Monday, March 5, 2007

Wider and Deeper

The US stock markets are in a protracted downturn that isn't likely to end soon, though the measure of the carnage on the NASDAQ has already nearly reached my expectations (7-9%).

People (like headline writers for major news services) usually search to find reasons behind the numbers, but in this current case, there need be no rationale. Stocks are falling because people are selling, plain and simple. A combination of certain perceptions, including, a) a slowing economy (real), b) overvaluation of stocks (again, real), and c) fear that the future may not be so bright (perceived, and only possibly real), have all contributed to the sell-off of the past week.

These perceptions are not about to change soon. Only revaluation (i.e., lower stock prices) is going to solve the problem and that means lower we must go. There's little confidence on Wall Street or Main St. right now and it's being reflected in the indices on an everyday basis.

Today was no exception as we saw the Dow hang in positive territory until capitulation in mid-afternoon. The NASDAQ and S&P 500 spent most of their day in the red.

Dow 12,050.41 -63.69; Nasdaq 2,340.68 -27.32; S&P 500 1,374.12 -13.05

The real carnage was on the NYSE Composite, which lost 120 points today (1.34%). Market metrics established that the correction is broadening and deepening. Overall NYSE and NASDAQ advance-decline lines ran roughly 5-1 in favor of the losers. NYSE volume was 10-1 in the red. But the most compelling data to confirm the ongoing train wreck were the 189 new lows which swamped the 98 new highs. That number had been relatively flat until Friday, at which time the new lows took over leadership.

The new lows will have to reach more than 300 combined before we can begin to take sight on a bottom, so there's much further to go.

Watching the tape today was a painful, gut-wrenching experience for most investors, except for the brilliant few who had already departed. There's still time to get out, however, before a simple loss becomes a life-changing event. As I've repeatedly noted, we are only in the early phase of this downturn and while I may be wrong about the actual bottom for the Dow, I've already been proven vulnerable on the depth of NASDAQ losses. The upcoming earnings season should prove to be a doozy and we're still 5-6 weeks away from that. Prudence would prescribe selling now, not later.

Perhaps the only good news on the day was that oil for April delivery closed down 1.57 to 60.07. Lower oil and gas prices would be welcome relief and surely more representative of the actual supply-demand scenario. Gold and silver were also lower again, signaling that there truly is no safe haven.

The Dow has lost nearly 600 points in just the last 5 sessions. If that isn't enough of a departure signal for you, maybe being hit by the actual train will do. It's very clear that another 1000 points will be sacrificed over the next 3-5 weeks. Caveat emptor.

No comments: