Wednesday, September 30, 2009

Getting Ready for the Big One

Markets were literally all over the map on Wednesday, up in the early going after shrugging off the ADP September Private Sector Employment figures - a loss of 254,000 jobs, worse than expected - and getting a bit of a boost from the final, revised 2nd quarter GDP report of -0.7% until the Chicago Purchasing Manager's Report for September came in at 46.1, far weaker than the expected 52.0, sent stocks into a dizzying tailspin.

The bottom was reached early in the day - 9608 on the Dow, a drop of 134 points - and the markets staged a spirited rally until finally regaining all of the losses and going positive at 1:00 pm. The highs for the day were attained shortly thereafter, and stocks gyrated to a negative close, though much better than early indications.

Dow 9,712.28, -29.92 (0.31%)
NASDAQ 2,122.42, -1.62 (0.08%)
S&P 500 1,057.07, -3.54 (0.33%)
NYSE Composite 6,910.88, -15.94 (0.23%)

Despite moderation into the close, the markets appear to be setting up for a massive sell-off prior to earnings season. A spate of negative economic news cannot be ignored much longer, nor can the fact that stocks are up over 50% from their March bottoms. A correction is overdue considering all the variables involved and it could be quite large and not easily countered.

The last two major sell-offs (see chart here) were whoppers. On August 17, and again on September 1, the Dow dropped 186 points in each instance. In each case, the big drops followed days in which stocks had fallen and recovered off their lows, such as today.

If history is to be our guide, a drop of 200 points should be in the cards. Today's lows were severe, and the recovery unjustified, aided only by weakness in the US dollar, which does not account for individual stock gains, nor is that kind of pricing model sustainable nor realistic. Markets, at some point, have got to go back to fundamentals, and they are sorely lacking in almost every sector. Earnings have been good the past two quarters due to deft cost-cutting and downsizing. It is about time for the markets to grow up, with investors looking for top-line growth on increased sales and profit margins.

Unfortunately, as we head into 3rd quarter earnings season, most companies have not exhibited the kind of performances that would denote sustained growth from increased sales and volume. This really could be the end of the line for the nearly 7-month old rally, one of the best ever. It is difficult to believe that any money manager would be holding strong positive positions heading into Friday's Non-farm payroll report, much less hold long positions before tomorrow morning's Initial claims (8:30 am) and ISM index (10:00 am) readings. Judging by the direction of recent reports, both could be worse than expected, and the non-farms payroll number could be the ultimate market killer, so, instead of one, neat, massive decline, stocks may be in for a double dip, which could derail the rally and finally decouple stocks from oil and the dollar.

Extreme caution is urged.

On the day, the simple indicators were pointing toward more carnage. Decliners beat advancing issues handily, 3817-2644, and new highs bested new lows, though by a declining margin, 330-50. It should also be noted that new lows should be very subdued due to the ravages of the past year.

Significantly, volume was at the highest level in nearly two weeks.

NYSE Volume 7,226,821,000
NASDAQ Volume 2,543,707,250

Commodity traders made the most of the weakened dollar, as oil gained an outlandish $3.90 per barrel, to close at $70.61. Gold popped $14.90, to $1,009.30, while silver gained 48 cents per ounce, to $16.66.

With more data concerning employment and the economy dead ahead, the indications are for a strong influence of data on stocks, much of which has been negative, or, at best, an aberration in the general upward slope.

The remainder of this week and the early part of next appear to be full of pitfalls for short-term investors.

Tuesday, September 29, 2009

A Day of Giving Back

Stocks snapped back into negative territory following more mixed messages on the economy.

At the open, investors were encouraged by data from the S&P/Case-Shiller home-price index, which showed a 1.2% gain in July over the prior month, the best month-over-month showing in 4 years. Though house prices nationally were in a decline of 13.1% year-over-year according to the survey, it was a better number than expected.
"Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over."

Following the housing data, the Conference Board reported that consumer confidence fell to 53.1 in September from 54.5. This report contradicted last week's positive report on consumer confidence issued by the University of Michigan sentiment survey.

Nonetheless, investors were taking profits in front of tomorrow's ADP Employment Survey, which has served as a proxy for the monthly Non-farm payroll data released by the government the first Friday of each month. Stocks finished at or near their lowest levels of the day, which usually indicates a good deal of unease, though these indicators have been less-than-reliable on a day-to-day basis recently.

Dow 9,742.20, -47.16 (0.48%)
NASDAQ 2,124.04, -6.70 (0.31%)
S&P 500 1,060.61, -2.37 (0.22%)
NYSE Composite 6,926.82, -12.94 (0.19%)

Market simple indicators were mixed on the day, with declining issues beating out advancing ones, 3517-2919. New highs improved, to 323, while new lows continued to contract, to 45. Volume was light to moderate, with many market participants taking a wait-and-see attitude in advance of the employment figures which will take center stage Wednesday through Friday.

NYSE Volume 5,592,967,000
NASDAQ Volume 2,094,364,375

Commodity traders took the same laid-back approach on the session. Oil slipped 16 cents, to $66.71; gold gained 30 cents, to finish at $994.40. Silver shed 2 cents to end at $16.18.

There was scant data with which to move the markets on Tuesday, though tomorrow will be another story altogether. Analysts are seeking job losses in the ADP report of about 200,000 for the month of September, and Non-farm payrolls of about the same level, though a figure of -180,000 would certainly be a tonic for the markets.

As mixed as economic data has been over the past two weeks, it's difficult to portend a particular outcome, and the markets surely aren't offering any clues.

Monday, September 28, 2009

Plenty of Momentum for Gains

A week ago, two weeks ago, four weeks ago, every mouth with an opinion on the stock market was calling for a correction of 5-10%, except, possibly, Laszlo Berinyi of Berinyi Associates, who said that a correction was not necessarily in the cards, and pointed out, on CNBC (sorry, I do not have the actual clip or reference), that analysts had not done their homework and that he expected the Dow Jones Industrials to reach 10,000 this month.

Well, even though this month, September, is nearly over, Mr. Berinyi may have been on to something. After last week's three-day decline, in which the major averages dropped between 2 and 4%, the last few days of the month have - all of a sudden - taken on a new, bullish tone. There are reasons aplenty for the abrupt upward keel that we witnessed on Monday, not the least of which having much to do with world politics. The far East stock indices such as the Shanghai, Nikkei and Hang Seng were all off sharply Monday morning, boding ill for their Western counterparts, but, miraculously, as Easterners awoke to a fresh week of market action, Europe's bourses were up sharply, and index futures were singing the praises of free market capitalism.

Merger deals were in the works with Xerox and Abbot Labs leading the charge, so when the US markets opened, traders wre buying fistfuls of stocks, from energy to industrials, to consumer cyclicals to health care. The Dow was up 100 points in the first fifteen minutes, and churned from there in a tight range.

While the rally will be pooh-poohed by the bears who will point out that volume was significantly lower due to observance of Yom Kippur, those holding their Torahs today were not missing from the rally. Surely they had issued instructions that were carried out with haste in the early going.

Dow 9,789.36, +124.17 (1.28%)
NASDAQ 2,130.74, +39.82 (1.90%)
S&P 500 1,062.98, +18.60 (1.78%)
NYSE Composite 6,939.76, +116.25 (1.70%)

On the day, advancers put decliners on notice of direction, beating them, 4972-1462, a 3-1 margin. New highs beat new lows, 318-55, expanding the gap and reducing the gross number of stocks hitting fresh lows. As mentioned above, volume was low, due to a Jewish holiday, but that fact is insignificant.

There is still untapped value in many stocks, earnings season is less than a week away, the economy is expanding once again, and sentiment is high. There is every reason to believe that stocks will continue their bull run in the near term.

NYSE Volume 4,399,573,500
NASDAQ Volume 1,931,896,625

Geo-politics dictates that the United States show strength following the G-20, especially in the face of new threats emerging from Iran. Those threats are nothing more than banter, rather than actual posturing for nuclear armageddon, meaning that industry must, and will, carry onward without interruption.

Commodities got the Monday-morning memo as well. with oil rebounding 82 cents, to $66.84, gold higher by $2.50, to $994.10, and silver up 14 cents, to $16.20. The commodity gains were modest as compared to those in equities, and for good reason: we are still struggling through a corrective, deflationary environment. Commodity and labor prices will continue to remain under pressure until companies can build up profits, inventory and a path to sustained growth. The economic recovery will be neither quick nor shallow. It will be as it should be, coming out of a severe crisis: long and vibrant. Company earnings are on track for their third consecutive quarter to the upside.

Investors were warned by the mass media to beware of the month of September. With just two days remaining, it appears that the worst fears have failed to materialize. One can only hope that more pundits and analysts warn about October.

Friday, September 25, 2009

Skidding Stocks Test Rally Resilience

Crosscurrents in the market continue to blow negative economic data into the mix. Today's rash of non-encouraging news came from two sources: the Commerce Department, which reported that durable goods orders fell 2.4%, when analysts were looking for a 0.4% gain; and the National Association of Realtors, in their monthly report on new home sales, which showed a gain, from a seasonally-adjusted 446K to 449K, smaller than expectations.

These minor gyrations in key economic data have been in the mix for two days and the markets have responded with something along the lines of a 2-3% decline in the value of stocks. Of course, not all stocks - nor indices - are created equal, and Friday's close demonstrated that the trade on the day was into defensive stocks and widely held issues, as the Dow outperformed the other majors on a relative basis. The losses on the Dow, as compared to yesterday, were almost exactly the same, but the NYSE Composite fared much better. On Thursday, the Comp was down 1.47%, as compared to -0.57% today.

There was a smattering of good news, as the Michigan Consumer Sentiment Survey moved higher in September, to 73.5, from 70.2 in July. People had a right to feel better this month. Until just this week, the weather was nice (except in Georgia) and the stock market was up. Kids being back in school must have added at least half a point to the adult happiness index.

Dow 9,665.19, -42.25 (0.44%)
NASDAQ 2,090.92, -16.69 (0.79%)
S&P 500 1,044.38, -6.40 (0.61%)
NYSE Composite 6,823.51, -38.80 (0.57%)

Our simple indicators are suggesting that whatever decline is currently built into the markets, it's not going to be a large one, or, at worst, it's not going to damage all stocks and all sectors. After the big hits on Wednesday and Thursday, today's drop was moderate and much less broadly-based. Advancers were once more beaten back by decliners, 3640-2727, which was a vast improvement from Thursday's 3-1 ratio. New highs topped new lows, 213-42, roughly in line with yesterday's numbers. Volume was off significantly from the prior two days, suggesting that whatever downside risk is prevailing, it isn't much. There was no panic selling at all, though stocks did finish much closer to their lows than their highs, so until that trend reverses course, there's likely to be choppiness in the near term.

NYSE Volume 5,279,540,000
NASDAQ Volume 2,336,395,000

Commodities were muted once more, with oil up a mere 13 cents, to $66.02, close to yesterday's two-month low. Gold fell $7.30, to $991.60, while silver slipped 24 cents, to $16.06.

In total, the week was not that bad, considering the recent run in stocks, which happen to be the only place to make money these days. The 10-year Treasury was a strong performer, with yields down from 4.48% earlier in the week to 4.33 on Friday.

With September coming to an end next week, the outlook will be focused on employment - or the lack thereof - as September non-farms payroll data is likely to have a huge impact. The market will be looking for job losses of under 200,000, after the August numbers came in at -216,000. That may be somewhat of a reach and could harm stocks short term.

One caveat to all of this is that expectations for a smooth recovery from the very sharp recession may be a bit too optimistic. While the data on existing home sales and durable goods this week took a step backwards, understanding that nothing moves in exactly a straight line could prove to be a valuable piece to the economic puzzle. Like the stock market, the economy runs into bumps and grinds as well. It's a huge country, and the data may not be perfectly reliable as well, so it's a good idea to keep a broad perspective and an open mind.

Improvement will happen, but not all at once and certainly not in measured doses.

Thursday, September 24, 2009

Drop in Existing Home Sales Drops Stocks

The pins and needles upon which traders have been treading these last six months finally began to prick and tingle at the soles of their feet and the soul of investing. With stocks recovering mildly from Wednesday's selloff on news that unemployment claims had dipped - for the third straight week - the 10:00 am announcement from the National Association of Realtors that existing home sales for August had fallen 2.7% in August sent shivers through the markets, turning early gains into day-long markets.

The damage done by the one small piece of news demonstrated just how fragile this rally has become. Adding to the pressure was a stronger dollar, which helped keep stocks down, but did more damage to commodities. Overall, the damage was limited though broad, the Dow Jones Industrials outperforming the rest of the market, a sign that investors may have made a run to more quality names.

Dow 9,707.44, -41.11 (0.42%)
Nasdaq 2,107.61, -23.81 (1.12%)
S&P 500 1,050.78, -10.09 (0.95%)
NYSE Composite 6,862.31, -102.38 (1.47%)

Stocks closed lower for the second straight session, with declining issues leading advancers by a wide margin, 4899-1554, or, better than 3-1. New highs and lows both retreated, though highs remained the leader, 229-38. Volume was strong.

NYSE Volume 6,546,583,500
Nasdaq Volume 2,646,965,000

Commodity prices were affected negatively by the strengthening dollar, which, to many ordinary folks, is just fine, as the price of oil for November delivery dropped significantly, down $3.08, to $65.89, a 2-month low. Gold dipped below the magic $1000 mark, losing $15.50, to $998.90. Silver didn't do any better, dropping 62 cents to $16.30.

What's interesting to note is the interplay between the dollar, commodities and stocks, as they have been coupled together for quite some time. As the dollar has weakened, both stocks and commodities have risen, but, especially in the oil trade, some decoupling of stocks from commodities may be beginning to take place.

In reality, the two should have little to do with each other, since they are both asset classes. Wall Street may be outsmarting itself at the moment, as the long-term rally still remains in place for stocks, while commodities are arguably overpriced in this somewhat deflationary environment.

Tomorrow, traders will seek insight from durable goods orders at 8:30 am, followed by the Michigan Consumer Sentiment survey at 9:55 and new home sales at 10:00 am.

There are significant cross-currents at work, though the markets maintained their upside bias with the Dow finishing just above 4700 and the S&P finding support at 1048.

Wednesday, September 23, 2009

End of Rally or Start of Something Even Better?

Stocks took a 180 degree turn after the highly-anticipated announcement by the FOMC of the Federal Reserve, first blasting higher (the Dow pushing beyond 9900), but just as suddenly reversing course, heading straight down into the close to finish with the largest losses in nearly a month.

Alarmists will say that this is the beginning of a correction, which they said in May, June and July and again at the end of August, but they will still be wrong. The reasons are simple. First, the Fed announcement was probably their rosiest and most bullish since the financial crisis of a year ago. Second, they - the Fed - hasn't stopped pumping money into markets and reiterated that they would continue that posture. Third, the Fed kept interest rates essentially at zero, right where it's been for a year, and they're surely not backing off from that. Fourth, the timing of the sell-out (as opposed to a sell-off, I'll explain below) was extremely suspect and more than likely engineered by some very large players. Those would be the usual suspects from the failed banks and brokerages at Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America.

This kind of unexpected turn has gotten to be expected by market pros, and they're not going to be swayed into selling, though those who bought in anticipation of the market going higher on the Fed announcement (which it did, initially), may have a while before they get back to even. This was mostly planned, well-organized selling, something like the reverse of a short squeeze, with the big money taking theirs off the top. The rally, which is now more than six months old, remains intact and stocks will recover, probably in a very short time. There simply isn't any better place to put money to work. There's also plenty of support in the Dow 9400-9600 range. This was simply profit-taking and nothing more than that since the fundamentals of the market did not change.

Dow 9,748.55, -81.32 (0.83%)
NASDAQ 2,131.42, -14.88 (0.69%)
S&P 500 1,060.87, -10.79 (1.01%)
NYSE Composite 6,964.69, -82.44 (1.17%)

Declining issues beat advancers, 4080-2388, but evidence of the rally remained in the new highs vs. new lows metric. There were 507 new highs on top of 68 new lows, a very wide margin in a trend that continues to suggest higher stock prices. Volume was solid, though much of that volume had to do with the upside achieved earlier in the day. All told, the sell-out was not impressive and unlikely to encourage those of a bearish inclination very much.

NYSE Volume 6,319,143,500
NASDAQ Volume 2,699,233,750

What may have been more significant was action in commodities and in the dollar index. Right after the Fed announcement, the dollar fell abruptly, but soon after reversed course and finished higher, just the opposite of what stocks did.

Oil was absolutely shattered on the day, finishing down $2.79, to $68.97. The metals did not align, though they were lower. Gold sold off by only $1.10, finishing at $1,014.40. Silver fell 21 cents, to $16.91.

What happens next depends completely upon market sentiment, which has been somewhat positive and isn't likely to change soon, unless Thursday's unemployment claims data - both initial and continuing - come in below expectations. The time has come for employment, even though it is a lagging indicator, to start doing something other than tread water. Ditto the real estate market. Existing home sales data is on tap for Thursday at 10:00 am.

If these numbers are poor or show only incremental improvement, stocks could take an even worse beating, though judging by the exquisite timing by the big money players, there's probably going to be a return to the rally in short order. Obviously, one day does not make a trend, and as unexpected and swift was this decline, coming out of nowhere and running a full 150+ points on the Dow in the final 90 minutes of trading, qualifies as a one off event, completely orchestrated by the crooks and swindlers who brought you 9/11, the financial collapse, the TARP and every other suspect financial event of the past 20 years.

Don't be swayed. Their own greed tells us that stocks will have to go much higher short term.

Tuesday, September 22, 2009

Up and Down

Over the past two days, the markets have been practically at a standstill, with trading ensconced in a fairly tight range. After closing down 41 points on Monday, the Dow rose 51 on Tuesday, for a net gain of 10 points. This kind of range-bound gyration is probably due to a number of factors, one being that the market has been on somewhat of a tear and has cooled off for some profit taking, and also the usual waiting game prior to the Fed rate announcement (due Wednesday at 2:15 pm).

While the Fed is poised to do nothing once again, it's probable that they'll spice up the language somewhat, the accompanying press release stating that there are incipient signs of recovery in various parts of the country, though jobs and real estate prices are still acting as a drag on the economy.

Since none of that is anything new, traders will be - more and more every day - looking at stocks from a valuation standpoint, seeking companies that are well-managed, stable, and with solid cash-debt positions. There's also something of a speculative movement ongoing as well in this trader's market. With so many small firms trading at very low prices, investors have been nibbling and gnawing at stocks mostly priced under $20 per share. There are loads of them, some good, others not, but that's a matter for which markets are built.

The orderliness of the current rally has been something marvelous. Creeping upwards little by little nearly every day, this 6 1/2-month-old boom has not gotten overextended, and still appears reasonably priced considering current conditions. Any good news from the real estate world or job creation front should send it soaring off like a Roman candle.

Dow 9,829.87, +51.01 (0.52%)
NASDAQ 2,146.30, +8.26 (0.39%)
S&P 500 1,071.66, +7.00 (0.66%)
NYSE Composite 7,047.13, +78.54 (1.13%)

Advancing issues finished smartly ahead of decliners on Tuesday, 4259-2214. New highs outpaced new lows, 458-60, continuing a nearly 3-month-old trend that now appears unbreakable. Volume was moderate, tending toward high.

NYSE Volume 5,923,928,000
NASDAQ Volume 2,504,479,500

Commodities were mostly higher on a weaker US dollar. Oil rose $1.84, to $71.55, though it remains stuck in a price range between $65 and $75. Gold bounded higher by $10.60, to $1,015.50. Silver bounced back 24 cents, to $17.12.

Friday, September 18, 2009

Tight Range, High Volume

Today was moving day.

Traders moved in and out of positions, realigning their portfolios into what they believe to be the best stocks over the near term, that time frame likely being through December and the holiday season. That is why sector rotation was so evident today, as investors shed shares in basic materials, conglomerates, transportation and energy (the 4 sectors which closed in the red) and into consumer cyclical and non-cyclical stocks. Those two sectors were the biggest movers, up 0.71% and 1.11%, respectively, and another reason why volume was high, but the range in which stocks traded was very tight.

The Dow moved a total of 63 points from top to bottom, which would normally be suggesting a sluggish market, but the overall picture was more dynamic, as volumes exceeded the prior two days.

Dow 9,820.20, +36.28 (0.37%)
Nasdaq 2,132.86, +6.11 (0.29%)
S&P 500 1,068.30, +2.81 (0.26%)
NYSE Composite 7,016.92, +14.75 (0.21%)

The lack of breadth also contributed to the smallish gains. Advancers beat decliners narrowly, 3561-2887. New highs finished ahead of new lows, but not nearly with as much room between them as on Wednesday, 360-44. Notably, the number of new lows was cut in half from most of this week's daily count, an encouraging sign.

Readers will note a major change in how NYSE volume is expressed. Instead of using simple closed volume, from this day forward, we will display consolidated volume, which includes extraneous trading platforms unrecognized by straight Big Board volume calculations.

NYSE Volume 6,744,731,000
Nasdaq Volume 3,107,309,750

There was no economic news released by any government agency, though the Bureau of Labor Statistics did report that unemployment has reached levels above the national average (9.7%) in 14 states. The hardest hit was Michigan, at 15.4%, while the best place to keep a job is in North Dakota, which reported unemployment at 4.3%. We're unsure what people actually do in North Dakota, but apparently, nearly everybody is doing it.

While the mid-section of the country is hardly suffering at all, the far West - California, Nevada and Oregon, specifically - has been hit the worst, with unemployment above 12% in each of those states. Nearly every Southern state has reached or exceeded 10%, along with Ohio and Illinois.

Those figures did not matter much to Wall Street, which is becoming more and more focused on 3rd quarter earnings reports, which will begin flowing to the market within 3 weeks. Expectations, once again, are quite high that companies will show top-line growth as opposed to profits squeezed from cost-cutting and job elimination.

That lies ahead. For now, the rally lives on.

Thursday, September 17, 2009

Profit Pause

Today was the day to take profits and/or jump onto the rally bandwagon. The major indices hugged the flatline most of the day, but early afternoon was the most opportune time to stake out a position. With most stocks down at that time - and there wasn't much time to do so - it was prime time for buyers, of whom there are plenty these days.

At some point, this market will turn back, but it wasn't today, and, as mentioned yesterday, is an event which is difficult, if not impossible, to predict.

Dow 9,783.92, -7.79 (0.08%)
NASDAQ 2,126.75, -6.40 (0.30%)
S&P 500 1,065.49, -3.27 (0.31%)
NYSE Composite 7,002.17, -35.97 (0.51%)

The downside close, however slight, ended a three-day winning streak for stocks, which have closed to the upside 8 of the previous 10 sessions. Decliners led advancing issues, 3492-2984, but new highs remained ahead of new lows by a widening margin, 517-95. Volume was once again strong.

NYSE Volume 1,512,904,000
NASDAQ Volume 2,641,632,000

Commodities also cooled off, with light crude for October delivery declining 4 cents, to $72.47. Gold gave back $6.70, to $1,013.50, while silver fell 17 cents to $17.27.

Initial jobless claims were lower for the most recent period, as were continuing claims. Building permits and new home starts showed a slight increase for August. The Philadelphia Fed reported an uptick in regional business activity index, to 14.1 in September, a substantial rise from the 4.2 figure recorded in August.

The market just shrugged off these positive developments as traders focused on rotating out of winners and losers, taking profits and planning their next moves.

With a day such as this setting the stage for Friday, markets could go any which way, though the impetus still rmains to the upside. It is understandable that the market pause like this before surging ahead to new ground as stocks have been on a strong tear for months. Booking profits at this juncture seems prudent, though there certainly appears to be more strong days just ahead.

Wednesday, September 16, 2009

Stocks Continue to Pop on Production; Gold Soars

There was no slowing down the upside freight train as the major indices posted their 8th gain in the past 9 sessions and third straight winner at mid-week.

All sectors were positive, led by conglomerates, financials, basic materials and capital goods. Economic news included improved industrial production, up 0.8% in August, with capacity utilization gaining to 69.6% from a revised July figure of 69.0. CPI was benign, up 0.4%, with the core number up 0.1. Continuing a string of positive economic data, investors clambered back into the markets for more of the financial feast currently unfolding.

That this rally has not only legs, but now, euphemistically, wings, and is soaring, is remarkable considering where we were just a year ago, on the brink of global financial collapse. Through whatever means, the Fed and Treasury, working alongside central banks from countries around the globe, managed to avert severity and bring markets back to functional, realistic levels. How much further economic recovery can bring the market at this juncture is still a bit problematic and stressing, though the general consensus has now shifted to extreme positivism.

At some point, the market will balk and give back some share of profits, but timing that event is a foolhardy endeavor. Those who blanch at the first signs of weakness are likely to leave money on the table as any downturn will probably be short-lived and small. While some are calling this a stock-pickers market it appears to be anything but, as shares of just about anything have participated in this rally. Companies with clean balance sheets, strong management and stable product or service lines have fared the best. Companies are once again executing on their business plans with the worst fears behind them. Any money that has not participated as of yet has missed some of the most substantial gains though there are surely more to come.

The absence of any competition for stocks is also fueling the rally. So long as the Fed keeps rates at zero, this kind of activity in markets is to be expected. Money must go somewhere and the best returns are currently in equities.

Dow 9,791.71, +108.30 (1.12%)
NASDAQ 2,133.15, +30.51 (1.45%)
S&P 500 1,068.76, +16.13 (1.53%)
NYSE Composite 7,038.14, +121.07 (1.75%)

Simple indicators confirmed the headline numbers from the averages. Gainers beat losers by the widest margin in weeks, 5009-1499, while new highs ramped up dramatically, to another multi-year daily high of 586. There were 97 new lows. Those high-low numbers should begin to become even more dramatic, as stocks retrace the collapse of last year. This trend has completely reversed, signifying a new, healthy, bull market. Volume on the day was also at elevated levels. Stocks are close to overheating, though nobody will sound an alarm when they do. The risk of another tumultuous collapse has been all but washed out. Confidence is returning in a very big way.

NYSE Volume 1,581,164,000
NASDAQ Volume 2,738,888,000

Commodities also joined in the fun. Oil kicked up another $1.58 at $72.51, but the metals were the real story, with gold gaining $13.90, to $1,020.20, and silver up another 43 cents, to $17.43. Gold is once again being viewed as a solid hedge against the declining US currency and all the government deficits and guarantees of financial institutions that have fueled the comeback. Gold could easily top $1200 in coming months as there is still a good deal of work to be done on the overall global economy. Even eventual dollar stability should not be able to stop the run in gold and silver through the next 12-18 months.

This rally train left the station long ago, and it's running at nearly full speed. Options players have also enjoyed a heyday, with expiration on Friday. With that in mind, a slight pullback for profit-taking would not be surprising, though, honestly, in this environment, it may only last a manner of minutes.

Tuesday, September 15, 2009

Double Top Breakout for Stocks; Silver Tops $17

The markets continued to tack on gains Monday and Tuesday, confirming a double top breakout on the latter, promising more gains straight ahead. Tuesday's trade was touch-and-go early on, as the market digested solid August retail sales figures (up 2.7%, +1.1 ex-autos) and an uptick in the Producer's Price Index (PPI), which was up a solid 1.7% (+0.2% core). What gave investor's caution was Best Buy's (BBY) quarterly report, in which the nation's largest electronics retailer missed earnings estimates - 0.37 actual vs. 0.42 estimate - but raised guidance for the year.

Expecting much more from the retailer, especially since Best Buy was poised to benefit greatly from the demise of Circuit City, which went bankrupt and closed all its stores earlier this year, the stock sold off, losing 2.09, to $38.32, a dip of more than 5%. The overall market viewed this as another sign that the consumer is not yet ready to open the wallet for discretionary purchases such as LCD TVs, game consoles and other electronic and high-ticket items.

Shortly after 10:00 am, during a question-and-answer period, Fed Chairman Ben Bernanke let it slip that the recession was "probably over" which gave everyone a small boost of confidence. Markets really didn't begin to take off until after President Barack Obama's first speech of the day, which ended about 11:30 am. It was as though traders were waiting to see if eithre Bernanke or Obama would drop a verbal bomb. When they didn't, it was off to the races in a broad-based strong rally.

Dow 9,683.41, +56.61 (0.59%)
NASDAQ 2,102.64, +10.86 (0.52%)
S&P 500 1,052.63, +3.29 (0.31%)
NYSE Composite 6,917.07, +37.08 (0.54%)

Advancing issues outpaced decliners by a solid margin, 4183-2254, while new highs registered their highest one-day total since October 2007, at 412. There were 87 new lows, with only 8 of them appearing on the NASDAQ. Volume was once again above normal, as investors rushed to get into equities. The rally continued almost through the end of the session, with stocks closing near their highs. Longer term, the current bull run is more than six months old, though the performance for September, thus far, has been exceptional and in strong opposition to many who were calling for a pull-back.

NYSE Volume 1,496,974,000
NASDAQ Volume 2,400,533,000

Commodities got in on the action as well. Crude oil for October delivery gained $2.07, to $70.93. Gold rebounded, up $5.20, to $1,006.30, but silver was the star of the day, picking up 38 cents per ounce, to $17.00, and higher after the close in New York.

In general terms, this six-month-old rally is getting a little bit winded, as daily gains are measured and not overly large, though by and large the bull market seems to be intact and booming, though a blow-off top could occur at any stage, now that the double top has been confirmed over 9650 on the Dow.

Investors have been taking some money off the table, though much seems to be going right back in to the market, either in sector rotation or buying the same shares on dips, even though there hasn't been much of a break in the upside action.

All the data and speeches by the Fed Chair and the President have set a very positive tone heading into fall and the upcoming earnings season. The downside is that any disappointments will likely be dealt with in rather harsh manners. Companies which fail to meet expectations in the coming weeks could see their share prices slashed without mercy. On the other hand, data continues to point towards recovery. The issue is whether companies can extract profits as a normal function of business, since the past two quarters' profits have come largely from cost-cutting.

Housing and employment continue to underpin the markets, keeping a lid loosely over stocks, for now.

Friday, September 11, 2009

Remembering 9/11; No Break for Bears; Gold Tops $1000

The trading day began with moments of silence... remembering the victims of the awful attacks on the World Trade Center 8 years earlier. At the close, strangely enough, the Dow Jones Industrials stood 0.10 lower than the close on September 10, 2001. It was a sombre session, within a tight trading range, the mood almost preoccupied with previous events.

While many market participants recalled 9/11, others were focused on more current disasters, namely the fall of Lehman Brothers, which occurred just one year prior. The US economy and the markets have been through a metaphorical wringer since last September, witnessing the near-collapse of the entire financial system, followed, thankfully, by a subsequent recovery.

Though all of the major indices closed lower on the day, ending a five-day winning streak for the bulls, the losses were barely noticeable. For the week, the Dow finished ahead by 164 points, the NASDAQ improved by 62, and the S&P added 26 points, all reinforcing the recovery wind that has swept over the financial landscape.

Dow 9,605.41. -22.07 (0.23%)
NASDAQ 2,080.90, -3.12 (0.15%)
S&P 500 1,042.73, -1.41 (0.14%)
NYSE Composite 6,843.82, -6.99 (0.10%)

Market internals ended on a mixed note, with decliners gaining a small, late advantage over advancing issues, 3223-3205. New highs continued to dominate new lows, however, 349-88, giving every indication that the rally will not wilt soon. Volume returned to its sluggish ways, with trading activity close to the lowest level of the week, though the NASDAQ still seems to be the place to which money is flowing.

NYSE Volume 1,388,797,000
NASDAQ Volume 2,347,513,000

Economic reports offered some vague insights. Consumer sentiment shot up to 70.2 for September, after a showing of 65.7 in August. Wholesale inventories dropped 1.4%, the 11th consecutive monthly decline. This shows that goods are still moving at a very sluggish pace and wholesalers are playing close to the vest, though eventually manufacturers will be called upon to replenish inventories. When that begins to happen, a strong reaction by the markets is almost assured.

Another positive sign came at 2:00, when the US Treasury announced a budget deficit for August of $111.4B, when analysts were expecting much worse, though the markets barely noticed.

Commodities finished in very mixed fashion. Oil was hammered down $2.65, to $69.29, on oversupply concerns, but gold finally topped the $1000 mark, ending with a gain of $9.60, at $1,006.40. Silver lagged, up only 3 cents, to $16.70.

From a chartist's perspective, the trading day was positive for bulls, as stocks advanced in the early going, fell to the lows of the day shortly after noon and then recovered into the close. With the slightly lower finish, it has set the classic bear trap for the opening session next week.

Thursday, September 10, 2009

The Next Great Bull Run

This is it.

The Bull market has been so firmly established by market fundamentals, charts and Dow Theory (see yesterday's post) that there can be no denying the US stocks are in the midst of a major bull run.

After the banking meltdown of last September through November, the ultimate third wave crash ending on March 9, 2009 and the resulting snapback, 6-month rally, bulls are once more in complete control over the stock markets.

Thursday's trade was the fifth consecutive winner on Wall Street and further confirmation of a secondary trend wave. The closing price on the Dow today was 9,627.48, which is two points better than the interim top on November 4 of 9625.28. Charts do not lie. This is a further confirmation of the bullish trend. For more convincing, see the double top in the point and figure chart formation here.

The Dow Jones Industrials closed at a 10-month high, the NASDAQ at another 11-month high and the S&P 500 at an 11-month high (October 6, 2008).

Stocks were led by the transportation and basic materials, though all twelve sectors were positive. The laggards were financial, healthcare and utilities.

Dow 9,627.48, +80.26 (0.84%)
NASDAQ 2,084.02, +23.63 (1.15%)
S&P 500 1,044.14, +10.77 (1.04%)
NYSE Composite 6,850.81, +78.41 (1.16%)

Simple indicators were screaming buy to anyone who would listen. Advancers beat decliners, 4663-1765. New lows were trampled by new highs, 351-80. Volume continued yesterday's trend with the NASDAQ showing very strong trading activity (nearly 80% up) with the NYSE lagging still, though most of the volume was on the sell side, as were the vast majority of new lows (74-6).

NYSE Volume 1,580,281,000
NASDAQ Volume 2,483,736,000

Commodities were mixed, with oil gaining 64 cents, to $71.94; gold off 30 cents, at $996.80, and silver up 20 cents to $16.67.

Markets were buoyed by improving unemployment claims. Both initial and continuing claims were lower in the most recent data week.

Bulls are in control, with price targets for the S&P ranging from 1100 to 1250, and 10,500 to 10,900 on the Dow.

Wednesday, September 9, 2009

Fed Slows Rally; Re-Examining Dow Theory

Those of us over 30 years of age remember the stock market before the advent of internet trading. If you're over 40, you can recall what the stock market was like prior to CNBC. If you're over 50, like me (disclosure: I turn 56 in December, God willing), you can recall much of what the market was like in the 1960s and 1970s, when investing was done mostly by a well-heeled, upper crusty wealthy class of people.

First there were mutual funds, which brought the average Jane and Joe into the stock trading mix, followed about a decade later by IRAs and 401k retirement plans which got more people into the game, circa 1974. Now, as they like to say in poker rooms, we're "all in" the stock market, thus the 24-hour coverage, unlimited internet access to trading, insight, chat rooms, etc., and the requisite madness that ensues when large funds jump in or out of positions.

With everyone (well, 60-70% of the adult population) now focused daily on what the stock market does, the indices have become less predictive and more reactionary. Witness today's release at 2:00 pm of the Fed's Beige Book, which outlines the economic landscape in the twelve districts of the Federal Reserve Bank. All the indices were sporting healthy gains (the Dow was up more than 60 points) when the data was released, but by 2:20 most of those had evaporated into thin air. After 3:00, however, investors saw more optimism than at first blush and moved the averages higher for the 4th straight session with the 9500 level on the Dow serving as support.

The Fed governors were not very enthusiastic in their assessment of the economic situation as of the end of August, but it was a rather measured account, with many of the regions showing increased activity in manufacturing and some stabilizing of prices in residential real estate. Consumer sales, however, were slow, and commercial real estate continues to slump. Overall, it was a pretty bland, mixed report, with little news and investors took it in stride.

Today's actions gets us back to our core argument: that the markets have become more reactionary rather than predictive. Little jolts of news bites over CNBC rattle traders in one direction or the other, with little to do with fundamentals. It's almost as though a third-grade mentality has permeated the caverns of commerce.

Nonetheless, the markets droned on today, stopping short of the Dow 2009 high (9580), which brings into play another burning question: are we in a new bull market or is this a bear market rally?

A few weeks back, I looked over the data from the past two years and determined that stocks may have to move higher - especially the Dow Jones Transports - to declare a new bull, but after closer inspection, I am going to make the call that we are already in a new bull market. Now, if I am wrong, recall that Richard Russell, the publisher of the "Dow Theory Letters" and a man for whom I have tremendous respect and admiration, actually made a bad call in 2007, declaring that we were not entering a bear market. It took a year, but the evidence was more than convincing that Russell was wrong. So, should my call prove to be off, be reminded that even the most astute and brightest people sometimes err.

To save everyone from the boring details of my analysis, here are the facts:

9034.69 was the recovery high for the Down Jones Industrials on January 2, 2009. 3717.26 was the January 2nd, 2009 recovery high for the Dow Jones Transports. Both of these numbers came after the second wave of the bear market, the most tumultuous part, from September to November, 2008. The initial phase was from October 2008 to September 2009, and the final leg was from November, 2008 to March, 2009. Anyone still thinking a double-dip downturn is in our immediate future better pay more attention to details. The third leg of the bear ended March 9. Today is the 6-month anniversary of that turning point. The Dow Jones Industrials entered bull market territory on July 23, when it closed at 9069.29. The Transportation Average confirmed when it finished business at 3749.58 on August 7. So, we've been in a confirmed bull market for more than a month already. My apologies for getting it right so late, but at least I now have it on the money.

Dow 9,547.22, +49.88 (0.53%)
Nasdaq 2,060.39, +22.62 (1.11%)
S&P 500 1,033.37, +7.98 (0.78%)
NYSE Composite 6,772.40, +46.33 (0.69%)

Our simple indicators are now screaming BUY. Advancers beat back decliners, 4556-1863, and new highs bested new lows, 316-62, the largest margin in two years. Volume turned up strongly after the Beige Book release, though most of it was on the NASDAQ. Much of that sell-off was likely repositioning, and traders got right back in later in the session, albeit in different stocks, shifting mostly from energy and consumer discretionary into materials, industrials and financials, though all twelve sectors showed gains.

NYSE Volume 1,329,853,000
Nasdaq Volume 2,524,738,000

Commodities took the worst of it as crude oil gave back larger gains to finish at $71.31, up a mere 21 cents. The level between $68 and $75 has maintained for weeks now, and that may be regarded as a benchmark pricing point. There is still simply too much slack demand for any further price appreciation in oil. Natural gas is also stuck below $3.00 and should remain there for at least another 6 months. There's nothing better than cheap fuel to hasten a recovery and prices should remain muted. So too with gold, which lost $2.70, to finish at $997.10, and silver, off 4 cents, to $16.47.

Those new high-new low figures are simply stunning. One should expect a major breakout any day with a quick run to Dow 10,000 by no later than October 10. All of the elements are lining up for a solid recovery. Dow Theory has confirmed, simple indicators have confirmed. What else need I say?

Tuesday, September 8, 2009

September Swoon? Think Again

US stocks made good gains on the first full day of post-holiday trading. Seemingly, not enough investors received notice that September is a bad month for stocks. Notwithstanding last year's debacle, it may take iron wills to keep the current rally going, though after a brief pullback in the prior week, the major indices seem to have shaken off much of the pessimism being preached at the school of the short. In fact, the one big down day seems to have been simply repositioning by large traders, who took profits and shifted risk from one sector to another.

While the rally of Friday just past may have been tied to some short-covering in advance of the three-day weekend, there was little doubt about the direction on Tuesday as the Dow, NASDAQ and S&P all opened positive and remained to the upside throughout the session. The Dow ended within shouting distance of the high for the year, which is 9580.63, achieved on August 27.

In the broader markets, the gains were substantial, with the NYSE Composite sporting a 1.34% increase on the day. The NASDAQ closed at an 11-month high.

Dow 9,497.34, +56.07 (0.59%)
NASDAQ 2,037.77, +18.99 (0.94%)
S&P 500 1,025.39, +8.99 (0.88%)
NYSE Composite 6,726.07, +88.94 (1.34%)

Simple indicators are shouting "buy" again, as advancers beat down decliners, 4478-1926, and new highs outpaced new lows, 271-58. The high-low indicator has headed in a direction that has not been seen in over two years, where the number of daily new highs have exceeded new lows for more than a month without a break. As simple an indicator as can be imagined, this one has been reliably predicting rises and falls since August of 2007 and it is now saying that the rally will continue. Even though the pace may be slow, it shows every sign that it will be steady. Volume, once again, was on the low side, though this has become the norm - around 2 billion shares on the NASDAQ and between 1.3 and 1.7 billion on the NYSE.

NYSE Volume 1,396,714,000
NASDAQ Volume 2,010,061,000

While stocks continued their climb for the third straight session, commodities were gaining in price as well. Crude oil surged $3.08, to $71.10; gold traded above $1000 for the first time in over a year, closing at $999.80, up $3.10. Silver has had an impressive run of late as well, closing today at $16.51, up another 23 cents.

Despite the howls from the doom-and-gloomers, all asset classes seem to be on the rise again as the world economies crawl back from the brink of economic catastrophe. Since price realization is a matter better handled by artists than statisticians, the maintenance of smoothly-functioning markets has brought back some level of speculation, though it has been extremely cautious over the past three to four weeks. Investors are still working with a backdrop of last fall and winter and even the crises of 9/11 and the dotcom bubble-bursting are still fresh in many psyches.

It will take some time before full optimism returns to markets and consumers alike, though by the time that occurs, most of the good gains will have been taken. The recent run up demonstrates that most traders believe the worst of the "depression-scare" is behind us. Conspiracy theorists will contend that the entire September surprise of 2008 was a massive swindle by the banks on the American public and designed to elect a Democratic president. They may be on to something, and, if correct, then only good times lie ahead for the US economy.

There is a mountain of debt to overcome, however, and, at the federal and state levels, that debt is still building. Government coffers are going to have to be replenished, and soon, before the aging populace - especially the fast-approaching retirees from the baby boomer generation - devours all accumulated wealth and leaves future generations high and dry. That scenario will take years to play out, though, and the best guesses by the geniuses in their ivory towers in NYC and DC are that the US economy will once more regain prominence.

Those discussions are better suited for late-evenings over beers and sandwiches. For now, the recovery seems to be well underway, with the best parts still ahead. We're now in the final month of the 3rd quarter. Expectations are high that the economy - as measured by GDP - will show a positive number for the quarter. As most seasoned players will concede, we won't know whether we're out a the recession until it's over, but there continues to be considerable signage alone recovery road to suggest that plus signs will stand in front of the next-released numbers.

As for the September theories, they seem not to apply presently. The conditions are vastly different than when most historic declines occurred. While some pullback seems inevitable, nothing really is, and the party continues.

Friday, September 4, 2009

Markets Refuse to Buckle

Though just about everybody waited until Friday morning's release of non-farm payroll data from the Labor Dept., the anticipation was overblown as the numbers came in better than expected and were presaged by Wednesday's ADP private payroll report.

The Labor Department reported a loss of 216,000 jobs in August, the lowest level in 12 months. The unemployment rate ticked up to 9.7%, though that didn't seem to bother investors as stocks made gradual gains through the first four hours of trading and then leveled off into the close, prior to the long holiday weekend. Markets are closed Monday in observance of Labor Day.

Dow 9,441.27, +96.66 (1.03%)
NASDAQ 2,018.78, +35.58 (1.79%)
S&P 500 1,016.40, +13.16 (1.31%)
NYSE Composite 6,637.13, +90.53 (1.38%)

Even though volume was extremely light, stocks still ramped up across the board. Advancers beat back decliners, 4937-1455. There were 152 new highs and just 39 new lows, indicating that not only has the much-ballyhooed "correction" not taken place, it may be replaced by a continuation of the 6-month-old rally that continues to arch toward a full-blown bull market.

NYSE Volume 1,154,949,000
NASDAQ Volume 1,743,171,000

In the commodity markets, the metals relaxed following huge price gains this week. Gold was down $1.00, to $$996.70, while silver shed a penny, to close the week at $16.29. Crude oil for October delivery gained just 6 cents, to finish at $68.02.

When all was said and done, stocks gained back almost all of the losses suffered on Tuesday and appear to have stabilized into a consolidated trading range. The next move, unless some economic data appears to contradict recent reports, should be again to the upside. The short breather over the past two weeks has given traders time to take profits, rotate into other secotrs and stake out new positions.

September, usually a dour month, may turn out to be something much better than expected. Stocks are only down marginally and the charts seem to be indicating another surge to the upside is in short order.

Thursday, September 3, 2009

Bulls Take Initiative; Economic Outlook More Positive

It's a big world and US investors seem to be gaining confidence - little by little - in certain companies' ability to deliver goods and/or services at a profit. While governments enjoy the luxury of fiscal irresponsibility, running enormous deficits, businesses are treated rather differently, especially on Wall Street, where no earnings equals no share price. There are enough good companies listed on the major exchanges to continue the current long term upward trend for many more months, notwithstanding the effects of macroeconomic factors, especially job growth and capital formation.

The recovery in progress is one of the more quiet in recent recollection. Many analysts and investors don't even believe it's at all real, that the economy will sink back to less-than-optimum conditions, such as existed in the fall of 2008 and the winter of 2009. Unfortunately, the conditions present then are not even an approximation of economic reality today. Nothing stays down forever; nothing moves in a straight line; no indicator is infallible. We tend to trust ours, as much as our own eyes and ears some times, and that's a danger, but Thursday came in pretty much as expected. Some bulls got a little anxious and moved enough stocks ahead to finish with all the major averages sporting reasonable gains.

Dow 9,344.61, +63.94 (0.69%)
NASDAQ 1,983.20, +16.13 (0.82%)
S&P 500 1,003.24, +8.49 (0.85%)
NYSE Composite 6,546.60, +71.81 (1.11%)

Advancing issues rolled past decliners, 4477-1789. It was a nice little turn aided by some nervous short covering. Betting against rallies can be hazardous to your portfolio and this one is no exception. Economic reports have been neutral to good, evincing signs of a nascent recovery. It's not pretty... yet. New highs also led new lows, 114-46, on now normal, low volume.

NYSE Volume 4,624,282,000
NASDAQ Volume 1,905,575,000

While oil was barely changed, down 9 cents, to $67.96, the metals were skyrocketing. Gold bounded ahead $19.20, while silver added a massive 93 cents, to close at $16.29, a 12-month high.

Friday gets off with either a bang or a yawn as the August non-farms payroll data is released prior to the bell. Heading into the last holiday of summer, there probably won't be a huge reaction in the markets and the afternoon is usually dull. The markets are stabilized as much as possible with sentiment leaning in both directions. It's a nice set-up if your a prudent bull.

Wednesday, September 2, 2009

No Follow-Through to Downside

There really wasn't much to trade upon on Wednesday, unless one is prone to picking up bargains the day after a substantial decline. The major indices traded in very narrow ranges and finished with marginal losses across the board. While a fourth straight losing session for the S&P may be significant in a chartist's world, today's close brings that average down to whare it was two weeks ago, hardly a cause for concern.

Oddly enough, there seemed to be more fright toward the close, as all the averages were at break even with about 1/2 hour left in the trading day and then drooped. Volume, which was the big story yesterday (read: planned liquidation of some positions mostly accomplished within a two hour period), was back to its usual somber self. There just wasn't anything for anybody to get excited about, not even the ADP private sector jobs data, which revealed that another 298,000 Americans got pink slips in August. The number was worse than expected, but, then again, expectations for a swift recovery are going to be off the mark. That the number was better than the prior month, which was revised lower (fewer job losses) seemed to be good enough to keep markets stable, at least.

Though the ADP number seems to usually upstage the government non-farm payroll data, which always is delivered two days later, investors may still be watchful for that figure, due out on Friday morning prior to the market open. Suffice it to say that it should not be all that dramatic.

Dow 9,280.67, -29.93 (0.32%)
NASDAQ 1,967.07, -1.82 (0.09%)
S&P 500 994.75, -3.29 (0.33%)
NYSE Composite 6,474.79, -13.02 (0.20%)

Decliners held a slight advantage over advancing issues: 3580-2780. but new highs maintained their edge over new lows, 74-51, though the margin narrowed significantly. The risk of the high-low numbers flopping over is pretty good presently, though I'm personally not buying into the "correction" argument until I see actual carnage of 6-8% declines off the top and heavy volume on a consistent basis. Those two conditions have not been met presently.

NYSE Volume 1,565,960,000
NASDAQ Volume 1,989,856,000

Commodities are behaving as one would like them. Oil finished dead flat at $68.05, while gold zoomed up $22.00, to $978.50, and silver appreciated another 31 cents, to $15.37.

We still have deflation, low interest rates and a sluggish, though recovering economy. Conditions could not be much better for business fundamentals. The correction that is supposed to happen is going to be forgotten soon. Economic data has been just good enough to keep the economy chugging along and there's more than enough investment money sloshing about to keep stocks on a high for some time. The alternatives - real estate and fixed income - don't offer much appeal. The former is too risky and the latter offers no profit.

Tuesday, September 1, 2009

Traders Book Profits; Markets Take a Dip

Contrary to what I posted yesterday about inevitability and the lack thereof in the stock market, investors (many of whom read my blog and no doubt wish to prove me wrong) did what prudence would dictate and booked some profits.

So many profits were booked, in fact, that the selling sparked a mini-panic, sending the major indices down by roughly 2% at the worst of the trading. There's no indication as to what exactly caused all the selling, but it began to occur right after 10:00 am and the worst of it was over by noon, so it looked to be pretty organized, likely by the usual culprits in all this, the Goldman Sachs and Citigroups and JP Morgans.

The brokerages and banks have to book profits, and sending the markets down 2% on volume is nothing to really get excited about. It happens all the time, in bull markets as well as in bears, and there was nothing unusual about this except the overall timing. Market pundits have been calling for this kind of pullback for weeks, so today being the first day of September, it was ripe for the self-fulfilling prophecy trade.

And, while volume was significantly higher, it was still not so extreme as to cause alarm. In fact, large-scale selling of positions that, prior to today, were considered solid, is nothing more than an invitation to buy more because the bull market is really just kicking into a secondary phase in which wild gyrations in both directions will be evident, with the overall result being a slight increase on the indices at the end of each month or quarter.

This one-day event should not cause anyone to second-guess themselves or their positions, except to maybe take a little off the table. Stocks are for the long run, and this is a short-term move. While there's some concern that we may be headed for a "double-dip, " the data doesn't suggest it and the markets won't tolerate any unjustified corrections. September is an odd month, coming at the end of summer and just prior to third quarter earnings. It's essential to stay very focused and not be swayed by short-term thinking as it may all prove to be wrongly-directed.

Dow 9,310.60, -185.68 (1.96%)
NASDAQ 1,968.89, -40.17 (2.00%)
S&P 500 998.04, -22.58 (2.21%)
NYSE Composite 6,487.81, -155.43 (2.34%)

The internals confirmed what was already obvious. Decliners led advancers by a wide margin, 5218-1283, but it is interesting to note that there are still a good number more new highs being posted - even today - than new lows. New highs took the edge once again, 123-48. There were more new highs and fewer new lows than yesterday, which may supply some insight into this little bout of selling, notably, that there were still buyers bidding up the high fliers while not unloading the bottom-feeders. Looks and smells like garden variety profit taking according to those figures. Volume, as noted, was among the top ten highest of the year, but hardly unusual.

NYSE Volume 7,914,128,500
NASDAQ Volume 2,727,714,500

Commodities took the brunt of the selling, mostly those in the energy-related sector. Crude oil for October delivery was thumped again, down $1.91, to $68.05. Natural gas, for which there is an abundance of supply, was smashed lower again, down 16 cents to $2.82. The combination of lower oil, gasoline, heating oil and natural gas has to be seen as a positive for the consumer. Even though Wall Street may not initially appreciate the ramifications of lower energy prices, the gain in purchasing power is to everyone's advantage. Instead of plowing more and more money into non-renewable expenses, consumers, if energy prices continue lower into the winter, will have more discretionary income and spending power. Leading into the final months of 2009, the benefits of a stronger consumer are obvious.

The metals were the only sector showing any gains on the day. Gold added $3.00, gaining to $956.50. Silver was up 14 cents, to $15.06. The silver closing price was the highest since June 11 and continues to indicate higher prices for silver in coming months. Aside from its collectible and intrinsic value, silver enjoys more industrial use than gold, and supply is being strained. If economies worldwide advance, silver could top the $20 it saw in 2008.

Today's trading was expected and hardly a blip on the worldwide equity radar screen. Unless there is significant follow-through Wednesday through Friday, it will be seen as profit-taking and nothing more. If Wednesday's private employment figures from ADP and other data are positive, as today's ISM report was, then the market is taking off on its own tangent and presaging a potential pitfall in months ahead for the US and world economies.

Nothing will be set into stone until the government's non-farm payroll report for August hits the wires on Friday. This is a data-heavy week which bears close scrutiny and an iron will.