U.S. stocks dodged an Italian bullet on Monday as all three major indexes posted decent gains on a day that started with ample speculation that Italy would be the Euro Zone's sequel to Greece. Comments from European policymakers helped assuage skittish investors even as Italian bond yields continued to blow out and Silvio Berlusconi fights for his political life.
While stocks were able to stave off more European crisis concerns today, it was gold that really impressed. The yellow metal is back within striking distance of $1,800 an ounce after closing at $1790/oz on Monday. Helping the cause were statements out of Germany that the EU's largest economy will not touch their gold reserves in order to fund bailout plans. Wise idea and just one more example that gold is in fact money.
Adding fuel to gold's fire is the lingering notion that the Federal Reserve will engage in another round of quantitative easing and that the European Central Bank (ECB) will follow suit. I do not know if the Fed and ECB are going travel down QE Street again, but I think it's apparent that gold's safe have status has been restored and with Greece, Italy and friends under substantial duress, investors want a safe have.
One would have thought Monday would have been a grizzly day for Italian equities, what with calls for Prime Minister Silvio Berlusconi's head, I mean resignation, and growing speculation that Italy will be the next European domino to fall after Greece. As I have said before, Italy is much more significant than Greece because Italy is the third-largest Euro Zone economy behind Germany and France.
Even with yields on Italian bonds soaring to highs not seen since the debut of the Euro, German Finance Minister Wolfgang Schaeuble told the media today that investors are overreacting to Italy's situation. Schaeuble even went so far as to say that Italy is not comparable to Greece. Let's hope not.
Maybe those comments had a calming effect on stocks, I do not know for certain. I do know that when I got up this morning, I thought the iShares MSCI Italy Index Fund (NYSE: EWI) was headed for a nasty day. Instead, the lone Italy-specific ETF listed in the U.S. gained almost 2% on volume that was less than half the daily average.
Italy ETF Chart
Keeping with theme of surprises from across the Atlantic, BP (NYSE: BP) did not have a bad day all things considered. In fact, the U.S.-listed shares of Europe's second-largest oil company closed fractionally higher despite news that broke on Sunday that BP's plan to sell its 60% stake in Argentina's Pan American Energy to China's Cnooc (NYSE: CEO) for $7.1 billion collapsed.
BP was looking to sell the Argentine asset as part of its plan to raise $30 billion through asset sales to pay for Gulf spill-related liabilities, but the deal with Cnooc, China's largest offshore oil explorer, collapsed under the weight of Argentina's less than favorable regulatory environment. The South American country actually has some decent energy assets, it is the government that stands in the way of the country being a bigger energy player.
The transaction had a Nov. 1 deadline. In a filing with the Hong Kong stock exchange, Cnooc said Bridas Energy, in which the Chinese firm owns half, sent BP a letter on November 5 to terminate the deal, Reuters reported. BP said it's â€œhappy to return to long-term ownership of these valuable assets, given the considerable improvement in its own financial strength and circumstances, as well as the improved external trading environment,â€ according to the Wall Street Journal.
What is even more surprising about the performance of BP ADRs today is that news of the deal with Cnooc falling apart prompted speculation that BP may not be able to raise its dividend next year as the company said it might when it reported third-quarter earnings a few weeks ago. Just as a note, BP CEO Bob Dudley has raised the company's asset sales target to $45 billion.
Another stock that notched a surprise gain despite all the worry surrounding Europe was Jefferies (JEF), the boutique investment bank. The embattled bank has been having to answer questions about its exposure to European sovereign since the MF Global (MF) imbroglio last week. In the case of Jefferies, it was really a case of ''Who is next?'' as traders pondered if another U.S. financial institution could be sunk by exposure to European bonds.
To be sure, the 1.4% Jefferies gained today barely puts a dent in last week's 18% plunge and it is worth noting that the December 6 puts in Jefferies have tumbled about 40% in the past two trading days. The company has slashed its holdings of PIIGS sovereign debt by 50% in a matter of days and investors seem to be buying into the theory that Jefferies is not as dangerously levered to Europe as was MF Global.
The four most-traded puts -- all of which expire in December and have strike prices at $5, $6, $10 and $11, Bloomberg News reported. Some options traders are betting Jefferies could disappear, but the company is at least making an effort to ward off that notion with being transparent (I think) about its Europe exposure.
In earnings news, shares of satellite television providerDish Network (DISH) jumped more than 5% after the company declared a $2 per share special dividend and said its third-quarter profit rose to $319.1 million, or 71 cents per share, from $244.9 million, or 55 cents per share, a year earlier. Revenue increased 12% to $3.6 billion. Analysts expected a profit of 74 cents on revenue of $3.64 billion. The company had 13.9 million subscribers at the end of the quarter. Volume in shares of Colorado-based Dish was more than triple the daily average.
Dish Network Chart
Canada-based Cameco (CCJ) the largest North American uranium miner, plunged 6.25% on turnover that was more than double the daily average after the company lowered its 2011 uranium production forecast to 21.7 million pounds from an earlier estimate of 21.9 million pounds. Cameco's third-quarter profit rose to $102 million, or 26 cents a share, from $78.5 million, or 20 cents a share, a year earlier. Revenue rose 26% to $517.1 million. Analysts expected a profit of 30 cents.
Looking at the charts, the S&P 500's small Monday gain kept the index above 1250 and that's a bullish sign. Next resistance is 1300 and that's a legitimate possibility as long as the news flow out of Europe and U.S. economic data points remain kind of good/less bad. A move below the 1225 would be bad news. The S&P 500 needs to add just 13 points to surpass its 200-day line.
S&P 500 Chart
The Dow closed Monday above its 200-day moving average and the psychologically important 12,000 level. Now the blue-chip index needs to work its way back to resistance at 12,230, just below last week's closing high. I would remain bullish as long as support at 11,650 holds. A close below that level is a bearish sign.
By comparison, the Nasdaq was not all that impressive today and remains below the important 2700 level. The silver lining is Monday's action was enough to get the Nasdaq above its 200-day moving average. Once the Nasdaq takes out 2700, it is on to next resistance at 2750. Closes above 2700 are bullish here and I would be cautious below 2650.
In my humble opinion, Monday was one of those days where I could have been telling you about a major loss on the S&P 500 and a triple-digit loss on the Dow. Obviously, that was not the case and the market deserves some credit for grinding higher in the face of some, shall we say, tricky headlines. Markets always find an excuse to sell-off and if the situation in Italy was not a valid excuse to move lower, I do not know what is. This weeks looks like it is shaping up to be a cautiously bullish affair.