Thursday, June 18, 2009

Trends Continue to Weigh on Stocks

Despite Thursday's overall gains - except on the NASDAQ, yesterday's only winner and today's only loser - the tenor of trade is definitely showing all the requisite signs of a significant market breakdown. After slipping at the open, stocks quickly ramped up, with the Dow reaching 8550 by 10:00 am. From that time until 3:45 pm, the Dow traded in a very tight 40-point range between 8550-8590, so the entire session looks somewhat suspect. In the final 15 minutes, the index dipped below 8550 briefly, but caught a bid late in the session.

Dow 8,555.60, +58.42 (0.69%)
NASDAQ 1,807.72, -0.34 (0.02%)
S&P 500 918.37, +7.66 (0.84%)
NYSE Composite 5,906.20, +41.65 (0.71%)

There was little in the way of economic news or reports, though weekly unemployment claims came in slightly higher than expected and the continuing claims number actually fell for the first time since January. That's another actually positive sign, but far too little upon which to pin any trades. In fact, volume dipped again to levels resembling last week, which was horribly slow.

The Conference Board Leading Economic Index increased by 1.2% in May, marking the first time since July 2007 that the 6-month change in the index has been positive. May was also the second straight month that the LEI had improved, another positive sign that the recession was easing.

The problem with these kinds of numbers are that twofold: they are subject to revision, and they do not - outside of any other context - presage the end of the recession, only showing that the rate of decline has eased. In other words, If you are operating at 50% capacity when you should be at 90%, an increase for a month to 55% is good, but in now way predictive of getting production back to 90%. The new reality is that the economy is not going to come back to anything closely resembling the credit-fueled days of 2002-2007, a reason the Obama administration and its lapdog media are so careful when commenting on the economy. The very last thing they want to do is offer false hope, an indication that they know how severe the current condition really is and aren't sharing it with everyone else.

On the day, advancers narrowly beat back decliners, 3574-2827, and new lows finished ahead of new highs for the 5th straight session, 51-39. Volume, as mentioned above, was well below par, which, unlike scoring at the US Open, is not good.

NYSE Volume 1,088,429,000
NASDAQ Volume 2,118,909,000

One thing that's becoming tiresome is the continuing rise in the price of oil, which was up again today by 34 cents, to $71.37. There's no compelling reason for oil prices to be hiking at this time, except the kneejerk seasonal trade that figures US motorists to travel more in summer months. One has to consider this to be one of the worst trades of the decade, and there have been plenty of them. With the world economy in recession and prices falling for just about everything, the only way oil rises is by naked insider speculation. As risky strategies are concerned, this one is nearly off the charts and could easily backfire. If the recession continues through the summer - and who doubts that it won't? - supplies may actually indicate that prices should fall, and quickly. That's when these contracts get unwound and the speculators take on some serious losses. Look for oil to stall out fairly soon (July 4 is usually the high) and head back to a more reasonable level around $55-$60/barrel, if not lower.

The annoying thing about the oil futures trade, is that, like the elections in Iran, they are so blatantly out of kilter with reality. Other commodities were mostly lower, including hating oil and natural gas, so why should oil have some special status? It's all speculation, and with any luck (for automotive travelers everywhere) their price-rigging scheme will blow up in their faces.

Gold ended down $1.40, to $934.60. Silver was off 4 cents, to $14.24.

Unless there's a massive rally tomorrow, the major indices will finish the week with losses, which, after three months of nearly unrelenting gains, is likely not only expected, but healthy.

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