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Market Wrap

Stocks Gain Despite Bubbling Crude

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The major equity averages posted modest-gains to start the week despite the continued rise in oil prices, where December Crude Oil (cl07z) at the NYMEX traded as high as $93.70 before settling up $1.67, or +1.82% at $93.53.

Miners as depicted by the AMEX Gold Bugs Index ($HUI.X) 428.68 +1.92% were also strong on dollar weakness, as gold nears the $800.00 level.

Financials finished mixed after a modest gain late last week as traders position themselves ahead of the two day Fed meeting, which starts tomorrow.

NYSE and NASDAQ Composite Internals - Since 09/24/2007

Market internals at the big board had gainers outnumbering advancers by a 3-to-2 margin. Investors pushed 286 1, 2, and 3-lettered stock symbols to new 52-week highs, while 82 stocks fell to a new 52-week low.

NASDAQ internals were what I'd consider to be fractionally positive with advancing issues roughly equal to declining issues. While there are some energy stocks that trade on the NASDAQ, the number of new highs aren't as impressive among the 4 and 5-lettered stocks symbols the past couple of days.

Global Equity Index Benchmarks and Currencies

The U.S. Dollar Index (DXY) 76.83 has fallen an additional 1.58% since last Monday, and that decline finds the AMEX Gold Bugs Index ($HUI.X) and Gold itself recouping their 10/15 to 10/22 losses. Traders and investors continue their bantering as to the relationship between the greenback and oil prices, where uncertainty surrounds if oil's rise is causing the dollar to weaken, or the weakening of the dollar in anticipation of further Fed rate cuts simply exacerbates the rise in oil prices, where oil is prices in US$.

Odd-man out is gold, which certainly looks to be tied with the euro's strength vs. the US$.

Japan's Nikkei-225 ($NIKK) has seen a modest 1.58% bounce after its 10/15-10/22 as the US$ steadies against the yen.

Outside of that relationship, I still find it difficult to make too many ties between how currencies trade relative to key global equity benchmarks.

S&P 100 Index (OEX.X) (40 Heavyweights) - Cap Weighted Index

Other than some profit taking in Microsoft (NASDAQ:MSFT) $34.57 -1.31% after last week's bullish response to the software giants quarterly earnings report, buying among the top 40-weighted S&P 100 ($OEX) components helped to offset any MSFT weakness.

Look for institutional capital to be aggressive buyers of MSFT on any dips near $33.00 to $33.50, as they'll all want to show "Mr. Softy" on their books by year's-end.

One theme of weakness over the last 20-days sticks out as "banks," be it regional, or money center.

In this evening's wrap, we'll take a look at the S&P Bank Index (BIX.X) and Broker/Dealer Index (XBD.X).

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Zurich-based UBS AG (NYSE:UBS) $53.25 -1.07% said today that it expects to report a loss of 600 million Swiss francs ($515 million) to 800 million francs, but warned it could take further charges in the fourth quarter from its exposure to U.S. housing and mortgage markets. The Swiss banking group, which will report third-quarter earnings tomorrow, said the fourth quarter has started with good results from all units, but further deterioration in U.S. housing markets or rating downgrades for mortgage-related securities could lead to further write-downs.

While UBS is not a component of an major U.S. equity benchmarks, its exposure and comments regarding the housing and mortgage-related areas of the U.S. economy are closely followed.

Verizon (NYSE:VZ) $45.99 +0.85% did close at a new 52-week high. The telecom service provider, which is the 19th-most heavily weighted component in the price-weighted Dow Industrials ($INDU) 13,870 +0.46%, said Q3 net income fell 34% to $1.27 billion, or $0.44 a share, hurt by international taxes and costs of a spin-off of access lines. Adjusted earnings were $0.63 cents a share, which was a penny better than a survey of analysts by Thomson Financial, which produced an average estimate of $0.62 cents a share.

Positive guidance from the communications company regarding its strong wireless business and high-speed Internet customers, helped put a bid into the newtorkers with the Networking Index ($NWX.X) 306.70 +2.14% atop today's list of sector winners.

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

Some comments late last week out of Countrywide Financial (NYSE:CFC) $16.83 -2.71% and Merrill Lynch (NYSE:MER) $67.42 +2.01% took some pressure off the "super regional" and regional banks at the end of last week, but there was little follow-through today.

I would have to remain rather cautious the banks at this points, and today's high was notable relative to the BIX's 08/03/2007 low of 340.50. The inability to hold a move above that level would have to suggest "bank bulls" that may have thought they got the low in early August, aren't so certain.

Broker/Dealer Index (XBD.X) - Daily Intervals

Brokers are showing some sign of repair taking place among the financials. Goldman Sachs (NYSE:GS) $243.81 +3.34% closed at an all-time high again today after trading as low as $157.38 on August 16th!

Dow Transports (TRAN) - Daily Intervals

I wanted to quickly update traders on the Dow Transportation Average (TRAN) 4,844.51 -0.46%, and comments that I made in recent market wraps.

I should note that the TRAN components are NOT "heavyweights" in any major U.S. equity index (INDU, OEX, SPX, NDX/QQQQ), but what they say in the form of technicals is what "Dow Theory" monitors.

I'm not seeing any sign of bullishness at this point, but I am somewhat impressed that they've held together considering the following chart.

US Oil Fund (AMEX:USO) - Daily Intervals

Another short squeeze is underway in the energy complex, and after last week's "surprising" draw in crude oil inventories, bears are scrambling once again to cover positions when overhead supply in both the USO and futures are nonexistent.

The MOST dangerous short I continue to see is either oil the commodity, or gold the commodity, and for those that love to difficult trade of trying to pick a top at highs, where there is no overhead supply to keep things in check, the most dangerous place to try and short is in the FUTURES markets, especially when holding over the weekend, when RISK of a gap higher on Sunday evening's re-open could leave traders facing a HUGE GAP UP, in a highly LEVERAGED instrument.

I've pointed to two bars on the daily interval bar chart of the USO, where it has "spiked" higher intra-day, but CLOSES notably lower at a day's close.

Oil EQUITIES should LEAD a DECLINE in oil prices. If set on trying to "pick a top," do it with an OIL STOCK/EQUITY, but utilize a PUT OPTION, where the MOST YOU CAN LOSE is the amount of the OPTION!

Should oil prices ever abate, and energy equities decline, it would have to be my analysis that another GROUP of stocks pick up the slack.

S&P 500 Index ($SPX) - Daily Intervals

As you can see from my U.S. Market Watch and 20DyNet% changes, technology and energy stocks have been the primary drivers that have the S&P 500 Index ($SPX) closing above its trying-to-round lower 21-day SMA.

The rather broad Russell 2000 Index ($RUT) 821.72 +0.04% did test its 21-day SMA (826.39) in today's session, but traded more inline with what we saw in the S&P Banks Index (BIX.X), which was strength at the open, but a giveback of those gains towards the mid-point of today's session.
 

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