Friday, August 15, 2008

The Numbers Say No

The Dow gained on Friday. So did the S&P 500. But, the Dow was down for the week and the venerable S&P index was up less than two points. The week's big winner was the NASDAQ, which added 38 points to the upside.

What does this all mean?

Probably not much, except that investors are tired of trading the same stocks and hoping for better results in a quarter, a year, five years. It's just not adding up.

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It was just about a year ago (July 19, actually) that the Dow closed above the 14,000 mark for the first time. In the 13 months since, the blue chip average has fallen by 17%, briefly falling into what is known as "bear territory", glibly described as a 20% loss.

Fools without a great deal of market understanding would say that we've touched a bottom and the markets are beginning to recover. Those more wizened and mature would point out that once stocks break below that 20% threshold, they usually spend more than a few days there, which is all this market has spent in the bear's lair.

Those few days were between July 9 and 15, so we've clearly encountered a bounce of sorts. The price of crude oil has moderated considerably since then, helping stocks, as has the value of the US dollar versus other currencies. These have been positive for stocks.

On the other side of the ledger are some undeniably negative economic readings, most of them being recorded this very week. The consumer price index (CPI) registered its largest gain in 17 years, leaping up 0.8% in July. even the core CPI - which excludes food and energy components - was up 0.3%. But all of this was prior to oil's descent, or just at the beginning of it, so the CPI is now a lagging indicator.

Thursday's initial unemployment claims came in at an astronomical 450,000. There are no good jobs out there. Along those lines, capacity utilization - a broad measure of manufacturing efficiency, fell slightly, to 79.8%, which is well below what would be considered healthy - above 93%.

People aren't working, or buying, much these days. Sooner or later, Wall Street will get a whiff of this and realize that there isn't much demand for the stocks they're pedaling either. Volume has been dead over the past two weeks.

Dow 11,659.90 +3.97; NASDAQ 2,452.52 -1.15; S&P 500 1,298.19 +5.26; NYSE Composite 8,383.67 -2.30

For the day, losers outdid gainers by a small margin, 3122-3092. New lows retained their long-standing edge over new highs, though by a very slight margin, 169-144. We are clearly witnessing a market void of momentum in either direction.

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Commodities, however, are pointing the way, and that way is lower. Oil continued to unwind, losing $1.09, to $113.94. Gold finally crumbled, dropping $22.40, to $792.10. Silver was absolutely crushed, dropping $1.43, to $12.93.

The rout in the metals has been absolutely stunning. Gold was in the high $980s a few weeks ago. Silver was above $18.00. The ramifications of such a rapid unraveling of these commodities is mind-boggling. It is portentous of nothing less than a massive global recession. There is an absolute need for cash if such large amounts of gold and silver are being liquidated.

Were the metals a bubble, and has it popped? Sure, they were overinflated to a degree, and now the froth has been blown away. It will be interesting to see where they bottom out and whether they recover. Best estimates are for gold to retest the $650 level and silver to settle around $11.25, though after today's grinding, nothing's really for sure.

It was an interesting week. Even with commodities unwinding in a big way, stocks failed to gain. That's not a good sign going forward, especially with that ridiculously low volume.

NYSE Volume 1,175,771,000
NASDAQ Volume 1,776,362,000

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