Traders Are Selling Risk

by: Bill Cara

[Excerpted from Bill Cara's Daily Report]

The $USD strengthened further to 84.375 at 6:45am ET (vs 83.705 Monday morning and 83.455 at Friday’s close). The Euro is weaker again at 132.86 (vs 133.73 Monday morning and 134.00 at the Fri close). Simultaneously the metals and precious metals have come under pressure, with the expected result that the spot gold has dropped Tuesday morning to 819.13 (vs 839.18 Monday am and 852.9 at the Fri close) and the silver price is down to 10.61 (vs 10.99 Monday am and 11.2425 at the Friday close). The biggest moves occurred between 8:30 and 9:30am ET prior to the open of the equity market – in the complete absence of US economic and corporate news. But earlier in the day, the international news was quite negative.

In Asia-Pacific equity markets Tuesday, Tokyo (-4.79% to 8413.9) was weakest as Monday, a weak day elsewhere, was closed. Australia (-0.83% to 3593.9), Shanghai (-1.95% to 1863.4), Hong Kong (-2.17% to 13668.1), and India (-0.42% to 9071.4) weakened on Tuesday, but not as much as Monday: Australia (-1.53%), Shanghai (-0.24%), Hong Kong (-2.83%), and India (-3.15%).

Earlier Tuesday morning (6:30am ET), the European bourses were significantly lower: French CAC -2.64%; German DAX -2.17%; and UK FTSE -2.23%.

Monday in NY, the equity markets pulled back sharply: the DJIA (-125.21 -1.46% to 8473.97), S&P 500 (-20.09 -2.26% 870.26) and NASDAQ Composite (-32.80 -2.09% to 1538.79) all sank under broad-based selling.

Clearly, traders were selling risk as the only sectors in NY that gained were Consumer Staples (+0.4%) and Utilities (XLP +0.3%). The biggest losers were Financials (XLF -5.3%) led downward by Banks ($BKX) and REITs ($DJR), both down -6.1%). Basic Materials (XLB -4.2%) and Energy (XLE -4.0%) were also very weak.

In the Cara 100, there were only 9 of 100 stocks that lifted Monday. Those were led by Genentech (DNA +1.3% on +62% higher than average volume due the planned Roche buy-out), and IBM (+1.2%). The losers were led by Brunswick Corp (BC -13.8%), Potash of Saskatchewan (POT -11.8%), Gerdau Steel (GGB -10.5%), Garmin (GRMN -10.3%) and Silver Wheaton (SLW -9.9%).

The US long bond ($USB) surged +1.27% to 134.83 as yields collapsed. The Treasury yields are now 2.99, 2.39, and 1.441 percent for the 30-, 10- and 5-year bonds and notes.

The US Dollar also gained a lot (+0.44%) to 83.08 for he near futures, and is stronger this morning. At the close yesterday, the Euro (-0.66% to 133.64), Pound (-2.57% to 148.05) and Loonie (-2.36% to 82.07) were very weak. The Yen strengthened +1.27% to 112.00.

Crude Oil futures dropped from Friday’s close through until about 3:00am ET today. The March contracts appear to be stable at $43.12 this morning at 7:00am ET.

Gold futures ($GOLD) dropped -$34.00/oz to close at 821.00, about -$14.00 below anticipated support, causing traders to turn bearish again.

DJIA futures, which had closed last week at 8523, were down this morning to 8372.

With the lower metals and precious metal prices this week, many of the miners have been downgraded by the broker-dealer analysts.