US Equities Stall After Two-Day Rally; UNG Bursts, KWT Fades

[Chart courtesy of MarketWatch.com]

US equities remained just about flat with a slight negative bias today, snapping a two-day winning streak as investors chose to hold back ahead of the central bank meetings and monthly jobs report later this week.

The Dow Jones Industrial Average (DJIA) lost 3 points, with the index’s heaviest component JP Morgan Chase (JPM) leading the decliners, slipping 2 percent after Deutsche Bank downgraded it to ‘hold’ from ‘buy’, citing lofty earnings estimates. 16 of the Dow’s 30 components ended in red as the overall breadth turned negative.

After three successive up sessions, the S&P 500 Index (SPX) closed fractionally lower, slipping less than 1 point  with healthcare dropping the most among its 10 business sectors. Telecommunications emerged the day’s biggest percentage gainer.

US Treasuries rose as risk sentiment turned sour amid rumors the probable peripheral bond purchase by the European Central Bank may not be sufficient to halt the current sovereign debt crisis. No surpise there, as this announcement last week was nothing but hot air to begin with since it did not have the support of paymaster Germany.

Although Italy managed to auction nearly EUR 5.5 billion in government debts, demand for US safe haven assets soared after data showed the Spanish GDP fell 0.4 percent in Q2, shrinking for the third successive quarter.

The benchmark 10-year yield tumbled five basis points while yield on 30-year bonds fell six basis points to 2.58 percent as Treasury Secretary Timothy Geithner met European Central Bank President Mario Draghi in Frankfurt ahead of the central bank policymakers’ gathering later this week.

ETFs in the news:

The United States Natural Gas Fund LP (UNG) exploded Monday, vaulting 5.64 percent on the day. UNG has soared 53 percent after falling to an all time low in April as hot weather conditions stoked air conditioning needs, increasing demand for electricity. Due to low prevailing prices, many utilities switched to natural gas, pushing gas demand for power generation to historical highs.

US natgas supplies are currently 16 percent above the five-year average, according to US Energy Information Administration. Despite solid gains, UNG is still trading below its 200-day moving average and remains deeply entrenched in bear territory.

The Market Vectors Solar Energy ETF (KWT) was among the day’s worst performers, sinking 3.22 percent for the day. KWT dropped to a record new low Monday, losing 35 percent year year-to-date.

As natural gas got cheaper, financial incentives for alternative energy apparently vanished. Moreover solar cell prices tanked 66 percent since Q3, 2010 mainly due to unfair subsidies to Chinese domestic companies by the government, further exacerbating the problem.

In regards to our Trend Tracking Indexes (TTIs), there were no noteworthy changes, as the markets appear to be on hold to wait for the implementation of promises made last week by ECB’s Draghi, along with the all important employment numbers due out later on this week and the outcome of the FOMC meeting on interest rates.

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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