US Rally Fizzles As HP Plunge Offset Housing Gains; Europe Buoyed By Mideast Hope

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Capping a choppy trading session, US stocks finished little changed Tuesday after an early rally triggered by an increase in housing starts in October was offset by a sharp sell-off in Hewlett-Packard shares.

The looming budget negotiations on tax hikes and spending cuts continued to weigh on investors after Federal Reserve Chairman Ben Bernanke urged lawmakers in Washington to act quickly on the so-called fiscal cliff because the “stakes are high.” The central banker reiterated his assertion that the Fed doesn’t have the necessary tools to offset the potential harm and an agreement to reduce long-term US deficits may remove an obstacle to economic growth.

The Fed’s policies have helped temper the headwinds holding back the economic recovery, though it’s too early to assess the full impact of the Fed’s mortgage-bonds purchase program started in September to stimulate the housing market, he added. Analysts were, however, expecting confirmation that the central bank would extend its concurrent long-term Treasury bonds purchase program, known as Operation Twist, after it ends next month.

The Dow Jones Industrial Average (DJIA) dropped 7 points, led by a 12 percent decline in PC maker Hewlett-Packard. The Dow component crashed after fourth-quarter earnings came in above expectations while revenues fell short of estimates that excluded an $8.8 billion write-down tied to an alleged fraud by an overseas acquisition. British software firm Autonomy allegedly misrepresented its finances and falsified its “business mix” before its takeover by HP.

The S&P 500 Index (SPX) rose 1 point with healthcare gaining the most and technology pacing the losses among its 10 business groups.

Treasuries dropped for the second day pushing yields higher after a Commerce Department release in Washington showed new home constructions jumped unexpectedly to a four-year high in October.

The dollar edged higher on Tuesday as markets grew worried over the release of next tranche of bailout money to Greece. The euro fell briefly after Moody’s downgraded France to Aa1, stripping Paris of its coveted triple-A rating.

European stocks erased early losses after media reports suggested a ceasefire in the Middle East could be reached soon while the US housing data surprised to the upside. The Stoxx Europe 600 index finished 0.3 percent higher after trading lower early as investors grew worried over Greece’s funding needs and France’s loss of highest rating grade.

The DAX 30 index rose 0.7 percent, lifted by a 0.7 percent rise in drug maker and chemical giant Bayer AG. The firm ruled out a higher bid for Schiff Nutrition International, sending the shares of Schiff down 5.3 percent.

The CAC 40 index climbed 0.7 percent in Paris, boosted by Carrefour SA. The supermarket chain said it has sold its entire stake in Carrefour Indonesia for EUR 525 million.

In London, the FTSE index added 0.2 percent after shares of Vodafone Plc gained 1.1 percent as Citigroup reiterated its buy recommendation for the wireless carrier. Banks however, turned lower with Barclays Plc and HSBC Holdings Plc giving up 1.3 percent and 0.6 percent, respectively.

In the ETF space, energy commodities grabbed the headlines on Tuesday. The United States Natural Gas Fund (UNG) jumped 2.55 percent, erasing yesterday’s losses, after NG futures surged 3 percent to a new 12-month high over speculations that demand for fossil fuel will rise this winter. Analysts expect Wednesday’s natural gas inventory report to show a withdrawal of 27 billion cubic feet compared to a five-year average of three billion cubic feet inventory injection.

The United States Oil Fund (USO) however, sank 2.3 percent, giving up yesterday’s gains as crude futures fell 2.8 percent to $86.75 a barrel.

Our Trend Tracking Indexes (TTIs) meandered with the markets changing only slightly from yesterday’s close with the Domestic TTI ending up at +0.92% while the International TTI pulled back to +2.35%.

Barring unforeseen international news, I expect not much directional action before and after the Thanksgiving holiday with volume sure to pick up again on Monday.

Disclosure: No holdings in ETFs discussed above

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