US equities finished mixed Monday with the Dow Industrials wavering as relief over the win of pro-bailout parties in Greece, which diminishes an imminent exit for Athens greatly, proved short lived.
Spanish 10-year borrowing costs hit a euro-era high, breaching the seven percent level that ultimately forced the Dow lower for the day.
Amid speculations that the Federal Reserve will extend its monetary stimulus program over signs of slowdown in the world’s biggest economy, yield on 30-year Treasury bonds dropped to least in more than a week ahead of the central bank’s two-day policy meeting.
The Dow Jones Industrial Average (DJIA) lost 25.35 points, retracing its 71 points drop during the day’s trade. Within Dow, 19 of the 30 components closed lower.
The S&P 500 Index (SPX) remained near flat, adding 1.94 points, its third consecutive day of gains. Home builders, restaurant and technology sector advanced the most while energy lost 0.8 percent among the 10 business groups.
Long bonds yields had jumped briefly earlier following the Fed’s purchase of $1.92 billion in long-maturity securities. Yield on the benchmark 10-year Treasury changed little at 1.58 percent despite retreating to 1.56 percent in early trade. The 30-year bond yield dropped 2 basis points to finish at 2.67 percent.
ETFs in the news:
Gold miner and natural gas ETFs surged on a day as markets digested Greece election results. As reported last week, many analysts believe price of natural gas has bottomed out and demand is set to pick up as utilities and freight operators are switching to Natgas to take advantage of lower prices. Analysts predict prices to soar in winter.
The Barclays iPath DJ-UBS Natural Gas Subindex Total Return ETN (GAZ) remained among the top gainers, surging 7.01 percent for the day as NG futures jumped 7.3 percent. NG may have a big day Thursday if inventory stockpile comes in lower than estimated for the second week in a row. Other Natgas related funds like the United States Natural Gas Fund (UNG) also made solid gains, adding 6.64 percent for the day. Both ETFs are deeply entrenched in bear territory and will take a lot more upside momentum before the long term trend lines are broken.
As inflation in the US comes down below the two percent level, and the economy shows signs of faltering, likelihood of further rounds of assets purchases have increased. Precious metals and mining stocks are likely to outperform, should Fed extends Operation Twist or starts another round of monetary stimulus and the European Central Bank initiates liquidity injection. Be sure to check the sector ETF sections of my weekly StatSheet for exact momentum numbers.
The Global X Gold Explorers (GLDX) vaulted 5.5 percent despite trending down for the past 17 months. This counter is nearly 51 percent below its 52-week high and can gain further traction in future.
As Spanish 10-year bond yields breached the 7 percent level to hit a euro-era high, the iShares MSCI Spain Index Fund (EWP) tumbled, losing 3.59 percent for the day. Markets remained on the edge over Spain, since forceful intervention by the European Central Bank, if that is even possible, will be required to ensure the crisis doesn’t spin out of control.
Ahead of Wednesday’s FOMC announcement, the CBOE Volatility index slipped 13.22 percent today on hopes of QE3. The ProShares VIX Short-Term Futures ETF (VIXY) emerged as one of the biggest losers, shedding 8.50 percent for the day. However, if Bernanke fails to announce further stimulus measures on Wednesday, this ETF may witness a sharp recovery while stocks may head south.
Our Trend Tracking Indexes (TTIs) changed only insignificantly due to the sideways pattern of the market. I expect that to change, once the Fed makes its official accouncement on Wednesday.
Disclosure: No holdingsContact Ulli