Friday, June 29, 2007

Rally Fizzles as Quarter Ends

The major indices were all up nicely in positive territory on Friday morning, but as has been the case more often than not this month, sellers moved in and squelched any momentum and sent shares into negative territory.

As I've been noting all along, this sideways-down action is probably more healthy than continued gains, as were witnessed in April and May. A little cooling off was expected and a slow, measured selling period is preferable to a dramatic, surprise downdraft.

Dow 13,408.62 -13.66; NASDAQ 2,603.23 -5.14; S&P 500 1,503.35 -2.36; NYSE Composite 9,873.02 +7.25

The main culprit for today's decline was, again, the nasty oil futures market, which saw fit to push prices for light crude over $70.00, up $1.11 to $70.68 at the close. Inspired by low inventories at specific locations - despite US crude inventories being at 9-year highs - is the first time since August, 2006 that oil has closed above $70/barrel.

The high price of oil and it's derivative, gas, is disconcerting to US motorists, who, it's generally assumed, are not sophisticated enough to understand the vagaries of the oil supply-demand scenario. Likewise, Wall Street frowns upon the continuing hikes in crude and gas and their displeasure shows up on days like today.

Declining issues held a slim advantage of just about 200 stocks over advancers, while new highs held sway over new lows, 284-144.

Gold and silver barely budged, with gold closing at $650.90. Silver ended the week at $12.47.

Thursday, June 28, 2007

Fed, Markets Stay Flat

The Federal Reserve's Open Market Committee voted - for the 8th straight time - to leave the benchmark federal funds rate at 5.25%. The markets zigged and zagged after the 2:15 announcement, eventually settling close to the flatline. As went the Fed, so went the market. The two-day Fed meeting produced mostly yawns from the investment community, as expected.

Dow 13,422.28 -5.45; NASDAQ 2,608.37 +3.02; S&P 500 1,505.71 -0.63; NYSE Composite 9,865.77 +16.86

Market internals expressed the tepid tone. Advancing issues were ahead of decliners by a slim 5-4 margin while new highs rebounded over new lows, 264-105.
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The high-low see-saw is presaging a new round of buying, which should coincide with the release of second quarter earnings reports by mid-July.

Oil ticked up 60 cents to $69.57. Gold and silver made minor moves to the positive in a vain attempt to recover some of the massive losses over the past 3 weeks. Both metals are hovering around inflection price points, but the potential for an outright price collapse is high.

With the Fed meeting a fleeting memory, investors can focus more on economic reports and earnings, the real drivers in the market.

An aside on some picks and pans. Three that I called short, Yahoo, Ebay and Google, were all down marginally. Marvel Enterprises, my one pick to move upwards, gained 7 cents and was up 19 cents in after-hours trading.

Wednesday, June 27, 2007

Techs Lead Rally Ahead of Fed

With the Fed's FOMC deliberating interest rates and a statement due tomorrow, investors apparently felt little reason to continue the waiting game, sending stocks soaring in the afternoon of Wednesday's session.

Led by technology stocks, the NASDAQ led all other indices in percentage gain, up 1.21% as compared to the Dow's +0.68%

Dow 13,427.73 +90.07; NASDAQ 2,605.35 +31.19; S&P 500 1,506.34 +13.45; NYSE Composite 9,848.91 +74.62

Traders may have simply seen the market in a short term oversold position, moving quickly to bolster positions and snatch up bargains. With the Fed on track to keep rates stable at 5.25%, the risk of a downturn has virtually been eliminated, so buyers got busy and a little bit of piling on ensued late in the day.

Internal indicators were mixed, as advancing issues trounced decliners by a nearly 3-1 margin, but new lows kept ahead of new highs for the second consecutive day - 240-166 - suggesting that this mini-rally may only be getting started.

The Fed, as inconsequential as this particular meeting may be, still holds some power, though that is debated vigorously by proponents on both sides of the issue. Detractors claim that the Fed is antiquated and that their interest rate adjustments are generally lagging reality by 6 months or more and do more harm than good. Adherents of Fed-policy economics see the Fed as a necessary market mechanism, providing stability in an otherwise volatile environment.

In either case, there shouldn't be much to complain about with rates in a still-accomodative range. Rate increases, even to 6%, would still be in a comfortable range, though the chances for either tightening or loosening are roughly the same - nil.

Some people who haven't yet gotten the memo are those trading oil futures, up again today by $1.20 to $68.97. Since it is summer, the oil nutjobs seem compelled to keep oil prices near historical highs. Some day, hopefully, they will get their just desserts when the world's people begin to awaken to the realities of oil politics and the truth about world reserves (hint: there's enough to last another 60 years easily).

Apparently, gold and silver traders are beginning to acquiesce to the reality that the bull market in metals and - commodities overall - is waning and likely over and done with. Both metals were down marginally, seemingly unable to rebound off recent selling sprees.

Tuesday, June 26, 2007

Six Reasons to Hate Google

The markets vacillated wildly across and around the flatline on Tuesday in anticipation of the Fed's Open Market Committee meeting on Wednesday and Thursday. The Fed is expected to do noting regarding interest rates, so the markets ended up mostly marking time, drifting to the downside.

Dow 13,337.66 -14.39; NASDAQ 2,574.16 -2.92; S&P 500 1,492.89 -4.85; NYSE Composite 9,774.29 -32.89

Volume was on the heavy side with plenty of money changing hands and some consequence. Losing issues outpaced gainers by a 7-5 margin. New highs rolled over and died, finally, with new lows leading, 224-142.

Oil futures eased a welcome $1.41 to end the day at $67.77. The selloff in precious metals continued with gold losing $9.40 to close at $645.30. Silver lost nearly 5%, 60 cents, ending the day at $12.28.

In the absence of any meaningful market news (all will be forgiven after the Fed meeting), I give you my screeching anti-Google homily.

I generally dislike huge, multi-billion dollar companies as a rule, but Google is one over which I stumble at least a couple of times daily, and I felt it was time the Googlers at the Googleplex (there's a good reason to hate them right there - moronic nomenclature) - to be taken to task for being more hype than reality.

With the share price hovering close to all-time highs (as I write it's at 530), Google is the darling of Wall Street. No more time to waste, let's start the list:

  1. Google's share price. It's too expensive to own more than maybe 100 shares for most people, self included. A solid reason to hate them being that you can't even join them to any satisfactory degree. Worse yet, nearly 25% of the shares aren't publicly traded, meaning that the company, and it's 40+ p/e ratio is even more overvalued than at first blush.

  2. Valuation: Investors value Google at $165 billion. To put that in perspective, if you spent a million dollars a day, it would take you 452 years to spend all of it. Google will likely be a footnote in history books by then (circa 2469), which brings me to the next point...

  3. Google and their founders, Sergey Brin and Larry Page are so filthy rich because they invented what? A supposedly better way to find web sites CREATED BY OTHER PEOPLE. Yes, their vaunted algorithm is just an overzealous channel flipper. Big deal. Lots of other companies (Yahoo, MSN, have created search engines, many of which work just as well as Google's. And finding - and capitalizing - on other people's work, which is how search engine companies make money, is a purely parasitical practice.

  4. Google is a one-trick pony. They've got their search engine, but roughly 98% of their revenue comes from various ad schemes, serving ads on their search engine results pages (SERPs), and, again, on other people's web sites. All of that money is being made on the backs of small businesses (and some large ones).

  5. Secrecy: Google keeps most of their business practices shrouded under a cloud of secrecy. How their search algorithm works is secret. How much they pay out to publishers in their Adsense program is a secret. Disclosure is cause to be banned. As a publisher, I have only myself to blame for signing on to a closed-ended contract. I don't know how much Google keeps on every click on my site, but I'm certain it's more than the usual 15-20% agency fee. Likely, it's a lot more.

  6. The Don't be evil motto. This is probably the most annoying statement of anything I've ever read. Google has stepped on the toes of millions of webmasters, run afoul of copyrights in numerous instances and complied with the censorship issues of the Chinese government. Through all of this, they maintain a "good" image. The truth is they're as ruthless and profit-driven as any old-school corporation.

There are more reasons to dislike, despise or hold Google and their culture in contempt. These are but a few. A word of caution: reading this may cause you to lose PageRank. Just kidding, but, on a serious note, Google looks like the perfect short candidate at this time. In the second quarter, they eliminated a gaggle (of course, nobody knows for sure how many because that's a secret) of arbitrageurs from their AdWords/AdSense program and lost out on at least ten days worth of eBay advertising when the auction giant pulled all of their ad campaigns in response to Google's anti-eBay, pro-Google Checkout protest, planned to coincide with eBay Live.

Google backed down (yes, they're weenies, too) and eBay began running ads again, but it's estimated that eBay's annual spend is upwards of $300 million, so Google may be short about $8 million from that one source. Meeting their quarterly estimates may be a challenge this time around.

My suggestion is to buy August 480 puts at around $3.50 currently. Google announced earnings on the 19th and the options expire on the 20th, so the July puts are cutting it a little close. But should they miss, a 50-point shave could be in the offing. Happy Trading.

Monday, June 25, 2007

Markets Blink in Game of Chicken

Everything was going swimmingly on Monday, until... traders apparently remembered that this was Fed Week. All eyes on the Fed. Nothing happens until Ben Bernanke and the FOMC issues its directive.

The selling began about noon and really got rolling in earnest around 2:00, after the Dow was up more than 120 points earlier in the day.

Dow 13,352.05 -8.21; NASDAQ 2,577.08 -11.88; S&P 500 1,497.74 -4.82; NYSE Composite 9,807.18 -41.79

It's a foolish game of chicken the markets are playing with the Fed. The very worst thing the Fed could do at their Wednesday-Thursday meeting this week is raise interest rates 25 basis points (1/4%). They're not going to do it. Despite strong inflationary signals, there are also signs that the economy has slowed to a crawl.

So, what's about to occur? Nothing much. It's a week of noodling and doodling over numbers that, in the larger scheme, are rather mundane and inconsequential. Further, with Independence Day falling on Wednesday of next week, the markets will find it difficult to manage any kind of momentum.

Second quarter corporate earnings reports will begin trickling out the following week, so we could be trading in very sideways fashion for the better part of a month before any significance can be garnered from earnings and profits reports.

For the day, losers outdid gainers by a better than 2-1 margin and new lows finally got the edge on new highs, after days of closing the gap, 213-177. The margin is small, as are the chances for a heavy selloff.

To amplify just how much nothing is happening, crude oil futures rose an entire 4 cents to $69.18. More importantly, gold was off another $2.30 to $654.70 and silver is testing a multi-month low at $12.88, losing 14 cents on the day. There really is a bear in the mine.

Friday, June 22, 2007

Freaky Friday, But Room Below

Stocks continued in their recently intractable manner on Friday, as interest rates, high energy costs and the overall sustainability of the US economy weighed on markets.

Closing near the lowest levels of the session, the bellwether Dow Jones Industrials lost another 185 points to end the week down by 278 points, .

Dow 13,360.26 -185.58; NASDAQ 2,588.96 -28.00; S&P 500 1,502.56 -19.63; NYSE Composite 9,848.98 -111.81

The selling was as broad-based as the headline number would indicate, with only one Dow component - DuPont (DD) - showing up in positive territory.

Volume was moderate to heavy in advance of next week's FOMC meeting on interest rates and policy. Declining issues outpaced advancers by a 5-2 margin.

182 new lows nearly surpassed 196 new highs, suggesting further profit-taking, but that strong positions were still being maintained in top-performing issues.

There remains a cushion for stocks, with interim support in the 13,260 to 13,290 range on the Dow. Should the index fall through that level, a 4-7% decline over the short term could be in the offing. Even a setback of that magnitude would still leave the Dow - and likely, the other indices - in positive territory for the year, with the 3rd and 4th quarters still ahead.

Oil futures were higher again, with July contracts turned over to August. Light crude was up another 49 cents to end the week at $69.14.

While higher oil and gas prices have done damage to the overall economy, they haven't done enough to completely cripple it... yet, and prospects going forward are for some moderation as the summer holidays pass.

Prices at the pump are at a level that the oil companies have to see risk in the demand side of the equation. Any further hikes may induce American consumers to finally take draconian conservation measures, the result of which could cause an outright collapse in the industry and radically lower prices.

Don't count on it, though; the oil company execs have a couple of fingers firmly on America's arterial pulse and aren't about to kill the patient. They have gotten the price up above the desired $3.00/gallon for unleaded regular and will likely keep it there for the foreseeable future. It's a point at which their profits are already gargantuan and there's no need to go to the obscenity of outright gouging, even though many drivers presently maintain they're being gouged at current prices.

Gold and silver parted ways on the day, with gold higher by $2.80, closing at $357.00, as silver shed 7 cents to close at $13.02 per ounce.

Thursday, June 21, 2007

Joe Batt's Slam Dunk

As soon as I heard that perma-bull Joe Battipaglia - a frequent commentator on CNBC and elsewhere in the garf-spewing analyst world, was predicting a slow-down in the economy and expectations that corporate profits would wither in the second half of 2007, I knew I was right about the direction of the markets.

Mr. Battipaglia is an analyst for some big hot-shot Wall Street firm (it's really not important which one) and he's famous for being bullish during the entire dotcom collapse of 2000-2001 and forever after. He's actually been on somewhat of a winning streak over the past 3 years, as anyone who said the market would be up was right by default.

To my knowledge, today's prediction by Joe Batts is the first time he's ever hinted at being bearish, and, being such a reliable contrary indicator, I take his negative view as a huge positive "thumbs up" for US equities over the near term.

Today's turn-around, on the heels of Wednesday's baffling downdraft, was confirmation that Joe Battipaglia, along with most other Wall Street analysts, aren't worth a tenth of what they're paid. Many are nothing more than paid shills for their firm's largest holdings and the lot of them wouldn't know a sell signal if it bit them on their dialing fingers.

Dow 13,545.84 +56.42; NASDAQ 2,616.96 +17.00; S&P 500 1,522.19 +9.35; NYSE Composite 9,960.79 +55.71

While today's gains didn't pick up all of Wednesday's losses, it did stanch the selling amid some less-than-positive news (unemployment claims hit a 3-month high and oil futures soared early in the day), so the trend is still a friend, for now.

Beginning tomorrow, the waiting on the Fed game may begin, and the markets may trade in very narrow ranges unless there's some major news or surprising economic reports.

Advancers were ahead narrowly, nearly 5-4, though the spread between new highs and new lows tightened considerably, with 209 highs to 181 lows. Some fluctuation in the high-low scenario is expected and, to some degree, welcome, so the markets don't indicate overheating.

Today's market action could have been tied more than anything to oil futures, which actually fell 21 cents to $68.65 after hitting an absurd high of $69.85.

Gold dropped $5.40 to $654.20 and silver was down 16 cents to $13.09. How many ways can I say "These are bad investments. Sell?"

Wednesday, June 20, 2007

Traders Find Fork in Road

Baseball's Yogi Berra is known to have said, "When you come to a fork in the road, take it," and traders did just that today, taking the low road out of Wall Street in a spirited afternoon selloff which saw the Dow drop 150 points in the final three hours of trading.

Since events such as this do not exist in a vacuum, some perspective may be gleaned from underlying currents in the markets.

Dow 13,489.42 -146.00; Nasdaq 2,599.96 -26.80; S&P 500 1,512.84 -0.86; NYSE Composite 9,905.08 -121.44

While the pain was spread somewhat equally over the 30 Dow stocks, with only 5 issues showing up positive, two commodity-based companies, Exxon-Mobil and Alcoa, were the biggest losers. This coincided with a fairly significant sell-off in oil futures on higher supply figures and actually makes more sense than the ersatz argument that a slight rise in interest rates (the 10-year note was up a measly 0.037 to yield 5.14%) was the cause for today's decline.

Any indication that the oil tyranny is meeting resistance would be welcome news, but that barely fits today's declines. While oil fell 91 cents to close at $68.19, futures dropped as low as $67.35 during the day. Those numbers are still likely to be about $15 above reality, put in place by sheiks, and monopolistic traders who have kept the price of crude artificially high for better than two years. To say that the oil futures markets are not even partially rigged is tantamount to saying no baseball players ever took steroids.

So, what actually moved the markets today? Like a well-orchestrated ballet, this was probably organized selling at the highest quarters of the trading spectrum and may be only the beginning of a long unwinding of positions in blue chips and large-cap stocks.

While the numbers show a broad selling mood today - declining issues were 3-1 winners over advancing ones - there was little movement in the high-low metric. There were 374 new highs and 124 new lows, indicating that most stocks making recent moves were not affected and that the selling was concentrated simply on dumping perceived underperformers.

It bears watching whether this selling - on solid volume - will spill over into all issues and continue. The markets are more than ever on the look-out for a significant correction, especially with the Fed meeting next week to take a long look at base interest rates.

Traders may be forced into a position that the stock market indices cannot move forward without a few steps back, and it may be that the sluggish nature of the past few weeks is a precursor to a larger dip. With the potential for a recession slight, a correction would send a message that the markets are essentially sound and worthy of re-investment. The short answer to today's trade is that investors were freeing up cash for the next round of buying.

Yes, gold and silver were hit again today. If you don't like gold at $660 per ounce and are holding, you're likely to like it a lot less at $580. Bulls don't run forever, and the gold (and silver) bull has developed a noticeable limp.

Tuesday, June 19, 2007

Another Quiet Trading Day

Stocks moved marginally higher on Tuesday, after sobering news from the Census Bureau of the Department of Commerce, which reported that new home and apartment starts were down 2% in May.

Just like yesterday, when all indices moved in tandem (to the downside), today saw them all making positive noise.

Dow 13,635.42 +22.44; NASDAQ 2,626.76 +0.16; S&P 500 1,533.70 +2.65; NYSE Composite 10,026.52 +21.05

Volume was moderate to low, with advancing issues beating out decliners by a 4-3 margin. New highs were again solid at 374, as opposed to just 101 new lows.

Oil futures only moved up a penny to $69.10, while gold gained 4.80 to $664.70 and silver added 9 cents to $13.33.

This is shaping up to be one of the slower weeks of trading for the year as there is no noteworthy economic news of note and the Federal Reserve's FOMC meeting is scheduled for next week.

The market's in a holding pattern, waiting for some kind of catalyst before making its next move. The Fed meeting should provide some decision-making fodder.

Monday, June 18, 2007

Bailing Out: eBay and Yahoo

From time to time, I like to mention stocks I like or don't like. In all cases I will tell you whether I own the stocks (full disclosure). The stocks I am highlighting today - eBay and Yahoo - I do not own. Nor would I. These are two of the oldest internet properties and both have had their ups and downs, but lately, I see little to no upside, in terms of share price appreciation, for either of them.

Let's look at Yahoo first. Six years ago, they were the leaders in just about every measurable internet category. They had traffic, were the leader in search, news aggregation, games, etc. Then along came Google and stole their search crown. Other competitors sliced away at other categories. And while Yahoo still has impressive traffic numbers, they lack what every great internet company needs - innovation - and that's why their profits and share price are down.

Yahoo is exploring partnerships and integrations with local newspapers to improve the ad spending and reach in major local markets. This is a strategy that has great potential to backfire. Local ad spending on the 'net is the last great frontier, as yet unexploited by the giants. But large, clunky local newspapers, which have been slow to adopt best practices regarding their web offerings, while established entities, may not be the best prospects for innovative ad deals.

There's that word again. Innovation. Many of the largest chains of newspapers have been slow on the uptake and are still, like it or not, tied to the big bucks in print ad sales. The old tree-killing, mash-to-pulp-to-print mantra still resonates in newsrooms and ad departments across America. Teaching the old dogs of newspaper ad sales new tricks is going to be challenging, and likely unprofitable for some time to come, if ever. Ad reps at large newspapers have entrenched customer bases, many of them are in their 50s or 60s and make six-figures, so they're a tough bunch to crack. Why should they offer internet ads to their big-time clients? If it ain't broke don't fix it.

Yahoo would do better to seek out new internet-only local entities, like bloggers, wikis and ultra-local small websites. But they're stuck in that "bigger-is-better" corporate mindset, and that's yet another reason they're in failure mode.

Local ad markets represent some of the most fiercely-fought-over turfs in any selling regimen. Yahoo is in for a long, tough fight in which the landscape shifts from market to market and sometimes day to day. Good luck. It's a losing battle for both the newspapers and Yahoo. In the innovation war, they've come to a gunfight with a switchblade.

Just as i was finishing up this entry, Yahoo announced that CEO Terry Semel is stepping down and will be replaced by co-founder Jerry Yang. Leave it to Yahoo. News about their own company, and they get scooped by CNN Money. I'll stand by my prediction for short term gloom, however. This company needs more than a face-change at the top.

As for eBay, I'll just keep it simple. If it wasn't for their purchase of payment processor PayPal back around 2002, they'd be sunk lower than they already are. The company has made various large acquisitions that don't seem to offer much synergy. Take Skype, for instance. What good does a free long-distance telephone service offer a company that depends on online retail sales for 60% or more of its revenue?

If you're scratching your head on that one, you're not alone. Analysts, merchants and users of the big, fat internet auction shopping site are still trying to figure that one out.

eBay had made other questionable calls on acquisitions and they seem to have lost their focus, if they ever had one in the first place. It's almost as though they feel that the online auction format is not sustainable long term, and maybe they're right. They haven't made the one fundamental change to the auction format that could change the paradigm - taking the time element out of the auction. Most offerings on eBay languish for days before getting bids in the final minutes or seconds, if at all.

The chiefs at eBay haven't noticed that they could make more money with a better, more exciting user experience in the company's 10 year history. Already this summer, listings are down on the flagship US site. It bodes evil for the future of the auction king.

Once again, failure to innovate plagues this company as it does Yahoo. The only advancements eBay has made over the years to their core product are bloated extras that have the potential to boost their bottom line. eBay is missing the web's new wave in very noticeable ways.

Currently trading around 31, eBay should languish in the 20s for some time to come and underperform the S&P 500 through 2008, or until there's a management shake-up.

Yahoo, already trading slightly below 30, may make it's way down to the teens by the end of 2007. They've offered nothing new for so long, major shareholders may begin to bail soon.

Now, today's markets: Dull. With a capital D. Get used to it. It's summer and these kinds of days are the norm. Volume was very light and the indices didn't budge far from the flat line, though they all closed on the downside.

Dow 13,612.98 -26.50; NASDAQ 2,626.60 -0.11; S&P 500 1,531.05 -1.86; NYSE Composite 10,005.47 -8.46

Declining issues lead advancers marginally, by roughly a 10-9 margin, but new highs still superseded new lows, 427-92.

Oil was up over $68... and $69, ending $1.09 higher at $69.09. They're out of their minds, these oil people, and they deserve to see everyone in America walk to work or take alternative transportation for two months. It won't happen, but they, the sheiks and the Big Oil execs deserve a fate much, much worse than death. They're raping the US economy, the world economy, and trying to rape Iraq and next, Iran. Brutal.

Gold and silver went in opposite directions, but not far. The metals are so dull, they are barely worth reporting. A timely strategy might be to sell all your precious metal holdings now and buy back in a year from now. These particular commodities have had their days in the sun and have been treading water for months. A major fall is coming soon.

Friday, June 15, 2007

CPI Up, so Gas Up, Fatten Up and Stock Up

If the inflationary environment in which we live is beginning to tear away at your pockets, it's due time to buy some stocks. Everything is going up, and mostly, energy. I suggest you purchase some shares of your local utility company and at least one of the big oil companies - Exxon/Mobil, Chevron, British Petroleum or Royal Dutch Shell (if you're feeling a bit foreign). An agrifood conglomerate like ADM might also make your list.

With prices rising, the companies which supply the energy and foodstuffs of our nation are passing those higher prices on and making healthy profits. Owning some shares of the right companies will keep you somewhat even with them. Somewhat...

Dow 13,639.48 +85.76; NASDAQ 2,626.71 +27.30; S&P 500 1,532.91 +9.94; NYSE Composite 10,013.93 +87.14

The Consumer Price Index rose 0.7% in May, but stripping out food and energy, the core index was up only 0.1%. Translated, that means food and motor fuel (gas) was much costlier than in April. No surprise there for anyone who drives and pays for their own gas. Motor fuels were up a nifty 10.4%, which pretty much overshadowed any increases anywhere else, though prices for meats have been rising steadily. Through the first five months of 2007, beef prices are up 5.1%, poultry, 4.3%, and pork, 3.4%. Vegans rejoice.

Stocks were also assisted by another dip in the 10-year bond yield, back to 5.171% after cresting over 5.20% earlier in the week and causing a mini-panic on Tuesday.

As weeks go, this one was stellar. The NASDAQ advanced 53 points or 2%, hitting a 6-year high on Friday. The Dow was up 215 points, or roughly 1.5% and the S&P 500 was up 26 points, about 1.7%.

On the day, advancing issues overwhelmed declining one by a 5-2 ratio, while 565 new highs subsumed the paltry 95 new lows.

Oil peaked above $69 per barrel (a 2007 high) before backing off to close up just 35 cents at $68.00.

Gold and silver were both up, but hardly anyone cares anymore.

Thursday, June 14, 2007


Stocks moved ahead again as the May core PPI figures showed a mere 0.2% increase. Of course, the headline number (which includes food and energy) was up a whopping 0.9%, or an annual rate approaching hyperinflation. Traders took this information in stride, boosting stock prices for the second straight day and looking forward to a positive close for the week.

Dow 13,553.72 +71.37; NASDAQ 2,599.41 +17.10; S&P 500 1,522.97 +7.30; NYSE Composite 9,926.79 +63.29

Bonds were higher, but not startlingly so, with the 10-year note up 0.017 to end the session at 5.217. Investors are accepting just about any kind of news today and using selective reasoning to accentuate only the positive and put an optimistic spin on anything that might cause the long, long rally to derail. So it was with today's PPI number. In another time, such a huge jump might have induced panic. Not so today, as apparently, a 10.2% increase in the price of gasoline is ignored in the face of the "benign core rate." It's pretty much a specious argument, but it's what moves the markets today.

Today's upside was broad-based, with 348 new highs against 120 new lows and a 5-3 edge for advancing issues over decliners.

Once again, the US dollar improved against foreign currencies, including the Yen and Euro, reflecting a possible bottom in the long downtrend of the greenback.

With stocks higher and nobody apparently concerned about the high prices for petroleum products, oil traders sent crude futures skyward, to $67.65, a gain of $1.39 for the day. Gold and silver remain stuck in their respective channels. Gold gained $3.20 and silver rose 11 cents.

The current state of affairs certainly seems rosy, though the PPI figures cannot just easily be dismissed. Energy costs have become a major factor in the lives of every American and all businesses worldwide, without anybody lifting a finger to make needed adjustments in lifestyle or best practices. If crippling energy bills become the norm, this 53-month bull run could become memorable as the last grand hurrah.

Wednesday, June 13, 2007

Stocks Soar; Dow Posts Best 2007 Gain

Investors responded positively to a 1.4% gain in May retail sales and positive news from the Federal Reserve's Beige Book, which witnessed moderate growth in the economy and reported inflationary pressures as minimal in many areas of the country.

The Dow posted its best one-day gian since July 2006, and other indices showed similar impressive advances.

Dow 13,482.35 +87.34; NASDAQ 2,582.31 +32.54; S&P 500 1,515.67 +22.67; NYSE Composite 9,863.50 +139.01

Some easing in the bond market also fueled the rally in stocks as the 10-year note fell back to a 5.21% yield, though oil prices continued to charge ahead.

Light crude on the NYMEX priced out at $66.26 per barrel, an increase of 91 cents. Gold and silver were marginally lower, and remain moribund.

Internal indicators revealed that the rally was widespread, with advancing issues trouncing decliners by a 7-2 ratio. There were 242 new highs and 191 new lows - a positive development that we've been hoping for - equilibrium and stability.

With some important economic numbers due out tomorrow (PPI) and Friday (CPI, Capacity Utilization), get ready for a stunning close to the trading week, especially if those numbers follow today's lead set by the Beige Book reading.

Tuesday, June 12, 2007

Inflation, Anyone?

Stocks on US indices closed lower again on Tuesday following a lackluster performance to open the week's trading. While investors hunt for bargains, search for insight and generally take whatever profits are available, many were glued to the bond bourses, which pushed yields to recently-unprecedented levels. The 10-year note closed with a yield of 5.248%, up more than 100 basis points from yesterday.

Dow 13,295.01 -129.95; NASDAQ 2,549.77 -22.38; S&P 500 1,493.00 -16.12; NYSE Composite 9,724.49 -117.24

As interest rates rise, so do inflation fears, or vice versa, depending upon which side of the fence you're so inclined. Consumers have watched energy - and to some extent, food - prices climb without pause for the past six months, and the pain at the pump is finally spreading to stocks and bonds.

It's little wonder that bond yields are rising. They've been at or below the level of inflation for years. The current upticking indicates a number of thorny issues are about to slap the US economy in the face: a slumping housing market, stagnant wages, China's floating of the Yuan and the twin deficits produced by the government in trade and budget, to name just a few.

The price increases in just about everything, juxtaposed against a weak dollar, are making investments in US stocks somewhat difficult to swallow for foreigners who must fund US excess or watch as the entire global economy dissipates into the ether. They don't have much of a choice, but there are moments - like the past few weeks - in which they take stock, pause, and sell. It isn't perfect science, but it does make as much sense as any other explanation for recent market ups-and-downs.

Today's dip certainly cannot be laid at the feet of the oil barons. The price of their filthy, slimy lucre actually declined by 62 cents, though it's still a pricey $65.35. The mini-rally in metals was cut short as both gold and silver gave back much of yesterday's gains.

Tracking the internals, today's market losses were indeed as bad as they looked. Declining issues overwhelmed advancers at nearly a 5-1 rate. New lows were over the top at 236 as compared to the paltry number of new highs: 124. Not to worry. We've been down this particular road before and won't become concerned until the new lows reach and remain above 320.

Relax, we're in an adjustment/consolidation phase.

Monday, June 11, 2007

Half A Loaf

US markets witnessed both sides of the ledger on Monday as the Dow and NASDAQ closed marginally lower while the S&P 500 hung on to a measly 1-point-and-change gain. Following last week's roller coaster, indecision was the rule of the day, amid low volume, though typical for a summer session.

Dow 13,423.01 -1.38; NASDAQ 2,572.15 -1.39; S&P 500 1,508.97 +1.30; NYSE Composite 9,941.73 +15.66

Advancing issues lagged decliners 11-10, though some relative strength was shown in the 166 new highs as compared to 126 new lows.

Interest rates and inflation are still weighing on investment decisions. The benchmark 10-year note is yielding 5.137%, a tempting rate for conservative investors. Unfortunately, with inflation galloping along at a 3% or better rate, the 2% spread is only a hedge or a way to preserve money rather than making some.

On the heels of the bond momentum comes a healthy gain in gold and silver. Both were up on the day - gold by 8.70, to finish at $659.00; silver gained 24 cents to $13.28. The metals have been stuck in a range for 14 months and are closer to the low end of their respective ranges than the high end and have not moved ahead since the spectacular bull stage of 2002-2006.

However, with bonds rising, the metals should follow, though they were likely overbought at the high ends of the 2006 rally. Thus, they also serve only as hedges, not investments unless one is willing to actively trade them through their troughs and peaks.

Oil was back up again by $1.21, closing at $65.97. This price is still close to catastrophic for the US and world economy and not enough is being done by either the financial world, environmentalists or governments to force the high prices back down to more comfortable levels, say, $45-50 per barrel. The protracted expensive nature of crude and distillates has become a significant drag on growth as the most recent GDP illustrates.

The longer the oil companies and sheiks are allowed to maintain near-predatory pricing, the greater the threat to standards of living worldwide. Without relief, costs for almost everything will continue to spiral higher.

A few thoughts for tomorrow and the next day.

Friday, June 8, 2007

You Knew Friday Would Be Good, Didn't You?

After taking a three-day beating, US investors struck back with a vengeance, sending the Dow up more than 150 points in a broad-based rally that took all indices higher.

Dow 13,424.39 +157.66; NASDAQ 2,573.54 +32.16; S&P 500 1,507.67 +16.95; NYSE Composite 9,826.07 +105.13

Even though the volume wasn't quite as brisk as yesterday's, it's worth pointing out that money is on the move. The same stocks that were beaten down on Tuesday, Wednesday and Thursday were not bought up on Friday. Sector rotation - and migration from blue chips to techs - and repositioning is what this week was all about.

Investor confidence was buoyed this morning by news that the trade balance in April shrank to a point that we imported only $58.5 billion more than we export. Most analysts were looking for upwards of a $63 billion imbalance. While the number is still shocking, any improvement is positive for the US business and labor markets, and, to some degree, the country as a whole.

Advancing issues overwhelmed decliners by better than 2-1, and while new lows still outdid new highs (159-108), that reading is less frightening than a day ago. Understandably, stocks were moving in both directions, but there was still some leftover selling to be done on some of the dogs. What would be good to see in the high-low reading is a period of fluctuation, indicative of a market settling in, readying for another leg higher, which is undeniably in the cards.

The dollar strengthened against the Euro on the day, which was another good sign and the price of crude was drubbed back to a more realistic level, losing $2.17 to close the week at $64.76.

Once again, the metals took a beating. Gold was down a whopping $14.90 to $650.30. Silver lost 44 cents to close at $13.04. This signals defeat for the proponents of $800 gold and $20 silver. That bull has all but died a painful death.

Overall, it was a week of readjustment, albeit lower, but the markets are primed for some colossal gains in coming months.

Thursday, June 7, 2007

Stocks Rocked Again

This week is turning into one big downer for investors. The Dow is down over 400 points on the week and the other indices have experienced similar losses. What's troubling is that each day has been worse than the preceding one. If this trend continues into Friday, it could be a serious melt-down.

What has changed on Wall Street is nothing more than perception. The US economy didn't suddenly implode, only the point of view from the standpoint of institutional investors. There are two drivers currently: interest rate fears and profit taking. And while the latter is likely the main cause of the three-day downturn, either is cause for serious alarm over the long term.

Dow 13,266.73 -198.94; NASDAQ 2,541.38 -45.80; S&P 500 1,490.72 -26.66; NYSE Composite 9,720.94 -174.07

Some cause for concern in the internal indicators as declining issues outdid advancing ones by nearly a 5-1 margin. That's steep. Also, the new highs / new lows indicator has flipped to the negative, with 126 new highs and 197 new lows. That's the first negative reading in over 6 weeks.

The highs/lows indicator is of particular interest if it is persistent. If this current spate of selling is going to last, we would like to see this indicator negative for at least 3 straight days and this is only the first. It may just be a short-lived summer swoon, and the overall heavy volume today would seem to be indicative of that. There's money being taken off the table. It will soon be searching for a new home and there likely location will be in US equities.

Lost amid all the stock selling and bond wrangling (the 10-year topped 5% on Wednesday and hit 5.13% on Thursday), is the recent strength in the dollar against selected foreign currencies, especially the British Pound and the Euro. It's shown some stability for a change and change, in that regard, is good.

The sore spot still remains. Oil jumped another 97 cents on the day to close at $66.93, and with that kind of pricing in place, there will be no relief at the gas pumps this summer. The wear and tear on Americans' pockets and psyches is palpable. If consumer spending takes another hit - coupled with inflationary pressures - the Big Oil companies can be singled out as villains, and rightly so.

Gold tumbled nearly $10. Silver lost 24 cents. Food prices continue to escalate.

Tomorrow will be the most interesting day of the week to see if the trend continues or buyers find bargains in the bushes.

Wednesday, June 6, 2007

Another Tough Day for Traders

If you thought Tuesday was a downer, Wednesday was worse, though grizzled veterans will tell you that this kind of mini-correction was necessary. To say that the market was overbought would be a gross understatement. The Dow was setting new records just about every day for roughly a month and the S&P fitfully followed suit recently.

This was mostly profit-taking, some re-positioning of portfolios and a little fear factor - a good thing, a little fear is. It keeps everyone honest and markets orderly.

Dow 13,465.67 -129.79; NASDAQ 2,587.18 -24.05; S&P 500 1,517.38 -13.57; NYSE Composite 9,895.01 -106.46

This brief hiatus from mad-cap shopping for stocks shouldn't last long as the fundamentals haven't changed. It's actually providing a nice opportunity to jump in on recent downturns because the market is almost certain to leap higher over the summer months... unless the Fed decides it's time for a rate hike. Their June meeting is less than 2 weeks away and with energy and food prices on the rise, there are murmurings of a 25 basis point hike.

The drop today was more broad-based than yesterday's action. Declining issues led advancers by nearly a 3-1 margin and the number of new lows (125) nearly matched that of the new highs (157). If the high-low indicator goes negative, we may see a longer, deeper trough than is expected, but with the hordes of cash taken out today, that's less than a 50-50 proposition.

Oil remains the key inflator, up again today another 35 cents to close at $65.96. Gold and silver were marginally higher as well. It's the new paradigm - spend to live. A lot of precious metals traders are losing faith and keeping a lid on the usual inflation hedges.

The Fed may have no choice but to raise rates a little as the EU Central Bank hiked their key rate today to 4%. If the Fed is smart enough, they should see a neutral stance as bullish for the dollar. It's been steady of late and a turn-around - or at least some show of strength - would be beneficial to US interests.

Monday, June 4, 2007

Not Great, But Good Enough

US indices registered another positive session on Monday, even though the gains were marginal at best. Still, investors shrugged off weekend terrorism threat news and another big drop in China's markets.

Dow 13,676.32 +8.21; NASDAQ 2,618.29 +4.37; S&P 500 1,539.18 +2.84; NYSE Composite 10,064.45 +21.45

While investors in China's emerging market adjust to the realities of government intervention and an overheated environment, US shareholders are singing the praises of being old, established and considered ultra-safe.

As America slept, the Shanghai Composite divested itself to the tune of an 8.3% drop, the largest one-day decline since
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the 8.8% collapse in late February that triggered market selloffs throughout the global financial community. The Dow lost over 400 points then, but today's reaction was more of a yawn than a shriek.

Please send Alan Greenspan a note that he's no longer relevant.

Even though overall market gains were negligible, internal numbers were solid. Advancing issues outperformed losers by roughly a 5-4 margin. New highs trounced new lows, 545-69, an eye-popping differential.

As long as the A-D and High-Low lines remain so heavily positive, this market has no possibility of turning lower any time soon. Despite high gas prices and an inept, ineffectual federal government (that may be a good thing), stocks continue to be superb short term instruments.

One reason for the unprecedented long bull run may be summed up in three words: supply and demand. The heavy handed private capitalists have been snapping up shares and taking them private. At the same time, a slew of companies have been engaged in huge stock buy-back programs. While each of these activities indicates some degree of underappreciated value in US shares, they both dilute the number of shares available to the investing public.

Money has to go somewhere, and those shares previously invested in companies which have been taken private, gets re-invested elsewhere. Stock buy back programs takes more shares away from the investing public. According to Keynes, insufficient availability always results in higher prices, every time, and stocks are no different than apples or iPods.

With those two trends in place, expect public shares to continue rising for some time to come.

Checking commodities, those things which actually are in somewhat limited supply, oil gained another $1.13 to $66.21. Gold and silver barely budged. Grains and other foodstuffs were equally somnambulant.

Today was not a great day, but by any measure, it was a good one.

Saturday, June 2, 2007

Dow, S&P, NYSE Composite Reach New Highs

Dow 13,668.11 Up 40.47 (0.30%) Nasdaq 2,613.92 Up 9.40 (0.36%) S&P 500 1,536.34 Up 5.72; NYSE Composite 10,042.60 +63.96

Advancers led decliners by a 2-1 margin. 641 new highs, 79 new lows.

Oil was up $1.07 to $65.08. Gold levitated $10.20 to $676.90 and silver was higher by 27 cents to $13.74.

The Bull continues to run. Have a nice weekend.