Wednesday, February 18, 2009

Dow Players Paint Tape, Confirm (False) Double Bottom

Stocks began the day with small gains and hit the day's highs shortly after noon, though they were clearly under pressure all day.

While the Dow flirted with the flat line in a very narrow range through almost all of the session, sentiment was severely split. Neither bears nor bulls could muster enough energy to move stocks clearly in one direction or the other, though the NYSE Composite and the S&P 500 spent the majority of the day in the red.

The Dow stayed on a somewhat even keel all session long, even though there were never more than 13 of the 30 stocks inside the index showing gains. Chief among the gainers was Wal-Mart (WMT), which finished the day with the biggest gain of any Dow component, up 1.76, to an even 50.00.

Others which aided the index from falling were Intel (INTC), McDonald's (MCD), IBM (IBM), Proctor Gamble (PG) and ExxonMobil (XOM). The case could be made for selective boosting of the Dow by insiders, as any number of players did not want to witness another bout of selling after yesterday's classic double bottom formation.

One had to look only so far as ExxonMobile vs. Chevron (CHV). While the former was higher all day, the latter was underwater throughout the afternoon except for the final half hour, despite the two of them being in essentially the same business. Chevron finished with a 6 cent loss, while ExxonMobil ended the day with a 66 cent gain.

At the end of the day, the bulls prevailed, lifting the Dow by the smallest of margins, notably on late day buying of just three stocks: Chevron (CHV), American Express (AXP) and Merck (MRK), each of which spent almost the entire day lower before a burst of buying in the final half hour of trading.

Dow 7,555.63, +3.03 (0.04%)
NASDAQ 1,467.97, -2.69 (0.18%)
S&P 500 788.42, -0.75 (0.10%)
NYSE Composite 4,924.54, -14.57 (0.29%)

Adding to the argument of the bears is the fact that only the Dow finished in positive territory, further evidence of insider trading in a concerted effort to finish above the now double bottom at 7552.29 (Nov. 20) and 7552.60 (Feb. 17). Their argument is hardly convincing when considering the various factors affecting market movement.

The internals were decidedly bearish, to a point at which one must question today's headline results. Advancing issues were buried under a deluge of losers, with decliners ahead, 4396-2120, a better-than 2-1 margin. Further, the gap between new lows and new highs expanded greatly, with 661 new lows to just 22 new highs. Those two indicators strongly suggest that today's finish on the Dow was a serious case of painting the tape so that the bullish cause can now call a bottom, right there at 7552 and change.

Nothing could be further from the truth. First, the Dow's gains were insignificant. Second, the other three indices finished lower and have not come close to retesting their respective lows. Third, the new highs/new lows and advance/decline lines were of a nature more like a day in which the Dow would have lost 100-200 points. Fourth, Most of the Dow stocks were lower, with the final tally at 12 up and 18 down, with the biggest volume stocks sharply lower.

NYSE Volume 1,433,404,000
NASDAQ Volume 2,060,209,000

Two largest volume movers by far - Citigroup (C) and Bank of America (BAC) were down substantially all day long with Bank of America suffering a 6.73% loss, down 0.33, to $4.57. Citigroup was down 4.90%, losing 0.15, to 2.91.

There is a growing acceptance that those two - the largest banks in America - will have to undergo some form of government receivership, or, "nationalization" in a controlled divestiture or bankruptcy proceeding with the likely assistance of the FDIC, Treasury and the Federal Reserve.

Once again, commodity prices were mixed, though similar to Tuesday's action. The metals were all higher, while foodstuffs were markedly lower, as was oil, losing 31 cents, to $34.62. Gold galloped ahead by $10.70, to $978.20, while the rally in silver continued unabated, up another 28 cents, to $14.29.

Adding to the bear case were the four economic indicators, all showing signs of stress by registering numbers for January that were down and lower than expected. Housing starts fell to 466,000, from 560,000 in December. Building permits fell to 521,000, from 547,000 in the prior month. Capacity utilization continued in free fall, down to 72% form 73.3% a month earlier. So too, industrial production, falling by 1.8% on the heels of a 2.4% fall in December.

As far as a double bottom is concerned, the charts will confirm it because they do not lie, even though the results of today's trading are highly suspect. In the end, this will be seen only as a support/resistance level as another move lower is clearly in the cards.

The manipulators in the marketplace may get a temporary boost on false hopes, though it's just as likely that the markets will continue to deteriorate and today was only an effort mixed in with Friday's options expiration. The Dow could easily lose (or gain) 300-500 points be the end of the week. It could also meander along in a meaningless pattern for some time, but eventually, this bottom will be taken out, because it is a false one.

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