Wednesday, October 31, 2007

Are the Markets FED Up?

The FOMC of the Federal Reserve Board reduced, as expected, the federal funds rate by 25 basis points, or 0.25% to 4.50%. This was the second consecutive reduction in the federal funds rate, following September's 50 basis point cut.

The markets responded with common bravado, with the major indices up sharply. In the statement released today, the Fed stated that following this reduction, the inflation risks roughly parallel that of economic deterioration, meaning that they may pause when they next meet on December 11.

Read the full Fed statement.

Dow 13,930.01 +137.54; NASDAQ 2,859.12 +42.41; S&P 500 1,549.38 +18.36; NYSE Composite 10,311.61 +146.64

Essentially, the Fed knows they cannot lower rates without regard to the intense pricing pressure from commodities, especially oil, because doing so would risk the erosion of the dollar even further. This puts Bernanke and the Fed in quite the prickly position. Wall Street and the Republicans want softer rates and a solid economy, while economists everywhere are telling them that the US dollar cannot take any more of a beating. Somewhere in the middle is the US population, seemingly stuck between a stagnant economy and higher prices for everything - stagflation.

What stood out in today's trading was the action of the economically-sensitive banking sector and the overall muted reaction to the smallest cut the Fed could make. The Dow, just prior to the release, was already up about 90 points on news that 3rd quarter GDP checked in at a solid 3.9%, so it only added 40 points on the rate news.

Stocks such as Countrywide Financial (CFC), Citigroup (C), Merrill-Lynch (MER) and Bank of America (BAC), actually lost ground following the release. All but Countrywide - which dropped a full point after the release - regained all or most of the ground given up, mostly due to short-covering rallies. The banking sector is in crisis mode and many investors are acutely aware of the condition of credit markets.

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Breadth was actually solid, with advancing issues leading decliners by a 22-9 margin. New highs outpaced new lows, 420-233.

As if to magnify the folly of the Fed's latest move, oil for December delivery advanced by a huge number, up $4.15 to close at $94.53. Gold closed sharply higher - up $8.20 to $796.00 - as did silver, gaining 13 cents to $14.46.

The commodity markets responded even more bluntly than the equity markets to Bernanke's boneheaded maneuvers over the past two FOMC meetings. One has to question both the validity of government data and the wisdom of the Fed as currently composed. On Friday, October Non-Farm Payroll data is announced prior to the open and that data will shed more light on the economy.

Let's all join hands and pray that the Fed did the right thing at the right time.... On the other hand, let's all go out and have a couple of drinks. We're going to need something to stiffen our resolve for what's ahead for the US economy - and it isn't a pretty picture.

Short bank and financial stocks. Bank failures are a sorry possibility and more severe economic disruptions will occur in 2008.

NYSE Volume 3,957,900,250
NASDAQ Volume 2,593,399,750

Tuesday, October 30, 2007

First Cut the Deepest? Fed Weighs Options

US equity markets sent a bit of a message to Fed Chairman Ben Bernanke and the FOMC board on Tuesday, selling off as a reminder that Wall Street needs another rate cut. Mr. Bernanke has been mum on the topic as the FOMC met today and finishes up their work on Wednesday with a policy announcement due out shortly after 2:00 pm ET.

Dow 13,792.47 -77.79 ; NASDAQ 2,816.71 -0.73; S&P 500 1,531.02 -9.96; NYSE Composite 10,164.97 -91.25

The choices are threefold and each bears considerable consequence. The board may lower rates 25 basis points, lower them 50 basis points or leave them as they be.

In September, the board lowered the federal funds rate 50 basis points and the stock exchanges responded with a two-week rally to record highs on the Dow and S&P before lackluster earnings shook the market back to reality. Another 50 basis point reduction does not seem to be necessary, though the Fed may see more weakness, especially in housing and credit markets, as particularly troubling.

The problem with a 50 basis point cut is that it will surely fuel inflation and send oil futures over $100 per barrel. As a committed fighter (thus far in word only) of inflation, it is doubtful that the Fed will make as bold a move.

The 25 basis point reduction is the most likely of outcomes as the cut will satisfy the Wall Street crowd without fanning the inflation flames much.

No rate cut at all would be the most desirable from a monetarist standpoint, as firmness from the Fed might induce a small rally in the US dollar, which has been pummeled recently.

The Fed must weigh their alternatives carefully and proceed in a diligent, professional manner, else they risk destroying the value of the US dollar even more.

On the trading session, declining issues defeated advancers by an 8-5 margin. New highs maintained their lead over new lows, 268-235, a slim margin, indicating an abundance of concern and uncertainty as to the Fed's next move.

Oil actually took a little off the top, losing $3.15 to close at $90.38. Gold and silver also lost ground, with gold off $4.80 and silver down a dime.

The Fed may want to keep some of its ammunition for the future, as dropping the federal funds rate below 4.50% (it's currently at 4.75%) may auger more ill for the consumer, who registered the lowest confidence reading in two years.

Rate cuts can only do so much, and with credit markets still reeling and major banks restructuring following the sub-prime shakeout, Bernanke and his fellows on the FOMC board may consider other measures, or taking a wait-and-see posture, more appropriate.

NYSE Volume 3,212,523,000
NASDAQ Volume 2,201,305,500

Monday, October 29, 2007

Another Winner for Wall Street

Stocks picked up where they left off last week, with each of the major indices posting positive numbers on Monday.

Gains were largely tied to expectations of another rate cut by the Federal Reserve, which begins two days of meetings of the FOMC on Tuesday. Investors are largely anticipating that the Fed will cut another 25 basis points on Wednesday.

Dow 13,870.26 +63.56; NASDAQ 2,817.44 +13.25; S&P 500 1,540.98 +5.70; NYSE Composite 10,256.22 +67.09

Gains were fairly broad-based, with advancing issues holding a 5-4 edge over decliners. New highs slaughtered new lows, 588-213, suggesting that stocks will attempt to retest recent highs during the week.

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Investors continue to ignore the constantly-rising price of crude oil, which popped another $1.67 to yet another record close at $93.53. Gold also added $5.10 to close at $792.80. Silver gained 15 cents to $14.43.

As investors trip over each other, bidding stocks to stratospheric levels, any number of economic reports this week could derail the uptrend. The government offers preliminary 3rd quarter GDP figures on Wednesday morning, prior to the market open. On Friday, November 2nd, October non-farm payroll numbers are released at 8:30 am. The forecasts are for a GDP reading of 3.1% growth and 80,000 jobs added in the month of October.

NYSE Volume 3,120,054,500
NASDAQ Volume 2,092,662,625

Friday, October 26, 2007

US Markets On the Move

Apparently, or, if you just measure the US economy from the activity on Wall Street, we're in great shape. The Dow jumped 240 points on the week. Even better, the NASDAQ popped 79 points, or 3% in the past five sessions.

How much of it is smoke and mirrors is unknown, but speculation is that much of it is not sustainable. When a company like Countrywide Financial (CFC) can move up 33% in one day on the news that they lost $1.2 billion in the previous quarter (missing their estimate by more than $1.50), anything is possible and the level of deceit and corruption in boardrooms and trading desks is probably higher than a giraffe's ear.

Dow 13,806.70 +134.78; NASDAQ 2,804.19 +53.33; S&P 500 1,535.28 +20.88; NYSE Composite 10,189.13 +159.58

It was a bull session for certain. Advancers put the kibosh on declining issues by a 5-2 margin. New highs finally surpassed new lows, 418-245. Much of the momentum is no doubt tied to expectations for another rate cut by the Federal Reserve on Wednesday of next week.

While Wall Street parties, so do the oil barons.
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Crude was up another $1.40 to close at another all-time high of $91.86. Gold shot up $16.50 to $787.50. Silver gained 38 cents to close at $14.28. Everything's going up except the value of your home (and probably your wages).

The Fed is expected to announce a rate cut of 25 basis points on Halloween. Spooky.

NYSE Volume 3,616,435,000
NASDAQ Volume 2,593,624,000

Thursday, October 25, 2007

As the World's Money Burns

I would love to not have to report on the continuing malaise of the US equity markets, but I have found it to be a labor of duty to report that our markets are incorrigibly rigged by some of the top officials of our government and the central bank, notably, Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke.

Most of the dirty work of rigging the markets - to the upside - is done every morning at the repo window of the NY Fed, where today they granted $31 Billion of repurchase agreements to members, all intended to be plied in the open equity markets to distort and deceive the general public.

It is my duty to report that the Dow Jones Industrials were down more than 125 points at 2:00 pm ET, yet once again, closed narrowly on the downside.

Dow 13,671.92 -3.33; NASDAQ 2,750.86 -23.90; S&P 500 1,514.40 -1.48; NYSE Composite 10,029.55 +20.25

The Dow is easy to manipulate if you have virtually unlimited funds, as does the Fed. It is only 30 stocks, and many of them don't trade more than 3 or 4 million shares per session. It's a piece of cake if you have the top traders of the major brokerage firms doing your bidding in the market. And it's tough to lose money, too, when you buy puts against the same stocks you are buying, knowing all along that buying these stocks with the sole intent to move up the averages is a losing condition.

Yet they carry on, these market manipulators, not because they have the best interest of investors at heart. No, they engage in this activity because they are protecting their own bankrupt souls and institutions from exposure and financial implosion. They could care less about depositors, investors and the ordinary folk. They care only about profits on their own banks and finance companies, their bonuses and their yachts and fancy cars.

Declining issues held a narrow 17-14 edge over advancers at the close. New lows outpace new highs again, 313-270.

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Oil gained an astounding $3.36 to close at $90.46. Gold gained $5.40 to $771.00. Silver was up 32 cents to $13.91. Why, why, why is the Dow only down THREE POINTS?

The housing industry is in the tank, credit markets have effectively seized up, roughly 25% of companies reporting earnings are missing their revenue and per share estimates and many are issuing pessimistic guidance for the 4th quarter and 2008.

Why is the Dow down only three points? The Fed, the PPT, the officially-sanctioned President's Working Group on Financial Markets are manipulating the markets. It's that simple.

Wake up, people. Your money, your investments, your retirements, your jobs and your homes are not safe as long as we allow nefarious characters such as Bernanke and Paulson to ply their evil trade.

NYSE Volume 4,133,543,000
NASDAQ Volume 2,755,434,750

Wednesday, October 24, 2007

Crash Averted by PPT

The absolute garbage coming from the Federal Reserve in the form of jawboning, daily repurchase agreements and soon-to-be-announced round of rate cuts, have distorted and perverted the US equity markets to a point at which there should be no investor confidence whatsoever.

With the markets down significantly all day, the Fed and Treasury, under the guise of the Plunge Protection Team (PPT, or, more specifically, the President's Working Group on Financial Markets) sent stocks soaring off their lows and nearly into positive territory. The most egregious escapade was on the Dow, which went from being down 190 points at 2:15 to UNCHANGED at 3:15. Right around 3:10 ET, the index went absolutely parabolic, gaining 70 points in under four minutes.

There are no brokerages, investors or arbitrageurs on the planet who could have accomplished such a monumental market-moving feat other than the PPT, working in concert with the nation's largest brokerages, Merrill Lynch (more about them later), Goldman Sachs, et. al.

The fraud perpetrated upon the people of the United States is one which purports that our financial markets are safe and secure, when in fact they are propped up daily by infusions of cash from the Federal Reserve and brokerages working in concert.

Only some late day selling by honest market participants kept the markets from a complete recovery into positive territory. That the Dow finished the day anywhere near positive is an affront to every educated trader on the planet. I take these matters personally, since it is my money (and others) being toyed with by the Fed.

The unmitigated actions by the Fed of late have become so pronounced and obvious to seasoned market watchers as to be laughable, were it not for the fact that they are pumping billions of dollars into the markets to avoid a complete and utter capitulation of the equity markets. With the worldwide credit markets already in a state of seizure, the Fed and Treasury actions are a desperate propping up by a bunch who are effectively destroying the value of the US Dollar every day. They deserve nothing less than a monumental market crash followed by ouster from office and criminal proceedings.

It's sick. It should stop, but it won't. We're under a fascist regime, so all lies are allowed, even big ones that affect the lives of every man woman and child in the country and millions more who haven't even been born.

Dow 13,675.25 -0.98; NASDAQ 2,774.76 -24.50; S&P 500 1,515.88 Down 3.71; NYSE Composite 10,009.30 -31.69

Despite the outright rigging by the Fed, PPT, Goldman, etc., stocks sagged again on Wednesday as the overhang of the mortgage malaise continues to haunt any company even remotely associated with the housing industry.

Merrill Lynch, one closely aligned by the weight of their mortgage portfolio, got the ball rolling downhill before the markets opened, offering a third quarter report that the officers of the company wish had been chewed up by a friendly dog.

Merrill (MER) lost so much money this quarter it won't fit on the screen. They were pounded most of the day and according to reports, investors were withdrawing money from Merrill trading accounts as quickly as they could.

As sickening as the corrupt Fed intervention into today's (and every day's) market was, declines outnumbered advances 2 to 1 and new lows distanced themselves from new highs, 353-161. It's a very sick market which should have closed at or near the intraday lows.

Oil was up another $1.83 to $87.10, gold gained $2.50 to $765.60, and silver slipped 6 cents to $13.59

But, really, how did the Dow lose less than a point? The US economy is virtually on its knees. That's without a doubt, despite what the president, Ben Bernanke, Hank Paulson, or any other paid shill tells you.

NYSE Volume 3,803,483,500
NASDAQ Volume 2,739,684,250

Tuesday, October 23, 2007

Paper Chase Leads Stocks Higher

Stocks closed sharply higher on US markets Tuesday, with relief coming in the form of better-than-expected earnings from a handful of companies. Still, the market struggled through much of the day, as the Dow, in particular, made 70 points of the day's gains in the final 40 minutes of trading.

Dow 13,676.23 +109.26; NASDAQ 2,799.26 +45.33; S&P 500 1,519.59 +13.26; NYSE Composite 10,040.99 +110.21

After falling five consecutive days last week (with the exception of the NASDAQ, which had one up session last week), the markets have opened this important earnings season week with a pair of gainers. Absent important economic reports, the markets continue to climb a wall of worry, depending upon the 3rd quarter results of various firms.

The only meaningful economic reports this week are existing and new home sales, due out tomorrow and Thursday, respectively, both at 10:00 am ET.

Companies that reported after the close Monday or before the open Tuesday were Apple (AAPL), American Express (AXP), AT&T (T), Lockheed Martin (LMT), TD Ameritrade (AMTD) and UPS (UPS), all of which beat street expectations.

After the close Tuesday, internet retailer Amazon (AMZN) reported earnings for the quarter of $80 million, or 19 cents per share, from $19 million, or 5 cents per share, during the same period last year, beating expectations by a penny. Shares were higher by 9.53 (to 100.82) prior to the release, though the stock gave most of that gain back in after-hours trade due to gross margin worries.

Omnicom, Inc. (OMC), the world's largest advertising and marketing concern, posted net income of 62 cents per share, beating expectations by .01. Despite the solid results, the stock lost on the day, due to concerns going forward. The company gave a cautious outlook for 2008.

Advancing issues beat decliners by a nearly 2-1 margin, but new lows continued to hold sway over new highs, though by a narrow margin, 213-186.

Oil slid 75 cents to $85.27. Gold and silver registered marginal gains.

With Amazon's news after the close Tuesday, Wednesday may open with more gains. Of assistance could be these companies, reporting prior to the open: energy conglomerate ConocoPhillips (COP), drug manufacturer GlaxoSmithKline (GSK), aircraft maker Boeing (BA) and brokerage Merrill Lynch (MER). Those stocks could make or break the will of investors out of the gate.

NYSE Volume 3,172,097,500
NASDAQ Volume 2,324,812,500

Monday, October 22, 2007

Day-Trading with the Fed

Every day, investors take risks.

Implied in the buying and selling of stocks is the gamble that shares of the stocks in question will go up or down, lose or gain value, based often on little more than the whims of the market.

However, it's a rigged game. The Fed routinely pumps money into the markets through their daily repurchase agreements, or "repos" as they're known. Today's "fun money" - $10.5 billion - arrived precisely 10 minutes after the market had opened, just in time to stave off a massive sell off which had the Dow down more than 100 points right out of the gate.

As the day wore on, the effect of this "money out of thin air" had on the psyche of the market was apparent. The Dow took a nearly 200-point round trip, eventually ending the day with a gain of 45 points, ending a five-day losing streak.

Dow 13,566.97 +44.95; NASDAQ 2,753.93 +28.77; S&P 500 1,506.33 +5.70; NYSE Composite 9,930.78 +10.51

So, effectively, the Fed took most of the risk out of buying stocks, for today, at least. Tomorrow, and the remainder of this week and next, is likely to be more of the same stumbling around we've experienced for the past few months.

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The market direction is predominantly to the downside, though Fed actions have prevented the essential shakeout to occur in all its fury. Instead, we get the slow motion train wreck with the occasional pileup like we had on Friday.

Stocks really were weak at the open and actually for much of the day. Advancing issues only led decliners by a 7-5 margin, while new lows dislocated new highs, 420 to 94. So, if you're convinced the worst is over, think again.

Oil dipped $1.04 to $87.56, a price so gaudy and absurd that it's painful to print the actual number. Gold lost $8.40 to $760.00, yet another sign of the credit-to-cash trade. Silver dipped 8 cents to $13.56 amid continuing commercial supply-demand usage debate.

Today's market gains were purely Fed-inspired and can hardly be called sustainable into the remainder of the week.

Nearly a third of the S&P 500 components will report their quarterly results this week. More than 25% have missed profit targets, many of which were supposed to be easy marks.

After Monday's close, 36 companies will report their earnings including Apple (AAPL), American Express (AXP) and Texas Instruments (TXN).

There are 71 companies reporting their earnings prior to Tuesday's open.

The off-balance-sheet fraud inspired by Enron has now spread fully to the banking system. The credit crunch has severely damaged the world economic racket and the banks can do nothing other than hide the losses for now. At some later date, probably some time in the first quarter of '08, those losses will see the light of day and the end-game will commence.

NYSE Volume 3,310,854,000
NASDAQ Volume 1,923,987,125

Friday, October 19, 2007

That Sinking Feeling

US equity investors lost boatloads of money on Friday as weak corporate earnings reports, credit concerns, fears of recession and oil over $90 a barrel sent stocks on a stunning day-long decline.

Dow 13,522.02 -366.94; NASDAQ 2,725.16 -74.15; S&P 500 1,500.63 -39.45; NYSE Composite 9,920.27 -254.34

For the week, the Dow Jones Industrials lost 576 points and did not post a gain on any single day. The Dow is now on a five day losing streak and has closed lower in seven of the last eight sessions. Friday's loss was the third worst of the year for the Dow.

The NASDAQ and S&P 500 also closed decisively lower and the NYSE Composite broke below the 10,000 mark for the first time since September 26.

All 30 of the Dow components were down, a very rare occurrence. The biggest hit was taken by Caterpillar (CAT), which reported net income for the three months ended Sept. 30 of $927 million, or $1.40 a share, from $769 million, or $1.14 a share in the year-ago period. Analysts expected a third-quarter profit of $1.43 a share.

The company lowered its forecast for the remainder of 2007 and warned that 2008 would be "below potential" and that the US economy would be in or near recession next year. That sent the stock reeling, losing 4.26 to 73.40, a 5.5% decline for the day.

Financial stocks also took serious hits. Bank of America (BAC), Citigroup (C) and troubled mortgage originator Countrywide Financial (CFC) were among the loss leaders.

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As might be expected from the dreadful headline numbers, declining issues outpaced advancers by a better than 5-1 margin. New lows catapulted past new highs, 375-143.

After briefly topping $90, crude for November delivery backed off, finally closing down 87 cents to $88.60. Gold was lower, losing 30 cents to close at $768.40/ounce. Silver continued its mini-slump, dropping another 17 cents to $13.64. Despite the lackluster day, precious metals remain a top choice for investors looking for protection against any economic downturn and a hedge against inflation. Both a recession and inflation now appear to be almost certainties in the upcoming months.

After the disaster that this week was, investors probably aren't going to get much relief next week, as more corporate earnings reports continue to flow into the mix. Additionally, reports on September existing and new home sales come out on Wednesday and Thursday, respectively. Durable Goods Orders for September will also be reported on Thursday, October 25.

NYSE Volume 3,531,780,250
NASDAQ Volume 2,371,651,750

Thursday, October 18, 2007

The Grand Charade Continues

Prior to the market's opening, Bank of America (BAC) released a dismal set of numbers for the 3rd quarter. The nation's second-largest bank posted profits of $3.7 billion, down 31%, and far short of analyst estimates. The bank's profits in investment banking plummeted 93%, to $100 million, thanks to a $607 million trading loss, another $527 million loss related to mortgage and credit derivatives, and a $247 million write-down for leveraged loans.

Washington Mutual (WAMU) also released similarly-ugly 3rd quarter results prior to the open. eBay reported a loss the previous night.

At the open, the Dow and other indices went straight into the tank. The Dow was down 90 points by 10:00 am. However, the diligent idiots at the Fed repo window were hard at work, granting $28 billion in liquidity to various members. See here.

For the remainder of the trading session, instead of the all-out plunge that should have occurred, traders were treated to the tantalizingly delicious prospect of a completely manipulated market. $28 billion goes a long way towards keeping markets liquid and avoiding catastrophe. Our resident geniuses at the Fed and major brokerages have now managed to not only avoid collapse, but keep honest participants out by constantly pumping in new money and, in some cases, posting gains!

Dow 13,888.96 -3.58; NASDAQ 2,799.31+6.64; S&P 500 1,540.08 -1.16; NYSE Composite 10,174.61 +9.31

I actually began a thread on the Fed's $28 billion in repos. Some interesting commentary followed my lead.

What does this mean? Essentially, the Federal Reserve loans out funds to various member banks, who then turn the money loose - through their brokerage arms - on the general market. This causes a large amount of dislocation in orderly trade, call it manipulation. The brokerages and the Fed have a vested interest in avoiding "events" that could cause panic. But what they are doing is eroding not only their own credibility, but that of the US dollar with capricious market intervention at any sign of trouble.

Orderly markets need to correct when there has been systemic dysfunction, like what we've seen in the sub-prime mortgage market and the spillage into the general credit system.

In August, the market was correcting, on heavy volume, though the Fed decided to change the game by lowering the discount rate (twice) and the Fed funds rate by 50 basis points at their September meeting. Everything since then - including the incredible 1000+ point gain from August 18 to October 1 - has been pure fiction, built with Fed money, essentially OUR money, the public's money, which the Fed and Treasury see fit to debase freely in order to bail out their friendly bankers and corporate CEOs.

The entire scheme only gets worse, and eventually these short-term bandages will cause a complete and total collapse of the economy. We're actually quite close to that now, but don't worry, because if the economy implodes, and prices for milk and gas and heating fuel reach levels where only the rich can afford them, your stocks will continue to go up and up and up.

Thanks, Mr. Bernanke. I thought your predecessor, Mr. Greenspan was a bubble-inducing tool of politicians. But you have shown that he was nothing more than a piker. You, sir, have no scruples and pray at the altar of Wall Street and Broad. You are a complete traitor to the United States and should be in prison along with most of your banking "buddies." You are a complete fraud and a wastrel, a pimp for corporations and politicians. You are, in a word, deficient.

It's almost futile to cite the internals of this twisted market, but in any case, they prove instructive. Declining issues beat advancers narrowly, 16-15, while new lows overcame new highs, 278-223. In other words, this market continues to want to sell off.

Oil for November delivery hit yet another record high, gaining $2.07 to $89.47 per barrel. Gold shot up $6.40 to $768.70. Silver was higher by a nickel to $13.80.

After the close, Google (GOOG), Wall Street's tech darling of the moment, posted third-quarter net income of $1.07 billion, or $3.38 per diluted share. Wall Street was looking for a net profit, on average, of $3.22 per share. Gross revenue rose 57 percent to $4.23 billion. The stock traded higher in the regular session by 6 points and had added another four points in early after-hours trading. Last print was above 644.00.

With today fully divorced from reality, Friday's session could go either way, though betting against the Fed and the Plunge Protection Team's (PPT) pumping strategy, could prove risky to bears who believe the entire market and credit structure to be on shaky ground.

Apparently, the entire planet could be blown to bits, yet the Fed would still pump more money into markets, gaily ringing the "all clear" chime.

NYSE Volume 2,895,854,250
NASDAQ Volume 1,973,083,875

Wednesday, October 17, 2007

Roller Coaster Day for US Stocks

Talk about volatility! The Dow Jones Industrials took a 21-point round-trip, finally ending the session with the third straight loss for the index of 30 blue chip stocks.

Dow 13,892.54 -20.40; NASDAQ 2,792.67 +28.76; S&P 500 1,541.24 +2.71; NYSE Composite 10,165.30 +39.90

Stocks soared early in the day - with the Dow up by more than 100 points - on earnings reports, primarily, from tech stalwarts Intel (INTC) and Yahoo (YHOO), which reported strong earnings after the close on Tuesday and Coca-Cola, which beat estimates for the 3rd quarter.

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However, the celebration was short-lived as spiking oil prices and continuing concerns in credit and mortgage markets rattled investors. Slow software sales from IBM and a word from the CEO of United Technologies, who said 2008 would be "challenging," sent those two Dow components reeling.

Advancers and decliners finished virtually in a dead heat, with gainers showing a slight advantage. New lows eked out a win over new highs, 259-249.

Oil was lower by 21 cents, gold and silver registered marginal gains.

Earnings continue to come in weaker than expected and with continuing concerns in the housing and credit sectors, investor mood is quite dour. Even though techs remain a bright spot, retailers and mainstream industrials are returning very poor 3rd quarter performances.

Despite pontifications from Sir Alan Greenspan that there's only a 50/50 chance of a recession, one ponders the former Fed Chief's past performance and overall reputation, which has been severely tarnished of late. Concerns are abundant that not only will the US fall into recession, but that it will be a particularly long and deep one.

Keep that in mind with your trades on Thursday and Friday. This is no time to be overly optimistic.

NYSE Volume 3,638,064,750
NASDAQ Volume 2,440,087,250

Tuesday, October 16, 2007

More Reality Checks

US equity markets suffered through a second straight losing session on Tuesday, amid skyrocketing oil prices and mixed earnings reports.

Dow 13,912.94 -71.86; NASDAQ 2,763.91 -16.14; S&P 500 1,538.53 -10.18; NYSE Composite 10,125.40 -90.89

It was another dose of reality for the largely-overpriced markets. Fed Chairman Ben Bernanke and Secretary of the Treasury Hank Paulson both jawboned about the continuing housing and credit crises. Bernanke chided bankers from expecting a "bailout" from the Fed on Monday night, while Paulson encouraged the same bankers to figure out ways to save strapped homeowners from falling into foreclosure.

In effect, they both told the banking segment that they were on their own, as it should be. The actual condition is that Fed and Treasury have both been supplying assistance to the banks. These men aren't stupid. They know a banking failure could be catastrophic, however, reading into their words, one wonders what they really know, and whether they actually believe the situation to be much worse than it appears.

Obviously, the bankers know the fix they're in, but they're not telling either. The best they can come up with is a joint fund to repurchase their own lousy paper, which they are unable to unload at this time. I don't know the technical term for their off-the-books repurchasing of faulty investment paper, but it certainly smells a lot like Enron. It's entirely possible that a very big name or two in the financial business could find itself in deep, deep water as early as the first quarter of '08.

As the markets churned in negative territory all day long, declining issues outdistanced advancers by better than a 2-1 margin and the new highs-lows finally rolled over, with 221 new lows appearing against 168 new highs. That particular indicator has been trending lower over the past week and finally is giving a clear signal that more losing sessions are ahead for stocks.

In other words, in a series of shouting headlines I'd like to see, SELL! EVERYTHING! NOW!

Commodity prices continued to dog stocks. Oil was up to another record high, up $1.48 to $87.61. Experts are now calling for 20-30% higher heating bills throughout the winter. God bless Al Gore for giving us GLOBAL WARMING!

Oddly enough, gold lost 20 cents while silver declined by the same amount, closing at $13.36. BUY PRECIOUS METALS

Stocks are offering a mixed picture.

Before the open: Delta Air Lines (DAL) reported better than expected third quarter earnings of $0.56 per share, compared with the consensus estimate of $0.41.

Wells Fargo missed by $0.02, misses on earnings of $0.68 per share, $0.02 worse than the Reuters Estimates consensus of $0.70. Shares of the bank's stock were hammered down to 34.55, -1.40 by the close.

Johnson and Johnson earned 88 cents per share, compared with 94 cents per share during the same period a year ago. Analysts sought .90 cents per share. The stock fell 58 cents to 65.07.

After the market closed on Wednesday, IBM beat estimates by a penny. Apparently, this was not good enough for investors, as the stock was being punished - down nearly 2% - in after-hours trading.

Holders of Yahoo (YHOO) were treated to the first quarterly results with co-founder Jerry Wang as CEO and they were pleasantly surprised when the company announced earnings of 11 cents per share, beating the street estimate by 3 cents. The stock price was down 1.17 prior to the announcement. Shares traded nearly 10% higher in after-hours activity, up 2.59 to 29.28.

Intel (INTC) reported a 43% rise in profits after the close and investors sent it soaring after hours, up more than 5%.


Actually, I've been recommending techs over financials and just about everything else for most of 2007. This market, as a whole, however, is headed lower.

CIT Group (CIT), Coca-Cola (KO) and United Technologies (UT) report before the market open on Wednesday, and their reports should influence early trading.

NYSE Volume 3,181,638,250
NASDAQ Volume 2,093,682,500

Monday, October 15, 2007

Markets Lower; Has Sanity Returned?

In light of the recent market movements to record highs on the Dow and S&P, today's sharp, broad-based selloff should come as a somewhat welcome reaction to recent and ongoing events.

Despite serious tape-painting in the final half hour (the Dow gained back 80 points of the day's losses), markets were dramatically lower. The one guiding stock was that of giant Citigroup, which reported prior to the open that 3rd quarter net income slipped to $2.38 billion or 47 cents a share, down from $5.51 billion, or $1.10 a share in the same period a year ago.

Based on massive writedowns in securitized instruments (marked to model) - mostly related to sub-prime mortgages - Citigroup set the tone for the entire session, and it wasn't very upbeat.

Dow 13,984.80 -108.28; NASDAQ 2,780.05 -25.63; S&P 500 1,548.71 -13.09; NYSE Composite 10,216.29 -85.20

Citi said revenue generated in its US markets and banking business declined 87% in the quarter. That's the kind of message US equity investors feared to hear. The truth about the sub-prime slump and credit calamity is beginning to find the light of day.

In a related story, Citigroup, JP Morgan, Bank of America (both of which report later this week) and other major financial institutions plan to create a super-fund (off their books, off course) to pool about $80 billion to buy complex structured investment vehicles (SIVs) linked to subprime mortgages and other types of debt.

The bankers basically are buying back their own debt.
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It's not a very nifty trick - repricing the investments at full value away from their own balance sheets - and obviously didn't fool investors today. The banks want to prevent a catastrophic fire sale on the debt, some of which is worth less than 25 cents on the dollar.

Decliners beat advancing issues by a 5-2 margin overall, though new highs maintained their long-standing edge over new lows, 291-203, though their edge has been seriously eroded over the past week.

The price of oil certainly didn't help matters. Crude for November delivery closed at a new record, $86.13, up $2.44 on the day. Gold advanced $8.40 to $762.20, while silver declined 5 cents to $13.86 on industrial consumption concerns.

Also prior to the open, toy maker Mattel (MAT) reported third quarter earnings of 61 cents per share, far below analyst expectations of 70 cents, based largely on multiple product recalls from Chinese factories.

All of this wonderful news weighted stocks down. Prospects for the remainder of the week aren't exactly buoyant.

Tomorrow's earnings reports include CSX Corporation (CSX), Delta Air Lines (DAL), Intel (INTC), Johnson & Johnson (JNJ) and Yahoo (YHOO).

Reality may be returning to the markets after weeks of Fed-induced faux-euphoria. If that is the case, expect the Dow to test 13,400 by week's end.

NYSE Volume 2,660,809,000
NASDAQ Volume 1,990,618,500

Friday, October 12, 2007

Choppy Waters

Any canoeist or kayaker worth his or her oars knows the difficulty in navigating choppy water. One must constantly be making adjustments, small moves here, quick moves there, in a never-ending battle to keep the craft on track and moving in the proper direction.

Such was the situation of the stock market on Friday as investors moved variously in and out of stocks, monitored positions and eventually found a path home to a higher close. But, it wasn't without mishap as on the Dow, for instance, nearly half of the day's gain was garnered in the final fifteen minutes. That's what kind of a day it was, and, to a large degree, how the week was shaped as well.

Dow 14,093.08 +77.96; NASDAQ 2,805.68 +33.48; S&P 500 1,561.80 +7.39; NYSE Composite 10,301.49 +56.24

For the week, the Dow gained a full 26 points, less than the entire move in Friday's last 15 minutes. (Hear the sound of one hand clapping.) Hurrah! Cheers!

If this is what today masquerades as some kind of exuberance, either rational or otherwise, many are not impressed. On the cusp of the biggest week of earnings reports for the quarter, the market displayed a tangible sense of caution.
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Clearly, investors are not confident about corporate America's ability to deliver quality profits.

The one notable company reporting on Friday was General Electric, which, despite reporting stronger than expected profits was pounded down 0.57, to 41.03, after releasing a strong quarterly, with profits rising 14% over the same period a year ago. Apparently, this is the quarter of higher than high hopes and one in which traders will lock in profits immediately after reports, good, bad or otherwise.

Concerning yesterday's shakeout, my skeptical mind was on the right track. The melt-away apparently involved financial giant Citigroup, which announced a major shake-up Thursday evening. The bank said it would combine two units into one division to be led by former Morgan Stanley executive and Vikram Pandit. The likely cause of yesterday's massive, volume-driven selloff, was a rumor that CEO Charles Prince was about to step down. The rumor proved false, re-igniting the rally on Friday morning, albeit without as much gusto. Volume Friday more resembled a sleepy summer day than a brisk earnings season session.

On the day, advancing issues outstripped decliners by an 8-5 margin. The surprise set-up for Monday, when earnings begin to flow with increasing rapidity, was in the new highs-new lows reading. New highs checked in at a paltry 197, to 133 new lows, the closest this gap has been in many weeks. This solitary indicator shows how nervous the market is, how quickly investors will close out positions and that there is little follow-through or confidence in any rally.

Next week clearly - especially with all of the largest financial companies, such as Citigroup, JP Morgan and Bank of America reporting - is indicating a rough road and quite possibly the beginning of a serious correction in US equities.

Elsewhere, commodities moved in opposite directions, though, as usual, we reiterate that oil prices are not reflective of any kind of reality, being largely manipulated by major players in the futures market. Crude rose 61 cents to $83.69, and whether or not that's a record, it's sure close and far too high to be sustainable for long.

Gold and silver continued to back off, though slightly, reaffirming the idea that credit conditions are still troublingly tight and various financial concerns are selling precious metals to raise cash. It wouldn't be the worst one-line analysis of the metals and may be much closer to the truth than even I would like to admit.

Next week, roughly a third of the S&P 500 will be reporting earnings and it's likely to be raucous. Any misses will result in severe punishment. Options players should be especially attuned to the opportunities present as Friday is expiration day for October options.

Countrywide "PROTECT OUR HOUSE" Wrist Band on eBay

With the current malaise in the mortgage and credit industry, Countrywide Financial, the nation's largest mortgage lender (and sub-prime abuser), recently initiated a PR campaign designed to improve employee morale and boost the company's image.

The plan included a pledge, to be signed by loyal employees and a cheap rubber wristband with the Protect Our House slogan.

Some employees are taking advantage of the public's fascination with the sleazy, rah-rah tactics by Countrywide management and have decided to auction their wristbands on eBay. This one has already rung up bids of $165.00 and nearly 10,000 hits and ends on Saturday. There are at least 6 more available on the popular auction site.

Thursday, October 11, 2007

Mystery Market

If, unlike James Bond, you like your martinis - and markets - shaken and stirred, then today's trading action was right up your secret agent alley.

The Dow, NASDAQ, S&P and NYSE Composite were all floating gaily in the green - with all except the NASDAQ at all-time highs - until about 1:51 pm, when out of the blue the markets were suckered with a left hook that knocked them for a loop, sending everything into a dizzying tailspin over the final two hours of trading.

Dow 14,015.12 -63.57; NASDAQ 2,772.20 -39.41; S&P 500 1,554.41 -8.06; NYSE Composite 10,245.25 -19.25

If volatility is your bag, how about a 250-point swing on the Dow for starters? The NASDAQ traveled up and down more than 76 points from the highs of the day to the lows.

And what was the impetus for these major movements? Profit taking. Or, at least that's all the financial news is about to tell us. That explanation simply will not wash. Not with the incredible decline from just before 2:00 to about 2.30. In less than 45 minutes, the NASDAQ knocked off all of its 22-point gain and fell 30 points into the red. The Dow went from a gain of 110 to a loss of 47 points. But they weren't done yet.

The Dow eventually bottomed out at a loss of 127 points before recovering in the final half hour of the session. This was no ordinary profit taking. Insiders know that something is afoot and they aren't telling. The volume over the final two hours was magnificent, as though somebody had dropped a bomb and everyone needed to flee for the exits.

Another scapegoat for what could only be described as panic selling was Axel Weber, a member of the European Central Bank Council (ECB). Weber stated that although the ECB has temporarily paused rate hikes, he was of the opinion that the ECB may need to raise rates to a level he considered restrictive due to European inflation risks.

Nobody should be buying such a lame excuse to send stocks into an all-out hysterical selling frenzy. There's more here than meets the eye, especially at the start of the 3rd quarter earnings season. There's been ample speculation that more than a handful are going to report weaker-than-expected earnings, especially in the banking sector, though the deficiency will not be confined only to that portion of the market.

Market internals were decidedly on the negative side. Declining issues beat advancers by a healthy 2-1 margin though new highs (reached before the meltdown) swamped new lows, 593-156. That's a pretty wide margin for the high-low reading, which, coupled with the market movement, may indicate a blow-off near-term top today.

On the earnings front, M&T Bank (MTB), which reported prior to the open, narrowly missed their earnings estimate but only lost 47 cents on the day to close at 104.84. Other than Pepsi reporting better-than-expected results before the market opened, there were no earth-shattering announcements from any major (or minor) firms.

The only notable company reporting tomorrow is General Electric (GE), though unless their banking unit is about to take a major writedown, they could not have been the cause for today's frenetic selling.

The commodities caught a significant tailwind on Thursday. Oil for November delivery ramped up $1.78 to close at a near-record $83.08. Gold gained another $10.70 to $756.70 and silver jumped 32 cents to $13.99, though the closing readings for the metals were at 1:30 pm, prior to the sell-off on equities. Gold, at last reading, had given up its gains, selling at $747.00 following the equities lower.

The selling in gold could indicate another credit squeeze, similar to that which occurred in August, when all manner of assets were sold to raise cash to meet obligations. That would explain the simultaneous declines of stocks and gold and is a more plausible explanation than "profit taking" or selling on the opinion of one ECB member.

Whatever the cause of today's turnaround retreat, most investors are going to be kept in the dark, but one thing is almost a certainty - it's not over. Events like this do not occur in vacuums. There's an almost palpable gut feeling that all is not well for the US economy, global economy or US stocks.

Friday may offer more clues, but Monday, when Citigroup (C) kicks off earnings reports from major banking interests, should tell us the rest of the story.

Wednesday, October 10, 2007

Tech Wins; Earnings News Disturbing

The Dow took it on the chin today after Alcoa (AA) missed the mark, announcing their 3rd quarter results on Tuesday after the bell. The S&P and NYSE Composite took minor hits, while the NASDAQ actually had a nifty little gain.

Dow 14,078.69 -85.84; NASDAQ 2,811.61 +7.70; S&P 500 1,562.47 -2.68; NYSE Composite 10,264.50 -15.81

Here's the rub: Techs are good bets even if the economy falls into recession, while larger, mainstream corporations will have trouble maintaining profitability. Outside of the giants like Microsoft, Cisco and Intel, which have huge employee bases, many tech firms are already lean, plus, technology has become essential to our day-to-day existence.

Big retailers, banks, consumer, industrial and manufacturing outfits, like many of the Dow stocks, are abundant employers, have heavy legacy and pension costs and will struggle if the economy takes a nosedive.
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Truth be told, the economy isn't so hot to begin with, Wall Street knows this and Alcoa was just the very tip of a rather large iceberg. Alcoa's number was an easy one to hit and they missed - narrowly (.02), but missing an easy target is punishable by... well, investors treated the company to a 2.5% haircut on Wednesday (-0.99 to 38.73).

Larger misses of easy targets will result in near-death penalties and tech will become the new flight to quality, that being quality of earnings. By and large, techs are still growing, industrials are staid and solvent, but profits may become tough to find.

Losers outnumbered gainers by an 11-9 margin, though new highs still held a rather sizable edge over new lows, 408-131. The latter measure may be stalling out. If earnings are generally lackluster, it tells investors two things: 1. the whole economy may be in need of a rest (recession), and, 2. stocks are overpriced. Result: widespread selling. Don't say you heard it here first. Many others are saying the same thing.

Commodities continued to trend higher. Oil rose $1.04 to $81.30. Gold was up $2.90 to $746.00. Silver added 0.09 to $13.67.

On the earnings outlook, Chevron (CVX) warned prior to the market open; international Paper (IP) and PetSmart (PETM) also warned during the Wednesday session; Valero (VLO) warned after the close, and Thomson Financial advised that the S&P 500 will likely post, "third-quarter earnings growth in the low single digits." Overall, it's not a pretty picture as this earnings season gets underway.

Monsanto, predicted to lose 0.17 cents in their fiscal 4th quarter, actually lost 0.18, without counting one-time charges. Shares dropped 0.74.

Ruby Tuesday (RT), operator of a chain of mid-priced restaurants, reported after the close. The company saw its quarterly profit trimmed by 49% and lowered their annual estimate. The stock was being pounded in after-hours trading, down nearly 10%.

There was good news. Host Hotels (HST), Infosys (INFY), and Costco (COST) all posted results beyond Street estimates, but the good is being overshadowed by ominous signs from more than just a few companies.

Boeing (BA) was the major mover on the Dow, losing 2.77 on the day after the company announced delays in the delivery of their 787 airliners due to supply disruptions.

If you're short this market, you stand to do well. Others, most of whom have standard positions via funds or 401k's, would be advised to move to safer positions. If this first salvo of earnings news is any indication, cash will be king throughout the remainder of the year and into '08.

Monday, October 8, 2007

Earnings on Deck

Investors took a respite on Monday. They really did. For perspective, the Dow traded in a range of only 40 points, so there really wasn't anything to get excited about. It's part inertia and part waiting game - waiting for 3rd quarter earnings reports to begin flowing later this week.

The markets have been in such convulsion, first from the sub-rime mortgage malaise and the related tight credit conditions, then, the August jobs report that showed a loss of 4,000 jobs prompting the Fed into a 1/2-point cut in the Federal funds rate.
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And now, with the release of the September jobs data and upward revision of August to a gain of 89,000 jobs, there's a sense of apprehension and wonder as to whether the Fed moves were actually necessary.

Personally, I think the question to be asked is, "how reliable are government statistics?"

Frankly, I don't believe the August job revisions and I think there are others out there - though it's difficult to locate anyone of that opinion - who are in the same mindset.

Regardless, the markets are in horrible condition. Today's trading was simply another manifestation in a loss of confidence. Investors feel cheated, that the markets are rigged to benefit only the major players. And even some of the major players are unhappy. It's really depressing. Maybe a spate of honest earnings reports will put more perspective on where we stand.

Dow 14,043.73 -22.28; NASDAQ 2,787.37 +7.05; S&P 500 1,552.58 -5.01; NYSE Composite 10,186.43 -61.50

Declining issues held a somewhat surprising 5-3 edge over advancers. On the other side of the equation, new highs stood at 329 to a mere 99 new lows.

Perhaps the most surprising action of this Columbus Day - a curious half-holiday - was in commodities. Oil fell $2.20, to $79.02. Hallelujah! Gold fell $8.50 to $738.70. Silver dropped 13 cents to $13.36. Strange, indeed.

Friday, October 5, 2007

Market Powers Ahead on Jobs Data

It was a win-win situation for stocks on Friday. A solid jobs report would show a strong economy. A weak report would prompt the Fed to cut rates again at their next meeting. At 8:30 am, traders got more than they bargained for when the Bureau of Labor standards announced 110,000 new jobs created in September, plus revisions to both August and July reports.

Most outstanding was the August revision, up to a gain of 85,000 jobs from a previously-reported loss of 4,000. The Bureau said, "Nearly half of the over-the-month increase in the labor force occurred among teenagers; this offset a labor force decline among that group in August."

In other words, kids went away to college and took up new jobs. It's barely believable and in no way responds to questions about the mysterious August revision. Generally, it is probably pure bunk.

Nonetheless, stocks went on a tear.

Dow 14,066.01 +91.70; NASDAQ 2,780.32 +46.75; S&P 500 1,557.59 +14.75; NYSE Composite 10,247.93 +105.00

Volume was solid and advancing issues outnumbered decliners by a whopping 3-1 margin. New highs raced ahead, beating new lows, 442-118.

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Oil dipped slightly to close at $81.22. Gold was up $3.40 to $747.20 and silver lost a penny to $13.49.

Investors had their day - or two weeks - in the sun. On Monday, earnings will begin pouring in, and we'll see firsthand how solid these investment gains are. I would not dismiss this quarter as being one in which stocks sell off, even on good earnings. The market is in a completely overbought condition, priced to perfection, and if earnings are even a bit on the sluggish side, individual issues will be unloaded.

Have a great weekend!

Thursday, October 4, 2007

Markets Await Jobs Data

Stocks spent most of Thursday trading in a narrow range on moderate volume as investors nervously awaited Friday's Non-Farms Payroll data for September.

The report is expected to reveal growth in the labor pool of 100,000 jobs, though arguments are being made on both sides of the equation. Judging from recent commentary, the idea that the US economy is stumbling toward recession has gained traction, especially since new claims for unemployment insurance ticked higher Thursday.

Dow 13,974.31 +6.26; NASDAQ 2,733.57 +4.14; S&P 500 1,542.84 +3.25; NYSE Composite 10,142.93 +41.90

However, Wall Street diehards are hoping for a reversal of the trend which resulted in a net loss of jobs for August and a rebound, though there's no talk of where these new jobs may have been created. The housing and construction industries, mortgage and banking-related employment have all felt the sting from the sub-prime mortgage meltdown.

Nevertheless, investors were generally on the positive side Thursday. Advancing issues were ahead of decliners by a 3-2 margin. New highs retained their edge on new lows, 217-130. That margin continues to narrow, albeit by small increments, daily.

In an ominous portent, commodities advanced across the board. Oil futures gained $1.40, nearly erasing a week's worth of declines, to $81.44 at the close. Gold added $8.10 to $743.80, while silver popped 3 cents to $13.50.

The Non-Farms Payroll data is due out at 8:30 am ET, an hour prior to the opening of the equity markets. Stay tuned.

Wednesday, October 3, 2007

More Money Down the Drain

Investors who pumped the Dow to new record highs on Monday are scratching their heads after two consecutive days of losses. What could have happened, buying so close to the high, with the overhang of the still-unwinding credit crisis, a slumping housing market, oil near all-time highs and the US dollar in the tank?

Talk of a looming recession still trickles from the lips of brokers who dare speak truth to power; the massive losses by major banks in the coming quarterly reports are mentioned in hushed whispers, in private meetings, but sometimes the fears are manifested in the trades, like today.

Dow 13,968.05 -79.26; NASDAQ 2,729.43 -17.68; S&P 500 1,539.59 -7.08; NYSE Composite 10,101.03 -74.81

All of the major indices took a hit on Wednesday, and the losses were double or more than Tuesday's. Declining stocks laid over advancers by a 5-2 margin while new lows gained ground on new highs for the second consecutive day, with the highs holding a 232-127.
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That gap has closed considerably and is signaling continued weakness.

Economic numbers have been benign for the most part. Investors may be looking for positive news from the September Non-Farms Payroll report, due Friday prior to the market open. Estimates call for 100,000 new jobs created, though last month's estimate was equally rosy when the report for August showed a net loss of 4000 jobs.

Oil slipped 11 cents to close at $79.94; gold and silver were marginally changed. Gold lost 60 cents. Silver was up 2 pennies.

What the payroll report holds in store for the markets is yet indeterminate. Stocks have been rising on bad economic news, in a convoluted logic that a weak economy will spur the Fed to lower interest rates even more. The thinking is that looser money will be invested and cause stocks to gain. The trouble with that is eventually, as economic conditions worsen, consumers will close their wallets and stop spending. That's the downside of the equation. Lower interest rates can only free up so much capital. Sooner or later, consumers, who make up 70% of GDP, must get some relief.

Lowering interest rates is inherently inflationary and weakens the dollar against foreign currencies. While that may be good for exports, again, consumers are stuck with higher bills for just about everything, being that the US has become an import-driven economy.

If there are less than 100,000 new jobs created, investors may get just what they're asking for, but the fruit of their desires may come with a bitter aftertaste.

Tuesday, October 2, 2007

No Follow-Through off Big Rally

Stock indices spent the better parts of Tuesday wallowing in the red, and with the exception of the NASDAQ, all closed lower.

Dow 14,047.31 -40.24; NASDAQ 2,747.11 +6.12; S&P 500 1,546.63 -0.41; NYSE Composite 10,175.66 -8.84

Essentially, since the declines were so marginal, little can be gleaned from Tuesday's session, except that investors are not exactly solid in their positions. Some wizened veterans of Wall Street say the 4th quarter kick-off rally was funded mostly through fresh 401k money, put to use by various fund managers who have nothing better to do than add to already overbought positions in an attempt to goose prices higher.

If anything, this market is short-term, with a very limited view of market history. If the credit market unraveling of August is prelude and already forgotten, the "irrational exuberance" of 1999-2000 is prehistoric. One can almost sense the desperation in the headlines, suggesting that traders will swap a weak economy for more fed funds rate cuts. That kind of thinking is a sure symptom of short-sighted trading, as is buying near or at tops.

By now, you've probably discerned that I am not particularly encouraged by any Wall Street euphoria since it is being built on the backs of a weakened economy and tumbling US dollar.

Internals were once again bullish, however, with advancers beating decliners by a 3-2 margin. New highs beat new lows, 366-120. Both margins were significantly slimmer than yesterday, though that is expected.

Oil continued it's week-long decline, falling well below the absurd $80 threshold before rallying back to close down just 19 cents at $80.05. Gold and silver profits were trimmed, if not slashed and burned, with gold losing $17.80 to $736.30 and silver declining 41 cents to $13.45.

The moves in the metals are of particular interest. The last time they fell in tandem by such a large amount was last month, at the height of the mad cash scramble prompted by the ongoing credit squeeze.

There's a safe bet that some of the selling in the metals was credit-related, as that nasty little problem may have been swept under the rug for now, but is beginning to smell.

What will be interesting is how the major banks handle the massive writedowns for the mortgage mess in their third quarter reports. The largest banks, including Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), Wachovia (WB), Washington Mutual (WM) and Wells Fargo (WFC) all report between October 15 and 19. That's just two weeks away and investors should expect some serious fallout. Citigroup already warned that profits would be cut by more than 60%. None of the others have yet to show such bravery, though some word is sure to slip out sooner rather than later.

When one or two of these drop a bomb on the market, expect some serious reconsideration in trading strategy for the remainder of the quarter. Most mainstream stocks won't be adversely affected, though some strain will surely be showing as we wend our way toward the holidays.

October can be a vicious month for stocks. Ask anybody who was around in 1929.

Monday, October 1, 2007

4th quarter begins with a bang

As though there is no peak too high for the US equity markets, stocks soared to record highs on Monday as the 4th quarter opened with the loud sounds of buy orders.

Dow 14,087.55 +191.92; NASDAQ 2,740.99 +39.49; S&P 500 1,547.04 +20.29; NYSE Composite 10,184.50 +145.22

Whether or not this frenzied pace is sustainable is anyone's guess, but buying stocks when they are at or near their all-time highs has proven - time and again - to be a fool's game. The Dow Jones Industrials soared to a record close on strong volume with the other major indices reaching or close to multi-year highs. The NASDAQ is at a 6 1/2 year high; the S&P 500 within 6 points of its all-time high.

Market internals displayed the obvious. Gainers outnumbered losers by nearly 3-1 while new highs arched over new lows, 451-159, the largest that divergence in two months.

Naturally, the dollar fell again against the British Pound and the Euro, but commodities were tame. Oil futures lost another $1.42, but remain stubbornly high, closing at $80.24. Gold gained while silver lost marginally.

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Not everyone is convinced that this rally is sustainable as most of it has to do with the recent Federal Reserve rate cuts and the promise of more to come. Worldwide, equity markets have had over $1 trillion pumped into them since the recent sub-prime induced liquidity crisis and inflation and recession may be rearing their twin ugly heads sooner than anyone might hope.

For a perspective on why Fed rate cuts are not always good for economies, see this exceptional article on the site.

Tuesday will be all the more interesting to see if volume and price remain strong.