Monday's trading did not bear much resemblance to the Valentine's Day Massacre, but then again, if it was excitement you were after, it was a pretty agonizing day. The Dow Jones Industrial Average endured a small loss while the most noteworthy statements that can be made about the Nasdaq and the S&P 500 is that they found a way to close higher, but the gains are hardly worth bragging about.
On an individual basis, there are always some stocks and/or ETFs trading in broad ranges or making unusual gains even on boring days like today. I will start with one that probably will not surprise you: The Market Vectors Egypt ETF (EGPT) jumped almost 4% on the first full trading of post-Mubarak life in Egypt. Another dollar or so to the upside and EGPT, an ETF hardly anyone talked about up until late January, will be right back where it was before the protests/revolution got underway.
Call me a doubting Thomas if you must, but I have my doubts regarding EGPT. First, it should be noted for the fans of stochastics and RSI that neither is showing an overbought condition, but both are pretty darn close. Second, and probably more importantly, revolutions rarely go smoothly. After the initial euphoria of regime change wears off, there are often contentious political battles waged behind the scenes that pit former revolution allies against each other. Think back to U.S. history class in high school for what happened in the colonies after the Revolutionary War. That is just one example.
I saw some headlines over the weekend about Egypt that I take issue with. Paraphrasing, one said something about Egypt would make the founding fathers proud while they would be distressed about the current state of affairs here in the States. The other was something about how Egypt's revolution proves the U.S. policy of military offensives in the Middle East to instil democracy is vastly ineffective.
Here's my issue with those claims: Egypt is just days removed from Mubarak's resignation. No one knows what form of government is going to emerge next and to claim it will be a true democracy is premature to say the least. Egypt is nearing a fork in the road. One way to go is to opt for true democracy, free of the unproductive anti-America, anti-Israel sentiment that has kept so much of the Middle East living, shall we say, behind the times. The other option is Iran post-Shah. That was supposedly a revolution and look where Iran is now. As for EGPT, we'll see what Mr. Market has in store for this suddenly popular ETF.
Egypt ETF Chart
Keeping with African politics and since it is Valentine's Day, it is pretty easy to see why I bring this up. Maybe you bought some chocolates for your sweetie and perhaps you noticed higher prices than usual. Easy to explain: Cocoa is a commodity, traded just like, gold, oil, etc. and thanks to some political theater in another part of Africa, cocoa prices have been moving higher.
The cocoa trade kind of got lost in the shuffle when the Egypt situation was growing worse by the day, but here's a quick recap: Ivory Coast is the world's largest cocoa exporter. On Nov. 28, Alassane Ouattara defeated Laurent Gbagbo in the country's presidential election. The U.S., the UN and the International Monetary Fund all recognize Ouattara as the winner.
Problem is Gbagbo will not leave office, so Ouattara authorized a ban on cocoa exports because Gbagbo uses proceeds from those exports to fund the military and public services. The ban is set to expire on Feb. 23, but if Gbagbo is still in office, Ouattara said he will extend the export ban. That is good news for cocoa bulls.
Sticking with the commodities theme, despite the fact that crude futures declined a bit today, oil equities mustered some impressive performances. Some of that probably had to with China's January export number. The world's fastest growing major economy said its exports surged almost 38% last month, double the December level. That can be interrupted as a sign that Chinese oil demand will remain robust this year.
Another catalyst was General Electric's (GE) $2.8 billion acquisition of John Wood Group's well service business. The business, which also helps extract gas from shale, had sales of $947 million and EBITDA of $166 million in 2010, according to Bloomberg News. The deal is the second in the oil services arena for GE, a Dow component, since December when it acquired Wellstream. Press reports said GE outbid Halliburton (HAL), the world's second-largest provider of oilfield services, for the John Wood business.
The news touched of speculation of more consolidation in the oil services sector, though I hasten to call it speculation at this point. Flush with cash, energy companies are expected to spend $490 billion this year and some of that is going to be devoted to acquisitions and no, I am not going out on a limb by saying that. Every one of the top-10 holdings in the Oil Services HOLDRs (OIH) was up today and the ETF is now trading at levels not seen since late 2008.
Checking in on the parabolic side of the market, there is Netflix, which jumped 7.1% today. A 7% move for any stock is a pretty big deal, but when we are talking about a stock that trades over $200, that means there is some significant appreciation on a dollar basis as well. To be exact, shares of Netflix rose $16.48 to close at $247.55 after Caris & Co. raised its price target on the stock to $316 to $224. Good thing Whitney Tilson covered his short position in this name.
Looking at the charts, with today close at 1332, the S&P 500 has basically completed a double from the March 2009 low of 666.79. This could prove to be significant resistance, but a move below psychological support at 1320 down to 1309 is what would be needed to create a valid ''buy on the dip'' opportunity. A move above 1333 should send the shorts running to cover.
S&P 500 Chart
The loss on the Dow was so miniscule today that no support levels are in play and there is still a long way to trek before we get to 13,000, the next stiff resistance area. There are currently two triple-digit stocks in the Dow, Caterpillar (CAT) and IBM (IBM), but Chevron (CVX) and 3M (MMM) could easily join that illustrious club in the coming weeks. At this point, anyone fooling around with inverse Dow ETFs and related fare is messing with fire.
The Nasdaq has another 10-15 points left to run before encountering some old resistance from 2007 in the 2830 area. How significant that resistance proves to be lies in the hands of the usual suspects such as Amazon (AMZN), Apple (AAPL) and Google (GOOG), but expect Netflix (NFLX) and Panera Bread (PNRA) to play their parts as well. OpenTable (OPEN) would be another name to add to that list as that is another stock that seems destined for the $100 club.
Looking at the earnings and economic calendars, this should be a slow save for the FOMC minutes on Wednesday and barring any flare ups in the Middle East or renewed concerns about European sovereign debt, I have the feeling the market could see some choppy trading over the next few days. That is not necessarily a bad thing, but there is a lack of scheduled catalysts to move the market sharply in one direction or the other. The big deal will be the S&P 500's ability to crack 1333, which should induce some short covering, bringing the market to more new highs.