Monday's trade was a case of much ado about nothing as the Dow Jones Industrial Average eked out a 1.21-point gain to close at 10390.11 and the S&P 500 shed 2.73 points to finish the day at 1103.25. The Nasdaq lost 4.74 points to close at 2189.61. So two of the three major indexes declined and the Dow posted a meager gain on a day where investors seemed to take a pass on riskier assets in the wake of comments by Federal Reserve Chairman Ben Bernanke that the U.S. economy still faces significant headwinds in the forms of a weak labor market and constrained access to credit.
Perhaps more noteworthy than the action, or lack thereof in equities, were the declines in the commodities space, most notably with crude oil and gold. The two most heavily traded commodities both slid on the day, highlighting investors' desire for more conservative fare on Monday. Crude oil for January delivery slid below the all-important $75 a barrel level to close at $74.07. The $75 area had acted as significant resistance for black gold until late September when oil made its way above $80 per barrel. Recent weeks have not been kind to oil and futures now reside at an eight-week low as weak demand and concerns about the strength of the U.S. economic recovery continue to weigh on oil prices.
Monday's trade did not feature big declines among the oil services group, the sector that is arguably most intimately correlated to oil prices, as stocks such as Halliburton (HAL), Diamond Offshore (DO), Schlumberger (SLB) and Transocean (RIG) were either unchanged, up fractionally or down fractionally. Even the Oil Services HOLDRs ETF (OIH) was only down 20 cents to close at $114.35. I say down ''only'' 20 cents because OIH has been under significant pressure since peaking at almost $127 in November. The ETF counts the aforementioned stocks and many others among its constituents and has been in a tailspin over the past month, trading below its 50-day moving average for about three weeks.
While oil has been declining, the weak dollar trade certainly seemed to favor gold, which was making all-time highs on a near daily basis. I am not sure if this trade has gotten too crowded to use Wall Street speak, or if gold is just taking a little breather before rocketing higher again or if the bulls are completely vacating the gold trade altogether, but I will say that the last few days have been anything but dreamy for gold bugs. After soaring to a record high of $1227.50 last week, the yellow metal lost $50 after Friday's job report and shed another $5.50 today to close at $1164 an ounce.
I have mentioned a couple of different ways to play gold over the past several weeks, mainly ETFs such as the SPDR Gold Shares (GLD) and the Market Vector Gold Miners ETF (GDX). For those that are new to watching the gold space, it is worth repeating that there is a big difference in owning physical gold, which GLD does, compared to owning shares of mining firms, which GDX does. Gold miners are like their oil services brethren in that there is a hard and fast price that the miners need gold futures to surpass to make their mining endeavors profitable. That price is usually around $350-$450 an ounce, so while we are a long way from seeing those levels on the downside, it is worth noting that down moves in gold are not a good thing for the miners.
As I mentioned in the Market Monitor today, there was some, shall I say curious options activity in Barrick Gold (ABX), the largest gold miner. More than 11,200 January 49 calls changed hands against open interest of just 398 contracts and most of those calls were sold, indicating that traders may be calling a top in Barrick's shares. Options activity in Barrick was more than 40 times the daily average with five calls sold for every one purchased. Put buying also exceeded sales furthering the bearish tenor options traders have toward Barrick Gold.
Now all of that glum news about gold and oil may have you thinking that the commodities trade that has helped lead the market higher since the March lows has expired. That may or may not be the case and it probably is not the case as investors are starting to favor another corner of the materials space and that is agriculture-related names. More specifically, fertilizers stocks look to be back in vogue. One catalyst is the mergers and acquisitions drama that permeates the fertilizer sector and that catalyst was at work today as CF Industries (CF) boosted its bid for Terra Industries (TRA) by $4.75 a share.
The new bid would give Terra shareholders $36.75 in cash and 0.1034 shares of CF common stock, valuing the new bid at $45.91 a share. The new offer, like the old one, includes $7.50 a share for a special dividend declared by Terra Industries earlier this year. Both stocks were up sharply on the news, as was Agrium (AGU), which is trying to acquire CF Industries. Agrium got a boost from a UBS upgrade and speaking of upgrades, Goldman Sachs upgraded Potash (POT), the largest maker of potash fertilizer.
Goldman lifted Potash to ''buy'' from ''neutral'' and set a 12-month price target of $140 on the stock. That is a fair bit above Potash's closing price of $121.17 on Monday. The market appears to be expecting a rebound in demand next year for crop nutrients after the epic collapse in 2008 and that rebound should benefit fertilizer names. One way to play this trend would be with the Market Vectors Agribusiness ETF (MOO), which counts Potash as its top holding. Other top holdings include Monsanto (MON), Mosaic (MOS) and Deere (DE).
MOO has a nifty looking chart, marked by a series of higher highs and higher lows, you know, the kind of stuff that technicians get really excited about. Maybe the commodities trade is not over after all, it may just be changing outfits.
While the market action during traditional trading hours was fairly benign, that may change tomorrow as FedEx (FDX) brought an early Christmas package for the bulls after the market closed on Monday. The package delivery firm said it expects to earn $1.10 a share for the current quarter. Granted, that's down 30% from a year earlier, but well above the previous guidance of 65 cents to 95 cents a share. FedEx cited stronger-than-expected growth in its international priority and ground shipments segments as reasons for the bullish guidance.
FedEx shares finished down 41 cents at $87.52, but spiked more than 3% in the after-hours session to $90.27 at the time of this writing. The stock has not traded above $90 since August 2008 and despite the fact that FedEx shares are up more than 50% in the past six months, it appears there is more room to the upside. Jim noted in the weekend Market Wrap that the company hired over 35,000 seasonal workers and rival UPS (UPS) added 50,000. I have also noticed that when the big brown truck makes its daily stops on my street, there are two employees on board instead of just one. Anecdotes to be sure and this logically should be the busiest time of year for FedEx and UPS, but as I like to say, if you are a fan of the Dow Theory, good news for FedEx could mean good news for the Dow Jones Transportation Average, which confirms moves in the Industrials.
Looking at the charts, there really was not much to get excited about regarding the Dow on Monday. A one-point gain will usually temper enthusiasm. The Industrials still hover close to the important 10400 level and well above the 50-day moving average at 10054. A break below 10250 would be concerning, especially given the frothy look the Dow has to it. With just 17 trading days left in 2009, it is going to take a lot to get the Dow to 11000 before year end, but most investors will likely accept even a valiant attempt to get to that level.
Again, the S&P 500 paints a somewhat different picture. The index traded in a tight 10-point range on Monday, making a low just below 1101, but managed to close above the psychologically important 1100 level. While continued closes above 1100 are appreciated, it bears repeating that real support for the S&P 500 is 1085 and true resistance is 1110. The bottom line is it was encouraging the S&P 500 did not dip below 1100 on Monday and the longer support at 1085 holds, the better. A violation of that level before the end of the year would certainly quell any hopes of a Santa Claus rally.
S&P 500 Chart
The Nasdaq led the decliners on Monday, but lost less than five points, so no big deal there. Or is it? Well, the positive side of the story is that the Nasdaq did briefly peak above 2200 and is still within earshot of that critical resistance level. Then again, it should be noted that the Nasdaq has been a laggard over the past couple of weeks and, believe it or not, Apple (AAPL) has been something of drag on techs as well. Both Apple and Amazon (AMZN) were down more than 2% on Monday, but if the former can make its way back to $200 and the latter back above $140, that might be enough to rejuvenate investor interest in tech stocks.
With a week light on key economic reports, the fate of the markets for this week lies not so much in macro themes as it does in the news that individual stocks provide to buoy positive investor sentiment. Granted, the final numbers on Monday did not reflect a bullish beginning to the week, but my gut tells me the FedEx news will have a positive impact on Tuesday's trade and there could be continued bullishness from the agriculture sector. So I lean toward not be picky and embracing good news on an individual stock level.
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