Tuesday, April 1, 2008

April's Fools Rush In, Stocks Scream

Today's running of the bulls could better be described as a "running of the fools" as investors plowed money into beaten down stocks in hopes of a dramatic turnaround from a dismal first quarter.

While stocks put on a fantastic show, the outsized gains are likely to be short-lived. There's little doubt that the economy is tanking, the market's a verified bear, and banks are still taking massive writedowns from bad loans, the latest casualties being foreign banks. Swiss-based UBS reported that it would take a $19 billion writedown, and Deutsche Bank of Germany anticipated a smaller, but still significant, writedown of $3.9 billion.

The general understanding on the street is that the banks are nearing a bottom and it's time to buy back in. Oh, how wrong can these fools be? If that were so, the current and continuing credit and banking crisis would qualify as one of the greatest and shortest-lived hoaxes of all time. Stocks are not even down 15% from their August highs, yet all we've heard from the Fed and economists is that this is one of the most troubling periods since the Great Depression.

Dow 12,654.36 +391.47; NASDAQ 2,362.75 +83.65; S&P 500 1,370.18 +47.48; NYSE Composite 9,088.49 +291.20

One would have to assume that Wall Street's euphoria is a bit premature. The bear market is barely 8 months old, while most last 18-32 months, and government figures have not officially confirmed that the economy is in a recession. While 4th quarter GDP checked in with a gain of 0.6%, GDP would have to be negative for two consecutive quarters to meet the classic definition of a recession. We're not there yet.

For chartists, today's move was nightmarish, though the bear case can still be made by virtue of a major voided area between 12,500 and 13,500 on the Dow. That area could be occupied without disturbing the primary trend, though a move beyond 12,750 is still in doubt, today's massive upside rise notwithstanding.

As expected, gainers outnumbered losers by a wide margin, 5020-1264. New lows retained their edge over new highs, though not by much, 120-78.

Commodities were whacked again. Oil slid 68 cents to $100.98, the lowest price in three weeks. Gold tumbled a frightening $33.70, to $887.90. Silver lost another 42 cents to $16.89. Two weeks ago it was over $20 per ounce.

The trouble with the metals, especially gold, is beginning to attract undue attention as it is sending some troubling signs of an overt deflationary trend as the full blown seizure in credit markets has banks and investors scrambling for cash.

Today's rally was a fool's rush. Primary trends remain unchanged and dire. In a week or a month, these gains will be nothing but memories of better days.

NYSE Volume 4,809,849,500
NASDAQ Volume 2,176,482,750

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