Tuesday, June 29, 2010

Markets Plunge on Data, Fear; False Bottom in Place

There are so many negative issues plaguing equity investments at this juncture one can only hope to keep abreast of daily developments. Investors and traders should simply assume that all prior data was poor and that future data will continue in the same poor fashion for the foreseeable future - and maybe beyond.

As the global deflationary death (and debt) spiral persists, there's little any single entity can do to prevent major dislocations and value deterioration. The stock market is only a proxy for the general US economy, though it serves as a very solid guide to global conditions. What seems to be a major stumbling block for the overall health or decay of a global economic system is that it is made up of many smaller, moving parts - equity markets, bond markets, governments, nations, derivatives, commodities, etc. - and without coordination (virtually impossible) from these moving parts, stemming the deflationary tide is next to impossible.

Tuesday's decline was not confined to, nor was it a result of, US interests. It was global, begun with a revision to China's April Leading Economic Indicators (LEI) by the Conference Board, from a gain of 1.7% to a much smaller - and much more significant - 0.3% gain. The pain felt in bourses around the globe was exacerbated by the same Conference Board's US Consumer Confidence reading for June, which tumbled to 52.9 from May's 62.7 mark.

Other than the China revision and one sentiment gauge, overall data and news flow has been nothing but sad. There hasn't been a positive economic data release since the June non-farms payroll data, itself a complete flop. Plaguing markets are a myriad of touchy, intertwined forces, including unemployment, residential housing, commercial real estate, slumping bond yields, government debt, household debt, shrinking money supply, tight credit conditions and currency fluctuations.

It's almost too much to expect from any market individually, so all markets are collectively sharing the pain. Oversimplifying the matter to the extreme, an oversupply of assets on a base of faulty investments funded with massive amounts of unsecured debt (in the Trillions of dollars) is collapsing at a rapid rate. That's why gold and silver have risen, or, at least lately held up much better than most assets - there's a finite, limited supply of them.

The selling began early and accelerated through the afternoon, with indices closing very near their lows of the day. The final, closing price of the S&P 500 was the lowest since October 30, 2009, an 8-month low, breaking through previous double-bottom support.

Dow 9,870.30, -268.22 (2.65%)
NASDAQ 2,135.18, -85.47 (3.85%)
S&P 500 1,041.24, -33.33 (3.10%)
NYSE Composite 6,520.09, -216.51 (3.21%)

Decliners decimated advancers, 5837-752 (nearly 8:1); new lows bounded past new highs, 324-93, finally confirming the roll-over of that indicator and sending the strongest sell signal possible. The daily high-low ratio has been mixed for the past four weeks and has now finally founded direction. Additionally, volume, which was non-existent on Monday, absolutely exploded to near-panic levels today.

NYSE Volume 7,193,685,000
NASDAQ Volume 2,783,303,750

Crude oil tumbled on demand concerns, losing $2.31, to $75.94. Gold saw a little bit of a bid, up $3.80, to $1,242.00, though silver fell 8 cents, to $18.59.

It was one of Wall Street's worst days of this or any year and the general consensus is that it's far from over. With three days remaining to the week and more sensitive data due out, there's no hope for the bullish case.

There is a small amount of support around Dow 9800, though it is very tentative, and likely to be broken without much fuss. The next leg down in the still-unfolding global de-leveraging process is likely to be the steepest from peak to trough and we are only at the beginning of it.

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