Tuesday, July 1, 2008

Bottom, What Bottom? Not Yet, Say Investors

Watching the Dow drop more than 150 points shortly after noon today, one had to wonder where the bottom feeders, bargain hunters and especially, the short-covering traders had gone.

The answer came as swiftly as a falcon swooping in upon some unsuspecting prey, and with equal ferocity. Just before 2:00, the market made a sudden about-face, and by 2:45, the Dow was sporting a 50-point gain. Market participants had not gone away, they were just awaiting the proper catalyst.

What moved the market - first lower, then higher - were auto sales, which were dismal with the notable exception of General Motors (GM, 11.75, +0.25). The top US auto maker reported a sales decline of 18%, not a stellar number, but still better than expected.

Add to that the Institute of Supply Management's (ISM) June reading of 50.2, following a string of sub-50 readings (which indicate contraction), and the markets were off to the races.

Stocks finished marginally higher, as investors, still weighing inflation, high oil prices, the financial market's generally dour condition and continuing housing woes, are not about ready to spark off a full-blown rally. That could happen as soon as tomorrow, considering that the Dow has fallen nearly 2000 points since mid-May, and is in a technically oversold condition.

Dow 11,382.26 +32.25; NASDAQ 2,304.97 +11.99; S&P 500 1,284.91 +4.91; NYSE Composite 8,641.28 -19.20

On the day, decliners still overwhelmed advancers, 3709-2634. New lows expanded to their largest margin over new highs in some time, 1154-77. A new high-low reading such as today's shows an incredible weakness in sentiment, though it is very possibly a peak for that reading. As markets go, this one is definitely in line for a bounce upward, and it's likely to be soon and even more likely to be strong.

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On the other hand, the window for such a move upward is closing fast. There are only seven trading days before earnings season kicks into full swing on the 14th of July. If the market is going higher, it will be within the next two weeks, but it is very probably going to be short-lived, as second quarter earnings are generally expected to be below expectations.

Oil finished 97 cents higher at $140.97, while gold gained $16.20, to $944.50 and silver ended 78 cents higher at $18.29. Both gold and silver are closing in on near-term highs, but may not be able to sustain that momentum, depending on market conditions and sentiment going forward.

Look for a generally positive mood to overtake Wall Street as we approach the July 4 holiday. Nonfarm payrolls for June are announced prior to the open on Thursday, July 3, with analysts expecting another payroll loss of 50-60,000 jobs. While the figures are generally not reliable and often subject to wild revisions, the market pays rapt attention to them, so anything under a 50,000-job loss is going to be viewed very positively. Anything over 60,000 will not get much attention, as it's already expected, unless the job loss is spectacular, like over 100,000 - not likely.

NYSE Volume 1,642,701,000
NASDAQ Volume 2,643,266,000

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