Has anybody spotted Gordon Gecko snooping around Wall & Broad? Today began another round of LBOs or in contemporary terms, “private equity” transactions beginning first with TXU Corp. (TXU), and later rumors of a bid forthcoming for Dow Chemical (DOW). These are bullish activities since beyond the obvious boost to current equity prices, there looms a decline in the supply of stock issues.
The following is a weekly chart of Utilities SPDR ETF (XLU), and you can see the epic bullish run it has taken that has, even prior to today, driven its value beyond the highest valuation expectations. As we noted last week, utilities may become the next dotcoms, which is pretty silly.
Given all this seemingly bullish news, what spooked the markets and drove them lower after a positive opening?
Greenspan, speaking in Hong Kong, stated that a recession in the U.S. was possible later this year, as he felt corporate profit growth would wane. A negative message from the maestro put a damper on things. Further, the ongoing risks from Iran and other bad actors continue to make investors nervous. In fact, Israeli website Debka lays out some chilling possibilities in this story.
These news items combined to put a continuing bid under commodities, precious metals and bonds.
Meanwhile stock markets got pretty excited early given the hoopla surrounding TXU and DOW. The mood turned sour quickly as Greenspan’s comments coupled with more concerns rising from the Middle East drove investors to either sell or just sit on their hands.
And, overseas markets are just sort of losing their previously uniform bullish trends.
That should wrap it up for the first day of the week. Markets were pushed around by conflicting news, with bullish sentiment driven by more M&A activity, but bearishly by Greenspan and geopolitical tensions.
As usual for us, we’re just watching the weekly charts to give us the guidance we need. The problem of course is the tenacity and patience you must maintain throughout any week. And this week there should be plenty of news to test your nerve.
Have a pleasant evening.
Disclaimer: Among other issues, the ETF Digest maintains positions in: Utilities SPDR ETF (XLU), Rydex S&P Equal Weight Materials (RTM), PowerShares DB Commodity Index Tracking Fund (DBC), PowerShares DB Energy Fund (DBE), PowerShares DB Precious Metals Fund (DBP), S&P 500 Index (SPY), MidCap SPDRs ETF (MDY), iShares Russell 2000 Index ETF (IWM), Ultra Russell 2000 ProShares (UWM), NASDAQ 100 Trust Shares ETF (QQQQ), First Trust DJ Internet Index ETF (FDN), iShares Goldman Sachs Network Index Fund (IGN), PowerShares Cleantech Portfolio (PZD), iShares MSCI EAFE Index Fund ETF (EFA), iShares MSCI Emerging Markets ETF (EEM), iShares S&P Latin America 40 Index Fund (ILF), iShares MSCI Mexico Index ETF (EWW), iShares MSCI Brazil Index ETF (EWZ), iShares MSCI Canada Index ETF (EWC), iShares MSCI Australia Index Fund (EWA), iShares MSCI Japan Index ETF (EWJ) and iShares MSCI Malaysia (EWM).