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U.S. Stocks Advance, Treasuries Decline on Economy; Euro Gains

Stocks rebounded from a three-month low as manufacturing reports in the U.S., Europe and China showed the global economic recovery is accelerating. Treasuries fell and the euro snapped a four-day decline versus the dollar.

The Standard & Poor’s 500 Index added 1.4 percent at 4 p.m. in New York, led by Exxon Mobil Corp. as the oil producer beat profit estimates. The MSCI World Index of equities in 23 developed nations rose for the first time in nine days. Yields on 10-year Treasuries added 0.07 percentage point to 3.66 percent. The euro strengthened 0.5 percent against the dollar and 0.9 percent versus the yen.

U.S. manufacturing expanded the most since August 2004, the Institute for Supply Management said today, adding to evidence the revival in the world’s biggest economy is gaining momentum. Concern about the durability of the global recovery had sent stocks to the largest monthly retreat since February 2009 as China moved to curb lending and Greek bond yields surged.

“People are seeing there’s strength in the economy and that corporate earnings are beating estimates,” said Peter Jankovskis, who helps manage about $1.7 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “Investors are seeing the sell-off of last week as a buying opportunity.”

The S&P 500 climbed after posting a 3.7 percent drop in January. Exxon gained 2.7 percent in New York as profit fell less than estimated because of higher oil prices and output.

Beating Estimates

A record nine-quarter earnings slump for S&P 500 companies ended in the final three months of 2009 with a 76 percent increase in profits, according to analyst estimates compiled by Bloomberg. Almost 80 percent of the results released since Jan. 11 topped the average forecasts of Wall Street estimates, data compiled by Bloomberg show.

Citigroup Inc. rallied a fourth straight day after people familiar with the matter said the bank plans to sell or split off its $10 billion Citi Private Equity unit. Citigroup added 0.6 percent in New York.

The MSCI World added 1 percent. It fell as much as 0.4 percent earlier as Asian stocks dropped on concern China will take more steps to prevent its economy from overheating. Toshiba Corp. declined 6 percent in Tokyo after cutting its revenue forecast. Honda Motor Co. slid 2.5 after saying it’s recalling some cars in North America and the U.K.

Europe’s Dow Jones Stoxx 600 Index added 0.6 percent, reversing a 0.8 percent loss. Ryanair Holdings Plc advanced 6.7 percent in Dublin after Europe’s biggest discount airline raised its profit forecast.

Creditworthiness

The cost to protect against defaults on U.S. corporate bonds fell. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, fell 2 basis points to 95 basis points as of 11:12 a.m. in New York, according to broker Phoenix Partners Group. A drop signals more investor confidence.

Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and is equal to $1,000 a year on a contract protecting $10 million of debt.

U.S. manufacturing expanded in January at the fastest pace in more than five years, spearheading the recovery from the worst recession since the 1930s. The Institute for Supply Management’s factory index rose to 58.4, exceeding the highest estimate in a Bloomberg News survey of economists, figures from the Tempe, Arizona-based group showed. Readings greater than 50 signal expansion. The gain reflected increases in orders, production and employment.

European Factories

A separate report from Markit Economics showed Europe’s factory output also grew more than forecast last month.

Commodities rallied following the manufacturing reports, with the Reuters/Jefferies CRB Index of raw-material prices adding 0.9 percent and rising for the first time in five days. Crude oil futures advanced 2.1 percent to $74.43 a barrel in New York. Gold futures rose 2 percent to $1,105 an ounce.

Stocks and commodities fell for three straight weeks after China curbed lending, Greek bond yields jumped to the highest levels in a decade on concern that nation will default on its debt and U.S. President Barack Obama sought to restrain the activities of banks.

Treasuries fell for the first time in three days as Obama’s budget proposal projected this year’s deficit will rise to a record $1.6 trillion. Ten-year yields will climb to 4.19 percent by year-end, according to a Bloomberg survey of financial companies with the most recent forecasts given the heaviest weightings.

Euro, Dollar

The euro advanced from the lowest level in almost seven months, increasing 0.5 percent to $1.3931. It added 0.9 percent to 126.24 yen, from 125.13. The dollar gained 0.4 percent to 90.63 yen, compared with 90.27.

The zloty rallied 1.8 percent to 3.98 against the euro, the strongest level in more than a year, on Poland’s plans to sell an estimated $1.6 billion of stakes in state-owned companies to finance the budget gap. The rand gained 1.9 percent versus the dollar after a gauge of manufacturing in South Africa jumped to a 21-month high in January.

Feb

01

2010

How Does Your Trading Style Fit You?

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One of the most crucial questions a new trader can ask themselves is, “How do I start trading stocks? What trading style should I use?”

This question directly relates to how much enjoyment you will obtain from your new trading endeavor. It is also crucial for your long term success to utilize a trading style that fits you.

First let’s define the primary trading styles based on time a trade is held. Scalping, Day Trading, Swing Trading, and Long Term Trading are the four main styles. In the second part of this discussion, we’ll look at how your personality and trading goals fit with these different trading styles.

Scalping: For Professionals Only

The quickest time frame is ruled by scalpers. These hyperactive video gaming types utilize micro time frames, sometimes trading over 1000 times a day for miniscule profits and losses each trade.

Scalpers are normally tape readers, meaning they are making trading decisions based on order flow. By order flow, I mean the type of stocks that are trading, and the aggressiveness with which traders are trading them as revealed by trading volume, among other factors. Scalpers use a lot of esoteric tools—from Level 2 and depth of markets screens as well as time and sales tables that note every single trade in a given stock. Price charts, which many think are synonymous with stock traders, are usually just too slow for the hard core market scalper.

The major stock indexes are also very popular among scalp traders. The S&P 500 is often scalp traded by traders using futures contracts such as the e-mini S&P 500. The Dow Jones is also often a popular index to trade, as is the Russell 2000 Index. Both of these indexes also have e-mini futures contracts that traders use to scalp trade these markets.

Day-Trading: Around the Market in a Day

Day trading is the next style in terms of the length of time in a trade. It is a little slower and uses some different tools than scalping. Day trading simply means entering and exiting a trade within the same trading session or day. Scalpers are day traders by definition, however day traders are not scalpers so there is some overlap in the style types.

Day traders look for short term profit opportunities, often on one to five minute charts. The successful day traders generally follow strict entry and exit rules based on price movement or the amount of time in the trade. Most prop or proprietary traders are either true scalpers or day traders. They generally consider the risk too great to hold positions overnight.

Swing Trading: Trader’s Paradise?

Swing trading refers to holding a trade for a minimum of an entire trading session/day and into the next one. The official definition of swing trading is somewhat nebulous, I define it as a trading style of staying in a trade for at least into the next session but no longer than 2 weeks.

Swing trading is well suited for chart reading, technical analysts, and those who prefer active trading but who find the previous two styles are just too fast or require too much time monitoring the screen. Many of the traditional technical analysis indicators were designed to work primarily for the swing trading aficionados.

Long Term Trading: The Old Buy and Hold

Long Term Trading, or simply investing, is just what it sounds like. This style requires one to interpret long term trends and fundamental data in order to make decisions on price appreciation over greater lengths of time such as a year or more.

Technical analysis is used primarily as a way to establish whether the market is in an uptrend or a downtrend. Beyond this, the majority of long term traders and investors use economic data and global trends to determine when to buy and sell. I consider anything held over 2 weeks to be long term. Many trades can be held for years should the anticipated trend continue. Most of the market investing public falls into this category while investing into IRA’s, mutual funds and other long term type vehicles, including LEAPS.

These four broadly outline the different types of trading styles available to traders of stocks. Next, we’ll take a look at how you can choose from among these different trading styles to find the one that fits best with your personality, available capital and trading goals.

Sign up today to the ChartPoppers Newsletter and as an added bonus we will give you a FREE copy of our eBook, “Investors Edge”. The ChartPoppers Newsletter is full of Trading Strategies, Stock Picks, and Market information that will help you become a more successful, profitable trader.

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Dec

22

2009

China to stay a plodding “ox” in year of the tiger

year of the tiger 2010

After blasting to recovery from the global financial crisis, China will enter next year wrestling with unwelcome expectations for it to shoulder a bigger role in insulating the world economy against more turmoil.

China is set to overtake Japan as the world’s second-biggest economy in 2010, and calls are likely to grow for it to cash in more of its accumulated wealth and influence to address trade imbalances, currency friction and diplomatic disputes.

Yet while some see China as a super-power confidently limbering up for a sprint to the lead, its leaders see it as facing domestic and external risks that demand cautious plodding.

In the traditional Chinese calendar, next year is the year of the tiger. But expect Beijing to keep behaving in economic diplomacy like this year’s talismanic animal, the ox: steady, sometimes frustratingly so for some, and resistant to prodding.

“We don’t want to be treated as a superpower or global leader, but on specific issues, such as international financial reform, China will choose to be more active next year and beyond,” said Chu Shulong, an international relations professor at Tsinghua University in Beijing, who recently led a study of Beijing’s global policy options.

“This ambivalence in Chinese foreign policy will continue for a long time.”

In trade, especially, China is likely to be increasingly on the defensive next year, with its stable exchange rate policy arousing rancor and, potentially, retaliatory tariffs.

China’s trade surplus, which shrank by 30 percent over the past year as global demand shriveled, could ignite diplomatic tensions if it rebounds with faster U.S. and European growth.

“That’s going to fuel real trade tensions, if the trade surplus goes up again,” said Michael Pettis, a senior associate at Carnegie Endowment for International Peace, based in Beijing.

“I don’t see much chance that we’ll be able to avoid that.”

Trade disputes from steel to shoes have already piled up in just the past three months. The pipeline of U.S. complaints alleging unfair Chinese trade practices points to a bigger docket of cases next year, something Beijing fears.

“Trade protectionism will again rear its head, leading to frequent disputes and friction between China and many trade partners,” Liu Youfa, vice-head of the China Institute of International Studies, a think-tank under the Foreign Ministry, wrote this week in Outlook Weekly, a Chinese magazine.

PRIDE AND CONTENTION

China’s worries sit awkwardly with heady pride about its rising stature.

If its recovery stays strong, China “will remain the locomotive of world economic growth,” a commentary in the overseas edition of the official People’s Daily said on Friday.

But critics contend that China’s strength has come at the expense of others. Its share of the overall global trade surplus has nearly doubled this year, even if its own surplus has shrunk — giving ammunition to those who say that its export-friendly policies have robbed other countries of jobs.

When U.S. President Barack Obama visited Beijing in November, Chinese Premier Wen Jiabao tried to reassure him that China was not seeking a trade surplus.

Such words will find few takers in Washington while China keeps the yuan more or less frozen in place against the dollar, as it has done since global financial turmoil deepened in mid-2008.

Beijing risks growing friction with Washington, where prominent senators have asked for an investigation into whether the yuan policy is a form of subsidy that would justify tariffs on Chinese imports.

If China moves on the yuan in 2010, however, it will be for domestic reasons, and Beijing’s main concern will remain protecting jobs by cushioning its battered exporters.

The ruling Communist Party sees stoking employment and income growth as crucial to maintaining control, and market expectations are of only 1.9 percent appreciation in the next 12 months.

“For that reason, we continue to think authorities will move quite slowly on appreciation,” Fitch Ratings analyst James McCormack said. “It’s going to be an on-going issue for policymakers here right through the medium term.”

Those same cautious instincts, however, mean Chinese policy-makers are unlikely to launch fresh rhetorical assaults on the U.S. dollar and Washington’s financial failings that may win public applause but threaten to undermine Beijing’s own vast foreign exchange assets.

Earlier this year, China’s central bank floated broad ideas to eventually shift from reliance on the dollar as the primary global reserve currency.

Since then, however, policy-makers have gone quiet about those ideas and signaled that the dollar will remain their mainstay for a long time to come.

“China favors international financial system reform, but those reforms revolve around the U.S. dollar and so China wants only gradual changes,” said Chu, the Beijing professor.

“We eventually want to reduce the role of the U.S. dollar, but not so fast that we damage our own assets.”

Dec

19

2009

Citi, Wells Fargo to Repay $45 Billion in Bailout Funds

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Citigroup [C 3.70 -0.25 (-6.33%) ] and Wells Fargo [WFC 25.49 0.08 (+0.31%) ] said they were paying back funds to the U.S. government, in transactions that will end taxpayers’ capital support of the biggest U.S. banks much sooner than had been expected.

Uncle Sam and money

With regulators signing off on the plans, the U.S. government is signaling that it is comfortable removing some of the support it has provided to banks since the failure of Lehman Brothers created pandemonium in financial markets in the fall of 2008.

The banks are hoping to escape some of the added regulatory scrutiny that came with U.S. support. The Obama administration’s pay czar, Kenneth Feinberg, had to sign off on pay for Citigroup’s top 100 employees after the bank received more than $45 billion of capital over three bailouts.

Wells Fargo received only one government capital injection of $25 billion and was subject to fewer restrictions.

Both banks faced pressure to repay the United States after Bank of America[BAC 15.63 --- UNCH (0) ] announced plans to sell more than $18 billion of equity to help repay the $45 billion it received from the government under the Troubled Asset Relief Program, analysts said.

Citi and Wells Fargo became the last big banks to leave TARP.

But the government and the banks that have left TARP are taking a risk. If the economy weakens considerably next year, more bailouts could be necesssary.

Citigroup Chief Executive Vikram Pandit is giving up a government guarantee the bank had against excessive losses on $250 billion of assets. The bank has yet to consistently post real profits from its banking operations.

Banks are evidently concerned about the economy, and have been reducing their loan books and boosting their investments in risk-free securities.

President Barack Obama told top U.S. bankers on Monday that they had to open up the credit spigot for small businesses and start lending again.

Still, many investors now believe the worst is behind the U.S. economy, in part because of extreme efforts by the government and the Federal Reserve to rescue the financial system.

The United States is more optimistic about the outlook for the banking sector as well. The Obama administration’s projected cost to taxpayers for TARP was cut by about $200 billion last week.

Citigroup said it plans to issue $17 billion of common shares and $3.5 billion of securities that convert into shares in three years to help repay $20 billion of capital it received late last year from TARP.

Citigroup’s share offering is expected to be sold on Wednesday.

The government, which owns about 7.7 billion of the bank’s shares worth about $28.5 billion, plans to sell up to $5 billion of Citi shares alongside the bank’s offering.

Wells Fargo plans to sell $10.4 billion of shares, and also raise up to $1.5 billion of equity through asset sales.

Both Citigroup and Wells Fargo are offloading stock to their employees, with Wells selling $1.35 billion to benefit plans instead of contributing cash to them, and Citigroup selling $1.7 billion of common stock to staff pending shareholder approval.

Beyond Wells Fargo’s share sales and asset sales, the bank did not specify how it would fund the rest of its payment to the government.

PAYING THE PRICE TO EXIT

Both banks will enjoy some benefits from exiting TARP. Citigroup will save about $2 billion of interest expense annually by exiting TARP, while Wells Fargo will reduce annual dividend expense by $1.25 billion.

Citigroup will also reduce the government’s say over the bank’s compensation packages beginning in 2010, although the bank cannot pay employees more for 2010 to make up for 2009 pay cuts mandated by Feinberg, a Treasury official said.

But both deals are also bruising for the banks. Citigroup is taking an $8 billion pre-tax loss on the trust preferred purchase, because the securities were recorded on the bank’s books at less than their face amount.

Canceling securities linked to the government’s asset guarantee will result in another $2.1 billion of pre-tax losses for Citigroup. Those losses eat into the benefit of raising capital.

Wells Fargo’s hit to common shareholders will be $2 billion in the fourth quarter.

Both banks are also diluting shareholders, something Wells Fargo executives had said they wished to minimize or avoid.

To avoid extra dilution, Wells Fargo said it was buying out Prudential Financial Inc’s [PRU 49.45 0.56 (+1.15%) ] stake in a brokerage joint venture for cash instead of its prior plans to use cash and stock. Prudential said last week that deal, which closes in January, will boost its investable funds by about $4 billion.

For Citigroup, the dilution to shareholders from its deal is about 15 percent. That is much higher than the dilution to Bank of America Corp’s shareholders when the bank repaid the government earlier this month.

Citigroup received $45 billion last year under TARP. This year, the government agreed to convert $25 billion of those funds into Citigroup common stock, leaving the United States with a stake of roughly 34 percent in the bank.

Dec

14

2009

Treasury Two-Year Notes Gain on 10% Unemployment, Fed on Hold

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Treasury two-year note yields touched the lowest since May after the U.S. unemployment rate rose to a 26-year high of 10.2 percent and the Federal Reserve said it will keep rates at record lows for an “extended period.”

The difference between yields on 2-year notes and 10-year securities reached 2.70 percentage points, the most since July, before the U.S. sells $81 billion of 3- and 10-year notes and 30- year bonds next week.

“You really cannot conceptualize a scenario where the Fed can entertain tightening with over 10 percent on the unemployment rate,” said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, who oversees $22 billion.

The two-year note yield fell five basis points on the week, or 0.05 percentage point, to 0.84 percent, according to BGCantor Market Data. It touched 0.8321 percent yesterday, the lowest level since May 21. The 1 percent security maturing in October 2011 rose 3/32, or 94 cents per $1,000 face amount, to 100 9/32.

The 10-year note yield rose 11 basis points to 3.50 percent.

Payrolls fell by 190,000 last month, more than forecast by economists, a Labor Department report showed yesterday in Washington. The jobless rate rose from 9.8 percent in September.

‘Lots of Frowns’

“The unemployment rate is what everybody’s going to focus on,” said William O’Donnell, U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut, one of 18 primary dealers that trade with the Fed. “That’s ultimately what’s going to resonate in the press and the halls of Congress, where I’m sure there are lots of frowns.”

The U.S. economic recovery will probably “run out of gas” as it heads toward a “new normal” of lower long-term growth and higher unemployment than over the previous decade, Nobel laureate Edmund Phelps said.

While the economy grew the most in two years in the third quarter and the decline in payrolls may bottom in the first quarter of 2010, that doesn’t change the fact that the economy has lost its “dynamism,” Phelps, a professor at Columbia University in New York, said in an interview with Bloomberg Television.

The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — reached a record 17.5 percent from 17 percent in September.

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Nov

08

2009

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