Wednesday, April 4, 2012

S&P Closes Under 1400; Precious Metals Whacked

The follow-on from yesterday's FOMC minutes release, combined with scary data from Australia and China (slowing economies) sent markets tumbling globally.

Asia and Europe each saw aggressive selling, and by the time US markets opened - despite ADP March employment data posting a modest beat of 209,000 jobs - the Dow was set up for a 100-point loss at the open.

The opening move was swiftly lower, taking the other major indices along for the ride. Dow Industrials remained below 13,100 all day, with the S&P 500 - despite a late day rally - eventually closing below 1400 for the first time in eight sessions.

To say that the markets have topped out temporarily would be putting it lightly; rather, stocks seem to be in a steady drift lower, as Winter turns to Spring and investors seek to lock in profits from one of the most rambunctious first quarters in stock market history.

Conditions in Europe once again made noise in the states, as a poor showing for a Spanish bond offering and rumors of another bailout for Portugal fanned the flames of global recession.

While some commentators continue to spout nonsense that the US is "decoupling" from Europe and the rest of the world's economies, such talk is nothing but hot air, mostly from the same people who rightly contended during the struggles in the US that a large portion of US earnings are derived from abroad.

One simply cannot have it both ways. We are either a part of the global economy or we are not and the facts are strongly in favor of the "globalized" economy model.

What concerns investors most during this transitional period are fears of a prolonged slump in Europe which would exacerbate tepid conditions in the US. Economic data has been fragile of late, but hope for a renewal to the rally on first quarter earnings data from US companies is keeping the markets somewhat range-bound and in a position of relative strength, though the thought of the Fed cutting off the easy money with the end of "operation twist" in June are tempering the bullish sentiments.

While stocks were damaged on the day, gold and silver were even harder hit, which makes little sense from an historical perspective. In times of economic distress, the precious metals usually hold up better, but, since they have been turned into trading vehicles by the Wall Street madmen, such assumptions may not hold up this time around. The mood is eerily similar to that of September 2008, when a fragile economy was overturned by a number of random events. The situation is vastly different today, however, but a major crisis anywhere in the world could rapidly spread.

In the face of some chaos, the strengthening dollar is at least bringing down oil prices, which should eventually lower the price of gas in the US. The high price of fuel is in itself a condition which could severely slow the already turbid US economy, though the good news for drivers may not be welcomed by equity investors.

The new high - new low indicator flipped to the negative today for the first time in a long while. Any continuation of that trend indicator could signal a prolonged correction, something the three-year-old bull market has not experienced since the flagging days of last summer.

Dow 13,074.75, -124.80 (0.95%)
NASDAQ 3,068.09, -45.48 (1.46%)
S&P 500 1,398.96, -14.42 (1.02%)
NYSE Composite 8,111.48, -105.06 (1.28%)
NASDAQ Volume 1,779,653,500
NYSE Volume 3,810,047,500
Combined NYSE & NASDAQ Advance - Decline: 1079-4563
Combined NYSE & NASDAQ New highs - New lows: 65-109
WTI crude oil: 101.47, -2.54
Gold: 1,614.10, -57.90
Silver: 31.04, -2.22

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