* Japan could worsen short-term U.S. sentiment
* Setback to nuclear energy shares; coal, oil could benefit
* Rising short bets seen in Japan ETFs
(Adds details on companies affected)
By David Gaffen
NEW YORK, March 13 The devastation in Japan is
set to worsen the negative short-term sentiment gripping a
vulnerable U.S. stock market, with companies exposed to Japan
and the nuclear energy sector likely to take the biggest hits.
The disaster brought on a flurry of short bets against
Japanese stocks on Friday, and that trend could well accelerate
on news of deteriorating conditions in Japan over the weekend.
The massive earthquake and tsunami are now estimated to
have killed 10,000 people and left officials scrambling to
avoid meltdowns at three nuclear reactors. [ID:nL3E7EC0D6]
U.S. investors are likely to further their bearish
positions in options on the iShares MSCI Japan Fund (EWJ.P) as
well as buys of the ProShares UltraShort MSCI Japan (EWV.P).
The EWV exchange-traded fund aims to return to the investor
double the opposite of whatever the MSCI Japan does, so when
the index rises 1 percent the ProShares should go down 2
percent. Volume in that ETF hit a record on Friday.
The effects on the broad U.S. market are harder to
determine. The S&P 500 fell below its 50-day moving average
last week and support appears to be waning, despite a rally on
Investors are likely to focus on the ramifications for
energy companies, particularly nuclear power. Japanese
officials said there may have been a partial meltdown at the
No. 1 reactor of a nuclear plant in Fukushima.
"The disaster could prove to be a setback for nuclear power
as an alternative energy source," said Jack Ablin, chief
investment officer at Harris Private Bank in Chicago. "Whether
or not we see a reaction in utilities and engineering and
construction companies remains to be seen."
The Van Eck Market Vectors Uranium and Nuclear Energy
exchange-traded fund (NLR.P) hit a 52-week high on Feb. 8,
rising 7 percent in the two weeks after President Barack Obama
proposed additional funds for nuclear power.
Among the NLR's top components that could get hit on Monday
are big uranium mining names including Cameco Corp
(CCJ.N)(CCO.TO) and Uranium One Inc UUU.TO. Both are also
among the top components in the Global X Uranium ETF (URA.P).
Nuclear-powered countries may reexamine expansion efforts
or expend more on safety and security at plants. It may impact
the two biggest nuclear operators in the United States, Exelon
Corp (EXC.N) and Entergy Corp (ETR.N) as they could face a
renewed push for more regulation. [ID:nN11275769]
Obama has been a supporter of an expanded nuclear energy
program, but that will be called into question now. In
February, the White House asked for $36 billion in federal loan
guarantees to help finance the building of nuclear power
"Nuclear loses in the near term. Conventional oil, natural
gas, and coal are the winners," David Kotok, chief investment
officer at Cumberland Advisors in Sarasota, Florida, wrote in a
That may hurt shares of Edison International (EIX.N) and
PG&E Corp (PCG.N), which operate nuclear power plants on the
earthquake-prone California coast.
U.S.-listed shares of Japanese companies will trade lower
in line with their Japan counterparts, including auto
manufacturers Toyota Motor Co (TM.N) and Honda Motor Co
(HMC.N), which have shut all domestic auto factories.
Major insurers and reinsurers with exposure to the Japanese
market were hit on Friday and could weaken further, including
American International Group (AIG.N) and ACE Ltd (ACE.N).
MIDDLE EAST STILL WEIGHS; FED AWAITED
Investors are also still grappling with political protests
in the world's top oil exporter, Saudi Arabia.
The market's recent weakness revived talk a correction is
near, analysts said, even though stocks recovered from early
losses on Friday to finish the day higher with the Dow back
above 12,000 and the S&P 500 above 1,300.
Stocks have rallied sharply since the start of September,
with the S&P 500 up 24 percent for that period, but faltered in
the last two weeks. At Friday's close, the Standard & Poor's
500 Index .SPX was down 1.3 percent for the week.
The jump in crude oil prices to 2-1/2-year highs has raised
anxiety about their dampening effect on the economy.
Given those concerns, investors will be tuned into any
comments on energy from the Federal Reserve when it releases a
statement on Tuesday afternoon following its policy meeting.
The U.S. central bank is unlikely to hint at policy changes
this week, and is expected to keep interest rates near zero.
For the week, the Dow Jones industrial average .DJI fell
1 percent, the S&P 500 slid 1.3 percent and the Nasdaq .IXIC
lost 2.5 percent.
Besides a break below the 50-day moving average earlier
this week, the S&P 500 fell below a long-standing trendline,
suggesting the benchmark index has lost momentum and that the
recent rally may be losing steam.
S&P falling below technical levels:
S&P 500 and sector trading ranges:
"That behavior tells you demand has weakened, which puts
odds on further downside in the near term," said Chris Burba,
short-term market technician at Standard & Poor's in New York.
If the S&P 500 falls below 1,275, the next support area is
1,227 to 1,177, he said.
(Wall St Week Ahead runs every Sunday. Questions or comments
on this column can be e-mailed to:
(Reporting by Caroline Valetkevitch; Additional reporting by
Doris Frankel in Chicago, David Gaffen in New York, and Julie
Gordon in Toronto; Editing by Dale Hudson and Jan Paschal)