Friday, September 10, 2010

Stocks Higher Six of Seven Days in September

Even though stocks seem to have shaken off the summer blahs, two issues continue to dog the market for equities.

First, the major averages are still stuck below their 200-day moving averages. Just today, the Dow reached that level, and a breakout above 10,500 could drag the other indices along with it. That's for next week, however, when a number of key economic reports are due out, including Capacity Utilization, Industrial Production, CPI, PPI, Retail Sales and the Michigan Consumer Sentiment gauge for September.

Seeing as how these data sets have been playing an increasingly larger role in the direction of stocks, next week's movement should be tied directly to those various readings.

The second - and probably more worrisome - facet of the current range-bound movement is the continuing saga of slack volume. Like seemingly everything else in the US economy, there's an overabundance of equities but a serious lack of demand. We have commented on the low volume data ad nauseam, but the issue keeps dogging the market like a bad rash.

Until there's some semblance of confidence in stocks from individual investors, no rally will be trusted, no quoted price believed.

On the topics of trust and confidence, the SEC investigation of the May "flash crash" surely isn't instilling any of either into the hearts and minds of investors. In typical bureaucratic fashion, the SEC has performed an admirable job of foot-dragging, jaw-boning and bush-beating around the actual causes of the sudden drop which sent the Dow plummeting more than 700 points and quickly recovering, all in the span of 20 minutes.

The agency has ruled out some causes, including quote stuffing (the process of flooding an exchange with orders, along the lines of an internet "denial of service" attack), which actually seem to be at the heart of what happened. The agency expects to issue a final report - which will, no doubt, come to no conclusion - by the end of September, a full four months after an event which took less than half an hour from start to finish.

Regardless, the flash crash and overwhelming suspicion that the market is rigged by insiders has kept investors away for months. Average daily volume is off by more than 30% from previous "normal" levels.

Still, investors seemed content to push prices a little higher each day this week after Monday's selloff, the net result having the indices closing marginally higher than last week's finish.

Dow 10,462.77, +47.53 (0.46%)
NASDAQ 2,242.48, +6.28 (0.28%)
S&P 500 1,109.55, +5.37 (0.49%)
NYSE Composite 7,067.51, +33.14 (0.47%)

For the third straight session, winners topped losers, though again by a diminishing margin, 3405-2232. New highs: 297; New lows: 55. Volume: Pathetic.

NASDAQ Volume 1,630,413,750
NYSE Volume 3,165,025,000

Oil got a significant boost on news of a Canadian pipeline leak, gaining $2.20, to $76.45. The metals continued to stall out, with gold losing $4.40, to $1,244.50, and silver off a penny, at $19.80

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