Dow Jones 30: Industrials Index

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Dow Jones Industrial Average...

The Dow is again testing its April high of 11200. Narrow consolidation below resistance favors a breakout. Twiggs Money Flow (21-day) oscillating above the zero line suggests buying pressure; respect of the rising trendline would confirm. Upward breakout would signal a primary advance to 12700*.

* Target calculations: 11200 + ( 11200 - 9700 ) = 12700

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Inflation-fueled rally...

Fear of inflation is driving investors to real assets, primarily stocks at this stage. A weak result from the G-20 finance ministers meeting on the weekend will encourage further weakening of the dollar — and more flows into stocks.

The Dow Global index ($DJWO) recovered above its April high of 242, indicating a primary advance to 280*. Rising Twiggs Money Flow (21-day) confirms buying pressure.

* Target calculations: 242 + ( 242 - 204 ) = 280

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Monday, 01 November 2010...

Overnight U.S. Stock News
•Dec S&Ps this morning are up +6.40 points. The stock market last Friday fluctuated between gains and losses throughout the day and finally settled little changed: Dow +0.04%, S&P 500 -0.04%, Nasdaq Composite +0.00%. The Nasdaq posted a 2-3/4 year high. Bearish factors included (1) the unexpected decline in the Oct US University of Michigan consumer confidence which fell to an 11-month low (-0.2 to 67.7 versus expectations of +0.1 to 68.0), (2) the prediction from Deutsche Bank AG that US economic growth is too slow to relieve the financial burden caused by "absurdly high levels" of debt, and (3) speculation that US Q3 GDP growth of 2.0% may be insufficient to cut the jobless rate.


•Bullish factors included (1) the larger-than-expected increase in Q3 US personal consumption which rose at the fastest pace in 3-3/4 years (+2.6% versus expectations of +2.5%), (2) the unexpected increase in the Oct Chicago purchasing managers index (+0.2 to 60.6 versus expectations of -2.4 to 58.0), (3) slack inflation pressures after the Q3 core PCE deflator rose at its slowest pace in 1-3/4 years (+0.8% q/q versus expectations of +1.0% q/q), and (4) slack wage pressures after the Q3 employment cost index rose less than expected and matched its smallest increase since data began in 1996 (+0.4% versus expectations of +0.5%).


•Fortinet (FTNT) surged 13% in pre-market trading after the maker of network-security systems received a takeover approach from IBM, according to 2 people close to the situation.


•Northeast Utilities (NU) may rally today after New England's largest utility owner boosted its fiscal 2010 earnings forecast to $2.20 a share, compared with an earlier projection of $2.05 a share.

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Tuesday, November 2, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are up +4.40 points. The stock market yesterday rallied early after gains in Chinese and US manufacturing activity signaled that the economic recovery is continuing, but a late-day slide in financial companies left stocks finishing mixed: Dow +0.06%, S&P 500 +0.09%, Nasdaq Composite -0.10%. The Nasdaq climbed to a 2-3/4 year high but erased its gains and settled lower. Bullish factors included (1) carry-over support from a rally in Chinese stocks after the Oct China PMI manufacturing index unexpectedly rose +0.9 to 54.7, its highest rate of expansion in 6 months and stronger than expectations of no change at 53.8, (2) the unexpected increase in the Oct ISM manufacturing index which expanded at its fastest pace in 5 months (+2.5 to 56.9 versus expectations of -0.4 to 54.0), (3) strength in semiconductor stocks after data from the Semiconductor Industry Association said worldwide sales of semiconductors were up +2.9% m/m to $26.5 billio n in Sep, and (4) the prediction from the chief US equity strategist at JPMorgan Chase that the S&P 500 may rally 10% by year-end if the Fed announces plans for additional easing or "QE2."

•   Bearish factors included (1) carry-over weakness from a decline in European stocks on an increase in sovereign-debt concerns after the extra yield investors demand to hold 10-year Irish government bonds instead of benchmark German bunds widened to a record 462 bp, (2) the smaller-than-expected increase in Sep personal spending (+0.2% versus expectations of +0.4%), (3) the unexpected decline in Sep personal income which posted its first monthly decrease in 14 months (-0.1% versus expectations of +0.3%), and may lead to reduced US consumer spending going forward, and (4) weakness in financial stocks, led by a drop in JPMorgan Chase, after the website ProPublica reported that the SEC is investigating JPMorgan over its dealings in mortgage securities.

•   Newmont Mining (NEM) rose 1.9% and Barrick Gold (ABX) climbed 1.3% in pre-market trading after the weaker dollar prompted a rally in metals.

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Wednesday, November 3, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are up +0.80 ahead of the outcome of the FOMC meeting. The stock market yesterday traded in positive territory the entire day on speculation the Fed will expand its quantitative easing program to stimulate the economy: Dow +0.58%, S&P 500 +0.78%, Nasdaq Composite +1.14%. The Nasdaq rallied to a 2-3/4 year high. Bullish factors included (1) carry-over support from a rally in European stocks after Oct manufacturing activity in the Euro-Zone was unexpectedly revised higher, (2) speculation the Fed will announce at the conclusion of Wednesday's FOMC meeting a plan to purchase at least $500 billion in government bonds in an attempt to boost economic growth, and (3) optimism that a Republican takeover of the House and gains in the Senate in the mid-term elections will slow legislation that is perceived as anti-business.

•   Bearish factors included (1) concern that the European sovereign-debt crisis may be worsening after credit-default swaps on Irish debt rose to a record high 507 bp and credit-default swaps on Greek debt increased to a 5-week high of 839 bp, and (2) the action by the central banks of Australia and India to raise interest rates, which may slow the global economy and limit demand for US exports.

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Thursday, November 4, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are up +6.90 points at a fresh 6-month high on carry-over from yesterday's Fed-induced rally. The stock market yesterday traded weaker until the FOMC announcement when they whipsawed lower and then rallied into the close and finished on their high: Dow +0.24%, S&P 500 +0.37%, Nasdaq Composite +0.27%. The S&P 500 posted a 6-month high and the Nasdaq rallied to a 3-year high. Bullish factors included (1) the mid-term elections in which Republicans took control of the US House and narrowed the Democratic majority in the Senate, which fueled speculation that future legislation will be pro-business, (2) the action by the Fed to announce a QE2 program of $600 billion in asset purchase by the end of June, higher than market estimates of $500 billion, (3) the larger-than-expected increase in the Oct ADP employment change which posted its biggest increase in 5 months along with the upward revision to Sep (Oct +43,000 versus expectations of +20,000 and Sep revised up to -2,000 from the previously reported -39,000), (3) the larger-than-expected increase in the Oct ISM non-manufacturing index (+1.1 to 54.3 versus expectations of +0.3 to 53,5), (4) the large-than-expected increase in Sep factory orders which posted their biggest increase in 8 months along with the upward revision to Aug (Sep +2.1% versus expectations of +1.6% and Aug unchanged versus the previously reported -0.5%).

•   Bearish factors included (1) concern that the European sovereign-debt crisis may be worsening after credit-default swaps on Irish debt rose to a record high 545 bp, (2) weakness in mining companies and raw material producers after metal prices slumped, (3) a drop in homebuilders after PulteGroup plunged when the largest US homebuilder by revenue reported a wider Q3 loss than expected, and (4) the post-FOMC statement that said the pace of recovery in output and employment is slow and that housing starts "continue to be depressed."

•   Qualcomm (QCOM) jumped 7.2% in pre-market trading after the biggest maker of mobile-phone chips predicted earnings in the current quarter of 58 cents to 62 cents a share, compared with analysts' estimates of 52 cents.

•   Whole Foods Market (WFMI) surged 9.7% in pre-market tradng after the largest US natural-goods grocer raised its 2011 profit forecast to a range of $1.66 to $1.71 a share, compared with an earlier prediction of no more than $1.64.

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Friday, November 5, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are down -5.00 points ahead of the Oct nonfarm payrolls report. The stock market yesterday rallied right from the opening on optimism the Fed's QE 2 program will succeed in fueling economic growth and stock prices continued higher the rest of the day and finished with sharp gains: Dow +1.96%, S&P 500 +1.93%, Nasdaq Composite +1.46%. The S&P 500 and Dow rallied up to 2-year highs and the Nasdaq soared to a 3-year high. Bullish factors included (1) carry-over support from the Fed's decision on Wednesday to expand its balance sheet and purchase an additional $600 billion of debt securities to stimulate the economy, which prompted sharp rallies in European and Asian markets on optimism the global economic recovery will continue, (2) the larger-than-expected increase in Q3 nonfarm productivity (+1.9% versus expectations of +1.0%), (3) the unexpected decline in Q3 unit labor costs which have fallen in 4 of the past 5 quarters and signal slack wage pressures (-0.1% versus expectations of +0.7%), (4) strength in raw-materials and energy producers as the slumping dollar prompted a broad-based rally in commodities, with gold climbing to an all-time high and crude surging to a 6-month high, and (5) the rally in financial stocks after the WSJ reported that the Fed is expected to start allowing healthy banks with strong capital levels to increase their dividend payments.

•   Bearish factors included (1) the larger-than-expected increase in weekly initial unemployment claims (+20,000 to 457,000 versus expectations of +8,000 to 442,000), (2) the weaker-than-expected Oct ICSC chain store sales which increased +1.6% y/y, smaller than an expected increase of +2.0% to +2.5%, and (3) concern that the European sovereign-debt crisis may be worsening after credit-default swaps on Irish debt rose 21 bp to a record high 581 bp.

•   Kraft Foods (KFT) slipped 2.1% in pre-market trading after the company said the increase in its Q3 revenue was due mainly from an increase in prices and not sales. Seperately, the CEO of Starbucks said his company plans to end a distribution agreement with Kraft.

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Monday, November 8, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are down -2.60 points. The stock market last Friday moved higher after the release of the stronger-than-expected Oct US nonfarm payrolls and traded with modest gains the rest of the day and finished higher: Dow +0.08%, S&P 500 +0.39%, Nasdaq Composite +0.06%. The S&P 500 and Dow posted fresh 2-year highs. Bullish factors included (1) the stronger-than-expected Oct nonfarm payrolls which increased for the first time on 5 months (+151,000 versus expectations of +60,000) along with the upward revision to Sep payrolls (-41,000 versus the previously reported -95,000), (2) strength in financial stocks on speculation the Fed may allow stronger banks to boost their dividends, and (3) the action by Morgan Stanley to raise their estimate for Q4 US GDP growth to 3.5% from an earlier estimate of 2.5%.

•   Bearish factors included (1) the unexpected decline in Oct manufacturing payrolls (-7,000 versus expectation of a +5,000 increase), (2) the unexpected decline in Sep US pending home sales (-1.8% m/m versus expectations of +3.0% m/m), and (3) concern that the European sovereign-debt crisis may be worsening after credit-default swaps on Irish government debt surged 27 bp to a record high 606 bp.
•   Alcoa (AA) slipped 2.1% and Barrick Gold (ABX) fell nearly 1% in pre-market trading as metals prices slumped due to a stronger dollar.

•   JDS Uniphase (JDSU) climbed 2% in European trading after its CEO told Barron's magazine that broadband capacity demand is "growing faster than any of the carriers can respond to."

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Tuesday, November 9, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are up +3.70 points. The stock market yesterday traded near unchanged most of the day and finished mixed: Dow -0.33%, S&P 500 -0.21%, Nasdaq Composite +0.04%. Bearish factors included (1) carry-over weakness from a decline in European equity markets on increased sovereign-debt risks after credit default swaps on Irish government debt soared 28 bp to a record 606 bp, (2) Fed data that shows a decrease in bank lending with commercial and industrial loans falling -5.3% to $1.23 trillion through Oct 20 of this year as banks instead purchased $186.2 billion of Treasuries through Oct 20 of this year and are on pace to buy the most Treasury and agency debt since the Fed began tracking the data in 1950, and (3) long liquidation pressures after the S&P 500 rallied nearly 18% in the past 2 months.

•   Bullish factors included (1) the report from Deutsche Bank AG that predicts the Fed's bond purchase program may add 0.25% to 0.50% to GDP next year and up to 0.75% in 2012, and (2) the prediction from the chief equity strategist at Barclays Plc that the US stock rally may continue into 2011 as additional asset purchases by the Fed combined with changes in regulatory and fiscal policy following recent Republican wins in Congress may continue to boost equities.

•   Priceline.com (PCLN) climbed 5.6% in pre-market trading after the company forecast its Q4 profit may be $2.91 to $3.06 a share, well ahead of analysts' estimates of $2.68 a share.

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Wednesday, November 10, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are up +0.70. The stock market yesterday traded higher early but then sold-off steadily the rest of the day and finished with moderate losses: Dow -0.53%, S&P 500 -0.81%, Nasdaq Composite -0.66%. The Nasdaq Composite climbed to a 3-year high before giving up its gains and closing lower.

Bearish factors included (1) data from the US Labor Department that showed US job openings dropped in Sep for a second month, -163,000 to 2.93 million, a sign that the labor market is struggling to recover, (2) concern the European sovereign-debt crisis is worsening after the yield spread between Irish 10-year bonds and similar-maturity benchmark German bunds widened to a record 554 bp and the yield spread between Portuguese 10-year bonds and bunds widened to a record 452 bp, (3) comments Paul Volcker, former Fed Chairman and chairman of President Obama's Economic Recovery Advisory Board, that he continues to be "concerned" by global economic imbalances, and (4) the 10 bp rise in the 10-year T-note yield to a 1-week high of 2.65% after lackluster demand for the Treasury's $24 billion 10-year auction.

•   Bullish factors included (1) the larger-than-expected increase in Sep wholesale inventories along with the upward revision to Aug (Sep +1.5% versus expectations of +0.7% and Aug revised up to +1.2% from the previously reported +0.8%), which may lead to an upward revision in Q3 GDP, (2) strength in natural gas producers after Atlas Energy agreed to be bought by Chevron, and (3) gains in energy stocks and raw material producers after crude oil rallied up to a 2-year high, gold soared to a record high and silver surged to a 30-year high.

•   Dean Foods (DF) dropped 3.3% in European trading after Credit Suisse Group AG cut its recommendation on the stock to "underperform" from "neutral," saying "the direction of Dean's earnings will only get worse in 2011 as dairy costs rise and adverse forward pricing agreements with grocer customers severely handicap the chances of profit margin expansion."

[setravis]

Dow Jones Industrial Average...

The Dow broke above its April high of 11200, signaling a primary advance. The long term target is 12000*. Twiggs Money Flow (13-week) rising strongly indicates buying pressure. Expect retracement, however, to test the new support level in the medium term.

* Target calculation: 11000 + ( 11000 - 10000 ) = 12000

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Thursday, November 11, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are down -6.30 points after Cisco's forecast misses estimates. The stock market yesterday recovered from early losses and rallied late in the day and finished modestly higher: Dow +0.09%, S&P 500 +0.44%, Nasdaq Composite +0.62%.

                Bullish factors included (1) the larger-than-expected decline in weekly initial unemployment claims to a 4-month low (-24,000 to 435,000 versus expectations of -7,000 to 450,000), (2) the narrower-than-expected Sep US trade balance (-$44.0 billion versus expectations of -$45.0 billion), which is GDP positive, (3) a rally in energy producers after an unexpected decline in weekly crude oil inventories helped push crude prices up to a 25-month high, and (4) late short-covering on reduced sovereign-debt concerns when ECB Council member and Irish central bank Governor Honohan said he's convinced his country will be able to return to bond markets in 2011 as the government steps up austerity measures to shrink the bud get deficit.

•   Bearish factors included (1) carry-over weakness from a drop in European equities on concern the sovereign-debt crisis in Europe is worsening after the yield spread between Irish 10-year bonds and similar-maturity German bunds widened to a record 622 bp, (2) carry-over weakness from a decline in Chinese stocks on concern Chinese economic growth may slow after the PBOC raised reserve ratio requirements for Chinese banks by 50 bp starting Nov 16, and (3) the increase in the 10-year T-note yield to a 1-3/4 month high after the Treasury's $16 billion 30-year T-note auction was met with weak demand.

•   Cisco Systems (CSCO) slumped 11% in pre-market trading after the company late yesterday said fiscal Q2 profit excluding some items will range between 32 cents and 35 cents a share, well below analysts' estimates of 42 cents. After the earnings report, Deutsche Bank AG downgraded Cisco to "hold" from "buy."

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Friday, November 12, 2010...

Overnight U.S. Stock News

•   Dec S&Ps this morning are down -7.10 points on China rate hike fears. The stock market yesterday opened lower and remained in negative territory throughout the day on increased European sovereign-debt concerns and on weakness in technology stocks after Cisco's earnings disappointed: Dow -0.65%, S&P 500 -0.42%, Nasdaq Composite -0.90%.

                Bearish factors included (1) carry-over weakness from a fall in European stocks on heightened sovereign-debt risks after Portuguese and Spanish government bonds fell on mounting concern that the nations on Europe's periphery will be forced to restructure their debt, (2) the slump in technology companies after Cisco plunged when it projected sales and profit that fell short of market expectations, and (3) weakness in financial stocks after Ireland's central bank Governor and ECB Council member Honohan said Irish and international banks' loan losses in the country may total at least 85 billion euros ($117 billion).

•   Bullish factors included (1) the action by Moody's Investors Service to raise China's debt rating one level to Aa3 from A1 with a positive outlook, which bolsters confidence in China's ability to help sustain global economic growth, (2) the ECB's monthly report in which the central bank raised its 2010 Euro-Zone GDP forecast to 1.6% from an estimate made 3 months ago of 1.1% and raised its 2011 Euro-Zone GDP forecast to 1.5% from 1.4%, which bodes well for the sustainability of the economic recovery, and (3) a report from the Huffington Post in which President Obama's adviser, David Axelrod, said President Obama will agree to Republican demands that Bush-era tax policies be extended.

•   Alcoa (AA) slipped 2.1% and Barrick Gold (ABX) lost 1.8% in pre-market trading as a rally in the dollar index to a 5-week high and speculation of further Chinese interest rate hikes prompted a sell-off in metals.

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The G-20 summit this week is likely to end with a display of unity, but deliver little in the way of real substance. The Seoul communiqué is unlikely to set firm boundaries nor provide the means to enforce them. China will continue to export capital as well as goods in an effort to maintain its current trade advantage. Considering that efforts to curb the flow of goods would risk a trade war that would damage all parties, and that fast-growing nations such as Brazil are already taxing foreign bond investments, restricting capital inflows is the most attractive option. QE by the Fed is not a viable response: it is likely to cause the US economy as much harm as the manipulators.

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NOVEMBER 10, 2010...
G-20 Nears Pact but Tensions Still Fester

SEOUL—World leaders gathered for the Group of 20 summit neared an agreement that appears to paper over many of the differences that have roiled discussions and financial markets in recent days, but one that's unlikely to end tension over currency and trade policies.

The agreement will likely reaffirm earlier language hashed out by finance ministers on letting markets determine foreign-exchange rates, without yielding specific new commitments from China to let its currency rise. It will pledge efforts to close the gap between countries with big trade surpluses and those with big deficits, but will likely stop short of numeric targets pushed by the U.S.

President Barack Obama urged the G-20 nations to stand firm against protectionism and called for a joint commitment to growth, part of an effort by U.S. officials to soften discord as the G-20 prepared for its meeting

Even as the leaders meet, some emerging nations are erecting protective berms around their economies, as a torrent of capital pours in and threatens to derail their growth by sending their currencies soaring and hobbling their exporters. The Federal Reserve's recent plan to stimulate the U.S. economy by buying bonds has further frayed nerves, by threatening to undercut the dollar.

This week, Taiwan imposed limits on bond holdings by foreigners. In October, Brazil and Thailand raised taxes on foreign investment in local bonds. In June, South Korea restricted derivatives trading.

Central banks from Israel to South Africa are buying dollars to keep their currencies from rising. China raised reserve requirements at banks this week, a move to slow foreign investment.

Mr. Obama's letter to other leaders came amid finger-pointing that threatened to overwhelm the summit. He reached Seoul Wednesday night for critical meetings Thursday, including with German Chancellor Angela Merkel, whose government has led criticism of U.S. dollar policy, and Chinese President Hu Jintao, who has resisted the president's push on China's currency.

U.S. officials say the depth of the discord has been overstated in the pressure-filled days before the summit. They hope emotions will ease if leaders endorse what their ministers previously agreed to.

"We think everyone is going to have an interest in lowering the temperature and defusing some of the tension by agreeing on a multilateral process for helping to resolve these pressures" on the global financial system, said Treasury Secretary Timothy Geithner.

A draft communiqué prepared Wednesday illustrated the G20 divisions. It said the nations would increasingly let markets determine currency rates, but officials remained undecided about how to discuss currency interventions. The draft said nations would "refrain from competitive devaluation," but in brackets was the alternative wording "competitive undervaluation," an apparent reference to China.

Officials indicated G-20 leaders would fudge the key issue of how to reduce global trade imbalances. Mr. Geithner said over the weekend that the summit likely wouldn't agree on targets for how large trade surpluses and trade deficits should be, a suggestion he had made earlier that drew opposition from Germany and others.

Instead, the G-20 may leave it to the International Monetary Fund to sort out, said Canadian Finance Minister Jim Flaherty. The IMF would report to G-20 finance ministers at their next meeting in February.

As originally conceived, at least by the U.S., this G-20 gathering was a chance to push China to allow its currency to rise more quickly. U.S. officials want countries with large surpluses, such as China, to consume more domestically and export less, which would help America save more domestically and export more.

But Germany and China turned the tables, in effect accusing the Fed of driving down the value of the dollar, particularly through its plan to buy $600 billion of government bonds and other assets in coming months. U.S. officials replied that stimulating U.S. growth is in everyone's interest and that a weaker dollar is a byproduct of their efforts, not the objective.

Although China led the criticism, it isn't pushing to have the Seoul communiqué single out the Fed, a Chinese official said.

Officials in emerging markets say the capital inflows they are seeing mean they can't wait for international accords. With economies in the U.S., Japan and Europe feeble and their interest rates low, faster-growing nations like Brazil are attracting a frenzy of investment.



The capital inflows can create asset bubbles and overvalued currencies or stock markets, primed to plunge the moment investors decide to move their money elsewhere. Overvalued currencies also mean exporters lose their edge because their goods are costlier abroad.

Some emerging nations are embracing once-taboo policy prescriptions to restrict inflows, the latest example of the tensions generating by economic imbalances between rich and developing economies.

The IMF, which once criticized capital controls, now gives its blessing to measures like taxing foreign bond investments, and cites the success of such measures during the Asian financial crisis of the late '90s. The IMF and other keepers of the economic orthodoxy still emphasize the benefits of foreign direct investments, however.

Brazil, which floated its exchange rate in 1999, is a prime example of the predicament. With 7% growth rates, Brazil was already attracting foreign investment. Its 10.75% overnight interest rates have made it a target of investors who borrow where interest rates are near zero, such as the U.S. and Japan, and deposit it where rates are high. This "carry trade" helps explain why Brazil's real has risen around 35% against the U.S. dollar since the start of last year.

The easiest solution would be lower rates, but with widening deficits, a debt load reaching 60% of gross domestic product and perennial inflation concerns, Brazil needs high rates to attract loans.