Thursday, January 15, 2009

A Brief Journey Into No-Man's Land

Stocks continued their race to the bottom today, before a combination of short covering, naked optimism and options expiration (tomorrow) brought stocks off their lows of the day to finish with marginal gains, snapping the 6-day losing streak for the Dow, but not before falling through an area of substantial support around 8150 on the Dow and spending much of the day in a no-man's land between the two most recent lows, 7552.29 on November 23 and 8149.09 on December 1 of last year.

Notably, the rally began precisely when the Dow touched down at the 8000 mark, likely due to program trading and internal meddling by government forces. There are still vested interests attempting to fool the public into thinking that recovery is "right around the corner."

Today, not unlike most other recent sessions, saw stocks plummeting at the opening bell. The culprits were the usual combination of bank bailouts, today's headliner being Bank of America (BOA), which is unsurprisingly in need of government money after taking on failed mortgage lender Countrywide and brokerage Merrill Lynch.

December PPI figures confirmed continued price support weakness and first time unemployment claims spiked once more. The usual stuff of a recession/deflation.

Dow 8,212.49, +12.35 (0.15%)
NASDAQ 1,511.84, +22.20 (1.49%)
S&P 500 843.74, +1.12 (0.13%)
NYSE Composite 5,347.75, +19.07 (0.36%)

While the headline numbers would suggest some calm, the exact opposite is what's occurred and will continue to occur until the absolute bottom is once more tested. That testing time is not far off. In fact, today's activity strongly indicates that a major sell off is imminent, within the next two to three weeks.

Advancing issues barely surpassed decliners, 3608-2970, but new lows expanded in both raw number and margin from new highs, 266-23. The trend line of new lows to new highs is clearly indicating severe weakness, though we hardly need internal indicators at this point. One look at any nightly newscast or government report tells us everything about the direction of the market and the mood of investors.

Volume was much higher than normal, due, no doubt to the aforementioned options play and short covering.

NYSE Volume 7,924,407,500
NASDAQ Volume 1,643,737,000

On the other side of the investing coin, commodities took another hit, with oil futures falling to a three-week low, down $1.88, to $34.67 at the close. Gold dropped $1.50, to $807.30. Silver lost 4 cents to $10.44.

Of interest to the many homeowners who heat with natural gas is the recent, continuing drop in the price of that commodity, settling at $4.89 today. The drubbing (a loss of over $1.00 in just the last week) is particularly interesting considering the record cold temperatures recorded this week across a wide swath of the country. Natural gas is still abundant and reserves are high. The wild cards are somewhat intertwined and interrelated: more vacant homes, lower productivity (fewer factories and businesses in operation, lower employment) and conservation by affected dwellers (lower thermostat levels, better insulation).

The low prices for energy are part of the good news. While not everyone is affected equally by the current quagmire, investors and free-spenders are going to be hurt the most. Also, keeping more than a nominal amount of cash in any major bank could result in unexpected inaccessibility of your funds, but that's been obvious for some time, hasn't it?

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