Thursday, February 19, 2009

Panic Selling Crashes Stocks Through False Bottom

Yesterday's manipulated close above the false bottom at Dow 7552 could not hold, not even for a day, in the wake of unprecedented government handouts and institutional selling that nearly brought the major stock indices to their knees in the final hours of Thursday's session. The Dow Jones Industrials finished the day at their lowest level since October 9, 2002, prior, even to the start of the Iraq War.

The best the government interlopers (through their proxies at Goldman Sachs, Morgan Stanley, et. al.) could muster today was putting a good face on an unmitigated disaster. The game is over for Wall Street. A massive systemic collapse of global finance is palpable and seemingly inevitable.

With an opening pop, investors bought the Dow up about 60 points, but the market could not sustain the gains. By 10:30 the index was back into the red. After a brief, heartless rally, stocks cascaded lower with the Dow eventually falling below 7450. From 11:30 to the close, the the major indices were all under water. Selling was relentless, with the occasional covering of options positions, which close tomorrow. A line could be drawn diagonally across the tops. The slope of the bottoms was more severe.

Dow 7,465.95, -89.68 (1.19%)
NASDAQ 1,442.82, -25.15 (1.71%)
S&P 500 778.94, -9.48 (1.20%)
NYSE Compos 4,881.16, -43.38 (0.88%)

It was not the size of the losses that mattered much in this session, but the overall tenor and tone of trading. The level of desperation as a standard emotion continues to deepen, even daily. People are angry. The press, economists, and the public are all up in arms over the rapid-fire moves of the federal government. Most of the abuse is being heaped upon newly-elected President Obama, though much of the focus is rightfully on the US congress.

Unsurprisingly, the Dow components were a shambles, 20 down and 10 up, with most of the largest losses sustained by financials and tech, though the damage was truly broad-based. Paradoxically, the largest percentage gainer on the Dow was Home Depot, which gained 1.82%, up 0.36 to 20.16.

If you're seeking a good proxy for the Dow, look no further than JP Morgan Chase (JPM), which turned negative today just as the Dow was rolling over. The pride of Wall Street banking, JPM is probably overvalued by a factor of 5-10, since it is in largely the same boat as brethren Bank of America and Citigroup, all of whom are in the government's notorious gang of Systemically Significantly Failing Institutions under the Capital Purchase Program.

JP Morgan Chase dipped 0.91 to 20.60, a mere 4.23% loss, but it is joined at the hip to Bank of America (-0.64, 3.93, -14%) and Citigroup (-40, 2.51, -13.75).

The January Producer Price Index (PPI) registered its first gain in six months, edging up 0.8% over December. This shouldn't have come as much of a surprise, since retailers discounted heavily in December during one of the worst holiday shopping seasons in memory.

Inflation alarmists should also take a cold shower on this news, as much of the increase was due to slightly higher energy prices, and, of course, the figures are seasonally adjusted. Deflation continues to rule.

But the real story of the day was the final breakdown through the November 20 bottom on the Dow. The process will no doubt continue as the other indices approach and retest their lows. The markets are again in uncharted territory.

Friday's action most certainly will be among the most volatile of recent vintage. Thursday was only a prelude to the real wealth-cleansing that will occur over the coming days, weeks and months.

Internals did little to mask the carnage. Decliners swept by advancers, 4384-2129. New lows outnumbered new highs, 617-11. Volume was strong enough to suggest more selling as more participants become engaged in a race to the bottom.

NYSE Volume 1,485,501,000
NASDAQ Volume 2,036,313,000

Commodities exhibited perhaps the most random and directionless trade in decades. Oil priced $4.86 higher, to $39.48. Gold fell $1.70, to $976.50, while silver lost 36 cents, to $13.94. The metals cooled off what was, until today, a torrid rally. Beef and corn were up, pork and soybeans were down. Natural gas fell to a new seasonal low as at $4.11, as milder weather and conservation measures are keeping demand tamped down.

The level of unrest, not only on Wall Street but on Main Street and across the nation and around the world, cannot be underestimated. Cheats and scoundrels in government and business have opened the gates of hell with their wrong-headed policies over many years. Another of America's dates with destiny is fast approaching.

Brace yourself.

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