Wednesday, January 16, 2008

No Respite Supplied by Powerless PPT

Traders wore their fingers to the bone on Wednesday in a wickedly volatile session.

The major indices see-sawed their way from losses to gains, but eventually fell prey to the relentless bears stalking Wall Street.

During the session, the Plunge Protection Team (PPT) swung into action on at least two separate occasions, though their presence was evident in the severe swings heading into the close.

On the day, the Dow was both up and down more than 110 points, while the NASDAQ - which spent the majority of the day in the red - swung from a loss of 56 points to a gain of 12, before sellers finished off the techs into the close.

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While the Dow's blue chips were the least affected on a percentage basis, the last half hour was particularly vicious to, as the Dow sold off 115 points heading into the 4:00 pm close.

Dow 12,466.16 -34.95; NASDAQ 2,394.59 -23.00; S&P 500 1,373.20 -7.75; NYSE Composite 9,073.43 -98.74

What investors are trading are all of the ominous signs of recession. Corporate earnings estimates have been slashed - not only in the financial sector, but in consumer discretionary (retail) and technology as well - inflation roared back in 2007 at a pace not seen since 1991 and there seems to be no end to the troubles in the housing and credit markets.

Amidst the chaos, the PPT and the Federal Reserve fight valiantly against the natural forces at play. The economy has either slowed, is frozen or retreating, and all of the money the Fed prints and sends to its agents in the markets does no good. Every rush of buying is followed by vigorous selling.

Most of the carnage was done in the broader markets, with the NASDAQ and the NYSE Composite losing 0.95% and 1.08%, respectively.

Advancing issues actually surpassed decliners, 3324-3070, though new lows maintained their wide gap over new highs, 737-90. All indications suggest the bear is just beginning to show its teeth and a losing bias should be the norm at least until the Fed meeting on the 30th.

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Anyone looking for a bounce after weeks of ravaging is engaged in just so much wishful thinking. The only hope for any kind of positive trend will come on January 30 when the Fed is expected to trim the federal funds rate 50 or 75 basis points.

However, the Fed, like the PPT, is nearly powerless to prevent a full-blown market meltdown as investors shed stocks like worn our shoes. Volume was extremely heavy, nearly matching January 9 as the highest volume session of the year thus far.

Tomorrow could prove to be the bloodiest day yet, as Merrill Lynch (MER) will announce an expected loss of $4.57 per share for the 4th quarter of 2007 prior to the market open. Should Merrill's losses exceed the already ghastly expectations, a 150-point gap lower at the open could occur. Additionally, with options expiration on Friday, volatility should be equal or more erratic than today.

NYSE Volume 5,336,274,000
NASDAQ Volume 3,391,137,750

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