MARKET WRAP – STOCKS STAGE DRAMATIC REVERSAL

The market finished the day lower after staging a dramatic reversal.  Investors were eager to pile into stocks for the 26th day in the last 33 after a better than expected reading on initial jobless claims and strong European markets helped drive prices higher before the bell.  Stocks were up over 1% at noon, but closed in the red by 0.15%.

The intraday positivity took a dramatic turn for the worst after the Euro continued its slide against the dollar and the treasury auction sent yields surging.  By the end of the day the Euro finished lower by 0.45% against the dollar as the currency appears to be fatally flawed.  Spiking yields also spooked investors after a poorly received treasury auction.

Breadth was negative on the day by 1.5:1, but reversed from a morning high of 3:1, positive:negative.  Volume was very light on the advance, but was extremely heavy on the way down.  I noted several very large institutional trades in various markets just after the treasury auction.  Institutions do not appear eager to hold stocks after the run we’ve had and with yields spiking.  Investors are very bullish heading into next week’s job’s report (which is reported to be well over 200K+) and the upcoming earnings season, but this is shaping up to be a “sell the news” earnings season.  Nonetheless, bullishness reigns supreme for now.

From Daily Futures:

U.S. Economy
The U.S. Labor Department said that jobless claims were down 14,000 last week to 442,000, less than expected.

The U.S. Treasury sold $32 billion of 7-year T-notes at a median yield of 3.29% with a disappointing bid-to-cover ratio of 2.61. The June U.S. T-bonds closed down 26/32nds at 115.01/32nd, the lowest close in four weeks.

Pimco’s Bill Gross told Bloomberg Radio today that “bonds have seen their best days” (see article). He expects higher inflation to result from excessive government borrowing.

Grains and Cotton – New Low Wheat
The USDA said that, as of last week, 2009-2010 exports of:
Corn improved from up 6% to up 7% from a year ago.
Soybeans remained up 34% from a year ago.
Wheat remained down 21% from a year ago.
Cotton improved from down 20% to down 19% from a year ago.

There is widespread rain in the eastern half of the U.S. today, from Michigan to the Gulf Coast. West of the Mississippi river, today’s weather is dry. May corn dropped a dime to $3.55, its lowest close in five months.

The International Grain Council predicted that world corn planting will be up 2% in 2010-2011 to 385 million acres. The USDA’s prospective planting estimates will be released Wednesday morning.

July wheat fell 8.75 cents to a new contract low of $4.80, hurt by plentiful supplies, a slow pace of export sales, and a stronger U.S. dollar.

Livestock
The USDA said that net sales of beef totaled 14,100 tons last week, up from 13,000 tons the previous week. June cattle closed down .75 at 92.12.

June hogs finished down 1.10 cents at 79.62, hurt by today’s stronger dollar and concerns that tomorrow’s quarterly U.S. inventory report will show a smaller reduction than hoped for.

Coffee
May coffee closed up 2.70 cents at $1.3700, the highest close in four weeks with some mention of Brazil’s approaching winter season.

Energies – Natural Gas Hits New Low
The U.S. Department of Energy (DOE) said that underground supplies of natural gas were up 11 billion cubic feet last week to 1,626 trillion cubic feet, the first positive gain of the season. Supplies are now down 2% from a year ago. May natural gas closed down 12.5 cents at a new contract low of $4.029.

Currencies
The U.K.’s Office for National Statistics said that retail sales were up 4.9% in February from a year ago, stronger than expected. The June British pound closed down .0069 at $1.4814.

The European Central Bank said that it will extend its emergency collateral rules past 2010. The move is seen as one way of helping Greece to stay afloat. Later in the day, President Trichet said that it would be a bad move to let the International Monetary Fund act in place of the Euro zone. The June euro ended down .0047 at $1.3291.

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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