Monday, December 31, 2007

Stocks Stumble at Year's End

Recap of 2007 Predictions and 2008 Forecast Follows Regular Report

On the final day of 2007, stocks continued doing what they have been accustomed to in the final 5 months - they sold off from open until close.

In a market devoid of conviction over the past two weeks, stocks slipped at the opening bell, recovered some ground in the afternoon, but collapsed again into the close. If November and December are any harbingers of what's ahead, 2008 looks to be shaping up as a very challenging environment for value investors.

Dow 13,264.82 -101.05; NASDAQ 2,652.28 -22.18; S&P 500 1,468.36 -10.13; NYSE Composite 9,740.32 -63.57

Looking at just the Dow, which closed at 13,930.01, the index finished up the final two months - usually among the best for investors - nearly 700 points lower, including a ghastly close of 12,743.44 on November 26, the first "official" day of the holiday season. The number and date were notable, marking a 7-month low for the blue chips.

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While the final close was an improvement, December still registered a loss of over 100 points for the entire month, as markets took a huge bounce off that Nov. 26 low, stabilized in the mid-13,000s, but relented over the final two weeks.

On the day, declining issues stood ahead of advancers, 3435-2983. New lows closed out the year by demolishing new highs, by a 511-101 score.

Both the advance-decline line and new highs-lows have been decidedly negative for the final two months, indicating nothing but trouble heading into the new year. Stocks may be more fairly valued than they were during the summer, but the mood of investors has been significantly shaken by a continued stream of bad news from housing and credit markets.

Commodities were nearly at a standstill on Monday, with oil losing 2 cents to close at $95.98, gold off $4.70 to $838.00 and silver higher by 3 cents to $14.92.

NYSE Volume 2,440,879,750
NASDAQ Volume 1,516,866,750

How I did in 2007

Taking a look back at my market predictions for 2007, I should give myself some kind of award, because I not only was superbly close at the 2007 finish, but also foresaw much of the range. While my crystal ball anticipated highs for the Dow (~16,000) that were far ahead of reality, I caught the downdraft in the second half correctly. My analysis of the diverse indices was spot on, with, as expected, the NASDAQ leading the way, followed by the Dow and then the S&P.

Here's what I said at the end of my article on December 29, 2006:
Expected gains are 7% on the Dow, 12% on the NASDAQ and 5% on the S&P 500 at year end, though the range, especially the lows, could be dramatic.

Here's the reality:
DJIA: 12/29/06 close: 12,463.15; 12/31/07 close: 13,264.82; +6.43%
NASDAQ: 12/29/06 close: 2415.29; 12/31/07 close: 2,652.28; +9.81%
S&P 500: 12/29/06 close: 1418.30; 12/31/07 close: 1,468.36; +3.53%

My commodities forecast was so far off (I liked oil, gold and silver lower or stable) I'm not going to even comment and, since my niche is stocks, I won't make predictions on commodities any more.

2008 Forecast

With the housing market in the most severe slump in over two decades and a wrenching credit crunch limiting the lending stature of major financial institutions, 2008 looks to be the year the excesses of Bush/Greenspan policies finally begin to be paid back.

The hands-off, loose credit conditions which held sway over the first six and a half years of the promising new millennium have given way to frightened markets, shocked investors and a slew of scary predictions for the US economy and the stock markets in 2008.

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To blame Bush entirely for the current distress would be missing the point completely. It was Greenspan's Fed policy in the early years of the administration - especially his 1% "emergency" federal funds rate in 2002 and 2003 that set the stage for the subprime meltdown and credit crises in the banking sector.

2007 saw the unwinding of the mortgage market and the packaged loans that were the bread and butter of hedge funds as well as established financial institutions. Once mortgage borrowers began to default in droves, these SIVs (structured investment vehicles) fell out of favor, many of them selling off at pennies on the dollar.

The 2007 wound down, we were witness to major American financial institutions like Merrill Lynch, CitiGroup and others being forced to sell assets to foreign concerns from the Middle and Far East to secure their vary survival.

The worst is yet to come, however, as more subprime and adjustable mortgages are due to reset in 2008, which is likely to spark another round of regrets and losses from the very same banks and financial companies.

In turn, the mistrust in credit markets will lead to lower overall activity, especially in Merger and Acquisition activity while strapped consumer finally feel the pinch as well from higher energy and food prices. The only prices falling will be those of houses and stocks.

Credit concerns and the housing slump will dominate headlines though the first six months of the year, giving way to new hope for a Democratic president later in the year. But, the damage already having been done, Bush and Company will turn over to their successors an economy if not in a recession, certainly close to one.

For the full year, it's difficult to see stocks and indices any higher in 2008 than where they are right now. Life will go on, but in a much tougher environment for many Americans. The natural cycle of boom-bust will see companies from all industries laying off workers. By the end of either the first quarter or second, the US economy will almost certainly be in recession. GDP growth will be no better than 1.5% for the year and may actually turn in a negative performance.

With a recession broadly defined as two consecutive quarters of negative GDP growth, my money's on the 2nd and 3rd quarters being the worst as the Fed fights - to no avail - to fend off the inevitable.

Speaking of the Fed, it will be realized that they are somewhat impotent when it comes to using policy and rate changes to engender economic prosperity. Whatever the Fed does - and their most likely tack will be to lower rates to 3-3.5% - will be largely too little and too late.

There comes a point where pain must be spread around, and that point will occur most poignantly in the Spring and Summer of 2008.

My assessment of the year ahead is nothing short of dismal. Excesses must be wrung out and losses in US equities will be widespread. Profits will take a beating as consumer spending dries up and companies scramble to reorganize, downsize and redevelop.

The S&P 500 will lead the way lower, checking in at the end of 2008 with a 12% loss, though it's likely to be much worse during the Summer and into the fall. The Dow will end the year 9% lower, with the NASDAQ down 7%.

The mid-to-late-year losses will be more dramatic, however. Expect bottoms to be put in at roughly the 1230 level on the S&P, 11,120 on the Dow and 2250 on the NASDAQ. And even though markets may recover somewhat in the last quarter of 2008, it may take a while longer for investor confidence to return to markets. 2009 may just be the beginning of a long, slow tortuous recovery.

The US will not be the only country suffering. Europe, Japan, China and Japan will also be hard hit. Mostly spared will be resource-rich nations such as Canada, Russia and much of South America and the Middle East. Australia will muddle through, though they will still be dealing with an intense, decade-long drought.

Get ready. 2008 figures to offer a very bumpy ride for your money.

Friday, December 28, 2007

Housing Woes Weigh on Marginal Gains

The broken record that continues to skip at the passage... housing is down, housing is down, housing is down... damaged stocks again as 2007 drew to within one trading day of its conclusion.

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Stocks were stuck in a narrow range after initially lifting off to the highs of the day just minutes after the opening bell. However, when the November New Home Sales [PDF] showed a decline of 9%, down to 647,000, stocks sold off and spent the better part of the day hovering just below the break-even line.

Dow 13,365.87 +6.26; NASDAQ 2,674.46 +2.33; S&P 500 1,478.49 +2.12; NYSE Composite 9,803.87 +24.57

For the (holiday-shortened, 3 1/2 day) week, the Dow shed 85 points, the S&P lost 6 points, the NASDAQ was down 18, while the NYSE Composite ended 16 points higher.

On the day, declining issues bettered advancers by a narrow margin, 3352-3033. New lows once again thumped new highs, 434-105.

Commodities were mixed. Crude oil fell 62 cents to end the week at an even $96. Gold was boosted $10.90, to $842.70. Silver added 8 cents to $14.90.

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With just one more session remaining on Monday, Dec. 31, all major indices will - unless there's a dramatic crash on New Year's Eve day - show gains for the year, though all of the indices hit their highs in early August and again in October, with November registering as one of the worst on record and December producing a fairly flat performance.

Looking ahead into 2008, January almost certainly will be a lackluster month, setting the stage for what appears to be a challenging year for stocks and the general economy.

On Monday, we'll take a look back at my 2007 predictions and I'll offer my views on 2008.

NYSE Volume 2,350,111,000
NASDAQ Volume 1,270,277,125

Thursday, December 27, 2007

Back to Selling Stocks

It could be year end tax selling. It could be fears of further deterioration in the banking sector. Maybe people are just taking profits after an unhealthy run-up through the Christmas holiday. Whatever it was, investors were selling stocks in bunches on Thursday, with only two days remaining in the trading year of 2007.

Dow 13,359.61 -192.08; NASDAQ 2,676.79 -47.62; S&P 500 1,476.27 -21.39; NYSE Composite 9,779.30 -114.85

Stocks gave back most of the gains achieved over the last three trading days - Dec. 21, 24 (half-session) and 26 - but there's a large gap between today's closing prices and 13,250 on the Dow. Markets hate uncertainty and gaps, which always get filled, and this 100-point gap n the Dow is certain to be filled soon.

The major drivers on the day were Goldman Sachs (GS) assessment of the banking industry, in which they generally hammered a few of their brethren (eating each other, a sure sign of bear markets) including CitiGroup (C), JP Morgan (JPM) and Merrill Lynch (MER).

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The Goldman Sachs note was especially savage concerning the prediction that CitiGroup (C) might lower its dividend by 40% and write down as much as $18.7 billion in the fourth quarter. CitiGroup closed down nearly 3% at 29.56.

From the tone and tenor of Goldman's analysis, the subprime and other credit concerns are far from resolved and will continue to drag on financial stocks and the general market at least through the first quarter of 2008, and likely longer.

Once again, all ten sectors finished in the red, after November Durable Goods Orders posted a 0.1% gain when analysts were expecting a 2% rise. Also weighing on the market was the assassination of former Pakistani Prime Minister Benazir Bhutto.

Declining issues held an enormous 3-1 advantage over advancers, with 4902 on the downside and just 1493 posting gains. New lows continued their dominance over new highs, 376-145, as has been the case for the past two months with the exception of just two days in December. The persistence of new lows exceeding new highs has been an absolute sell signal throughout this period. Investors could not have expected a longer or better warning to get out of equities.
Oil continued to march ahead, gaining 65 cents to close at $96.62. Gold finished up $2.30 at $831.80, while silver dropped 2 cents to close at $14.82.

With the pallor cast over the street by Pakistani politics and the Goldman Sachs report, the holiday spirit has all but vanished. Friday could go either way, though a continuation of the bearish conditions would seem appropriate.

With US financial institutions having to sell off portions of themselves to foreign entities, somebody needs to sound the alarm. I've repeatedly warned that we may be on the cusp of a major financial disruption and I will reiterate that sentiment as often as necessary. If you are not already at least 30-50 in cash, money markets or precious metals, you are needlessly putting your money at risk.

While the major indices are all but certain to show gains for the year, they are going to be small, likely in the range of 5-8%.

NYSE Volume 2,322,153,250
NASDAQ Volume 1,405,128,625

Wednesday, December 26, 2007

Small Change on Slow Day

Stocks were barely budged on Wednesday, as investors took an extended hiatus following the Christmas holiday. Volume checked in with one of the lowest readings of the year.

Underpinning the narrowly upward movement were hopes that retailers would see something of a rebound in the days after Christmas, as holiday sales overall have been less-than-inspiring.

The most recent figures suggest that retailers saw a 3-4% increase over last year, though specific companies, particularly Target (TGT) have warned that same-store sales may have actually fallen for the post-Thanksgiving period.

It was likely a good thing that traders were mostly on the sidelines on Wall Street, with more bad news in the housing sector weighing on stocks. The Standard & Poor's/Case-Schiller home price index showed home prices declining for the 10% straight month. The October decline was the largest since 1991. The index tracks home prices in 10 metropolitan areas.

Dow 13,551.69 +2.36; NASDAQ 2,724.41 +10.91; S&P 500 1,497.66 +1.21; NYSE Composite 9,894.15 +20.67

Advancing issues narrowly edged decliners for the third straight session, 3366-2960. New lows retained their lead over new highs, however, 256-238. The high-low metric has stubbornly resisted rolling over in favor of the new highs, suggesting that any rally in stocks is going to be short-lived and devoid of breadth or depth.

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The specter of continuing calamities in the housing arena and the unwinding bank/credit crisis is aligning with a growing chorus of economists suggesting that a recession may be difficult to avoid in 2008.

The price of crude shot up another $1.84 on Wednesday, as the combination of lower US inventories and fears arising out of Turkish air strikes in Northern Iraq sent crude to a closing price of $95.97.

Gold also showed healthy gains, rising $13.00 to $829.50. Silver also was higher, up 18 cents to $14.84.

With just three more trading days remaining, 2007 is on track to record positive gains on all of the major indices, despite all of them being off their 52-week highs.

Looking ahead, though, investors are skeptical about 4th quarter profits in a variety of industries and worry that the weakness in housing could spill over into the general economy. While an unwinding of a 50+ month-long bull market would not be surprising, how far and for how long stocks fall is still a matter of considerable speculation, with the majority of analysts seeing moderate growth at best for the entirety of 2008 and some kind of recovery in 2009.

NYSE Volume 2,010,497,250
NASDAQ Volume 1,260,348,625

Monday, December 24, 2007

Short Session Gains

On the day before Christmas, stocks flew higher in a shortened session, with the NYSE Composite leading the way.

The advance was broad, lifting all sectors. All of the major indices were markedly higher right out of the gate and remained in positive territory until the 1:00 pm close.

Dow 13,549.33 +98.68; NASDAQ 2,713.50 +21.51; S&P 500 1,496.45 +11.99; NYSE Composite 9,873.48 +85.55

Following Friday's explosive rally, advancing issues overwhelmed decliners, 4380-1861. New lows squeezed past new highs once again, 240-209. That particular indicator is on the verge of tipping over, and judging from past history, the final week of trading is usually bullish. Indications are for more gains for the remainder of the year, though volumes may be quite a bit lower than normal.

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Oil priced 82 cents higher, closing at $94.13. Gold was $1.10 higher, ending at $816.50, while silver was up 17 cents to $14.66.

Once again, befitting of the season, everything was up. Apparently investors just can't get enough of the jolly spirits and are willing to buy without regard to fundamentals.

Well, after all, maybe they're in a giving mood...

Merry Christmas

NYSE Volume 1,267,431,125
NASDAQ Volume 778,627,250

Friday, December 21, 2007

Santa Claus Rally At Last

Set against the backdrop of outstanding consumer spending figures for November, stocks exploded to the upside at the open on Friday and extended their gains throughout the session.

Dow 13,450.65 +205.01; NASDAQ 2,691.99 +51.13; S&P 500 1,484.46 +24.34; NYSE Composite 9,787.93 +165.66

Consumer spending was up a very healthy 1.1%, the best one-month reading since May, 2004. Naturally, with the figures coming from the Commerce Department, we take them with the appropriate dosage of salt and doubt. We may find in a month or two that the numbers are revised lower, or, worse yet, that December's figures - which are in fact much more important - were not very solid.

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Reports have been trickling out that retailers are a touch worried heading into the final weekend before the holiday. Most of what's being whispered is that sales will hold their own, may be better than last year, though nobody's betting the house on it.

Chances are good that retailers will be a mixed bag, as they usually are. Some have a better mix, some do better marketing, some have catchier ads than others. It's a fiercely competitive market at the hottest time of the year. While most of us go through the rituals of mall-walking and discount-seeking, behind the scenes it's a vein-popping stress-filled environment.

But, Americans being the generous lot that they are, many will spend beyond their means during this over-commercialized bargain hunt. Merry Christmas to anyone who works in retail. You're the last line of defense against outright mass insanity.

As one might expect, advancing issues hammered decliners on Friday, 4629-1767 (a 5-2 ratio), though new lows maintained their advantage over new highs, 392-235. Stocks broke through some upside resistance at 13,300, which could be notable as we head toward the end of 2007.

In keeping with the holiday spirit, oil priced $2.25 higher, closing at $93.31 per barrel. Gold was $12.20 stronger, to $815.40; silver was up 15 cents to $14.49. On the last full trading day before Christmas, everything was up.

Happy Holidays!

NYSE Volume 4,501,638,000
NASDAQ Volume 2,697,700,500

Thursday, December 20, 2007

Credit Concerns, but What Keeps Stocks Up?

In case you haven't noticed, there's a rather large concern in the banking community over what's being described as a credit crunch.

For the uninformed and misinformed (no shame there, it's a complex matter), here is a good article outlining the details. Banks and associated financial firms are about at their breaking point, with more bad news coming out of the sector every day.

Today's gems came first from Bear Stearns (BSC), which posted a $859 million loss after paying preferred dividends, or $6.90 per share for its fiscal 4th quarter. It was the first quarterly loss in the company's 84-year history. The firm took a $1.9 billion writedown in the quarter on mortgage-backed securities.

The second credit-related story was from the world's largest bond insurer, MBIA, Inc. (MBIA), which revealed the company's exposure to various collateralized debt obligations (CDOs) stood at more than $30 Billion, greater than the company's net value. Shares plunged 7.07 to 19.95, off more than 26% at the close.

Despite the continuing flow of discouraging news, the major indices all held on for small gains.

Dow 13,245.64 +38.37; NASDAQ 2,640.86 +39.85; S&P 500 1,460.12 +7.12; NYSE Composite 9,622.27 +36.20

Advancing issues actually scored ahead of decliners for a change, 3707-2676, though new lows continued to dominate new highs, 589-119.

Oil and gold moved down marginally; silver ended up 12 cents at $14.34.

Today's smallish gains were still within the range I mentioned on Monday (12,950-13,300 on the Dow) and stocks traded in their narrowest channel of the week.

Investors may be holding out for some good news, though it's difficult to discern from where any happy notes may be sounded other than from the street urchins playing Christmas tunes. The market is set up once again for a Friday splashdown, though heading into a pre-holiday weekend, it's dicey to predict such things. However, there doesn't seem to be any underpinnings to the market at this juncture. The only good news was that the government pegged 3rd quarter GDP at 4.9%, but that number is suspect and overshadowed by initial unemployment claims jumping up to 346,000 for the preceding week.

Further troubling was the Philadelphia Fed General Economic Index, which slumped to a figure of -5.7 when forecasters were expecting a reading of 7.0. The number was the worst since April of 2003.

Still, stocks hang on, investors hope for the best, but there's an overwhelming feeling that a major sell-off could occur at any moment. What the exact time and trigger will be is still a matter of speculation, but there's more and more certainty that selling stocks will be all the rage sometime soon.

NYSE Volume 3,451,063,250
NASDAQ Volume 1,960,417,875

Wednesday, December 19, 2007

Only NASDAQ Goes Green

Stocks zig-zagged through another directionless session on Wednesday, with only the NASDAQ finishing in positive territory. Volume was sluggish, suggesting that this market and the traders on Wall Street are simply worn out. Without any economic news to push ahead of the endless droning on about the sub-prime mortgage mess, credit crisis and looming recession, the market finds itself in somewhat of a desperate condition.

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There doesn't seem to be an overwhelming willingness to give up on stocks for the season and the year, nor is there any catalyst for buying at this juncture. Naturally, when the market seizes up like this, it's usually not a very positive sign. Otherwise, gains would be sustained, rather than seeing nearly every uptick met with a slew of sell orders, as has been the case for the better part of the past five months.

As the credit and banking crisis continues to drippingly unfold (the mainstream media hasn't a clue to the depth of the damage already done with more to come, while the financial media is also a step slow to the beat) not a day seems to go by that some finance-related matter is reported. Today was no exception as Morgan Stanley (MS) took a $9.5 Billion writedown, posted a loss for the quarter and sold a $5 Billion stake in the company to China.

The market reaction to what would be devastating news on a good day, was roughly equivalent to a yawn.

Dow 13,207.27 -25.20; NASDAQ 2,601.01 +4.98; S&P 500 1,453.00 -1.98; NYSE Composite 9,586.07 -16.48

As expected, declining issues took a slight edge over advancers, 3386-2961. There were 527 new lows to just 83 new highs.

In commodity trading, crude oil gained $1.16 to close at $91.24. Gold was off $2.00 to $805.40; silver added 6 cents to $14.22.

All of the markets looked to be winding down prior to the Christmas holiday. The exchanges will be closed on Tuesday, December 25 and will close at 1:00 pm on Monday, December 24, Christmas Eve. The following Monday, January 31, will be a full session.

NYSE Volume 3,359,298,000
NASDAQ Volume 1,884,918,000

Tuesday, December 18, 2007

Bear Market Gains

Stocks staggered to small gains Tuesday, as the major indices weighed current conditions versus future expectations, taking strategic positions three days prior to options expiration on Friday.

Trading in narrow ranges, the major indices opened higher, withstood midday selling pressure and gained into the close, complementing two straight days of solid losses with a technical bounce.

Dow 13,232.47 +65.27; NASDAQ 2,596.03 +21.57; S&P 500 1,454.98 +9.08; NYSE Composite 9,602.55 +73.88

Markets were buoyed at the open by news that the European Central Bank (ECB) made $500 billion available to banks in a 16-day funding. While Wall Street may think an additional 1/2 Trillion in cash is a holiday treat, more sober observations declare concern:
"This clearly signifies some worries," said Gabriel Stein, an economist at Lombard Street Research. "They can't keep doing this forever and ever."

What the ECB (and in the background, the US Fed) is attempting is to avoid a major liquidity crisis before the end of the year. Commercial banks have been reluctant to lend to each other, citing one or the other parties financial stability as the rationale.

The general public doesn't know that this banking crisis has been in play since August and likely won't until some big bank rolls over and depositors are stuck dealing with regulators from to government in order to retrieve their funds.

It should be very clear to anyone witnessing this unfolding financial drama that serious bank failures are only one bad loan or misguided investment away. Unfortunately, our news media keeps the lid on serious news such as banking problems in order to avoid a "panic" in the general population.

For their parts, Wall Street and the foreign exchanges have put on their best smiles in spite of it all, but there's an undercurrent of thought that an economic calamity is not just possible, but likely inevitable. Repeated liquidity injections and interest rate cuts by central banks have yet to solve the burning banking questions: Who is vulnerable and when will they fail to meet obligations?

Stocks, the amusing side-show for now, showed some resilience, with advancing issues holding sway over decliners, 3819-2429. New lows continued to outdistance new highs by a wide margin, 725-71. The indications are such that stocks will remain rangebound with a negative bias.

Oil closed slightly lower, down 14 cents to $90.49, while gold gained $8.10 to close at $807.40 and silver ended at $14.17, up 19 cents.

CNN/Money reports that US demand for gas has fallen in five of the last seven weeks, begging the question of how long high fuel prices can be maintained.

As mentioned in this blog ad nauseum the concern that high fuel prices could push the economy into a recession may be coming to fruition. As consumers feel the pinch at the pump crimping their lifestyle, changes in spending habits are inevitable. Smaller cars, shorter trips and environmentally-sensible measures should begin to take hold, though it's probably already too late to avoid some mid-course disruptions.

NYSE Volume 3,723,687,000
NASDAQ Volume 2,038,324,500

Monday, December 17, 2007

Stocks on Sale: Dow Sinks Another 172 points

After reaching an interim peak just a week ago at 13,727.03, the Dow has dropped back into a trading range between 12,950 and 13,300 which may prove to be the area in which the index closes for the year. Unless there's some dramatic news - positive or negative - or a lot more tax-related selling to be done before putting the wraps on 2007, there's little to move the markets, though the unrelenting selling pressure could yet take a few more bites and turn the year into an overall loser for all the major indices.

With those caveats firmly in hand, Monday's trade was no doubt a continuation of the selling that commenced in the latter part of last week. Apparently, investors are not through dumping stocks, and while the poor condition of the economy becomes clearer each trading day, there isn't much passion in buyer's eyes.

Dow 13,167.20 -172.65; NASDAQ 2,574.46 -61.28; S&P 500 1,445.90 -22.05; NYSE Composite 9,528.67 Down 169.70

The majors are all close to break-even for the year, based on closing prices December 29, 2006. On that date, the S&P stood at 1418.30; the Dow was 12,463.15; the NASDAQ was 2415.29 and the NYSE Comp. was 9.139.02. Clearly, whatever gains the markets made in 2007 were marginal, ranging between less than 3% (S&P) and just about 7% (NASDAQ).

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Internal indicators showed a somewhat heavier bearish bias than previously. Decliners held a substantial edge over advancing issues, 5163-1233, a better than 4-1 edge, and among the largest margins seen this year. New lows continued to widen their gap over new highs as well, expanding to a 718-74 advantage, also a figure well outside any "average" range. More downsliding is to be expected in coming days.

What's of particular concern at this juncture are two factors: 1. On Friday and again on Monday, not a single industry sector showed a gain; and 2. The Dow is less than 400 points away from the 2007 lows, reached just last month.

Further, the Fed has few weapons left in its arsenal not already deployed to stave off further declines, so the market must fend for itself, seemingly, for the remaining nine trading days of the year.

Commodity prices barely budged, with oil slightly lower, gold inching up and silver unchanged.

NYSE Volume 3,526,140,750
NASDAQ Volume 1,932,222,875

Friday, December 14, 2007

Friday's Stocks: All Red, All Day

As I pointed out yesterday, stocks were set up for a week-ending dive and the major indices took little time confirming my prediction, as all traded lower from the very first minute of trading. What made Friday even more interesting is that all the major indices spent all day in the red, with the exception of the NASDAQ, which spent a few moments above water, but it was a very short-lived peek at the positive side of the ledger.

What set the markets in motion was the CPI figures released prior to the bell. It wasn't difficult to predict the direction of the index, fast on the heels of the most-inflationary reading for the PPI in 35 years, on Thursday. The CPI was up 0.8%, topping even the dire expectations of 0.6. It was the highest one-month increase since the post-Katrina reading in September 2005.

We have inflation. We have a significant slump in housing. We have a Fed that lowered federal funds rates three times consecutively and an investor class that doesn't think it's enough. What we really have are all the ingredients for a good, old-fashioned bear market.

Dow 13,339.85 -178.11; NASDAQ 2,635.74 -32.75; S&P 500 1,467.95 -20.46; NYSE Composite 9,698.37 -165.91

Consumers may hold up through the holidays, but after that, with the home equity ATM shut off, banks tightening lending standards and a worldwide liquidity crisis, it's nearly a sure bet that stocks will head in the direction opposite to what most investors would like.

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The process has already begun and it's gaining momentum. There's a double bottom in place, but the levels reached in August and November on all the indices will likely be tested and broken through to the downside in the first quarter of 2008. The catalyst will be earnings, already expected to be the kind that signal weakness in almost every sector.

If you haven't already, now would be a good time to shift a sizable portion of your portfolio into cash, gold, silver, and bonds, or a defensive fund, or a combination of all of them, or maybe move to another country with better growth prospects.

Market internal indicators were expectedly bearish: Declining issues trounced advancers, 4806-1501. New lows expanded their edge over new highs, 493-109. Metrics such as these are hardly useful on a day like Friday. They just add to the string of similar readings, confirming the trend.

Commodities fell in unison. Oil shed 98 cents to close at $91.87. Gold was off $6.00 to $798.00; silver was down 0.25 to %13.98. (Hmmm... just in time for Christmas... 1 oz. silver dollars make great stocking stuffers. I'd love a stocking full of them.)

With a huge snowstorm expected to hit most of the Northeast on Sunday, holiday sales may be crimped on what should have been one of the busiest shopping days of the year in major cities such as Boston, Philadelphia, New York, Washington and Baltimore. The storm is already wending its way through the Midwest.

While the foul weather may be bad for brick and mortar businesses, internet sales should soar. Amazon, anybody?

NYSE Volume 3,401,047,750
NASDAQ Volume 1,954,963,625

Thursday, December 13, 2007

Stocks Set Up for Week-ending Swoon

A late-session surge brought the Dow Jones Industrials and S&P 500 into positive territory, but the NASDAQ and NYSE Composite suffered through another day of negative returns.

Leading the news, alarming inflation figures released by the Commerce Department, showed prices at the wholesale prices leaping 3.2% in November, their biggest increase since 1973.

Flashing back to the mid-70s, a period of double digit inflation and gas rationing, we can clearly see where the economy is heading. In response to inflation, interest rates ratcheted upward into double digits. A typical home loan was set at 12-14% interest.

Back in the day, the Fed acted nearly-responsibly, hiking interest rates to wring the inflation out of the economy. It was a painful time for American businesses, typified by stagnant growth and high inflation, a condition which became known as stagflation

Dow 13,517.96 +44.06; NASDAQ 2,668.49 -2.65; S&P 500 1,488.41 +1.82; NYSE Composite 9,864.28 -57.36

Today's environment is profoundly different. Our capricious Federal Reserve has more interest in keeping stock prices buoyant than fighting higher prices for consumers and is intent on keeping banks from defaulting completely as they wade waist deep through the most severe credit crisis since the Great Depression.

This is 21st century America, after all, where savings don't matter and the immediacy of satisfaction and the quick buck are front and center. Today's news merely amplifies the already-shaky condition of the US economy and US stocks. Today's trade was nothing more than a tune-up for a week-ending swan dive.

As the day wound on, the NYSE Composite, where the real action exists, was off by more than 170 points during the grueling session as all indices spent most of the day in the red.

Friday will likely see a continuation of the downdraft that has taken hold of the markets in various guises since August.

For indications, there were nearly two stocks losing ground for every gainer, as decliners beat advancers, 4012-2304. Further proof of the continuation of the bearish trend came from the disparity in new highs and new lows. The lows checked in at 407, to a mere 96 new highs. This particular indicator has favored the new lows for nearly a month and a half, with new highs on top in only two sessions last week.

As if frightened by the prospect of high prices and world economic disembowelment, major commodities sold off. Oil dropped $2.14 to $92.25. Gold tumbled $14.80 to $804.00 and silver lost a whopping 59 cents to mark at $14.24.

Here we are at the height of the Christmas shopping season with high gasoline prices, wickedly higher wholesale prices, a Federal Reserve running ruination on the dollar and a forecast of weaker corporate profits for at least the next three quarters. It's beginning to look a lot like... no, not Christmas, but recession.

NYSE Volume 3,530,155,750
NASDAQ Volume 2,100,678,250

Wednesday, December 12, 2007

Fed Reinforces Boom-Bust Market Mentality

Following Tuesday's 25 basis point cut by the Fed, Ben Bernanke and his blundering buddies hooked up with the central banks of Canada, Switzerland and England and the European Central Bank (ECB) and overnight hatched a plan to provide more liquidity to shaky US markets.

The Fed said it plans to inject cash to banks through auctions and provide $24 billion in currency swap lines.

It's important to note that the move came one day after the markets tumbled upon hearing that the Fed was cutting the federal funds rate. The move amounts to just so much pandering, but also points up just how precarious the straits US banks are currently traversing.

Dow 13,473.90 +41.13 ; NASDAQ 2,671.14 +18.79; S&P 500 1,486.59 +8.94; NYSE Composite 9,921.64 +83.38

Investors took their cue at the open, pumping stocks to their highs of the day in the first ten minutes of trading. From that point onward, however, the full import of the Fed's actions took hold and stocks sold off until finally capitulating just after 3:00, when all indices turned negative.

It was only a last half-hour rally that pushed stocks back into positive territory at the close. The trade of the past two days was a massive repudiation of Fed policy. There's little, if anything, the Fed can do to keep stocks from selling off over the remaining 12 days of trading this year.

The Federal Reserve under Ben Bernanke has been buffeted about by the winds and whims of the market, reacting to stock and index prices rather than imposing sound monetary policy. The more they cajole, push, pimp and pump the market with liquidity and various rate cuts and market maneuvers, the more the market barks back, always wanting more.

This give-and-take has reintroduced extreme levels of anxiety and volatility to already nervous markets. The depths of the credit crisis, which has spread from the US to the rest of the world, have yet to be plumbed and the Federal Reserve, along with the rest of the central banks, stand gaping into the abyss of complete financial meltdown.

What has always been at the heart of the matter is easy credit, even though former Fed Chairman Alan Greenspan denies his "emergency" 1% rate in 2003 led to the bubble in housing prices and the attendant low-interest loans made to buyers of questionable creditworthiness, and what the Fed is doing is simply doling out more dollars on easier terms to even more banks.

If the credit crunch was caused by easy credit, how is extending even more easy credit to the worst offenders - abusive and largely unregulated banks - going to solve the problem?

Maybe the Fed and all those white guys in dark suits at central banks around the world know better. Probably not. They're likely just hanging on by threads and ego, hoping the entire derivative-driven, fiat money house of cards doesn't collapse entirely.

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As for investments in US stocks, one had better get out the butter, because they're toast. Advancing issues beat back decliners narrowly on Tuesday, 3468-2903. New lows widened their spread over new highs, 307-127.

Silver was marginally lower, oil and gold were higher, with crude up over $4 per barrel to close at $94.39, following what looked like a healthy pullback over the past few weeks. Now, it appears the relatively inexpensive crude that was expected for the holidays will not arrive at the pre-arranged time, though savvy motorists may be able to fill up prior to the expected holiday gouging to save a bit. After that, it's back to prices of $3.25+ for everybody.

It's becoming increasingly clear that we are in the early throes of a bear market, that a recession is unlikely to be avoided in 2008, and that whatever the Fed does to affect monetary policy isn't working. Further, banks and other quasi-financial institutions are in serious trouble. Somebody other than a Federal Reserve governor needs to speak to the overall risk involved to the US population and spell out exactly what lies ahead. Since the chances of that happening are stuck right between slim and none, the US citizenry is left to ponder the wisdom and righteousness of commentators such as James Cramer, Neil Cavuto and their witless ilk.

As others have said so eloquently before, "we're doomed!"

NYSE Volume 4,394,799,500
NASDAQ Volume 2,311,843,000

Tuesday, December 11, 2007

Fed Cut Not Enough; Dow Drops 294

The cost of cheap money, the crack cocaine of Wall Street, was lowered again on Tuesday as the FOMC of the Federal Reserve dropped the federal funds rate 25 basis points to 4.25%. The Fed also made borrowing by member banks easier by lowering the discount rate an equal amount to 4.75%.

The Dow Jones Industrial Average, that blue chip basket of 30 stocks which is the most widely-watched index in the investing universe, tumbled 294 points on the news.

The mad selling on heavy volume commenced immediately upon the Fed announcement at 2:15 pm, when the Dow and other indices were at or near their highs of the day, though up only marginally. Watching the ticker was like seeing a huge tsunami lay waste to an island atoll - the tumultuous devastation was nearly total.

Dow 13,432.77 -294.26; NASDAQ 2,652.35 -66.60; S&P 500 1,477.65 -38.31; NYSE Composite 9,838.26 Down 266.16

The final hour and 45 minutes of Tuesday's session wiped out nearly a third of the gains of the past ten sessions in which the Dow spiked almost 1000 points. The massive selloff was neither unexpected nor unprecedented, however, as investors were simply following the ancient adage of "buy the rumor, sell the news." A rate cut had been already priced into stocks, but investors were wishing (as is often the case this time of year) for 50 basis points and treated the Fed's offering like a spoiled child getting less than expected on Christmas Day.

Investors may have bid stocks up in the previous mini-rally on false hope and a good dose of momentum, but that all changed on the Fed news. Stocks made a dramatic u-turn, the kind seen in the midst of bear markets. The correction that began in August on frightening sub-prime news should now continue unabated for the balance of 2007.

What will weigh on the minds of investors for the next few weeks are retail sales, and, unless there's some kind of miracle at the malls across the great expanse of America, stocks are in for a year-end beating the likes of which they have seldom seen. In addition to shocks from the checkout counters, January's earnings season is beginning to look more like a clearance sale than a Saturday stroll down the aisles as 4th quarter and 2008 warnings, like today's from Dow stalwart General Electric, are already to begin trickling out from the board rooms to the streets.

The rate cut, seen by some (including this writer) as completely unnecessary and ineffectual, did have the expected effect on oil prices, which rose $2.16 to $90.02. Gold gained $3.60 to $817.10; silver slid two cents to end the day at $14.87.

Selling was broad-based, sparing no sector in particular. Advancing issues were overwhelmed by decliners, 5167-1212. After being beaten over the past two sessions, new lows took back the lead position, a posture it had previously held for more than a month straight, overcoming new highs, 260-203.

The Dow confirmed a short term bearish trend today. The reversal in the new highs-new lows reading also should be telling. The market's reaction to the Fed's rate maneuver was telegraphic of a very nervous emotional environment. People need to pay particular attention to investments over the next six months. US stocks may not be the best selection due to competitive, dollar-related or pricing issues.

NYSE Volume 3,996,278,250
NASDAQ Volume 2,192,045,750

Monday, December 10, 2007

Stocks Tack on Gains Ahead of Fed

US stock investors couldn't contain their enthusiasm on Monday, bidding up shares in just about every sector, despite revelations of further write downs in the unfolding subprime/credit/SIV spectacle. Overriding every bit of bad news is the hope of another rate cut by the Federal Reserve which will announce their decision Tuesday at 2:15 pm.

Prior to markets opening in the US, European giant UBS announced that it was taking one of their structured investment vehicles back onto their books, effectively resulting in a $10 billion loss, potentially wiping out all of the bank's 2007 profits.

Dow 13,727.03 +101.45; NASDAQ 2,718.95 +12.79; S&P 500 1,515.96 +11.30; NYSE Composite 10,104.42 +80.84

As the market opened, mortgage insurer MBIA (MBI) was halted with news pending. When the news broke, it was ugly: the company's losses for the 4th quarter would likely exceed those reported in the 3rd; but, there was rampant speculation that the company would received $1 billion in emergency funding from Warburg Pincus.

Interestingly, when the stock opened at 11:00 am, it was more than $6 higher than the Friday close (30.00), and traded as high as $38.19.

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UBS traded higher as well, as news that the Government of Singapore Investment Corporation would invest some $12 billion for a significant stake in the operations. Both stocks finished the day well into the green: UBS (UBS 51.66, +1.18), MBIA (MBI 33.95, +3.95).

The trade of late has to be either guided by the most ill-conceived investment strategy ever, or the big money is betting that all will be better soon. While the past few weeks have borne witness to principally bad news, stocks on the Dow have risen nearly 1000 points in just the past ten sessions since the bottom of 12,743.44 on November 26. More and more economists and analysts are predicting at least a mild recession in 2008, the housing solution provided by the White House is little more than a stalling effort, and over eight years there has been no progress in dealing with the twin giant deficits in import-export trade and the federal budget.

Still, investors continue to pour money into stocks. The current rally seems to be nothing more than a last-ditch effort to engender some kind of confidence in the mere fact that stocks are rising. If there ever was a condition of the tail wagging the dog, this is certainly it and, as with all efforts both desperate and foolhardy, this one will end badly as well.

Sadly, the US equity markets, once the proudest, strongest, best-managed and assiduously-regulated, have come to more resemble a bad poker room in an after-hours casino. What the banks, the media and the government aren't telling us is that these bad sub-prime mortgages and their attendant Structured Investment Vehicles (SIVs) and Special Purpose Entities (SPEs) are full of other bad and questionable debts as well.

If it is indeed the case that the bankers have blundered once again, then all of this mad buying begins to make sense. There's not only a credit crunch in which the banks are afraid to lend money to each other, much less private individuals and corporations, but the crisis of confidence is spreading into the stock markets as well.

Most of the money used to buoy stocks over the past ten sessions was more than likely their own, or that of the central bank, the Fed, or central banks worldwide. We are staring into the abyss of bad fiscal management, poor governing and lies, lies and more lies piled on top of lies, deception and at the bottom of it all, false, fiat currency.

What else would explain the recent meteoric rise of stocks or the gains today by UBS and MBIA? The entire market is being cooked to a hard-edged, crusty, inedible, well-done stick of jerky. It will be tough to chew on this and will likely take years to digest. The current genius is to keep the game going until the November elections and then dump the entire mess into the laps of unsuspecting Democrats who are sure to add the executive branch to their lock-up on the legislative. Joy to the world.

On the day, advancing issues once again raced ahead of decliners, by a 3822-2525 margin. New highs expanded their advantage over new lows, though not by much, 225-183.

The day's bright spot came surprisingly from the oil futures market, where the price continued to slide, down another 42 cents to $87.86. Gold soared another $13.30 to $813.50 and silver gained 35 cents to $14.85.

With tomorrow's expected Fed rate cut of either 25 or 50 basis points the two-week-long party may be coming to an abrupt end. If the Fed decides on merely a 25 basis point reduction in the federal funds rate, stocks should sell off through the end of the week and into the next. The only remaining driver for stocks for the rest of the year would then be retail sales, and unless they're surprisingly good, the final two weeks of 2007 could be an unwinding experience.

NYSE Volume 2,863,184,250
NASDAQ Volume 1,776,654,500

Friday, December 7, 2007

The Party... and the Rally May be Over

Equity investors took an early exit on Friday after the government's non-farm payroll data failed to inspire any new-found confidence in the economy, nor in the prospect of a 50 basis point rate cut next week by the Fed.

The November labor data showed a gain of 94,000 new jobs, less than the break-even of roughly 150,000, but better than the estimate of 80,000. So, these numbers suggest that the economy is in OK shape, but that the job market may be shrinking a bit relative to natural population growth.

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The figures were good enough, however, to blunt any talk of a 50 basis point cut when the Fed meets on Tuesday next week. 25 basis points may be all they can muster, if that. Presumably, rate cuts mean the economy is weak, but to Wall Street it means more nearly-free money to toss around. When the Fed announces either no rate cut or just 25 BPs at exactly 2:15 on December 11, this current rally will be officially over and investors will resume worrying about the credit squeeze and subprime mortgage fallout.

It could happen sooner, on Monday, as savvy investors are wont to get out of the way when there's a rush for the exits. After a more than 800-point rally on the Dow and 100 on the S&P since November 26, the rally was a combination of hype and hope, and now the hope (rate cut) is gone. With more sorry numbers expected from the retail sector, the hype will also disappear soon. Happy Holidays.

Dow 13,625.58 +5.69; NASDAQ 2,706.16 -2.87; S&P 500 1,504.66 -2.68; NYSE Composite 10,023.58 -6.57

Trading was especially light for a Friday, as decliners took a razor-thin edge over advancers, 3187-3160, but new highs finally exceeded new lows, barely, 214-212. This marked the first win for new highs since October 31, a span of 25 trading sessions. After such a spectacular run-up, this distribution indicates there's either a load of undervalued stocks or we're still in the throes of a long-term bear market.

It's likely to be the latter. With the Dow just about 500 points from its all-time high, one would expect more new highs than what's being recorded. The new lows are likely to expand slightly for the remainder of the month, then really add to their ranks once earnings reports being to flow in January.

As if taking its queue from the stock market, oil went for a dive on Friday, dropping $1.95 to $88.28. Gold and silver followed suit, with gold down $6.90 to $800.20 and silver losing 12 cents to end the week at $14.51.

Some of the nations largest brokerages kick off earnings season a little early - next week - and the outlook is not very rosy. So, get those fingers warmed up to hit the sell button. Monday could be somewhat of an unwelcome surprise to a week that is fraught with potential pitfalls.

NYSE Volume 3,145,841,500
NASDAQ Volume 1,898,631,750

Thursday, December 6, 2007

Straight Up, Non-Stop Stock Buying

Since the ephemeral bottom of the market on November 26, the Dow has, like an old, single uncle gorging on multiple holiday repasts, put back on 876 points. In just eight short sessions, US blue chips have availed themselves an average of nearly 110 points per day.

What changed? Attitude, and little else.

While there were some remarkable productivity numbers thrown out on Wednesday (pretty much more fudged government numbers) and an early indication that November job growth was going to register as nothing short of spectacular, the market blithely overlooked November retail figures which showed a spotty and rather lackluster performance by some of the major participants.

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Instead, investors tripped over each other rushing to buy stocks, especially on Thursday, when the Bush administration announced its plan to help homeowners avoid foreclosure. The plan is fairly laughable, extending the payment period on the interest-only portion of option-ARM loans to five years, from the customary two. The plan merely delays the inevitable, allowing more time for people who shouldn't be living in overbuilt, expensive homes to remain in them.

But what the government plan really does is bail out the banks. They simply do not want all those toxic loans exploding all over the place. Bankers are obviously in a position in which they are willing to accept a little than lose a lot, and that's troubling. The weight of the sub-prime mess threatens the very lifeblood of the global financial system and the bankers have been scared to the point of renegotiation with what are basically nothing but deadbeat borrowers.

So, it's a little bit funny how investors react. It's almost like a self-fulfilling prophecy. If stocks are going up, everything must be A-OK, and they'll continue to go up. For the better part of the past two weeks, they have, and tomorrow's gently-massaged non-farms payroll report for November will indeed supply icing for the top of the cake. Or, if you so please, froth on the head of the elixir they're all drinking down at Wall St. and Broad.

Dow 13,619.89 +174.93; NASDAQ 2,709.03 +42.67; S&P 500 1,507.34 +22.33; NYSE Composite 10,030.15 +142.55

For the second straight session, advancing issue pummeled decliners, 4804-1513. New highs haven't yet gotten past new lows - an edge held by the lows since October 31 - but they're close. New lows carried the day, 260-214. With everything set up nicely for tomorrow's employment numbers, this indicator should turn over, vacillate for about a week, and then head back to dominance by the new lows.

As Christmas rallies go, this one is a little early, but don't be surprised if the Dow and other indices reach new highs within the month. January, however will be another story. The current uptrend is unsustainable, especially in light of the 4th quarter warnings already circulating from the Fed, individual companies and elsewhere.

While stocks were soaring again, the oil merchants figured to get in on the action, hoisting the price for a barrel of crude $2.74 to $90.23. Apparently, the oil futures traders figure that with all the extra money floating around this time of year, consumers might as well pay more for gas, home heating fuel, etc.

Gold gained $3.40 to $807.10. Silver added 17 cents to $14.63. Everything was up today. Doesn't that make you feel good? No need to feel any pain. It's the holiday season, after all. Deck the halls with ticker tape.

NYSE Volume 3,575,942,250
NASDAQ Volume 2,031,019,625

Monday, December 3, 2007

Stocks Chilled by Resistance

Stocks fell broadly on Monday, the first day of trading in the final month of 2007. If this is any indication of how trade will behave in December, we may be looking forward to a somewhat unhappy New Year.

On the Dow, resistance levels at or around, 13,500, were tested on Friday and shied further away on Monday, towing all other indices along to the downside. Continued fears of a full-blown recession in 2008 contributed to a quiet continuation of the trend lower. Market sentiment is decidedly defensive, citing unwinding problems stemming from the sub-prime mortgage and associated credit crises.

Dow 13,314.57 -57.15; NASDAQ 2,637.13 -23.83; S&P 500 1,472.42 -8.72; NYSE Composite 9,811.86 -44.99

Overhanging everything, as it is the Christmas season, are concerns that holiday shopping may fall short of expectations. With an additional weekend of shopping time as compared to last year, retailers may be forced to pull the trigger on markdowns sooner rather than later this time around.

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Retailers are necessarily nervous, as data on consumer spending and incomes, released last week, was hardly encouraging. Shoppers may have less in their wallets than last year and may also be waiting for deals equal to or better than were available on Black Friday.

It bears watching the major retailers to see which of them, if any, begin discounting earlier in the season than normal. Later this week, on Thursday, Wal-Mart and Target release November same-store sales figures, which will give some indication of what December may bring, but already analysts are wondering whether last week's good news (sales up as much as 8% at major retailers against last year) was due more to price (and profit) slashing following the Thanksgiving feast.

Whatever the case, investors voted by sending shares lower in advance of the numbers. Declines outweighed advances on Monday, 4013-2391, while new lows maintained their long-standing edge over new highs, 313-134, with the margin increasing over Friday's figures.

Commodities gained on the day, with oil up 60 cents to $89.31, gold higher by $5.60 and silver up five cents. Oil traded as low as $87.15 during the day, but rose as traders saw a continuation of high demand through the holidays and the possibility of a production increase by OPEC nations about a 50/50 proposition.

It could turn out to be a slow week on Wall Street with the really important numbers coming out on Thursday and Friday, when the government reports non-farm payroll numbers.

Hurry up and wait.

NYSE Volume 3,293,912,500
NASDAQ Volume 1,994,717,625