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Market Wrap

Railroaded

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Friday's stronger-than-expected jobs data had equity traders anticipating an active trade for Monday, and while there was some action, the major indexes were little moved, as Treasuries, oil and transports provided some volatility.

The S&P 500 Index (SPX.X) 1,444.61 +0.05% finished fractionally higher, hard-pressed to hold gains above 1,445 as the S&P Regional Banks Index (BIX.X) 383.37 -0.51% price action since last Tuesday bounce has traders feeling their oats.

Bond traders were notably bearish in today's session, with selling concentrated on shorter-dated maturities. The 5-year Yield ($FVX.X) jumped 9.6 basis points to 4.660%, while the longest-dated 30-year Yield ($TYX.X) rose 4.8 basis points to 4.916%. The benchmark 10-year Yield ($TNX.X) finished up 7.1 basis points at 4.745%, but didn't find enough selling to pierce its 200-day SMA at 4.752%.

Shorter-dated maturities may well have been hit by the proverbial double-edged sword today.

Late last week, the "defensive" trader that had been buying/holding shorter-dated maturities may have been questioning the "defensive" nature of that position after Iran released the 15 British sailors.

Then on Friday, with bond/equity markets closed here in the U.S., the stronger jobs data was enough to have momentum bulls thinking twice about any Fed rate cut at the June 27/28 meeting at today's opening tick.

June Fed Fund futures (ff07m) were unchanged at 94.76, with traders here still forecasting no policy change at the June meeting. (100 - 94.76) = 5.24%. The FOMC's current target on Fed Funds is 5.25%.

In early March, August Fed Fund futures (ff07q) were trading just above 95.00, and forecasting the possibility of a 25 basis point cut to 5.00%, but here too have been pulling back to settle 94.81, with market participants rather uncertain of any Fed action.

U.S. Market Watch - 04/09/07 Close

While Treasuries were finding selling, oil prices also headed south for a fourth-straight session with Nymex May Crude Oil futures (cl07k) settling down $2.77, or -4.31% at $61.51.

After trading as high as $54.22 last Monday, the U.S. Oil Fund (AMEX:USO) $50.35 -3.19% fell as low as $50.02 late this afternoon.

News flows out of Iran kept traders on their toes.

Just after 11:00 AM EDT, oil prices reversed fractional losses to bid fractionally green after Iran's President said the country had entered an "industrial stage" in its production of nuclear fuel.

During a ceremony at an enrichment facility at Natanz, President Ahmadinejad said the country was now capable of enriching nuclear fuel using 3,000 centrifuges.

Some Iran-watchers question Iran's ability to currently product 3,000 centrifuges, which Iran stated is to be utilized to power the Natanz plant.

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Some continue to speculate Iran's enrichment program is for weaponry.

Citigroup Global Markets energy analyst Tim Evans said he an oversupply at the storage hub in Cushing, OK, while localized, had a disproportionate effect on prices and thought traders "simply woke up on the wrong side of the bed," adding that "somebody's alarm went off and it was time to sell May crude."

These notes out of Citigroup could well be meaningful into next week's (04/20/07) May Crude Oil (cl07k) settlement.

Energy traders have been less-than-willing to "roll" contracts from month-to-month due to cost, instead more willing to simply close out, then selectively buy forward-month's contracts to suit their strategy for managing larger positions.

I've (Jeff Bailey) been looking for a decent reentry point for a bullish oil trade and thought traders should dip their bullish hooves back in the pool today with a 1/4 position in the U.S. Oil Fund (AMEX:USO) at $50.64. The smaller initial position allows for a wider stop near-term at $48.80, with a bullish target of $56.00 later this summer. Look for signs of STRENGTH on a USO close above $51.05 and its WEEKLY S1 (support #1) of $51.03. The USO did see trade at WEEKLY S2 (support #2). After March's near-trade at MONTHLY R2, I think computers will be turned on for firm buying at April's MONTHLY S1 of $49.39.

U.S. Oil Fund (USO) - 60-minute interval chart

Lacking some type of geopolitical event, I do think the USO hard pressed to trade much above $53.30 this week, and the downward momentum built again today. As if, well, "somebody woke up on the wrong side of the bed this morning," and yes, the "alarm went off" on the break below April's MONTHLY Pivot of $51.78.

But I believe the MARKET is a forward-looking instrument and bulls will be nipping away (accumulating) bullish positions as summer driving season nears.

If my beliefs are correct, then we should not observe weakness much below MONTHLY S1 ($49.39), and eventual strength above WEEKLY S1 ($51.03), say $51.05 on a session closing basis.

Today's decline in oil certainly didn't hurt the Dow Transports (TRAN) 5,010 +1.89%, which surged as high as 5,069 in early morning trade. However, today's bid came well before oil's decline, with buyers looking aggressive after Warren Buffet's Berkshire Hathaway disclosed it has acquired a 10.9% stake in shares of TRAN component Burlington Northern Santa Fe (NYSE:BNI) $88.08 +6.47%.

Dow Transports (TRAN) - Daily Intervals

In late February, Mr. Buffett reported to shareholders all the company's holdings with a market value of more than $700-million at the end of 2006. At the time, Mr. Buffett teased investors, telling them there were two exceptions to the list with a value of $1.9 billion that he didn't itemize "because we continue to buy them." Mr. Buffett added, "I could, of course, tell you their names. But then, I would have to kill you."

According to recent filings, Mr. Buffett paid between $81.18 to $81.80 in three stock transactions on April 4 and April 5.

Mr. Buffett's Berkshire is not the largest shareholder of BNI. Denver-based Marsico Capital Management LLC, which owned 32 million shares for an 8.9% stake in December, is/was the second-largest holder.

If the name "Marsico" is familiar to investors, you may remember Thomas Marsico as having headed the Janus Twenty Fund, before starting his own mutual fund company. Mr. Marsico left Janus in 1997.

Banks still a wet blanket

With the Dow Transportation Index (TRAN) looking to confirm "Dow Theory" with their price action suggesting strong underlying economic trends, the broader S&P 500 Index (SPX.X) still feels a little heavy as it claws its way back to February's highs.

I don't know about you, but when I looked at my U.S. Market Watch this morning, and saw the BIX.X and fellow BKX.X in the red, even though fractionally so, I got the feeling the major indices, even the NDX/QQQQ that doesn't have a bank in the bunch, were still going to be hard-pressed for gains.

S&P Banks Index (BIX.X) - Daily Intervals

The transports make a bold move, but gains were focused on the rails and surrounded Mr. Buffett's recent buying.

The "crazy train" looks like it is leaving the station, full of bulls, which should bode well for the major indices, but I think bulls still need to see a strong move higher from the banks before buyers shout "all aboard!"

Since last Monday's close, the BIX.X is up a now fractional 0.60%, and to me, the SPX.X is "feeling" if not looking a bit tired. As if it (the S&P 500) is looking over its shoulder at the banks for a "lift from the bottom."

AMEX Securities Broker/Dealer (XBD.X) - Daily Intervals

Each day it seems like the brokers are ready to "launch," but as each day passes, I find myself looking at the BIX.X and saying, "they've got to get a move on, if the brokers are going to break 240 and send the SPX higher still."

S&P 500 Index (SPX.X) - Daily Intervals

Same SPX.X chart we looked at last week. Just from Tuesday benchmarking we can see some of the "impact" the BIX.X and XBD.X had as financial sectors, still the heaviest weighting for the SPX and S&P Depository Receipts (AMEX:SPY) $144.44 +0.13%.

There's been PLENTY of cash freed up by the SELLING in Treasuries, which finds their YIELDS higher.

Technically, there was/is NOTHING that should have stopped the SPX.X from trading its MONTHLY R1 of 1,451.81 today. Except of course, the weakness in the BIX.X, which each day, really seems to be a drag on the brokers.

If those two sectors make a move higher, then DON'T be short/put the SPX/SPY.

If they both fail (BIX.X and XBD.X) to make the move higher, especially the XBD.X at 240-242, there could be some rainy days ahead for bulls.

All aboard??
 

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