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.

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