Wall Street Narrowly Avoids Flushing

At 3:30 pm, with just 30 minutes remaining in the regular session, the Dow Jones Industrial Average and the NYSE were the remaining two indices that had not succumbed to the deadly gravity gripping investors. They remained above their October 27 closing lows, while the NASDAQ and S&P 500 had already shown their cards and were trading at fresh, multi-year lows.

Moments earlier, the Dow had traded as low as 8105, well below the bottom of 8175, but in the final fifteen minutes, a spirited rally lifted all indices close to the highs of the day, delaying the inevitable flushing for at least twenty-four more hours.

Dow 8,424.75 +151.17; NASDAQ 1,483.27 +1.22; S&P 500 859.12 +8.37; NYSE Composite 5,365.66 Up 42.30

That stocks will break below the October 27 lows is not a certainty, though today's retesting was probably the most serious of recent attempts. Traders must be encouraged by the idea that the indices continue to test and rebound, even though the NASDAQ has already dipped to new downside levels.

It does seem, however, that stocks have not found their bottoms yet, considering the recent volatility and various gyrations of recent days and weeks. There has yet to be a final, crushing capitulation, nor has there been any imminent signal that investing was once again a worthwhile endeavor. Bottoms are funny things. There is nobody who can call them with any certitude, and this bottom seems to be wearing thin.

Stocks are relatively cheap, but are they cheap enough? It would seem that speculators are not quite ready to take the leap without a bungee cord of some sort (like options) to pull them out of the fire should their forays prove a bit premature.

There's also the political side of the issue to consider. While President-elect Barack Obama inspires confidence and a degree of trust that the worst is behind us, he has not spelled out specific policies, nor does anyone know how the upcoming congress is going to either comply and/or oppose any initiatives.

So, for now, we'll assume that this is not the bottom, that life will go on, and that the US will sink further into a recession through the 4th quarter and probably well into 2009.

Bottom? What bottom? Patience may be the virtue most rewarding except that of abstinence for now and possibly for months to come.

On the day, the headline numbers stood in stark contrast to the internal indicators. Declining issues far outweighed advances, 4074-2469, indicating that the late rally was nothing more than good, old-fashioned tape-painting designed to keep the wolves from the door. Significantly, new lows expanded once more, to 1248, against only 14 new highs. This market is once again approaching a capitulative stage. Investors should be ready for another hefty downdraft which could occur at any time.

Volume was about as normal as it has been in a number of weeks.

NYSE Volume 1,571,633,000
NASDAQ Volume 2,379,432,000

The most intriguing aspect of this entire financial episode continues to spring forth from the font of commodities trading, where the full impact of global slack demand can be experienced in all its splendor.

Crude oil continued to drive lower, falling another 73 cents, to $54.76. Gold lost $9.30, to $732.70, while silver bucked the trend, rising by 22 cents, to $9.55 the ounce.

With producer prices falling by their largest margin in the history of that gauge, a whipping 2.8%, according to October's Producer Price Index (PPI), released this morning.

It was the third consecutive month of decline in the PPI, a sure sign not only of recession, but a deadly draft of deflation, with no support for pricing at the producer level. The corresponding Consumer Price Index (CPI) for October is due out tomorrow at 8:30 am, and should show a similar decline. If there's any silver lining in the dark clouds overhanging Wall Street, it is that the cost of everything continues to go down, a boon to consuers, though a bane to business. Some deflation was almost certain at the end of the long credit boom, but just how much, and how far down prices will have to go before stabilizing is another unanswered question. The assumption is that there's still some room below for stocks, goods, services and all asset classes.