Friday, December 14, 2007

Friday's Stocks: All Red, All Day

As I pointed out yesterday, stocks were set up for a week-ending dive and the major indices took little time confirming my prediction, as all traded lower from the very first minute of trading. What made Friday even more interesting is that all the major indices spent all day in the red, with the exception of the NASDAQ, which spent a few moments above water, but it was a very short-lived peek at the positive side of the ledger.

What set the markets in motion was the CPI figures released prior to the bell. It wasn't difficult to predict the direction of the index, fast on the heels of the most-inflationary reading for the PPI in 35 years, on Thursday. The CPI was up 0.8%, topping even the dire expectations of 0.6. It was the highest one-month increase since the post-Katrina reading in September 2005.

We have inflation. We have a significant slump in housing. We have a Fed that lowered federal funds rates three times consecutively and an investor class that doesn't think it's enough. What we really have are all the ingredients for a good, old-fashioned bear market.

Dow 13,339.85 -178.11; NASDAQ 2,635.74 -32.75; S&P 500 1,467.95 -20.46; NYSE Composite 9,698.37 -165.91

Consumers may hold up through the holidays, but after that, with the home equity ATM shut off, banks tightening lending standards and a worldwide liquidity crisis, it's nearly a sure bet that stocks will head in the direction opposite to what most investors would like.

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The process has already begun and it's gaining momentum. There's a double bottom in place, but the levels reached in August and November on all the indices will likely be tested and broken through to the downside in the first quarter of 2008. The catalyst will be earnings, already expected to be the kind that signal weakness in almost every sector.

If you haven't already, now would be a good time to shift a sizable portion of your portfolio into cash, gold, silver, and bonds, or a defensive fund, or a combination of all of them, or maybe move to another country with better growth prospects.

Market internal indicators were expectedly bearish: Declining issues trounced advancers, 4806-1501. New lows expanded their edge over new highs, 493-109. Metrics such as these are hardly useful on a day like Friday. They just add to the string of similar readings, confirming the trend.

Commodities fell in unison. Oil shed 98 cents to close at $91.87. Gold was off $6.00 to $798.00; silver was down 0.25 to %13.98. (Hmmm... just in time for Christmas... 1 oz. silver dollars make great stocking stuffers. I'd love a stocking full of them.)

With a huge snowstorm expected to hit most of the Northeast on Sunday, holiday sales may be crimped on what should have been one of the busiest shopping days of the year in major cities such as Boston, Philadelphia, New York, Washington and Baltimore. The storm is already wending its way through the Midwest.

While the foul weather may be bad for brick and mortar businesses, internet sales should soar. Amazon, anybody?

NYSE Volume 3,401,047,750
NASDAQ Volume 1,954,963,625

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