Monday, June 30, 2008

Stocks Silent on Last Day of Quarter

Last week's major sell-off could have, and likely should have, been forecast by most intelligent financial pundits, however, we could find nary a one. It seems the only formula for success in the financial media is to be forever bullish, in spite of facts, sentiment, charts, history and anecdotal wisdom to the contrary.

After watching the markets dwindle away the hours today, the idea that many investors - and many of them large ones - were getting out from in front of the oncoming rush of second quarter earnings reports, makes perfect sense, so anyone with any interest in the market or money or the future should pay attention to what happens in July.

Unlike Las Vegas, what happens on Wall Street does not stay on Wall Street. Profits and losses have a remarkable way of entering the mainstream in manifest ways. The abundance, or lack of, jobs, credit, affordable housing and stability in prices will be largely a result of the perceptions from the market in July.

While most Americans will be blissfully off on vacations or completely out of the market, the time will be ripe for plucking new investment ideas and direction for future trades.

The second quarter is expected to be one of the worst, cumulatively, in the past five or six years, and may actually be worse than the depths of the last mini-recession in 2000-2001. A fair share of companies will post underperforming quarters and even more will issue negative guidance. We are at the crossroads of inflation and recession, and something's got to give.

While the quarter ended with a whimper today, it should serve as notice that many quarterly reports will turn out to be wimpy in themselves, resulting in even further declines in the indices, on the order of another 15-25%.

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While the world is not about to end and the financial system will not entirely implode, there certainly will be more than enough financial pain to spread around. Everyone from from the wealthy billionaire to the hourly worker is going to feel a pinch, at the least, over the next 12 months. It's a question of how long the pain will persist that's not known, though another year seems to be a reasonable time frame.

That's because, until now, corporate profits have been generally unaffected, so comparisons to the third and fourth quarter of '07 and the 1st quarter of '08 are going to be tough to match this go 'round. There has to be a trough in corporate profits, and we're not quite there yet, though this quarter should be the beginning of a new trend of companies missing estimates.

Dow 11,350.01 +3.50; NASDAQ 2,292.98 -22.65; S&P 500 1,280.00 +1.62: NYSE Composite 8,660.48 +36.97

Despite the split decision on the majors today, the internals told the same sad story. Losers beat gainers, 3940-2926. New lows are nearing a peak, at 894, as compared to just 133 new highs. These numbers continue to indicate general weakness in the markets and until there is a complete flushing out, there's no chance at reversal, except in very short term, oversold conditions.

Actually, there could be a little buying before earnings begin to flow around the 14th of July, so some sideways to slightly higher trade is expected.

Commodities continue to show the inability to sustain rallies. Oil fell off 21 cents today, closing at an even $140.00. That should be close to the absolute top. Gold dipped $3.00 to $928.30, while silver lost 20 cents, closing at $17.51.

There is likely to be some degree of buying activity the rest of the week as funds reposition themselves for the second half of the year. Some of their picks will be good ones, most will be lemons and losers. It's too bad for them that their charters only allow them to buy stocks and not hedge or go short.

They'd be better off.

NYSE Volume 1,609,389,000
NASDAQ Volume 2,101,667,000

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