Wednesday, June 3, 2009

Critical Turn for US Markets

Today marked a potentially critical turn for US equity markets, from a strict interpretation of a key indicator, that being the new highs - new lows measure.

On Monday and Tuesday, new highs surpassed new lows on the daily tally for the first time in six months. New lows have held the edge every day since September of 2007, save for five or six occasions. On those occasions in which new highs surpassed new lows during this period, once new lows took back the lead, stocks fell for a time until the new lows were 25-100 times the number of new highs, at which point a bottom was reached in the market.

Today, there were 50 new lows to 48 new highs, a technical win for the lows, indicating that a market turn is at hand. This is the strongest selling indicator that has been seen in the past three months. While it's obvious that stocks are severely overbought and have been for weeks, this sole indicator is all that's needed to predict the immediate future for stocks. They are ready to roll over and die. The extend of the carnage cannot be known, but within the next 3-6 trading days, there will be dramatic movement to the downside.

Market action today was somewhat hidden, though the real damage was done on the NYSE Composite, the largest index, and the one least prone to manipulation. While losses on the three majors were limited, the Composite was down 2.41%, nearly twice that of the S&P, three times the decline of the Dow and triple the NASDAQ on a percentage basis.

Dow 8,675.24, -65.63 (0.75%)
NASDAQ 1,825.92, -10.88 (0.59%)
S&P 500 931.76, -12.98 (1.37%)
NYSE Composite 6,033.90, -148.97 (2.41)

Declining issues far outpaced advancing ones, 4346-2059. That is a significant number, much moreso than the feeble tape-painting attempt on the Dow, which had been down as much as 140 points at 3:30 pm. Of course, the manipulators in the market made sure to limit the damage with a 75-point rally in the final half hour. It should be disregarded, as should every index, as they are absurdly valued at present. Consider that the Dow is still more than 2000 points higher than it was less than three months ago. The game is nearly up. Savvy investors will be locking in profits very soon as waves of selling are set to hit the market. Volume was on the low side, but still meaningless. The warmer weather and shakiness of the markets have removed many participants.

NYSE Volume 1,323,971,000
NASDAQ Volume 2,320,685,000

Commodities may have telegraphed the next move in stocks. After weeks of rallying, nearly all commodities sold off on the day, indicating that speculators are scurrying for safer havens in bonds and money markets. The catalyst may have been the ADP Employment Change report, which showed a loss of 532,000 private sector jobs lost in May, and also revised April from a loss of 491,000 to a 545,000 job loss. With the official Labor Department Non-Farms Payroll report for May due out prior to the market open on Friday, there is every possibility that the report will show further deterioration in the US employment market, not "incremental improvement" as the media and government officials have been touting.

Oil dropped $2.43, to settle at $66.12. Gold dipped $18.80, falling to $965.60. Even silver, the strongest commodity over the past three weeks, fell 65 cents, to $15.31 per ounce. Almost every commodity, from energy-related to foodstuffs, fell hard on the day. The grip of deflation is unmistakable.

There's another tsunami dead ahead. Government efforts to revive the economy have been minimal at best, and potentially harmful, at worst. Investors are nervous and big money is heading for the hills. Despite the positive spin which the government and media have tried to put on the economic picture, the reality is that the US economy is not gong to recover any time soon.

Look for sideways-down movement over the coming weeks, peppered with a couple of major downside days, with the Dow registering 200-400 point losses. Once the selling begins, it will not be easily stopped. The banks and their TARP money are pulling out - they have to - before they are stuck with losing positions. Before that happens they will unload on retail investors.

Happy days? Not for bulls.

No comments: