 2006 and more than 21 percent above a year ago. Economists had expected the index would be level at 103.8.

The Commerce Department also said construction spending increased 0.8 percent in September, matching the gain in August. Economists had been expecting a 0.3 percent decline.

Steep losses Friday capped weekly declines measuring 4% for the broad S&P 500. The dollar is mostly lower, helping boost oil. Oil erases opening losses, last trading up at $77.54 per barrel. Gold is down $7 at 1,040 per ounce.

In company news, Ford (F) rallied after the company reports Q3 earnings of $0.29 per share. Ex items, EPS was $0.26 per share, up from a year ago loss of $1.32 per share. The Street view was a loss of $0.12 per share. Revenue was $30.9 bln, down $800 mln from the year ago quarter. Analysts were expecting revenue of $28.3 bln. Ford said it remains on track to achieve or exceed all of its 2009 financial targets and almost all of its operational metrics.

HGSI (HGSI), which along with GlaxoSmithKline PLC (GSK), announced that BENLYSTA (belimumab) met the primary endpoint in BLISS-76, the second of two pivotal Phase 3 trials in seropositive patients with systemic lupus erythematosus (SLE). HGSI shares were last up 37%.

Motorola (MOT) gained after the stock was upgraded by Citigroup to Buy from Hold.

In mergers and acquisitions, Encore Acquisitions (EAC) is up more than 20% on news it will be bought by Denbury Resources (DNR) in a $4.5 billion cash and stock deal.

Active decliners include CIT Group (CIT), after a weekend filing for Ch. 11. CIT garnered support from about 90% of voting debt holders for a prepackaged reorganization plan that could allow the lender to speed through Chapter 11 and emerge with a new business model by year's end. Under the plan, bondholders will exchange their debt for new debt that matures later, as well as nearly all the equity in a reorganized CIT, the Wall Street Journal reported. The bankruptcy stay would eliminate some $10 billion in debt from the lender's balance sheet, the company said. CIT has been weighed down by more than $30 billion in bond debt.

GTx (GTXI) plunged after a complete response letter from the FDA for the company's Toremifene 80 mg new drug application noted two deficiencies. The company says it is requesting a meeting with the FDA.

LDK Solar (LDK) fell after Reuters reports that Q-Cells AG has terminated the agreement concluded in December 2007 with LDK for the supply of solar wafers.

YRC Worldwide (YRCW) shed half its value after the company says it is launching an exchange offer.

Comments

[David White:]

Hard to say where the market will go. It keeps bouncing off support on the SPY at about $103.40. It could break through; or it could keep going down. Virtually all of the economic news was good today, yet the we still retested this support point. That was not really a good sign.

Many experts believe that fair value for the SPY currently is at about the $86 level. We are still a long ways above that. The SPY could easily fall a long way. Still some reports have been good. The manufacturing numbers to day were great (55.7 vs an expectation of 53.0). The pending sales numbers were far above estimates (+6.1% vs an expectation of 0%). The construction spending was a big plus (+0.8% vs an expectation of -0.2%). Add the Ford result (about $1B profit), AMZN, AAPL, and some others. Then you may be looking at some real growth in specific areas. If you consider the bulk of the stimulus package monies have yet to be spent, you might think the US economy could be in for quite a near term surge. This kind of thinking could send the markets up.

The problem is that there are also very definite problems. There is the CIT bankruptcy. No matter how you look at it, this is bound to cause credit constriction problems for many small and medium sized businesses, especially those in the retail business. This could put a big damper on Xmas profits for these companies. If they can't borrow enough short term to adequately stock their stores or pay their temporary workers, they will not have a big Xmas season. Often most of their profits are made at this time of year. If they don't make those profits, we will likely see more and more failures next year.

In addtion the commercial mortgage market is in real trouble. Both banks and businesses will be hurt by the commercial mortgage problems over the next two years. The residential real estate market is still far from healthy. The credit card businesses (not the services such as Visa and MA, but the loaning banks such as BAC, etc) are losing money. The credit card charge off rate is rising with the unemployment level. That situation is likely to get demonstrably worse over the next year. This will cut into banks' profits. Some are predicting that 1000 or more banks will fail in the next two years. We were at 115 this year, when last I looked. If the 1000+ number is accurate, it will have a severe impact on credit. The US economy functions much less well with tight credit. This could lead to that double dip people are talking about.

All told my inclination is to let the markets fall back on fundamentals -- fair value on the SPY. There will likely be some kind of surge on stimulus spending, but it is not likely to last. There are too many negatives. People are beginning to realize this. I am hoping that the surge will allow enough businesses to sustain themselves through the hard times. I am hoping that it is enough to start a "real" recovery. However, I am more sanguinely thinking that I do not want to bet much more than fair value on that. The recovery could easily fail.

It is hard to say what the market will think. It seems to be getting tired after a long run up. Perhaps the tipping point will be the USD. The Fed already ended its Treasury buying program at the end of October. It will slowly withdraw other stimuli soon. It has been slowly lowering the money supply since June. When it starts talking seriously about raising rates, that could spell the end of the US carry trade. When people start exiting that trade, they will have to sell other investments to repay the USD's. That seems almost pre-ordained to start a big down move in equities. We saw some of that with the recent bounce upward in the USD. We will see more. The Fed has been curbing its simuli. It is not pushing the markets up as strongly as it had been for the previous months of the rally. Eventually this will have a telling effect.

Nov 02 06:40 PM

[bottoms-up:]

Well, when the equities started to tank today after all the "good news," that had a lot of major factual flaws and contradicitions, all of a sudden the "usual suspects" started to skyrocket. The usual suspects, of course, are financials (ie, U.S. Government and GS)...

I wish Tim and Ben would just keep their nose out of this. There was heavy volume, but most of the volume took place during the downward slide. Essentially today was another "pump and dump" courtesy the Treasury and the Fed, but it was interday, rather than their usual lode of day-to-day pump and dump.

Nov 02 07:04 PM

[bottoms-up:]

Forgot to note... Looks like the order for the pump came in at 1:00 Eastern Time... I guess Tim and Ben just got back from lunch and looked at the collapsing market and ordered the printing presses to run at full steam.

Nov 02 07:09 PM

[Options Tra...:]

i am optimistic on a 10,000 points break within the next few weeks. Looking at the daily charts on the Dow, its pattern of bunny hopping higher has not been disrupted yet, thus it can be reasonble to expect the Dow to go higher from this point forward.

my detailed analysis: www.optiontradingpedia...

Nov 02 08:32 PM