A minor dip by the Nasdaq following a glum report from the Semiconductor Industry Association was overshadowed by another round of deal-making on Monday as the Dow Jones Industrial Average and the S&P 500 eked out small gains. Small-caps continue to shine as the Russell 2000 just missed a close at 850, but is still trading near all-time highs.
It was another day at the office for oil prices as black gold ascended to another 30-month high with the Libya situation leading the way. Some carryover effect from last Friday's jobs report probably helped a bit, too, as traders speculated that the U.S. economic recovery will be strong enough to support increased oil demand.
Al Jazeera reported that forces loyal to embattled Libyan Dictator Muammar Qaddafi bombed an oilfield in the southern part of the country. One analyst quoted by Bloomberg said ''It's becoming increasingly clear that the situation in Libya will be prolonged.'' I should say so. Feb. 15 marks the start of violence in Africa's third-largest oil producer and here we are eight weeks later with no end in sight and oil trading at levels not seen since 2008.
Oil's rise has been so swift that Farouk Al-Zanki, the CEO of Kuwait Petroleum, said today that prices are now a concern and that they are too high. Kuwait, an OPEC member, apparently has a preference for oil prices in the $90-$100 range.
In news pertaining directly to oil equities, the Interior Department would like the world to know that BP (BP) has not in fact received approval to resume deepwater drilling projects in the Gulf of Mexico. News broke on Sunday that Europe's second-largest oil company had approached regulators about getting back to work in the Gulf and it appeared the two sides were at least discussing the situation, but nothing has come of those talks yet.
''There is no agreement with respect to BP, nor will there be any agreement with respect to BP or anybody else that isn't within the normal process that we have,'' Interior Secretary Ken Salazar said, according to Bloomberg News.
Following the Gulf spill, BP has said it remains committed to the Gulf and the region is certainly necessary for the company to retain its title as the biggest oil and gas producer in the U.S., which it claims to be on its Web site. With that, it may be reasonable to think BP is getting a little antsy about its Gulf situation after seeing rivals RDS-A, XOM and CVX all win permits for deepwater projects in recent weeks.
Between the deal with OAO Rosneft being blocked, reports about executives possibly facing manslaughter charges and now the clear declaration that it does not have an agreement to get back to work in the Gulf, the recent news flow for BP has been challenging. Good thing oil prices are going up to prop up the stock.
For more news and commentary on the energy sector, head over to OilSlick.com and register for the free daily newsletter (HERE).
As I mentioned earlier, there was deal-making in the air today, but I am not going to start with the biggest deal in dollar terms. In fact this deal is small in price, but in the metaphorical sense, it is a ''big deal.'' Molycorp (MCP), the largest U.S.-based rare earths miner, said it will acquire 90% of Estonia-based AS Silmet for $89 million.
You might be wondering why an $89 million dollar deal is worth writing about. Well, that is pretty easy to answer: Because the rare earths sector is probably one of the few, heck, it might be the only industry where an $89 million purchase helps the buyer's shares surge 12% in a day. That is exactly what happened with Molycorp today.
The deal represents Molycorp's first move into Europe and is made all the more significant by the fact that it will help the company double its annual output of rare earths oxide production capacity. The acquisition will double Molycorp's annual output of rare earths oxides to 6,000 tons from 3,000 tons. There are just two rare earths processing facilities in Europe and one belongs to AS Silmet.
Molycorp's acquisition is good news on two fronts. First, it will allow the company to boost production and meet demands from rare earths consumers that are looking to buy from non-Chinese dealers. Second, Molycorp could enhance its position as a supplier of rare earths to China when the company becomes a net importer of the 17 elements in the next few years. Good thing JPMorgan raised its price target on Molycorp to $74 from $66 last week. The stock closed about $66 today and the chart makes it look like $74 could be a thing of the past sometime pretty soon.
The truly big deal of the day in terms of size was announced after the close when Texas Instruments (TXN), the second-largest U.S. semiconductor maker, said it will acquire rival National Semiconductor (NSM) for $6.5 billion in cash, a deal that values Nat Semi at $25 a share, a robust 78% premium to where the shares closed on Monday.
TI, which has long been a dominant maker of analog chips, is expanding that dominance with the deal to acquire National Semiconductor. Analog chips are found in everyday products such as mobile phones and are key components in more exotic fare, such as missile guidance systems. Combined , the two companies will have a portfolio of 42,000 products for their analog chips.
Dallas-based TI is funding the deal with a combination of cash on hand and debt. The company had almost $3.1 billion in cash on hand as of the end of last year. The market for analog semiconductors was $42 billion in 2010. TI is the market leader with 2010 analog revenue of $6.0 billion, or 14% of the market. National's revenue in calendar year 2010 was about $1.6 billion, or 3% of the market, according to a statement issued by the companies. The transaction is expected to close in six to nine months.
Over the past month, shares of both companies have been slammed, but both are still moderately positive on a year-to-date basis.
National Semiconductor Chart
As an interesting (I hope) aside, I was having a conversation with another party that I do research and write for, and he said to me â€œPlease find me some value among energy and commodities ETFs.â€ No small task given oil's recent ascent, soaring grain prices and silver's almost daily encounters with multi-decade highs.
In the course of my research, I found a nifty chart, courtesy of Bespoke Investment Group, that highlights the 30 ETFs are currently the most overbought. Not surprisingly, more than a third (12 to be precise) are energy- or commodities-related. Count the Market Vectors Russia ETF (RSX) as an energy ETF, which it basically is, and the iShares MSCI South Africa Index Fund (EZA) as a precious metals play, which it is, and the number jumps to 14.
Overall, only two of the 30 ETFs in the chart aren't exposed to commodities, emerging markets or energy.
Looking at the charts, anything that I am about to say about the S&P 500 will not represent much of a departure from Jim's comments in the weekend wrap simply because a gain of less than a half a point to just below 1333 does not give me a lot of material to work with. In addition, the intraday move was less than eight points, so the action was pretty dull.
A close at 1333 is not a true breakout above the resistance at 1331 and support is all the way back at 1310. The big thing this week is the index's ability to challenge and surpass resistance in the 1340 area.
S&P 500 Chart
The Dow closed just barely over 12,400 and if that level holds tomorrow, shorts may be forced to do some more covering on their losing positions. On the other hand, traders may opt to take it slow this week leading up to the start of earnings season next Monday. An argument can be made that the Dow is or is getting to close to being overbought. The 12,250 area should be the first support zone for the Dow.
The Nasdaq lagged at the end of last week and did so again today, being turned away at 2800 once again. Maybe the TXN/NSM news will be a positive catalyst for the Nasdaq, but that is a stretch as both are NYSE-listed. I get the feeling that the Nasdaq needs a bullish catalyst and needs it soon or we could see a close below 2775 and that would make support at 2750 an issue in the near-term.
The Russell 2000 gained just 2.6 points today, but the Index is still looking the most bullish and does not need much help to surpass round-number resistance at 850. That is all that resistance is anyway because real resistance is the 855 high from 2007. That is also an all-time high and if the Index can breakout above that level this week, it would clearly be a bullish sign. Support can be found at 830.
Russell 2000 Chart
Historically, April is a good month for stocks. In the past 60 years, the S&P 500 has risen in 40 Aprils and declined in 21. One of those 21 declines includes last April, though from April 1-30, 2010, the index lost a mere point. On the dividend increase front, April is only so-so compared to January and February, but several Dow components with lengthy streaks of dividend increases usually raise their payouts in April, KO, JNJ and PG among them. Barring any surprises, I think the market will be pretty docile this week leading up to first-quarter earnings next week.