Monday, June 15, 2009

Stocks, Commodities Belted; New Highs-Lows Indicator Calls Shot

After a week of listless trading which ended Friday with an upside-down condition between the headline number and the market internals, the measurement of new highs vs. new lows indicated that a reversal was at hand. On Friday, June 12, the Dow reached its highest level since January 6 of this year, and true to form, marked an interim market top from which a fall was not only predictable, but almost too obvious.

The Dow index was trapped between the last vestiges of a long bear market rally and the nearly-impossible condition of making new highs, converting to a new bull market. Since the transportation index failed to confirm the highs on the Industrial, there seemed to be no other direction but down, and on Monday, investors took the bearish signal and ran with it.

The major indices fall in line with the Dow decline, the worst hit being the Composite, with the broadest base of stocks. As usual, market participants tried to force a last-hour rally, as has been their behavior on nearly every down day, but their efforts failed to recover much of the ground lost during the session. At the low point of the day, the Dow was down 223 points, rallied from 3 pm to 3:45 pm to -175 points, but lost traction in the final 15 minutes of trade with all of the major indices ending near their lows for the day.

As concerns our most valued (and simple) indicator, the new highs-new lows measure went positive for five straight sessions, reversing a 21-month-old pattern, before rolling over into the negative (more new lows than highs) on Friday, in stark contradiction to the upside move on the Dow. Interestingly, the advance-decline line on Friday also went negative, nearly telegraphing Monday's direction.

Dow 8,612.13, -187.13 (2.13%)
NASDAQ 1,816.38, -42.42 (2.28%)
S&P 500 923.72, -22.49 (2.38%)
NYSE Composite 5,967.26, -181.35 (2.95%)

On the day, declining issues led advancers by an enormous margin, 5283-1174, (9-2); while new lows remained in control over new highs, 65-34. Volume was once more in the negligible range, close to levels seen last week, so, not influential. It may be that we are witnessing the summer level of activity on the market. Many participants may have already retreated to the sidelines, and will seek re-entry points at some later date. There are still large amounts of profits to be taken as the markets have not yet gone into "gran mal seizure" mode, though that may occur at any time.

Refreshingly, the new lows-new highs indicator rang true and maintained the negative bias from Friday, restoring faith in the one simple indicator that has been absolutely dead on throughout the market decline of the past 22 months.

NYSE Volume 1,150,418,000
NASDAQ Volume 2,178,292,000

While stocks were sliding, commodities were doing the same, with losses across the spectrum. Notable contrarians were Natural Gas and Pork Belly futures, both up sharply. Crude oil for July delivery fell $1.42, to $70.62. Further pullback, to the $55-62 level is expected, unless there's evidence of increased demand. One can safely assume that the recent rise in oil prices was the result of naked speculation of a seasonal variety, and thus, unlikely to produce long-lasting gains.

Gold was sent southward once more, dipping $13.20, to $927.50. Silver also took a large hit, losing 85 cents (a massive one-day loss), to $14.03. It's likely that the metals may remain somewhat range-bound, much of the trade dependent upon this week's PPI (tomorrow) and CPI (Wednesday) figures. If gains in both are sizable, that would indicate inflation, taking up all commodity prices, but there seems to be unfolding evidence that markets have cooled considerably and will remain moribund for the foreseeable future, making speculation difficult, it not foolish.

The world's economies are not as badly damaged as they appeared to be back in the fall of 2008, though the stresses to the overall global system has been significant. Market players are discovering that the recent rally in stocks may have been quite overdone and without justification, forcing many investors into a more defensive posture. Additionally, with the recent Treasury data indicating that foreign involvement has dried up considerably, there's increased pressure on bonds, forcing yields higher, and, thus, moving money away from riskier stocks and commodities.

Given the current conditions, there appears to be few places to make money, so a flight to the relative safely of bonds may be the preferred route for many.

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