Friday, June 12, 2009

Breakdown in New Lows Signals Sell-off

Advice for the wicked: Sell stocks now.

This week marked the slowest level of trading activity of the year and probably much longer. The unprecedented level of indecision in equity markets is due to a wide variety of factors, not the least of which being the dead cold economies of the major industrialized nations. Europe is a basket case, and, while India and China are still in growth phases, the lifeblood for both of them - the United States - is being sucked dry as Americans try to make the best of a bad situation.

Personal spending has all but dried up despite promises from the Fed that they are willing to do anything in their power to keep the US from falling deeper into recession. That the economy continues to deteriorate is the main fear among investors, which has put a temporary lid on stocks. Despite that, the Dow Jones Industrials ended the week at its highest level since January 9, though the gains were all made in the final twenty minutes of trading, as usual.

If the rally doesn't end today, then it must shortly. Stocks are at levels unsustainable in relation to the overall outlook.

Dow 8,799.26, +28.34 (0.32%)
NASDAQ 1,858.80, -3.57 (0.19%)
S&P 500 946.21, +1.32 (0.14%)
NYSE Composite 6,148.61, -14.52 (0.24%)

On the day, decliners held sway over advancers, 3509-2903, but, more importantly, new lows exceeded new highs for the first time in the past six sessions, 99-83, signaling that the day's gains were manufactured on the backs of multiple losers. Volume returned to extremely pathetic levels. For the week, they might as well have just closed the exchanges and saved the effort for more productive pursuits. Maybe its time for people to realize that 21st century stock investing is more challenging than its worth, and highly subject to the whims of powerful monied interests.

NYSE Volume 2,066,007,000
NASDAQ Volume 858,232,000

Volatility has shifted away from stocks to commodities. Even crude oil, which had been a stalwart gainer over the past two weeks, took a bit of a tumble, off 64 cents, to $72.04. Gold took the largest hit, down $21.30 to $940.70. Silver also fell, off 62 cents, to $14.88. The losses in gold compels one to ask whether another liquidity crisis is looming, though the tightest analysis would be to assign the losses to temporary dollar strength, which is likely the case.

After a week like this, with subdued trading in tight ranges, investors are either relieved or even more worried than before. The latter case is probably the most prudent attitude at this particular juncture as the approaching second quarter earnings season may be a real stinker. We got through the last quarter with "not as bad as predicted" figures which met or exceeded watered-down expectations. Traders may not be as forgiving this time around.

With little wiggle room from a chartist's point of view, stocks have been poised for a downturn for quite some time, at least two to three weeks. We are still waiting.

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