Oil rules the roost these days and that sentiment was quite clear on Monday as rising oil prices present yet another shock to equity markets. There will be no quick resolution a la Egypt and Tunisia in Libya and on the back of that sentiment, traders are bidding up oil prices while stocks suffer. The S&P lost nearly 1%, the Dow Jones Industrial Average shed two-thirds of a percent and the Nasdaq lost 1.4% as all three wiped out last week's gains.
Per usual these days, rising oil prices grabbed plenty of headlines today as NYMEX-traded crude for April delivery hit another 29-month high before pulling back a bit. The close at $105.44 a barrel was the highest closing price for the most actively-traded contract since September 2008.
Of course, it is Libya that continues to stoke oil market fears. Supporters of embattled dictator Moammar Gadhafi continued to clash with opposition forces over the weekend and multiple press reports said on Monday that Gadhafi's forces began air strikes on rebel positions in Ras Lanuf, a town along the Libyan coast that is home to an export terminal and refinery.
JPMorgan noted the issue may not be so much Libya's total production, which by some estimates has been pared by as much 1 million barrels a day since the onset of the movement to dispose of Gadhafi, but Libya's ability to get the oil it is producing out of the country. ''Frankly, those prospects are not promising,'' the bank said, according to MarketWatch.
On the other hand, some countries are so desperate for oil, they will buy it from anyone. As the Financial Times noted over the weekend, China and India have remained loyal buyers of Libyan crude. Adding fuel to oil's fire was news of protests in Yemen, Iran, Iraq, Bahrain, Jordan, and Oman. For those keeping score at home, Iran, Iraq and Libya make up 25% of OPEC's membership.
As Jim and I have noted multiple times over at OilSlick, the proverbial elephant in the room is Saudi Arabia,the world's largest oil exporter. This Friday is supposed to be the ''day of rage'' in the kingdom. The oil chart could make for very interesting weekend reading come Saturday.
Speaking of political events, there was some interesting political news out today here in the States and it might be enough to give Senate Democrats reason to celebrate, at least internally. Sen John Ensign (R-NV) announced he will not seek re-election in 2012. Trust me, I understand that we are just a few months removed from the 2010 mid-terms, but this how politics in the U.S. works these days, particularly in relation to the financial markets: There is really no break from election news.
Ensign, who was a former chair of the National Republican Senatorial Committee, had been viewed as one of the more vulnerable Senate Republicans in 2012 following news of a marital transgression with a staffer back in 2009. While Ensign had been steadfast in saying that he would run again next year and was even raising money to do so, Republican leadership had been less than supportive of the idea.
This is why news of Ensign's decision is noteworthy: Much has been made of the Republicans' chances for taking control of the Senate in 2012, a goal they fell just short of last year and when you look at the states where vulnerable Democrats reside combined with the states where Dems will have to defends open seats due to retirements, the stars appeared to be aligning for Senate Republicans.
Not so fast. The Republicans now must defend open seats in Arizona and Nevada, two states where demographic shifts have been less than kind to the GOP. President Obama probably would have won Arizona in 2008 had he not been running against John McCain (R-AZ) and he did win Nevada. Not to mention the GOP could not boot Harry Reid (D-NV) last year in what was an otherwise bad year to be a Democrat.
For now, I would say the Republicans do hold Ensign's seat, but it will be close race and it all depends on the nominee. Nominate someone like Harry Reid's opponent and this may become an easy pickup for the Dems.
In stock-specific news, shares of networking equipment maker Ciena (CIEN) plunged $2.83, or almost 10%, to $25.98 on volume that was more than triple the daily average after the company said its fiscal first-quarter loss widened to $79.1 million, or 84 cents per share, compared with $53.3 million, or 58 cents per share, a year earlier. All that despite the fact that Ciena's revenue more than doubled to $433.3 million.
On an adjusted basis, Ciena lost 14 cents a share compared with 12 cents a year earlier. Analysts were forecasting a loss of 16 cents on revenue of $422.5 million. Ciena forecast fiscal second-quarter revenue of $415-$435 million, below the consensus estimate of $439 million.
Ciena rival JDS Uniphase (JDSU) was hammered the tune of 7% on volume that was more than double the daily average while Cisco Systems (CSCO), the largest maker of networking gear, slid 1%, extending a slide that has seen the Dow component shed 16% in the past month.
It was bad day for tech from the onset as Wells Fargo pared its rating on the semiconductor sector to ''market weight'' from ''overweight'' due mainly to the fact that the Philadelphia Semiconductor Index has more than doubled off its 2009 lows. Parsing through the bank's comments on the sector, it can be said a cautiously optimistic, not bearish, view is in place, but that was not enough to save the group from a 3% slide day, the worst performance in the S&P 500. Intel (INTC), the world's largest semiconductor maker, finished the day lower by more 1.6%.
Again, it was not a big ''Merger Monday'' but there are are almost $5 billion in deals to note and in both cases, the acquiring companies were among Wall Street's top performers today. Looking at the bigger of the two deals and perhaps the one that is the example of two wrongs trying to make a right, hard-drive maker Western Digital (WDC) shot up almost 16% after announcing it will acquire Hitachi's hard-drive unit for $4.3 billion in cash and stock.
Western Digital is already the largest hard-drive maker in the world while Hitachi is number three, so this deal adds some bulk to Western Digital and the California-based company said it expects the transaction to immediately add to its per share earnings.
That's the good news, but the problem is hard-drive sales are expected to fall because tablet devices such as the iPad have become a real problem for drive makers. Tablets do not use hard-drives, but laptops do and the more customers, business and consumers alike, that opt to replace laptops with iPads and equivalent devices, the more pain will be felt by companies like Western Digital.
Western Digital Chart
In my humble opinion, the smaller of the two deals I am going to highlight could actually prove to be more important going forward. If you are wondering why James River Coal (JRCC) surged almost 16% today, I will argue that is NOT because of the coal miner's fourth-quarter earnings report that consisted of a profit $25.9 million, or 93 cents per share, compared with a net loss of $3.2 million, or 12 cents per share, a year earlier.
Revenue jumped 8% to $162.1 million. Excluding one-time items, James River earned 14 cents a share, but analysts were expecting a profit of 30 cents on revenue of $169.4 million. So how does a company miss estimates by such a wide margin and still manage a 16% intraday jump? In the coal sector, it is actually pretty easy to do. Just say you are boosting exposure to metallurgical coal and the market is apt to reward your firm.
James River is doing just with its $475 million acquisition of privately held International Resource Partners. International Resource reported 2010 consolidated revenue of $490.3 million, Bloomberg News reported. In a statement issued by James River, the company called the deal â€œtransformativeâ€
and said it will boost its exposure to metallurgical coal, the stuff that's in high demand by emerging market steelmakers. James River said the transaction should close in the first half of this year.
James River Coal Chart
Looking at the charts, none of the previous support for the S&P 500 in the 1313-1320 area worked today, but the intraday low at the 1303.99 may have been enough to scare buyers to act. I still think 1300 is psychological support and a break of the 50-day moving average at 1297 would be the really alarming event and perhaps a reversal in trend.
S&P 500 Chart
If 12,100 was support for the Dow, it broke today, though not by much. I have been dying to make a Charlie Sheen analogy in today's wrap and I think the Dow is the place for that as the Index is showing signs of volatility that would make even Mr. Sheen blush. In terms of closing prices, the Dow saw two triple digit moves last week, but Friday and Monday were darn close. Only four Dow stocks closed higher today and two of those were 3M (MMM) and McDonald's (MCD) and that probably saved the Dow from a 90-100 point loss.
The Nasdaq could be a concern for the bulls. A close at 2745 and support at 2775 and 2755 did not hold. One day does not make a trend, but Monday was painful for the big boys of the Nasdaq 100. Forget Ciena, Cisco, and Intel for a minute. AAPL, AMZN, FFIV, FSLR, GOOG and WYNN were all taken to the woodshed today. NFLX and PCLN did little to inspire either.
Usually, I am not a big fan of overreacting one way or the other on the back of one day of market action. That said, there were two ugly days last week and Monday was not pretty either. Yes, markets like to have excuses to sell off, but sometimes they need reasons to go higher as well. Right now, Libya and oil, and maybe Saudi Arabia later this week are the excuses to sell. I would like to see at least a few more points shaved off the S&P 500 to test the strength of the bulls before I say buy anything and everything.