Thursday, February 26, 2009

Game Over! Stocks Swoon on Stress Test Suspicion

Stocks opened higher despite more sour economic news, but ended the day in the red as the reality that Treasury's "stress test" for the ailing banking sector was more smoke, mirrors, politics and PR than an actual remedy.

Secretary Tim Geithner's "plan" to resolve the banking and financial crisis has good probability to extend the recession by not addressing the core problems. (See earlier post below for details on Treasury's plan.)

Blow by blow, here's how the day went, as interpreted by Wall Street's desperate price discovery process (at least somebody's working).

8:30 am: The Commerce Dept. issues monthly Durable Goods Orders report for January, citing a deep decline of 5.2% from the previous month, the sixth straight monthly drop. It's evident that Americans have their wallets and purses closed tight. Some even have forsaken carrying such.

The Labor Dept. announces 667,000 new weekly unemployment claims nationally. The 5.1 million currently receiving benefits is the highest since the department began keeping records in 1967. The federal government celebrated the occasion by adding $25 to the weekly benefit. Each week, an additional $127,500,000 of taxpayer money will be spent, beginning immediately.

9:30 am: The markets open with sharp gains, ignoring the dire economic reports. The Dow is up 80 points in the first ten minutes. the other major indices are up more than 1%. Bank of America is up 0.69 at 5.85.

10:45 am: The Dow reaches what will eventually be the high of the day - 7400 - up 130 points. 26 of 30 Dow stocks show gains. Bank of America peaks at 5.89, up 0.73.

1:13 pm: Having given up all of the day's gains, the Dow briefly falls into negative territory. Bank of America is up only 0.24 at 5.40.

3:15 pm: Stocks are in full retreat, with the Dow lower by 97 points. Bank of America is down 0.05 at 5.11. There are now only nine Dow components with gains. Most have completely rolled over.

4:00 pm: Markets close with all indices near the day's lows. It's the 8th losing day in the last 10. The Dow closes below 7200 for the second time this week. 22 Dow components close with losses, 8 with gains. Bank of America finishes with a cheerless win of 0.16, at 5.32.

Dow 7,182.08, -88.81 (1.22%)
NASDAQ 1,391.47, -33.96 (2.38%)
S&P 500 752.83, -12.07 (1.58%)
NYSE Composite 4,713.02, -40.15 (0.84%)

Market internals verified the session's finish. Declining issues outgunned advancers, 3755-2761. New lows: 460; new highs: 4, the lowest number of new highs I have seen since October of 2007. Volume was high once again, as investors alternately test and flee from equities.

NYSE Volume 1,482,993,000
NASDAQ Volume 2,348,150,000

Commodities were split. Crude oil for April delivery was up $2.72 to an unsustainable $45.22. Gold continued to correct on profit-taking, losing $23.60, to $942.60. Silver tumbled 94 cents, to $12.98, an excellent buying opportunity for long term investors.

Today's results were startling, stunning, unprecedented in the level of pessimism on display, expressing a remarkable distrust of government and overwhelming lack of confidence in the economic future. There is little doubt among investors that the government has failed to offer reasonable solutions to stem bank losses, job losses, income deterioration and revive - or even stabilize - the economy.

No comments: