In movie studio fashion, no sooner is the sequel released and executives are already talking about a sequel to the sequel. Such is the case with quantitative easing. The market reacted in negative fashion today to comments made by Federal Reserve Chairman Ben Bernanke during his interview with ''60 Minutes'' on Sunday.
Bernanke basically said the Fed could expand its $600 bond purchase program known as QE2. So I am not sure if an expansion counts as the third part of this trilogy, but even the faint chance that the Fed would need to buy more bonds was enough to roil stocks today, snapping three-day winning streaks for the Dow Jones Industrial Average and the S&P 500, both of which endured small losses on the day. The Nasdaq moved to a three-year high and the Russell 2000 also found its way to a higher close.
Of course all that QE talk leads to talk about a debased currency (the old greenback) and that is music to the ears of gold bugs. Indeed, the price for gold you see in the stats table above is a fresh all-time high. Gold has been in a bull market of unprecedented proportions for an extended period of time and with each bullish day for the yellow metal today, I am reminded of an anecdote about this gold bull market that I have seen rehashed by several media outlets this year: Gold is in the midst of its best 10-year run since the 1920s.
There's good reason for this and I say that as someone who is only long gold through the ETFS Precious Metals Basket (GLTR), an ETF that holds four different precious metals, so I am not overweight gold. Perhaps I should be. After all, with the debasement of the dollar and persistent concerns about the viability of the euro, gold for all intents and purposes a de facto currency now.
Speaking of ETFs, I get a chuckle out when I see pundits blaming gold-backed ETFs for artificially pumping up the price of gold and creating a potential bubble for the yellow metal. As I just noted, there are sound fundamental reasons for owning gold and if an investor wants gold exposure without being involved in the futures market or collecting gold, the logical alternative is ETFs. Most folks that have followed financial markets for extended period of time know that gold is prone to bubbles and wicked falls after lengthy rallies. These events occurred long before the advent of gold ETFs and when this gold run expires, it will not be simply because of ETFs.
Staying with the precious metals theme, silver closed at another 30-year high today. The cheaper, more industrially useful metal than gold has been on a tear of its own this year. Year-to-date, the iShares Silver Trust (SLV) is up about 70% compared to a 30% gain for the SPDR Gold Shares (GLD).
The run in silver, while equally as valid as the run in gold, comes with an element of a humor. By that I mean JPMorgan (JPM) is short a massive amount of paper silver. London's Guardian newspaper reports that the bank's short position in silver is 3.3 billion ounces. Other press reports and blogs say the bank's short position in the metal, which is believed to be naked, is larger than all of the physically available silver in the world.
With this comes the accusation that JPMorgan is trying suppress the price of silver on behalf of the Fed to make the dollar look more attractive. Forgive me for finding this kind of funny because as the chart below illustrates, JPMorgan has done quite a miserable job of taming silver prices. With no end in sight to silver's rally, the bank will be forced to cover its shorts and with so many positions to covered, it will be almost possible to do that without disrupting the market in favor of the bulls.
And staying with materials that can be mined, Massey Energy (MEE), the largest coal miner in Central Appalachia, was one of the more noteworthy winners in the S&P 500 today on news that embattled CEO Don Blankenship will leave the company. Blankenship's departure, while abrupt, seemed to be a positive catalyst for the shares today as the stock gained $1.21, or 2.4%, to close at $51.63. Volume was almost double the daily average.
Analysts are speculating that Blankenship's departure frees Massey up to be acquired, a tidbit that was once a rumor, but the company did recently confirm it was open to shopping itself. On the hand, the Wall Street Journal reported early this morning that Massey could be looking to make an acquisition of its own.
No matter what the future holds for Massey, the stock has been on an impressive run over the past few months, reclaiming almost all of the lost shareholder value that was endured as a result of the Upper Big Branch mine explosion in April, the worst U.S. coal mine disaster in four decades.
It was another rough day for Bank of America (BAC), the largest U.S. bank by assets. The shares slid almost 2% to close at $11.64, just a penny above the intraday low, after Nomura Holdings said the bank is at risk for a credit downgrade next year. On top of that, Bloomberg News reported that is losing financial adviser Michael Brown to a rival firm. Normally, this would not be big news, but when the adviser manages $5.9 billion in client assets, as Brown does, it becomes just one more bit of bad news for a stock already ravaged by negative news flow.
As Bloomberg reports, Brown's departure leads to concerns that BofA has had and will continue to have difficulties retaining top talent it acquired through its shot-gun purchase of Merrill Lynch. The only bright side to all the bad news BofA has had to contend with recently is that it could mean the looming WikiLeaks release of a data about a major U.S. bank, assuming it is about this bank, may not damage the stock price all that much.
Bank of America Chart
A 2% seems tame compared to an 8.2% loss, the thrashing endured by biotech firm Celgene (CELG). Biotech is almost always a hot sector, especially when it comes to mergers and acquisitions, a fact highlighted by over $3 billion in deals out of the sector in two days alone last week, but it appears that big pharma will probably be taking a pass on Celgene, at least for the time being.
The company said today that its best-selling blood cancer treatment Revlimid was found to cause cases of secondary cancer in multiple myeloma patients. It should be noted that the data sample was small and viewed to be inconclusive, but investors concluded otherwise, punishing Celgene shares on more than seven times the average daily volume.
Revlimid is not going by the wayside because it is expected to see 2010 sales of almost $2.5 billion, but it is not a good thing when a drug that is adept after suppressing myeloma is found to cause other forms of cancer. The hard times for Celgene shares are continuing in the after-hours session with the stock down 3% to $54 as of this writing on news that American Society of Hematology data from a study of Revlimid long-term maintenance therapy in multiple myeloma reported 15 cases of secondary malignancies in Revlimid patients compared to six cases of secondary cancer in placebo patients, according to TheStreet.com.
Looking at the charts, the S&P 500 did not even touch the important 1228 resistance level today, the same area that sent the index tumbling back twice last month. Rather, the S&P 500 was locked in a boring five-point range for the day and closed hovering near 1225. Round number support is 1200, but the more critical support zone is 1175.
S&P 500 Chart
The Dow offered little more in the way of excitement today, trading in a 42-point range from top-to-bottom. After last week's Wednesday/Thursday rally, a 20-point loss today does not mean much other than to say the index is probably still a tad overbought. Support below 11,000 is obviously a long way off, but it remains to be seen if the bulls can catapult the Dow above the November peak in the 11,440 area.
The Nasdaq was the shining star among the major U.S. indexes today, closing at a three-year high, but failing to even trade above 2600 intraday. Monday's close at 2594 means resistance at 2592 has been cleared and there is plenty of room in front of the Nasdaq before encountering decade-old resistance at 2850.
As I said last week, give the Russell 2000 some credit. The small-cap index just keeps on chugging along and closed right at resistance at 760 today. Clearing this level on strong volume would be a bullish sign and probably take the index to 775. From there, the Russell 2000 could run to 850 without much interference.
Russell 2000 Chart
The bears missed a golden opportunity on Friday to reassert themselves. That disappointing jobs number should have been like mana from heaven for the shorts. Alas, it was not and the moment has passed. If Europe can keep its nose clean for the next few weeks, stocks should rally into year-end. If not, there is always gold and silver.
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