Tuesday, September 1, 2009

Daily Wrapup For September 1st

It's only September 1st, and they're already talking about the "September Effect." [Example.] Despite two pieces of good news, one on the home front and the other in the manufacturing arena, the three major averages went into a tailspin shortly after the items' release. The day started off unambiguously bullish, with all three averages solidly up by the 10 AM ET release time. Had the market still been macro news driven, the rally would have continued. Pending home sales kept rising, even though it's almost unprecedented for them to do so six months in a row. (The first-time house buyer tax credit had a lot to do with it.) Manufacturing activity shifted into expansion, while new orders shot up. The two production-related readings are consistent with the recession finally ending. Nevertheless, soon after both items' release, the averages plummeted: what were solid gains turned into unambiguous losses. The downtrend continued at a much slower rate from 11 AM to 12 PM ET, and settled into a trading range for the rest of the afternoon. A fitting end to today's trading came when an end-of day rally was choked off in the last few minutes. The Dow finished down 1.96%, the S&P 500 lost 2.21%, and the NASDAQ dropped an even 2.00%. Light sweet crude oil, for October delivery, also joined in the plunge party: it was down $1.91 a barrel to close at $68.05 in regular trading.

The lowest-quintile P/E cut-off also plunged, from yesterday's 11.80 to 11.58. Inversely with the S&P 500 itself, the yield cut-off shot up six basis points to 2.65%. Once ETFs and stocks with less than 500M market cap were also eliminated, along with ones yielding more than 10%, the Low P/E Bin was left with ninety-five stocks for a drop of four from yesterday. Here are the changes in the Bin, as dash-listed below:

- Williams Pipeline Partners LP

- Cooper Industries, Ltd.
- France Telecom SA
- Harvest Energy Trust
- Telkom SA Limited

The sole Arrival got back in the Bin because its stock plopped. Williams Pipeline Partners, an operator of natural gas storage and transportation systems, saw its P/E drop below the lowered cut-off due to a 2.54% decline in its stock.

Of the five Departures, three got out because they no longer fell into the Bin's dividend range. The indicated dividend of CRH plc, a European purveyor of home building materials, dropped to well below the S&P cut-off. Harvest Energy, a Canadian oil, natural gas and refined petroleum products income trust, saw its yield go above 10% due to a 5.29% drop in its stock. Today's carnage spared the stock of Telkom entirely, wich closed unchanged; the S&P yield cut-off rose above its own yield.

The other two got out thanks to their P/Es ending above the lowest-quintile cut-off. France Telecom's stock dropped 1.20%, less than the overall market, and its P/E got above the cut-off. The final Departure, circuit protection device and tool maker Cooper Industries, is the oddity of the bunch: its stock was actually up by 1.02% today. An interesting counter-move, especially given that it was booted off the S&P 500 recently. Cooper's P/E expanded, pushing it above the cut-off.

Speaking of gainers, there's an even odder one in the Bin. It gained 2.53% today, on no news: this leap is enough to make it an outlier. What makes its gain even more unusual is its line of business. Hugoton Royalty Trust is an express trust that own several producing oil and gas properties in Texas. Given both the market's and oil's fate, you would expect a stock like this one to be down a lot today. (Contrastedly, Harvest was.) Yet, for whatever reason, Hugoton stock put in a performance more August-worthy. Until a week ago, it was hanging around $14 in a narrow short-term trading range, which it now has risen above: Hugoton closed at $15.02 today. Whether there's good fundamental reason, ow whether it's been spared for a more technical reason, remains to be seen.

That's all for today's Wrapup. Thankls for reading, and may your pleasant surprises be understandable ones.

Disclosure: None.

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