Friday, February 13, 2009

Got Stocks? Too Bad!

Some days are better than others, and Friday, being the end of the work week - despite being the unlucky 13th - is generally better than most. Wall Streeters, however, must be leaving their posts with sullen feelings, as the stock market took another one on the chin.

For those keeping score, the major indices - Dow, NASDAQ, S&P 500 and NYSE Composite - all fell this week, marking the 5th weekly loss against just one weekly gain - last week.

For the week, the Dow lost 420 points. The NASDAQ was down 57. The S&P finished 41 points lower and the NYSE Composite was down 268 points. Not very pretty, and not likely to improve much in the coming weeks and months. While some may point out that stocks are generally cheap (some are, most aren't, and besides, it's a question of value, which is relative), and the market is oversold, there is still unfinished business on the downside.

It's likely that investors are scared silly of making significant investments at this point in time, being that the political condition is as unstable and the nation's finances. The banks continue to be at the center of the storm, and every day that passes that they are not brought under the bright light of scrutiny is a day lost to the US economy, and to the global financial system as well.

As many as eight major banking outfits are technically insolvent - and you don't have to ask me, just try Nobel Prize winner Paul Krugman:
The problem is not toxic assets. The problem is that financial institutions have lost a lot of money and many of the big ones, if they are not actually insolvent, are very close.

So there you have it. The malinvestments made by these banks have to be written down and if the banks don't have sufficient assets to cover their losses, like any other business, they will be forced to liquidate or reorganize. That is their fate, and the sooner it gets done, the better.

Dow 7,850.41, -82.35 (1.04%)
NASDAQ 1,534.36, -7.35 (0.48%)
S&P 500 826.84, -8.35 (1.00%)
NYSE Compos 5,206.76, -49.69 (0.95%)

Despite a near total absence of corporate news or economic reports (the University of Michigan reading of consumer confidence fell in at 56.2, down from 61.2 last month), the public is clearly displeased and traders are feeling the pinch.

On the day, internals were in line with headline numbers, as declining issues outdid advancers, 3629-2862, an expansion of the margin. New lows continued their 15+ month-long streak of beating out new highs, 201-19. Volume was on the light side, for a Friday.

NYSE Volume 1,241,224,000
NASDAQ Volume 2,022,550,000

Commodities were all over the map, with crude oil more than 10% higher, up $3.53, to $37.51. Gold gave back some recent gains, losing $7.00, to $942.20, though silver continued to rise, up another 12 cents, to $13.63, currently above our preferred buying range.

As mentioned previous in posts past, the eventual unwind to Dow 7550 might take six days or six months. We don't know for sure - nobody does - but we're certain that it will happen. The eventual fall will likely be tied to some event, such as the shuttering of Bank of America or some other plausible, but still shocking, news.

As I have personally been out of the market for about four months, including not even playing any options, the time seems to be coming for first a downdraft, and then a possible short-term buying opportunity. As sure as the Dow will test 7550, it will also either bounce off there, establishing a long-sought-after bottom, or it will go even lower. I am of the opinion that the latter is more likely, with 6600 as a final resting place, though I have heard some analysts saying the Industrials could eventually hit the 4000 range.

It's all speculation, so keep your powder dry.

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