Monday, January 28, 2008

Stocks Rise on Pathetic Volume

To say that the volume of trade on Monday was low would be a serious understatement. Following a week of extreme volatility, investors apparently were willing to sit out today's session - and maybe tomorrow's and most of Wednesday's - in anticipation of the next move by the Fed.

Monday's volume was roughly 3/5ths of the average day last week. This is the exact gut response to extreme volatility and unexplained "bounces." Continued meddling by the Plunge Protection Team (aka President's Working Group on Financial markets) will eventually lead to something resembling a gran mal seizure in the markets. The Fed will be trading with itself and itself only.

Dow 12,383.89 +176.72; NASDAQ 2,349.91 +23.71; S&P 500 1,353.97 +23.36; NYSE Composite 8,978.41 +150.91

On Tuesday of last week, Fed Chairman Ben Bernanke proclaimed a 75 basis point reduction in the federal funds rate in an "emergency" move designed to stabilize markets. The previous day, which was a holiday in the US, markets tumbled worldwide in apparent response to rampant recessionary fears in the US.

Bernanke and his henchmen managed to keep the Dow Jones and other indices from melting down, but at a significant credibility expense. With the Fed's knee-jerk response to global markets, the onus is clearly on the Chairman to make a policy statement of import on Wednesday, as the FOMC concludes two days of meetings.

With the Fed poised to act in some manner - most expect another 50 basis point cut - a report that may have even more impact will be released before the markets open on Wednesday. That would be the Commerce Department's Bureau of Economic Analysis release of preliminary GDP for the 4th quarter.

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Best expert guesses are that the US economy grew by anywhere from 1.2 to 2%, and while those figures are a far cry from the robust 4.9% reported for the 3rd quarter, anything above zero will be welcome news on Wall Street. The fear is that the economy has already fallen into recession and any indication reinforcing that belief will have a significant cooling effect.

Also this week, a huge number of S&P 500 companies will be reporting earnings, as well as 9 Dow components, including American Express, (AXP) which after the close today reported a 6% decline in earnings from a year ago, 71 cents versus 75 cents in the 2006 4th quarter.

McDonald's (MCD), the world's largest restaurant chain, reported profits for the full year fell 32% to $2.4 billion, or $1.98 per share, from $3.5 billion, or $2.83 per share in 2006. 4th quarter profits were marginally higher, but the company advised that same-store sales in the US were flat for the October-December period.

Also reporting after the close was another Dow component, Verizon (VZ), which earned $1.07 billion, or 37 cents per share, in the 4th quarter, compared to $1.03 billion, or 35 cents per share, a year earlier.

Other Dow components reporting this week are 3M Company (MMM) on Tuesday, Altria Group (MO), Merck (MRK) and Boeing (BA) on Wednesday, Procter Gamble (PG) on Thursday and ExxonMobil (XOM) on Friday.

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Tech bellwethers, Yahoo (YHOO) and Google (GOOG), report on Tuesday and Thursday, respectively.

Advancing issues slaughtered declining ones on the day, 4593-1775. New lows surpassed new highs, 200-67.

Crude oil gained 28 cents to $90.99. Gold soared $16.40 to $927.10. Silver was up another 26 cents to $16.75.

If you're getting the feeling that something just isn't right about soaring gold, beaten down foreign markets and a 176-point rise on the Dow, you may just be on to something.

Tonight, the world will cheer President Bush's State of the Union address... because it will be his last. The US is in for a world of hurt, though the media and markets aren't giving us full disclosure as of yet. As usual, the American public will be the last to know when the curtain falls.

NYSE Volume 3,763,495,750
NASDAQ Volume 2,020,705,750

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