Friday, May 9, 2008

Stocks Continue Descent

No reason was really needed, but the high price of oil and disturbing news from two financial titans - AIG and Citigroup - sent investors scurrying out of positions on Friday and seeking safer havens for their money.

As I've been saying here for the past week, stocks were overbought, the markets had reached levels at which a change in direction was warranted and the bull market still is the prevailing sentiment on the street.

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Insurer and Dow component American International Group (AIG) reported a $7.81 billion loss for the first quarter - their second massive quarterly loss in a row - and was beaten down by investors as fears of another round of the continuing credit crunch appeared to spook traders. AIG lost 3.87, to close at 40.28 on nearly four times its usual volume.

Citigroup, another Dow component, announced plans to shed between $400 and $500 billion worth of assets, including mortgages and various real estate holdings, the company describes as "legacy assets."

The story behind the Citigroup move shed some light on just how close to insolvency the financial giant has come in recent months. The stock traded just 67 cents lower, to 23.63, just points above its 52-week and 10-year split-adjusted low of 17.99. The company has been forced to write down billions in worthless loans, scramble to raise cash from sovereign funds, and now reorganize and sell assets.

Dow 12,745.88 -120.90; NASDAQ 2,445.52 -5.72; S&P 500 1,388.28 -9.40; NYSE Composite 9,327.97 -60.57

Despite the size of the losses, advancing issues surrendered grudgingly to decliners, with 3306 stocks losing value and 2838 gaining. New lows beat back new highs, 236-130.

As mentioned, oil's relentless rise continued, adding $2.27, to close the week at another all-time high of $126.97. In just the past week, oil has shot up $10 per barrel. Gold gained $3.70, to $885.80, while silver added a mere 2 cents to $16.89.

For the week, the Dow lost 312 points, or just more than 2%. The other major indices suffered similarly. The week turned out to be the ultimate topping point for markets as earnings season fades to black and news of the financial condition of economies takes center stage.

The US economy in particular is not in a pretty state, though survivable. The tax rebate checks, while hardly a complete solution, will provide enough of a boost to the sputtering economy to avoid a very deep, very long recession. Watch for revisions of key economic data in coming weeks, especially 1st quarter GDP, which may end up showing the economy already in recession. If that's the case, or, rather, as some suggest, that we've been receding since September of '07, a bottom in the markets is dead ahead.

Be kind to mother. Buy some puts for her.

NYSE Volume 3,518,610,250
NASDAQ Volume 1,714,386,000

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