Wednesday, February 15, 2012

Numbers Racket: Greece, Euro, Apple, Transports and 100 Dow Points

Let's get real here.

Raise your hand if you think Greece is NOT going to default.

Very well. Maybe the rest of you with hands on hips or in pockets will appreciate the news out of Europe this morning, which somehow managed to pump futures toward a strong positive opening.

What's that? Even though Dow futures were up more than 80 points before former Treasury Secretary Hank (martial law) Paulson appeared on CNBC for the usual softball interview and were up 47 points just seconds before the open, the Dow only managed an initial gain of... hmmmm, less than 20 points.

Eurozone's 17 nations' (non) growth rate for the 4th quarter of 2011 was -0.3, the only countries showing gains in GDP growth being France and Slovakia.

Five countries in europe are already in recession. No surprise here, as Greece, Belgium, the Netherlands, Portugal and Italy have experienced two consecutive quarters of GDP decline. The one country everyone has an eye on is Germany, where output for the quarter fell by 0.2%, because the Germans have been the only country in the region showing any sign of elasticity and ability to weather the financial storms.

However, the rest of the Eurozone is dragging Germany's usually strong industrial sector down with the rest of the continent, a development that could prove disastrous as the EU plods through a troubling 2012.

Stocks took a spanking today in the US after the aforementioned recession news and then the communique out of Brussels from the esteemed EU finance ministers (a Baptist minister, a Catholic priest and an EU finance minister walk into a bar... oh, never mind) reminded the assembled money watchers worldwide that they are experts at procrastination and posturing.

While yesterday's commitment letter from Greek conservative leader Antonis Samaras stated that he would go along with the proposed - and passed by the Greek parliament - austerity measures, the potential future leader of Greece (give him about 6 months before he is bought off and retires, if he even wins the April race for Premier) contained a small caveat, saying he might reconsider, once, of course, the authorities deliver the 130 billion (or maybe it's more like 202 billion) Euros promised by the supra-government of the EU.

What happened today could best be described as controlled demolition. While the Dow was subsumed, hovering from 15 to 35 points in the red, the NASDAQ was wildly positive, though 90% of the gain was due to just one stock, Apple (APPL), which exploded in a number of ways on the day.

First, Apple rocketed to an all-time high of 526.29, but closed the day at the somewhat pedestrian level of 497.67. That's a pretty big round-turn, even for a stock with such a heady valuation. The decline was magnificent, falling 20 points in just the noon hour, and stumbling to a nearly 12-point loss in the remainder of the day. Volume was more than four times the average daily volume (12 million shares) at 53,457,212.

But Apple was just the NASDAQ story. The Dow charted its own path, guided by the Euro-dollar trade. The Euro slumped and finished below the psychotic 131 level, a number which is absolutely meaningless unless you're swapping currencies or considering travel to the doomed continent. But, stocks have followed the Euro-Dollar relationship like clockwork this year. Euro up, US stocks up, with the converse also true. The real value of the ephemeral Euro is all in the mind and to which equally worthless paper currency to which you compare it. If one would be so bold to compare it to some commodity - say, gold - well, a Euro won't buy you a single grain and it's gotten worse throughout its 11+ year life with each turning of the calendar.

So, the Dow set down at the close with its worse loss of 2012, which is not so much a surprise, being that the index (and all the other majors) has overheated in what has been an unusually-warm winter. But the Dow could just not surrender 100 points on the day, despite it being down 125 points at its worst level and down 108 points only one minute prior to the close. Perhaps that number (-100) has meaning to some people, but for the rest of us, -97.33 will just have to do.

What is alarming and scary (like Europe isn't enough of a fear factor) is the action in the Dow Transports, which suffered a two percent decline on the day, easily outstripping the widely-followed indices.(please have a gander at the 1 year chart with the 80% down-spike in November)

Another unpleasant thought concerns the timing of this week's reversal of fortune, just two days prior to options expiry, normally the strongest and upward-tilted week of any month in this Ponzi-like market scheme. Today's volume was also quite strong across all indices.

If stocks aren't making gains just prior to options expiry, then something very wrong is happening behind the scenes. It could be as simple as the market being overbought, or waking up to the awful European reality or the threat of war with Iran which looms larger each passing day.

Then again, it could just be that the low level of market participation has the major traders now drooling over each other's lunches. US stocks have been on a tear since October and the time and sentiment are ripe for a nasty correction.

A clue could come the day the Dow closes with a loss of more than 100 points, though that might prove to be a day too late and many billions of dollars short. Today's near-100-point loss should provide more than enough caution to everyone.

Keep a close eye on gold, and especially, silver, which has underperformed for the past two weeks. Any sustained gains in the precious metals should serve notice that there's something big brewing.

Dow 12,780.95, -97.33 (0.76%)
NASDAQ 2,915.83, -16.00 (0.55%)
S&P 500 1,343.23, -7.27 (0.54%)
NYSE Composite 7,998.65, -30.97 (0.39%)
NASDAQ Volume 2,036,710,750
NYSE Volume 4,045,495,750
Combined NYSE & NASDAQ Advance - Decline: 2267-
Combined NYSE & NASDAQ New highs - New lows: 264-23
WTI crude oil: 101.80, +1.06
Gold: 1,728.10, +10.40
Silver: 33.41, +0.06

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