Thursday, December 31, 2009

Bummer! Stocks Flushed on Final 2009 Day of Trading

There was a correction coming; we all knew that. Nobody apparently was aware that it was going to begin on the last day of trading for 2009, but that's exactly what happened. Call it tax-related or year-end jitters, any way you slice it, stocks took a real nosedive on December 31, wiping out all of the week's gains and more. In the Dow's case, just about all of December was swished away in one final day, leaving that index up a paltry 83 points for the month. The results for the S&P were better, as the 500 index ended December with a gain of about 20 points, though it still can't seem to shake loose from the 1100-1125 level.

Best of all was the NASDAQ, which ended the final month of the year 125 points to the positive, or about a 5% gain. That was the best news of the day, and the NASDAQ the best-performing index of not just the month, but the entire year.

Dow 10,428.05, -120.46 (1.14%)
NASDAQ 2,269.15, -22.13 (0.97%)
S&P 500 1,115.10, -11.32 (1.00%)
NYSE Composite 7,184.96, -56.28 (0.78%)

As one might conclude from the final figures, advancers trailed decliners on the day, 4171-2375, a pretty wide gap. New highs numbered 322, with 49 equities posting new lows. Volume was as utterly pathetic as it has been all week, the low velocity of trading potentially causing the losses to appear exaggerated.. or not, depending on your perspective. Surely, stocks have had a wonderful year, but ending this way just gives one pause. Are we really out of the woods, or are the players and movers and shakers who brought us disaster in 2008, giving us reason to believe that 2009 was a mirage and 2010 might not be as positive as some expect. We'll have to wait until Monday, January 4, for our first glint of what the new year may bring.

NYSE Volume 2,547,756,250
NASDAQ Volume 1,254,659,250

Commodity prices bounced around a bit, but ended mostly flat. Oil was up just 8 cents, to $79.36, while gold gained $4.00, to $1,096.50, and silver added 2 cents, to $16.82.

With 2009 now officially in the books, we wish all of you a Happy and Prosperous New Year!

Wednesday, December 30, 2009

For a Wednesday, It Sure Felt Like a Friday

The financial markets have slowed to a complete crawl as the week winds toward the end of the year, the decade, oblivion. The end of oblivion may be where the market is headed, but one would be hard-pressed to find that place.

Wednesday on Wall Street was more like a Friday. The place was empty, which brings up an interesting thought: what if you wanted to sell your stocks and there were no buyers? It could happen, especially if the US economy does the double-dip so many believe it will. In that case, you'll be stuck with your stock certificates, or, barring that, the memory of same.

Stocks are just pieces of paper, we should constantly remind ourselves, and worse than that, in today's economy, they are nothing more than protons and electrons traveling around an electrically-charged financial universe. They, as strictly a function of perception and perceived risk, may be worth what the next person is willing to pay. If that amount is less than what you paid, you lose. If more, you win. If nobody cares, you lose. In two out of three of those circumstances you lose and in one (a 33% chance), you lose everything you invested.

Is that any way to construct a plan for financial stability or prosperity? Probably not, though we, as humans, are prone to accepting and believing in whatever horsecrap suits our mind-set best, and for the majority, it's stocks. No, not gold, or even silver, or trinkets, dishwashers, sofas or houses, but little pieces of paper or whirring sub-atomic material which shows up in our online accounts as a series of numbers with symbols, periods and commas attached.

That is which that we have placed our faith. Good luck to us all.

Dow 10,548.51, +3.10 (0.03%)
NASDAQ 2,291.28, +2.88 (0.13%)
S&P 500 1,126.42, +0.23 (0.02%)
NYSE Composite 7,241.24, -10.95 (0.15%)

For the third straight session, declining issues held sway over advancing ones, 3376-3089. New highs, there were 257. There were 46 new lows. Volume was so light that many considered just leaving at lunch time, and many did. The whole she-bang seems to be grinding to a halt with one more day remaining to trade in 2009.

NYSE Volume 2,685,528,000
NASDAQ Volume 1,314,963,375

The Chicago Purchasing Managers Index, which came in at 60.0, topped expectations, hitting its best level since 2006.

Commodity markets were equally dull. Oil gained 13 cents, to $79.00. Gold lost $6.10, to end at $1,092.00. Silver fell 33 cents, to $16.79. Two weeks ago, silver was over $18.00. Now, this? Something is definitely wrong with precious metals and that could bode ill for everyone.

Last day of the year is tomorrow. Let's hope we all wake up on the other side.

Tuesday, December 29, 2009

Weary Santa Rally Stumbles; Stocks End Six-Day Streak

Just a day after vaulting to new multi-month and 52-week highs, the major averages took a breather with just two days remaining to trade in 2009. In what has been a banner year for stocks - at least over the final three quarters - there's little doubt that stocks are in need of a little sideways trade, likely until the beginning of earnings releases which begin in about two weeks.

Just like old St. Nick must be tuckered out after a long journey, so too with stocks in general. Many equities are at or near their highs and investors are taking a wait-and-see attitude. Life for traders and investors should return to a more normal environment once the calendar flips.

There was a little bit of economic news on this very sluggish holiday week, though the data was hardly significant. The S&P/Case-Shiller Home Price Index [PDF] for October showed home prices increasing for the seventh straight month, though the rate of improvement was slowing slightly and not all areas of the country experienced gains. David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, described the report as "flat."

The Conference Board's Consumer Confidence Index jumped from 50.6 to 52.9, with the rise attributed to improving perceptions of the labor market. The number is still far below the benchmark of 90, considered to depict a "strong" economy.

Markets mostly shrugged off any data, and, with Wall Street sparsely populated once again, much of the activity was confined to squaring up or adding to positions before the year's end. Day traders were active, though overall volume was dismal for the second straight session. Overall volume was lower than Monday's, a sure sign that the incipient rally has run out of steam for the year, but could resume once volume returns to more reasonable levels.

Dow 10,545.41, -1.67 (0.02%)
NASDAQ 2,288.40, -2.68 (0.12%)
S&P 500 1,126.19, -1.59 (0.14%)
NYSE Composite 7,252.19, -9.05 (0.12%)

Decliners outperformed advancing issues for the second straight session, though by the narrowest of margins, 3220-3210. Both new highs (412) and new lows (59) returned lower numbers than on Monday.

NYSE Volume 2,808,519,250
NASDAQ Volume 1,191,436,875

The dollar was stronger against foreign currencies, with the Dollar Index trading in a range right around a key support/resistance area just below 78. The greenback is well off the lows of two months ago, which were in the low 74 range.

Oil managed a gain of just 10 cents, to $78.87. Gold, which generally trades in the opposite direction of the dollar, did so, losing $9.80, to $1,098.10. Silver also fell, down 46 cents, to $17.10.

With just two trading days left in 2009, it would neither be surprising nor upsetting if stocks took a slight haircut into the end of the year of about 1-1.5%. In fact, such a move on low volume might actually be a sign of health, signifying that investors remain cautious, though optimistic about prospects for 2010.

Monday, December 28, 2009

Holiday Rally Continues

In the absence of any significant news, traders took up and added to their positions in the midst of a year-end rally that now has stretched to six straight days of gains.

Once again, stocks traded in narrow ranges, led by large-caps, telecom and health care, especially Dow components AT&T (T) and Verizon (VZ). Gains were small and not broad-based, with financial stocks suffering late in the day.

Dow 10,547.08, +26.98 (0.26%)
NASDAQ 2,291.08, +5.39 (0.24%)
S&P 500 1,127.78, +1.30 (0.12%)
NYSE Composite 7,261.24, +6.24 (0.09%)

Declining issues pushed ahead of advancers, 3276-3228, though the number of new highs shot up to 733, against 93 new 52-week lows. Volume was nearly non-existent, as both the NYSE and NASDAQ recorded one of the slowest trading sessions of the year. Expect the low volume mantra to remain in place for the duration of the holiday-shortened week as many trading desks are closed for the holidays. Traders, investors, even hard-nosed day-traders apparently are finding other things to do with their time.

NYSE Volume 3,144,974,250
NASDAQ Volume 1,249,068,375

After falling for the better part of two weeks, oil has managed to gain back to $79.00, up 95 cents on the day, its highest closing level in two weeks. Gold also has regained its previously-lost footing, adding $3.00 to $1,107.80. Silver also gained, up 12 cents, to $17.56.

With so little activity, there simply isn't much to do this final week of 2009 except sit back and wait. Traders and volume should return after the first of the year. In the meantime, the economic schedule of releases is very light. The next major move in the markets should coincide with earnings reports, beginning the second week of the new year.

It's a good time to research, reflect and refocus.

Thursday, December 24, 2009

St. Nick Drops in on Wall Street

As expected, the jolly old Santa Claus Rally began today with modest gains in a shortened session. Stocks posted gains right from the opening bell, with little inducement to sell shares.

Dow 10,520.10, +53.66 (0.51%)
Nasdaq 2,285.69, +16.05 (0.71%)
S&P 500 1,126.48, +5.89 (0.53%)
NYSE Composite 7,255.00, +37.80 (0.52%)

Advancers beat decliners, 4288-1962. There were 663 new highs and just 66 new lows. Volume was extremely thin.

NYSE Volume 1,413,204,625
Nasdaq Volume 631,728,687

Oil gained 43 cents, closing at $77.10. Gold was up $10.80, to $1,104.80. Silver finished 25 cents higher, at $17.44.

Everybody left happy.

Merry Christmas

Wednesday, December 23, 2009

Santa's Coming; Equities Continue to Rally

There was a little less enthusiasm for stocks after the University of Michigan announced that consumer sentiment fell in December, to a reading of 72.5 from November's 73.4, and National Association of Realtors (NAR) reported that new home sales fell by 11.3% in November, to a seasonally-adjusted annual rate of 355,000 units. The drop from the same period a year ago was 9%, due to uncertainty over the new home buyer tax credit, which was extended by congress, but not in time to cause a slowdown as many buyers walked away from possible deals. Also adding to homebuilders' woes are the crush of foreclosure properties on the market, which are driving down real estate prices overall and provide a tempting alternative to purchasing a new home for tens of thousands of dollars more.

Builders have not recovered from the housing meltdown of the past three years running, with the number of new homes on the market down to levels not seen since 1971.

Those two bits of economic reality - released at 9:55 and 10:00 am, respectively - sent stocks backwards. The Dow went from its high of the day just moments after the open, to the low of the day shortly before 10:30 am, and traded in a narrow, 35 point range the remainder of the session.

All of the major indices recorded smallish gains, with the NASDAQ leading again and making new multi-month highs, as did the S&P 500.

Dow 10,466.44 1.51 (0.01%)
NASDAQ 2,269.64 16.97 (0.75%)
S&P 500 1,120.59 2.57 (0.23%)
NYSE Compos 7,217.20 33.02 (0.46%)

Trading was extremely light and listless, without much enthusiasm except on the NASDAQ, which continues to spark rallys. Advancing issues outpaced decliners handily, 4580-1913, and there were 679 new highs as compared to just 81 new lows, though you wouldn't expect those kinds of numbers given the tiny gains on the day. There's quite a bit of nibbling going on, mostly from day-traders and high-frequency types, but the market continues to grind forward on the expectation of a Santa Claus rally, usually defined as the final five trading days of the year, plus the first two of the following. That would put markets right on the cusp of one final push into the new year, despite stocks trading at elevated levels.

NYSE Volume 3,585,565,750
NASDAQ Volume 1,606,121,000

The dollar weakened today, taking a break from its month-long rise against the other currencies of the world, and, right on cue, commodities rallied. Oil, which was also boosted by a significant draw-down in US oil stock, rallied $2.27, to $76.67. Gold gained $7.80, to $1,094.50, temporarily breaking off its very own deep, recent slide. Silver added 15 cents to close at $17.18 per ounce.

Markets will be open only a half day on Thursday and closed Friday in observance of the holiday.

I'll be reporting sometime after 1:00 pm on the short session, wishing all a very Merry Christmas. It's been a remarkable year and my pleasure to report on it.

Leveraging the Mobile Internet and Social Media

Leveraging the power of the mobile smart phone market, the internet and social media are key elements of a number of emerging new businesses, some of which could evolve into the "next big thing."

One such company is Digital Development Partners, Inc., a mid-tier start-up company (already listed on the OTCBB under ticker symbol DGDM) with a flagship platform under development which promises to leverage the mobile internet and social media with online couponing for merchants of all sizes.

Already under development is their flagship platform, set for pilot launch in Q2 2010. The company plans to launch the pilot in Asheville, NC and quickly roll out in cities nationwide. YuDeal integrates social networking, real time consumer discounts and advertiser analytics to help advertisers identify and quantify a "Real Time" advertising campaign.

While details are as still sketchy, it would appear that will offer small to medium-sized merchants competitive pricing to market on the platform, which will probably appear as an iPhone App (and also be compatible with other smart phones) for consumers, accessible from either a mobile phone or by computer.

The company's stated goal is to completely change the way advertisers use coupons in much the same way Google changed advertising on the internet with their branded AdWords and AdSense text-ad platform.

DGDM began trading in November and is currently priced around $1 per share.

Digital Development Partners, Inc. (OTCBB: DGDM)

Tuesday, December 22, 2009

Another New NASDAQ Top; S&P Follows; Dow Lags

Anyone who thinks that technology companies aren't leading the market should just take a look at a comparison 1-year chart of the three major indices. Not only did the NASDAQ suffer a smaller decline (by about 5%), it has outperformed the Dow by 20% and the S&P by almost the same amount. Thus, it was no surprise that the tech-heavy index broke out further to new 14-month highs for the second straight day. The S&P followed along to a new 2009 and 14-month high as well, while the Dow gained, but is still 36 points below the closing top of 10,501.05 on December 14, that being just more than a week ago, the Dow stocks can be excused for their lack of enthusiasm, though not for long.

Today was also another day in which the US dollar rose and so did stocks. It appears that the overt efforts of central bankers to break down the dollar carry trade has been successful. Just a few weeks ago, the Dollar Index had broken down to long-term lows below 74.50. Today, when the stock markets were finished with their funny business, the index stood close to 78.30, a nifty 4.8% move in just over three weeks, which is a powerful rally for a currency. A look at the "Dixie" chart reveals that the move was predictable. with a triple bottom at 18-month resistance in the 74.25-74.45 area. The lows of 2008 - in the 72 range - now appear to be well in the past, a very positive sign that a strong US recovery is well underway.

That stocks have begun to trend higher on days of dollar strength is another very positive development and is actually the normal way US equity and currency markets usually operate. The risk trade of the recent past - at least we believe it to be unwinding - may have been a useful tool in economic revival, whether planned or unplanned. The cheap currency allowed nearly risk-free investment in hammered down US stocks, spurring economic growth from the inside out. If there's any validity to supply side economics - the jury's still out on that one - money should begin flowing (trickling, as they say) to Main Street any day now, in the form of a less-strident consumer, job creation and capital flows to small business. We can hardly restrain our excitement!

The one item that supply siders always fail to mention is that for all their praise and devotion to the "Reaganomic doctrine" are the outsize federal deficits which accompany their economic boom. The Reagan years were marred by the same lower levels of government receipts as today's, though this time the borrowing by Treasury has been much higher, for a longer period and aided by the Federal Reserve through their policy of quantitative easing. Digging the federal government out of a $12 billion (and growing) hole is going to take some time and the resultant higher stealth tax rates (read: Medicare, Social Security and marginal increases to the wealthiest Americans) are likely to be a burden for years to come. Or, the government could just keep on spending and borrowing, which seems to be the preferred practice in congress, as it not only keeps the economy floating along on a mountain of debt, it works wonders for re-election campaigns.

Eventually, the debt will either have to be paid down or repudiated, a term which usually comes along just prior to another nasty utterance, war. Owing oodles of money to the Chinese, it seems almost inevitable that we'll come to blows with our Far East creditors, though likely in a proxy fight in some place like Africa, Afghanistan or some other remote area which neither party really wants. Of course, there is another way. The world currencies could be - in fact, they constantly are - recalibrated to reflect more realistic exchange rates. Besides the US, Europe also has berated the Chinese recently about devaluing the Yuan, mostly to deaf ears. The Chinese know they are now in control of global economic destiny and they're not about to take second best. The best we can hope for is continued prosperity and that our business and political leaders grin and bear it. After all, life in the USA is still pretty top-notch for the majority of folks.

By the way, in case you're confused about the difference between the Yuan and the Renminbi, there isn't one. It's called the Yuan on international circuits, but the term "Renminbi" means "the people's money," so, in China that's how it's known.

Dow 10,464.93, +50.79 (0.49%)
Nasdaq 2,252.67, +15.01 (0.67%)
S&P 500 1,118.02, +3.97 (0.36%)
NYSE Composite 7,184.18, +37.03 (0.52%)

On the day, advancing issues managed to clamber over decliners, 4009-2497. New highs remained ahead of new lows, 459-100, though there have been more new lows appearing by the day, a sign that stocks are beginning to top out rather severely. With the rally on a nine-month run, the past two have hardly been stellar, and making new tops seems to be almost more struggle than it's worth, unless, of course, you're smart enough to be in the right stocks. Volume was slow again, as it should be. There's only one more full session - tomorrow - before Christmas and a three-day break in the action.

NYSE Volume 4,196,486,000
Nasdaq Volume 1,751,327,250

Commodities were mixed as colder weather encouraged buying in the energy complex, with oil up 88 cents, to $74.60. Gold continued to fall, losing $9.30, to $1,086.70. Silver followed along diligently, dropping another 4 cents in value, to $17.00.

Prior to the open, the government released its third and final revision to 3rd quarter GDP, which came in at 2.2%, something of a disappointment, as the prior readings were 3.5% (advance estimate) and 2.8% (second). As it turns out, GDP grew, but by something on the order of 60% less than we were originally told. That the advance estimate was politically-sensitive is likely, but so is this revision, guiding expectations lower in order to deliver better-sounding results when 4th quarter results are announced on January 29, 2010. That appears to be how this administration wishes to play the game, so one should not be too amped up when 4th quarter GDP comes in around 3.0%.

The NAR announced that existing home sales for November stood at an annual rate of 6.54 million units, up 7% from October. Prices are still falling, albeit slower than they have been, down 4.3% from the same month a year earlier.

Monday, December 21, 2009

Deals, Upgrades Boost Stocks; NASDAQ Breaks Out

Led by news that Sanofi-Aventis (SNY) will buy retail health products firm Chattem (CHTT) for $1.9 billion and upgrades of key Dow components Intel (INTC) and Alcoa (AA) helped stocks kick off the short Christmas week with a bang.

Stocks soared right off the opening bell and held onto most of their gains through a somewhat listless session, though there was plenty of M&A news to keep participants interested. Besides Alcoa surging nearly 8% at the close, merger mania seems to have overtaken the health care sector, as pharma firms flush with cash seek to expand into the consumer market.

With the US senate voting to suspend debate on the health care bill, the major drug companies seem confident they have wrung the very best deal they could out of their congressional puppets. Many firms in the sector have been up sharply in recent days, including Dow components Merck (MRK) and Pfizer (PFE), considering the reform measure to be nothing more than bluster and Democratic party PR, void of substantive change. Thus, big pharma and health care providers will continue their rapacious plundering of the American people well into the next presidential cycle without a hitch.

Since US politics has been and continues to be largely held hostage by Wall Street, the pharmaceutical companies got whatever they wanted from a compliant Congress, meaning no real reform and no tax changes. It all adds up to business as usual for American medicine - the public pays, and if it can't, taxpayers foot the bill.

Dow 10,414.14, +85.25 (0.83%)
Nasdaq 2,237.66, +25.97 (1.17%)
S&P 500 1,114.05, +11.58 (1.05%)
NYSE Composite 7,147.15, +60.96 (0.86%)

Simple indicators affirmed the upside bias, suggesting further price appreciation for equities as advancing issues trumped decliners, 4503-2061, and new highs beat new lows, 499-94. Even though the dollar was higher against foreign currencies, stocks managed healthy gains, with all ten sectors advancing. Volume was slightly lower than normal, due to the closeness of the holidays, but not so poor as to suggest that traders were completely disinterested.

As the Dow and S&P were churning over ground already harvested, the NASDAQ broke out to new highs, as financial services and technology led the index higher. Amazon (AMZN), Google (GOOG) and Apple (AAPL) all posted strong gains.

NYSE Volume 4,531,713,500
Nasdaq Volume 1,837,347,875

The commodity complex was buffeted by the rising greenback. Oil slipped 89 cents, to $72.47. Gold fell dramatically, below the psychological $1100 level, down $15.50, to $1,096.00, in a continuation of the pull-back from all-time highs. Silver responded in like fashion, losing 28 cents, to $17.04.

With just three more days remaining in the shortened week (plus, Thursday will be a half-session), Tuesday's trade is likely to be more tempered as the third and final GDP estimate for the 3rd quarter is released at 8:30 am and existing home sales data for November will be announced at 10:00 am. At the same time on Wednesday, the National Association of Realtors (NAR) will release new home sales figures for November.

Thursday, December 17, 2009

Get Away Day on Strong Dollar, Options Expiration

As is usually the case, foreign markets reacted to Wednesday's Fed statement with more conviction and honesty than US media and economic pundits. Here in the USA, the widely-accepted response to the Fed was that the statement contained nothing new, and that money would continue flowing freely, courtesy of extraordinarily low interest rates fostered by Fed accommodation.

In the Far East, Asia and Europe, the response was vastly different and it had far-ranging effects on US equities. Most foreign currencies - especially the Euro, Pound Sterling and Yen - fell sharply against the US Dollar as leaders and market participants overseas saw the Fed announcement for what it really was: an early warning that accommodative policies would soon end. With the rise of the dollar, those enganged in the risk trade (shot the dollar, long stocks) on Wall Street were stung and forced into selling off a wide swath of positions, sending the markets to their worst one-day slide in over a month.

Contributing to the decline was options expiration on Friday, which raised volatility and exacerbated a descent which really needed little help. In the horse-racing business, they call day's like these "get-away days," as owners sell off unwanted or damaged horse flesh in claiming races or to private parties, raising cash for their next foray. So it was on Wall Street today, with investors exiting unwanted positions and trimming back on strong ones. Some, however, were selling everything to cover their short positions against the US Dollar.

Dow 10,308.26, -132.86 (1.27%)
Nasdaq 2,180.05, -26.86 (1.22%)
S&P 500 1,096.07, -13.11 (1.18%)
NYSE Composite 7,063.75, -117.02 (1.63%)

The decline was broad-based, with declining issues far outpacing advancers, 4851-1780. The relationship of new highs to new lows was flattened, with the highs at 227, to 73 lows. Volume, which was extraordinarily high on the NYSE, is indicating that the selling may only have begun, though there are still enough unhedged bulls about to keep declines in order.

NYSE Volume 6,782,270,000
Nasdaq Volume 1,928,465,625

Commodities were hard hit, as is the usual case with dollar strength. Oil dropped only a penny by the close, though it traded down as much as $1.40 during the day. Gold fell $29.00, to $1,107.20, while silver dipped 49 cents to $17.20.

In general, the day's trade was tied almost exclusively to dollar strength, a counter-trend trade that may have legs. The number of short positions in the dollar is immense, and if there are continuing signs that the US economy is improving rapidly - and there are some - the unwinding of these positions and the corresponding sell-off in stocks could be profound in a classic short-squeeze, likely engineered by a concerted effort by central banks with more at stake than equity positions.

The message may become all-too-clear if central banks work together to promote dollar stability and global strength: Stocks be dammed; whole economies are of far more importance. It's a dicey situation, though a correction may not exceed a 15% in equity values, not a bad haircut, but more of a trim after the robustness during the liquidity-driven rally of the past 9 months.

Overall, the markets are functioning well, and an unwinding of the short dollar - long stocks trade may be just the tonic needed to promote overall prosperity. Wall Street needs to give some heed to Main Street, which is still suffering.

There were a number of positive signs beyond the Fed announcement from Wednesday. After new unemployment claims disappointed with a 7,000 net rise from a week ago, to 480,000, the Philadelphia Fed Index reported a healthy rise, from 16.7 in November to 20.4 in December, and the Conference Board's Index of Leading Economic Indicators posted an increase of 0.9% for November, ahead of expectations (0.7%).

There is no economic data due out tomorrow and options traders must close positions by noon. There was a positive quarterly report by Research in Motion (RIMM) after the bell, which may provide some impetus to the upside in the tech space, though it appears that much of the trading for 2009 has concluded and new highs for the markets are unlikely until January.

Wednesday, December 16, 2009

Early Rally Battered by Fed Rate Decision

Although there was no change in federal funds rates when the FOMC announced their decision at 2:15 pm on Wednesday, there was enough of an indication from the central bank committee that other aspects of their recent easy money policy were coming to an end. The statement which accompanied the "no change" decision was sprinkled with enough mention of the end of certain Fed programs and strengthening economic conditions to scare off year-end investors as the trading session ground to a close.

Even their opening sentence, "Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating, " was more bullish than previous announcements, a sign that the Fed would probably change the key wording: "exceptionally low levels of the federal funds rate for an extended period" within the next two meetings and that rate increases would be forthcoming by Summer of 2010.

The trick for traders is in the timing of their trades and the key at this particular time is to get out ahead of any Fed rate increase, because that event will almost certainly result in halting stocks' heady advance. As it is, the great rises in stocks has recently abated to a large degree, as trading since the last Fed meeting has been mostly sideways to slightly higher. Locking in gains or selling losers for the year would seem to be imminent following one of the last great market-moving events of the year.

With strong mention concerning the ending of certain liquidity programs, the Fed's last paragraph really set the tone for this meeting and what would occur in terms of policy in the first months of 2010.
In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

With all of these programs coming to an end, the Fed obviously sees the US economy as essentially healed and will begin to focus more on reining in liquidity and keeping inflation under control. Most astute economy watchers believe that the Fed will begin to raise rates during the second quarter of 2010, if not sooner, and will increase them 25 to 50 basis points at a crack until the end of the year. By this time next year, the federal funds rate should be approaching 2% with 2 1/4% at the high end. That should certainly be accommodative enough to keep stocks from keeling over and low enough to not hamper economic growth.

As the market wound down, traders took the Fed's message to heart, trimming some of the day's earlier gains and actually sending the Dow to its second straight negative close. Other indices managed to hold onto marginal gains. The broader market, as measured by the NYSE composite, outperformed all other indices handily.

Dow 10,441.12, -10.88 (0.10%)
Nasdaq 2,206.91, +5.86 (0.27%)
S&P 500 1,109.18, +1.25 (0.11%)
NYSE Composite 7,180.76, +39.32 (0.55%)

Simple indicators were out of line with the modest headline numbers, most likely due to speculation on less-followed stocks as options expiration neared (Friday). As a matter of fact, much of the movement in stocks the past two days was more than likely unduly influenced by options, as Friday is a quadruple witching day. Advancing issues finished well ahead of decliners, 4089-2429. New highs outpaced new lows, 538-83. Volume was better than normal, another factor of options expiration at the end of the week.

NYSE Volume 5,370,022,500
Nasdaq Volume 2,037,267,500

Commodities responded to a weaker dollar prior to the Fed announcement, though the buck strengthened after the decision. Oil rose $1.97, to $72.66, though much of that gain was attributed to government figures showing a decline in inventory of 3.9 million barrels. Gold gained $13.00, to $1,136.00; silver was higher by 24 cents, to $17.70.

Other economic news included November CPI data which showed consumer prices increasing at a rate of 0.4%, in line with expectations. Housing starts and building permits were also up.

Looking ahead to Thursday, initial unemployment claims are expected to continue to moderate down to 450,000, though that number would, in normal times, be a cause for panic, considering it is the height of the retail season and jobs should be plentiful. Such a number indicates that the economy is not as yet fully healed, with jobs creation remaining extremely weak. Uncertainty of government measures, notably the health care debate and consideration of higher taxes, plus the overhang on business from last year's near financial meltdown, are contributing to slack demand for labor.

That should ease by Spring and Summer of 2010, but for now, the numbers are still quite discouraging, especially for those seeking employment.

Fed Chairman Ben Bernanke was named Time magazine's Person of the Year, which was probably more of a planned coincidence than happenstance. Bernanke is scheduled to be re-appointed for another term by the Senate tomorrow. Speaker of the House Nancy Pelosi was runner-up for the honor, which says plenty about the rigor of the selection committee.

Tuesday, December 15, 2009

Ending String of Advances, Markets Lower Ahead of Fed

Was Monday the top?

A day after reaching 14-month highs, stocks trended lower on Tuesday on inflationary PPI data (+1.8%, more than double the predicted rise) and a strengthening US Dollar.

It was a confusing day fro traders in everything from stocks to currencies to commodities as markets moved in unusual directions in relation to each other. Oil managed to post its first gain after nine straight sessions in the red, while stocks broke a string of five straight winning sessions. Gold and silver fought against the flat line all day long.

Other economic news items sent mixed messages. The Empire State manufacturing index suffered a steep decline, dropping to a level of 2.55 in December after posting a figure of 23.51 in November. Nationally, capacity utilization continued to improve, up to 71.3% in November, following a reading of 70.6% in October.

Meanwhile, fears of more banking capitulation in Europe took on new meaning as Austria nationalized a major regional bank overnight.

Also weighing on the market was the issuance of more than $50 billion in new stock hitting the markets, stemming from the repayment of TARP funds by Bank of America, Citigroup and Wells Fargo. The idea that the market could sustain itself with so much new paper on the street without as much as a hiccup stoked the backs of the bulls. Shares of major banks, including Dow components JP Morgan Chase (JPM) and Bank of America (BAC) fell sharply during the session, however.

Struggling through most of the day in the red, the major indices slumped to intra-day lows in the final hour even though the losses were somewhat compromised by the release of comments from Fed Chairman Ben Bernanke with less than 15 minutes left in the trading day. Those comments, obviously timed to prevent a major sell-off prior to tomorrow's FOMC policy statement, cut the losses on the Dow by about 1/3. Nonetheless, stocks finished near the lows of the day with many investors seeking clarity on a range of issues from inflation to whether China would continue buying US treasuries.

Dow 10,452.00, -49.05 (0.47%)
NASDAQ 2,201.05, -11.05 (0.50%)
S&P 500 1,107.93, -6.18 (0.55%)
NYSE Composite 7,141.44, -45.05 (0.63%)

Market internals were clearly bearish. Losers beat winners, 3993-2529. New highs continued to outpace new lows, though by a margin less than Monday's extreme, 423-70.

NYSE Volume 5,604,492,500
NASDAQ Volume 1,921,278,875

Crude oil for January delivery was up $1.18, to $70.69. Gold lost $1.10, to $1,122.70, while silver gained 13 cents, to $17.47.

There was more than enough conflicting data and news to confound investors, and, if markets hate anything, it is uncertainty, of which there was an oversupply.

The avalanche of data will only worse on Wednesday, with November CPI, building permits, housing starts and the Treasury's current account balance on tap prior to the opening bell. Shortly after 2:00 pm, the Fed is expected to keep interest rates steady, though the statement wording will be closely watched for signs that the central bank may be considering raising rates.

It seems that the Fed has already tipped its hand concerning the all-important statement, not wanting to destroy the rally so close to Christmas. There's something to be said about Fed Chairman Bernanke: he definitely does not want to take away the punch bowl at the height of the party, but eventually that is what he will be forced to do. In the meantime, Treasuries have been rising over the past two months, which should serve as signal enough for investors that the top may already be in for stocks, or, at the very least, very close.

Wall Street has had a phenomenal year, considering how it began. Whether the markets will sustain themselves though the end of the year will be partially answered tomorrow after 2:00 pm.

Monday, December 14, 2009

Higher Hurdles for Stocks

With a dozen trading days left in the year, stocks pushed ahead to 14-month highs on Monday. Though the markets were relatively calm, there seemed to be an absence of both fear and sellers, especially after the government of Abu Dhabi rescued the failing ventures in neighboring Dubai with $10 billion in emergency assistance, as $3 billion in notes came due today.

The Middle East bailout spurred more dollar weakness, which translated into higher stock prices on the US exchanges. The Dow, in particular, lagged the other indices due to a pre-market announcement of oil conglomerate ExxonMobil's (XOM) $41 billion bid to purchase XTO Energy (XTO), primarily for it's natural gas business. The all-stock deal pushed shares of XOM down more than 4% on the session. Of the 30 Dow stocks, XOM was easily the biggest loser, as 25 stocks posted gains.

All of the major indices made year-to-date and 12-14-month highs, including the Dow Transportation Index, which confirmed the move in the Dow. Despite stocks breaking out to new highs, there was no lack of appetite for stock buyers and no sellers anywhere in sight. The Dow has closed higher six of the past seven sessions. Market sentiment is about as bullish as it can get.

Dow 10,501.05, +29.55 (0.28%)
NASDAQ 2,212.10, +21.79 (0.99%)
S&P 500 1,114.11, +7.70 (0.70%)
NYSE Composite 7,186.49, +61.37 (0.86%

Simple indicators were decidedly one-sided, as advancers trounced decliners, 4689-1868. New highs led new lows, 509-70, despite low volume and end-of-year tax issues.

NYSE Volume 5,059,216,500
NASDAQ Volume 1,855,139,750

Oil fell for the 9th day in a row, losing 36 cents, to $69.51. The metals were slightly on the upside, with gold higher by $3.80, to $1,123.80, and silver gaining 25 cents, to $17.34.

There was barely any concern over the upcoming Fed announcement on Wednesday. Traders are convinced that the Fed will do nothing in terms of rate policy though there are rumblings that some of the critical wording in their accompanying statement may begin to indicate a less accommodative stance.

Looking over the economic horizon, the week is full of reports, including PPI, Capacity Utilization and Industrial Production on Tuesday, and CPI, Housing Starts and Current Account Balance all due on Wednesday in advance of the Fed statement.

Unless those economic reports are dazzlers or the Fed changes some of the crucial wording (especially the term "extended period" in relation to how long they expect to keep rates low) in their statement, it looks like smooth sailing for stocks through the end of the year. It's difficult to argue that point being that 2009 will go down in market history as one of the best ever for stocks.

Although some analysts say that stocks are pricey right now, it doesn't seem to be bothering those still participating in one of the market's greatest bull rallies.

Friday, December 11, 2009

Defying Dollar, Dow Closes Within 8 Cents of 52-Week High

For more than a little while, the trade has been to sell US dollars and buy US stocks. On Friday, the story was rather different, as buyers of Dow stocks, in particular, defied the dictum of the carry trade, buying stocks while the US Dollar was rising against other currencies. The questions on everybody's mind were, "Why?". Why now?", and "What about that Fed meeting next week?"

Answers for traders were not forthcoming, as they were bidding up Dow stocks to within 8 cents of its 52-week high at the close. That finish was meaningful, for a variety of reasons, not the least of which had to do with answers to the questions posed above.

Taking them one by one, here's a quick explanation:

Why? The reasons people buy stocks as they approach 52-week highs are as numerous as there are grains of sand on the beach, but in this case, it seemed to be with ulterior motive. Other possibilities include a massive short squeeze on Alcoa (AA), which was up a whopping 1.11, (8.22%). November retail sales came in better than expected (+1.3%) and the University of Michigan Consumer Sentiment reading was higher, at 73.4, following last month's 67.4. Naturally, that good news should have produced a stronger dollar. They did, but, remember the ulterior motive. Read on.

Why now? Stocks were bid up precisely to just below their closing 52-week high just in case technical analysts were peering in on the activities, and they surely were. Today was a planned day for such a rise because it had two significant elements going for it. First, it was Friday, meaning positions would be locked in until Monday, and, second, there is a Fed meeting next week in which it is widely expected that the FOMC will leave rates unchanged, but give more hints as to the exact date of the first, in what no doubt will be a series of, rate hikes. The other kicker is that some of that dubious Dubai debt is supposed to be repaid on Monday, and, if it isn't, chaos in financial markets could ensue.

What about that Fed meeting next week? As answered above, the FOMC will meet to discuss policy on Tuesday and Wednesday, the 15th and 16th, culminating in a policy decision and statement on Wednesday, right around 2:00 pm. That also coincides with options expiration on Friday, and if you think there aren't a boatload of players in that space, betting and hedging on the Fed decision, maybe you should go back to playing euchre with friends for nickels and dimes.

Obviously, there is a good deal of money riding on the events of next week, and the markers were laid down yesterday and today, but especially today, with the apparent end of the dollar carry trade. Don't buy into the argument that positions short the dollar and long stocks don't matter any more. That trade was very prevalent and has yet to be unwound. Today's rise on the Dow was a shot fired across the bows of many hedge funds who are trapped in losing positions. Fireworks should be expected right out of the gate on Monday.

Whoever was in control of today's trade on the Dow was using a great deal of leverage, meaning that today's move was very transient and temporary. Ask yourself if you'd be buying stocks at the end of the year, just as they're reaching new highs - highs, mind you, that have yet to be surpassed in any meaningful way since the end of October. Consider these data points for closes on the Dow, all 52-week highs:

November 17: 10,437.42
November 23: 10,450.95
November 25: 10,464.40
December 1: 10,471.58

Today's close was at 10,471,50 and there was no confirmation by the S&P or, even more importantly, the Dow Transportation Index. Ooops!

As a point of reference to illustrate just how difficult this area of resistance is proving to be, consider these recent closes on the S&P:
November 17: 1110.32
November 18: 1109.80
November 23: 1106.24
November 24: 1105.65
November 25: 1110.63
December 1: 1108.86
December 2: 1109.24
December 4: 1105.98

Today's close of 1106.41 is another meaningless near-top. Clearly, there's a distribution pattern taking place which is preventing stocks from breaking out to new highs.

By all accounts, it's just not going to happen. At least not any time soon. Take heed of the usefulness of the dollar carry or risk trade, and ignore the movements of today as just so much market noise. Buy low, sell high. What do you think the real tradrs are doing here?

And just in case you were wondering, the Dow finished higher for the week, with the NASDAQ and NYSE Composite lower. The S&P actually ended the week with a fractional gain, or, essentially flat.

Dow 10,471.50, +65.67 (0.63%)
NASDAQ 2,190.31, -0.55 (0.03%)
S&P 500 1,106.41, +4.06 (0.37%)
NYSE Composite 7,125.12, +20.62 (0.29%)

Advancers outnumbered decliners, 4043-2402, though you would have hardly guessed it looking just at the tape. Dow stocks were 21 up with 9 down. The two biggest movers to the upside were Alcoa (AA) and Bank of America (BAC), two dubious leaders, to be sure. New highs beat new lows, 348-60. Besides the days before and after Thanksgiving, NASDAQ volume was the lowest since September 4, a date that also preceded a holiday - Labor Day. NYSE volume was about average.

NYSE Volume 4,408,781,000
NASDAQ Volume 1,762,412,125

More evidence of some deviousness at play came from the commodities pits, where oil sold off for the 8th straight day, losing 89 cents, to $69.65. Meanwhile, major oil company Dow stocks, Chevron (CVX) and ExxonMobil (XOM) both traded higher throughout the session and finished with small gains, though gains nonetheless.

Gold, one of the main catalysts behind dollar strength, traded down again, off $6.60, to $1,119.60. Silver followed suit, losing 10 cents, to $17.09.

One should be well advised going into next week to not read very much into this week's action. Since stocks are at their highs, you've likely missed the move if you were not participating. If you were in, this could be a great time to take a little off the top or close positions should that be your preference. There's been plenty of play in March Index options against the Dow and S&P in particular. Large positions have been placed well out of the money, and while they may be there for protection, the possibility of a sharp correction, which has not yet occurred since the March lows, is growing. Eventually, there is going to be a 10-20% or larger downturn, though the timing of such an event is uncertain.

All good traders, like Boy Scouts, should be prepared.

Thursday, December 10, 2009

Higher Day on Dollar Indifference

Stocks moved higher again on Thursday in tepid action, closing well off the highs made in the first fifteen minutes of trading. Once the Dow moved higher by 100 points at the open on the back of a rather poor unemployment report - up to 474,000 new claimants as opposed to 454,000 the week before - stocks quickly moved lower to test the gap-up open and then proceeded to trade in a 40 point range for the remainder of the session. With the trading volume low and lack of participation seen as a major detriment, stocks traded without conviction, just as they did on Wednesday.

Dow 10,405.83, +68.78 (0.67%)
NASDAQ 2,190.86, +7.13 (0.33%)
S&P 500 1,102.35, +6.40 (0.58%)
NYSE Composite 7,104.50, +36.88 (0.52%)

Advancing issues beat decliners, though by a slim margin again, 3327-3128, with most of the winners residing on the NYSE. There were 327 new highs, to just 55 new lows, with the margin expanding for the first time in five days. Volume was as dull as it has been all week long.

NYSE Volume 4,592,418,500
NASDAQ Volume 1,950,587,875

Oil took another small hit, down 13 cents, to $70.54, the lowest level since mid-October and the sixth straight session in which the price has declined. The slippery stuff traded briefly below $70 a couple of times during the session, though, like stocks, there was little to no influence from the dollar trade, which also traded in a narrow range of just 0.20, finally hitting the key 76.00 level just as the stock markets were closing. Gold finished highre for a change, breaking a string of losses with a gain of $5.50, to $1,126.40. Silver did likewise, up a peevish 3 cents, to $17.21.

The lack of interest in the dollar movement kept every trading vehicle in tight ranges. It's a very dull market, facing end-of-year issues, low participation rates and a slew of unresolved conditions, such as the US employment condition, debt issues from Dubai, to Greece, to Spain, increasing residential foreclosures and a sluggish worldwide recovery.

Tomorrow's end-of-week trading will be aided by guidance before the bell from November retail sales, which are expected to be modestly higher, though those expectations may still be out of line with reality. Even more important will be December retail sales, though those won't be fully known until well after the fact.

Therefore, investors are sailing a ship without much of a rudder and a broken compass. Stocks have been in a holding pattren since the end of earnings season, three weeks ago. Hopes for a "Santa Claus Rally" are fading about as quickly as Tiger Woods marriage vows.

Wednesday, December 9, 2009

Stocks Higher, Though without Much Conviction

The Dollar risk trade continued to move US markets at midweek, as the major averaged struggled to gains in collusion with a weaker dollar. By far the biggest move of major stocks was by Apple (AAPL), which gained 7.93 (4.18%) on rumors of an early unveiling of its tablet computer, seen as a competitor to Amazon's Kindle and other so-called electronic book readers. Elsewhere, the mobil internet sector moved mostly higher in concert with Apple's big upswing.

Overall, however, the session was dull, with stocks falling early and only tacking on gains in the final hour. The S&P and NASDAQ spent almost the entire day in the red, while the Dow held a positive position for much of the day. In the final analysis, however, stocks moved higher only when the dollar index began to deteriorate after 2:00 pm, breaking off the general trend of the week.

Dow 10,337.05, +51.08 (0.50%)
NASDAQ 2,183.73, +10.74 (0.49%)
S&P 500 1,095.94, +4.00 (0.37%)
NYSE Composite 7,067.62, +11.36 (0.16%)

Advancing issues beat decliners, but by a very slight margin, 3374-3045. New highs retained their edge over new lows, 185-58, but the margin continued to exhibit weakness, declining for a fifth straight day. Volume was down again to the level seen on Monday, one of the lowest in months, adding some fuel to the bearish argument. The general movement of the markets has been sluggish since the triple tops made last week. Since then, indices have traded in a "no-man's land" with a slightly negative bias, all signs of a tired market that has made tops and should continued to vacillate lower. There needs to be a catalyst to move stocks forward, though none seems to exist. With the backdrop of a possible unwinding of the dollar carry trade, it's doubtful that any significant move higher will be made before the year's end. Stocks are fairly valued - some say overvalued - at the present. A 4-8% decline on fundamentals and profit-taking might actually be helpful heading into the new year.

NYSE Volume 4,684,984,500
NASDAQ Volume 1,837,168,375

Despite weakness in the dollar, commodities continued their downtrend, with crude oil down another $1.95, to $70.67. Oil fell for the fifth day in succession. Gold dropped as well, losing $22.40, to $1,121.00, off nearly $100 since last week. Silver dropped 63 cents, to $17.18, in a full retracement of its upsurge since October.

New unemployment claims will be in focus prior to the opening bell on Thursday, with expectations that fewer than 450,000 Americans signed on for unemployment benefits in the most recent week. If the recent trend holds true, it could make for a difficult day for stocks, as any good news seems to push the US dollar higher, and stocks lower.

One bit of economic news on the day that was slightly overlooked, yet helped stocks out of the red early, was wholesale inventories climbing 0.3% in November, breaking a string of declines, though that news could be discounted by the advent of the holiday season, which usually encourages higher inventories. Though the move was slight, investors viewed it as modestly positive.

There are significant crosswinds making trading difficult, a condition which has existed for more than a month. With so much uncertainty and conflicting signals, traders have become quite nimble, entering and exiting positions with grand alacrity.

Tuesday, December 8, 2009

Strong Dollar Whacks Stocks, Metals

The continuing saga that is the unwinding of the risk-carry trade on the back of the weaker US Dollar continued today in earnest as the greenback strengthened against a basket of world currencies, most notably, the Euro and British Pound. As strength in the dollar causes speculators who used the currency as free cash as it was falling to sell stocks and cover, US markets took a decidedly negative turn on Tuesday. Also adversely affected were the precious metals, which continued their quite precipitous decline.

Besides the US Dollar story, there was little else to move markets, although a report of declining same-store sales from McDonald's (MCD) and an earnings warning from 3M (MMM) helped push the Dow lower.

Dow 10,285.97, -104.14 (1.00%)
NASDAQ 2,172.99, -16.62 (0.76%)
S&P 500 1,091.93, -11.32 (1.03%)
NYSE Composite 7,056.26, -99.47 (1.39%)

Declining issues overwhelmed advancers, 4488-1987, a measure of more than 2:1, while new highs beat new lows, 217-51, with the margin now having declined for the fourth straight session from a high of 341 to today's 166, or, by more than half. Should the high-low indicator continue to weaken and eventually turn negative, the chances of a severe downturn would increase proportionately. As it is presently, the indicator is flashing only a slightly negative sign, though taken together with other indications, the market may be already past a turning point to the downside.

Volume remained consistently low, as traders seem to have already headed out of town for the holidays. Speaking of which, there are only 16 shopping days left until Christmas, and thus far, retailers have not offered any encouragement. The American consumer is spending with rarely-seen frugality this season, and the numbers may not even be good enough to surpass last year's dismal sales figures.

One caveat remains in place concerning holiday retail sales. Even though last year's figures were horrid, they may have been better than they should have been, given that the stinginess demonstrated by the banks was just beginning to take hold. More consumers were negatively affected in terms of credit during 2009 than prior to the shopping season of 2008. The financial collapse was only then a month or two old, so there was still a good deal of uncertainty and skepticism concerning the true depth of the crisis. It was only in January and February that the real impact of the financial crisis became real for many people. Bear in mind that stocks didn't bottom until March of this year, and the clanging impact of that bottoming is still resonant.

NYSE Volume 5,421,175,500
NASDAQ Volume 1,916,778,500

Commodities fell victim again to the stronger dollar, which, in the long term, is positive. Oil was lower by $1.31, closing at $72.62. Talk of testing the $70 level has been bantered about, but that is nothing but a number. The real test for oil will not occur until it approaches $65, and a stronger US Dollar should provide sufficient impetus to push it through that level down to more reasonable valuations. Yesterday, Saudi oil minister Ali al-Naimi proclaimed that the price of oil was "perfect" at $74/barrel. Today, he is likely a little less sanguine.

Gold dropped $20.60, to $1,143.40, though it has traded lower - down another $15 - after the official print at 1:30 pm. Silver was hit likewise, dropping 58 cents, to $17.79. Nearly every commodity price was lower on the day, with just corn and natural gas bucking the trend.

With just 16 trading days left in the year, the two key dates are next Friday, the 18th, which is a quadruple-witching day for options expiration, and the 31st, the final day of trading for the year. With Christmas and New Year's Day falling on Fridays, the year will end with two short weeks. The 24th will be a morning session only, with the trading floor closing at 1:00 pm. New Year's Eve, the 31st, will be a full trading session.

Monday, December 7, 2009

Bernanke's Remarks Quite Revealing of Future Fed Policy

Federal Reserve Chairman Ben Bernanke reiterated previous comments and provided even more clues to future policy for the nation's central bank. Throughout his prepared remarks to the Economic Club of Washington, Bernanke hinted at a tightening of policy in the future, though he was resolute in never using qualifies such as "near" or "short", keeping any anticipated federal funds rate hike at arm's length, at least. He also mentioned, at various times, that the Fed had other means for reigning in inflation, not limited to rate adjustments, such as repurchasing agreements and liquidation of some assets on the Fed balance sheet.

The improvement in financial conditions this year and the resumption of growth over the summer offer the hope and expectation of continued recovery in the new year. However, significant headwinds remain, including tight credit conditions and a weak job market. The Federal Reserve has been aggressive in its efforts to stabilize our financial system and to support economic activity. At some point, however, we will need to unwind our accommodative policies in order to avoid higher inflation in the future. I am confident we have both the tools and the commitment to make that adjustment when it is needed and in a manner consistent with our mandate to foster employment and price stability.

-- Federal Reserve Chairman Ben Bernanke addressing the Economic Club of Washington

The mopping up of excess liquidity has likely already begun, sufficiently demonstrated by recent moves in currency and commodity markets. On the first day of trading for the week, gold was hard hit early in the day while stocks held onto fractional gains all morning. Following Bernanke's remarks, the markets began to unwind, falling off their highs (up more than 50 on the Dow) to register in the negative as the day ensued.

Gold and silver managed to pare losses, and while the US Dollar was lower against most currencies, it was not by very much as the Euro continued a strong run against the greenback. Stocks continued to struggle along, as they have over the past three sessions. The indices put in hard triple tops on December 2, 3 and 4, and those intra-day high levels have been, and will continue to be, difficult levels to overcome.

Contributing to the weakness is a fairly obvious short-term overbought condition of stocks and the coming end of the calendar year. Many professionals have already locked in substantial gains prior to the month (indeed, many fund managers were through at the end of October) and trading volumes have been thin. Profit taking seems more the order of the day than actual search for value or the staking out of new positions.

Dow 10,390.11, +1.21 (0.01%)
NASDAQ 2,189.61, -4.74 (0.22%)
S&P 500 1,103.25, -2.73 (0.25%)
NYSE Composite 7,155.73, -26.98 (0.38%)

Simple indicators were slightly skewed to a positive bias, with advancing issues outperforming decliners, 3380-3103. New highs finished ahead of new lows, 352-49. Volume was at the low end of the recent range, and, in fact, among the lowest trading volume of the past two months, another sign that overall market participation is on the wane. Similar conditions are being reported on options exchanges.

NYSE Volume 4,780,842,500
NASDAQ Volume 1,894,192,500

Commodities continue to slide, with oil down to 2 1/2 month lows, down $1.54, to $73.93. Gold, which was down as much as $29 during the day, fell $5.50, to $1,164.00. Silver was down 14 cents to $18.38, though, like gold, losses were far greater earlier in the session.

Most of the indications currently in play are calling for nothing greater than sideways trade, which, by itself, puts pressure on the downside. With the general consensus that the markets are tired and trading slow, the potential for some spillage is evident. If the current short-term climb in the dollar continues, spurred along either by better US economic news or a flight to currency safety, the bet for stocks is presently neutral to lower. Chasing performance at these elevated levels goes against the most fundamental tenet of investing: buy low, sell high.

It's obvious that the professional traders are, or already have been, selling.

Friday, December 4, 2009

Grand Jobs Number Rally Spoiled by Risk Trade

When the November Non-farm Payrolls were announced at 8:30 am, coming in far better than even the most wide-eyed optimist could have anticipated (a loss of only 11,000 jobs, when the expectations were for a loss of 125-150,000), the various futures markets exploded to the upside signaling a higher open and the beginning of what should have been an outstanding rally in stocks.

While stocks initially responded, with the Dow up more than 150 points at its zenith, the US Dollar was also busy rallying against foreign currencies on the positive news. Just before 11:00 am, stocks had begun to slip, and before noon, they were in negative territory. In all, the Dow swung a full 200 points, registering the lows of the day at a 50-point loss.

Not only were the November jobs numbers staggeringly positive, but October's figures were revised as well, reflecting an improving unemployment picture in the United States. The official unemployment rate also dropped, from 10.2 to 10%, not an enormous movement, but one which offered a glimmer of hope as the year and the decade draws to a close.

However, the risk trade was being unwound by the good news, which is just one of the evil elements to dealing in free cash. Once the money begins to cost more, the game must end quickly, and, as is the usual case, with a good deal of messiness along the way. Thus, we are now encountering a condition in which the more good news is announced concerning the US economy, the worst it will affect stocks, if the dollar is a beneficiary of the news. In more mundane times, stocks improved in price as the dollar gained value. In the risk trade, the opposite is true. Stocks purchased with free, or declining money, go higher. The net result is a zero sum, though the feeling along the way is euphoric. Obviously, such a condition cannot maintain indefinitely, and today was just another part of the great unwinding.

While stocks managed gains, they were paltry compared to what the would have been under normal circumstances.

Dow 10,388.90, +22.75 (0.22%)
NASDAQ 2,194.35, +21.21 (0.98%)
S&P 500 1,105.98, +6.06 (0.55%)
NYSE Composite 7,182.71, +25.66 (0.36%)

Simple indicators reinforced the overall trade. Stocks were, at the high, more than 5-1 in favor of advancers, but managed to finish the day with just better than a 2-1 edge. Advancers were better than decliners by a score of 4508-1991.

NYSE Volume 6,935,438,000
NASDAQ Volume 2,237,404,500

Taking the most significant hit was gold, losing $49.30, to $1,169.00, and even another $12 lower after the official 1:30 pm close. Such was the case with silver as well, which dropped 61 cents, to $18.52. Oil fell 99 cents, to close at $75.47 per barrel.

The perversity of the risk trade is such that it will do damage to assets of all kinds as it is unwound, despite the true value of those underlying assets. It's a simple proposition. As the dollar rises, speculators must cover their positions, and do so by selling assets, causing them to fall. Just as they rose artificially as the dollar weakened, they will fall without any regard to fundamental value as the dollar rises. Eventually, an equilibrium will be reached when the trade is fully unwound, which could be a matter of months, depending on hedges and various other financial games, and there will more than likely be a few hedge funds which blow up in the process, though they will likely be small (we hope).

In the end, there will be more bargains for the patient, who wait out the end of liquidity and invest in appropriately undervalued assets. It's not going to be very pretty. Good news will turn stocks South, sometimes, and bad news may send them soaring. It's a very difficult trading regimen for the average investor to fathom. Surely, more than a few home traders will be scratching their head on today's abrupt turn-around, but that's what we have currently and we must live with it.

Maybe the best advice of all is to take profits and wait it out. There should be more rational investing periods in the future.

This one is not.

Thursday, December 3, 2009

Fear Overwhelms Market in Final 1/2 Hour

After hugging the flat line for almost the entire session, investors took to the sidelines in the final 1/2 hour of trading on Thursday in advance of Friday's pre-market November Non-farms Payroll report. Stocks had held up well through most of the session, even in light of a poor reading from ISM Services, which slipped back from expansion to decline in the course of one month, dropping from 50.6 in October to 48.7 in November.

That initially caused some slippage at 10:00 am when the report went public, but stocks quickly regained their footing and vacillated along the break even mark for most of the day afterwards. Prior to the opening, investors received good news on employment, as the Labor Dept. reported another decrease in initial unemployment claims, dropping to 457,000 for the most recent week.

Other news was mixed, though mostly negative. Productivity was revised downward for the third quarter from 9.5% (which was a bit unbelievable) to a more tepid 8.1%. Retail sales from a wide swath of national retailers was horrible, however, with many of the top mall stores reporting November sales down anywhere from 2-20% from a year ago. The combined figures showed a decline of 0.3% from last November, a horrible showing, considering last year's sales were down 7.7% from 2007. The only area showing any strength were discounters, though not all of them were posting positives.

These numbers reflect a growing concern that the entire recovery has been built on liquidity, the main beneficiaries of such largesse being the banks and Wall Street. As such, it's no surprise that while Main Street's interests wither and die, stock race higher and banks - like Bank of America - are able to find the means to pay back all $35 billion in TARP funds doled out by the feds last year.

Consumers are not spending as though times are good. Clearly they are not and this is being reflected in poor showings at the mall and department stores during the holidays. Even though Black Friday and Cyber Monday offered some hope, beyond those high promotion days, the US consumer seems already hunkered down for the holidays, intent on not splurging and running up more debt. The simple fact of life is that many consumers have no more credit with which to spend, either having reached their limits, already defaulted or had their lines reduced by the ever-popular banks and credit card companies.

Cracks are beginning to appear in the media's recovery story everywhere, though the most notable statement on the financial condition of the world can be found in the price of gold, which continues to reach new highs as a put against all fiat currencies.

Today's setback for equities should not be taken lightly. There are many indications that the US recovery is not as robust as many would like to believe, and, as goes the US, so goes much of the rest of the world. The hardest hit areas will be in developed nations such as Europe and Japan. The dislocations caused last week by the cries for help from Dubai may have been the canary in the coal mine, with more horrific debt stories still to come.

Time will tell, but today's market response in advance of November jobs data is not encouraging.

Dow 10,366.15, -86.53 (0.83%)
NASDAQ 2,173.14, -11.89 (0.54%)
S&P 500 1,099.92, -9.32 (0.84%)
NYSE Composite 7,157.05, -65.37 (0.91%)

Simple indicators, which reverse course in the final hour of trading, underlined the sell-off in graphic detail. Declining issues outpaced advancers, 4235-2215, a nearly 2-1 margin. New highs exceeded new lows, 448-90, though those figures are highly suspect due to the level of late-day selling. Most of the highs were reached early in the day and erased in the late portion of the session. Volume was not dramatic, holding at the usual levels. The one caveat is that the last time sellers beat down the averages in advance of a jobs number - on October 1 - the report came in as expected and the indices quickly recovered to their previous highs.

This time around, the market is looking for a loss of just 125-150,000 jobs during November, though whispers have circulated suggesting only 100,000 jobs lost for the month. Any number under 100,000 would surely repudiate today's late-day selling and spark a rally on renewed confidence, though it appears that the gloom and doom crowd has thus far had their way. Tomorrow's Non-farm Payroll Report and the official unemployment rate will be released at 8:30 am.

NYSE Volume 5,517,375,500
NASDAQ Volume 2,011,226,125

Oil once again finished lower, losing 14 cents, to $76.46. To the surprise of nobody, gold gained again, up $5.20, to $1,218.20. Silver did not respond in kind, losing 22 cents, to $19.11. Copper and platinum were likewise priced lower. Gold has truly set its own course.

Almost unnoticed was the US dollar trade, which was stronger against the Yen and Pound, but weaker against the Euro, resulting in a small gain on the Dollar Index. That also helped the bears beat down stocks by limiting the risk (or risk-free, as it should be identified) trade off a weaker dollar. should the dollar resume its decline, stocks would once again become the investment of choice, consequently trading higher.

Not all, but much will be revealed before tomorrow's opening bell.

Wednesday, December 2, 2009

ADP Employment Number Trumped by Stronger Dollar

The market loves liquidity, lately, the kind that gushes forth from the font of a weaker US dollar. And since the market did not get what it wanted today, stocks pouted, putting on their most forlorn looks and stubbornly refusing to come out of their basement room.

After a relatively strong start, boosted by the private ADP Employment Report for November (-169.000 jobs), stocks took note of the dollar's strength against both the Yen and the Euro and headed South for the day. Coming one day after a major uptick, it probably wasn't such a bad move, and consequently a light one, though many were more hopeful for some follow-through on the back of Tuesday's semi-sweet rally. When all was said and done, of the major markets, only the Dow Jones Industrials finished in the red. Other indices posted marginal gains.

The Forex wouldn't allow stocks to advance much at all, however, as the perverse risk trade trumped all bets, good, bad or indifferent.

Dow 10,452.68, -18.90 (0.18%)
NASDAQ 2,185.03, +9.22 (0.42%)
S&P 500 1,109.24, +0.38 (0.03%)
NYSE Composite 7,222.42, +10.34 (0.14%)

Internals belied the headline numbers. Advancing issued finished the day well ahead of decliners, 4091-2396, and new highs beat new lows, 467-86. Volume was surprisingly strong for such a light news day, once again slightly better than usual. These indications bode well for the remainder of the week and month. It should be reiterated that stocks have patterned in the same manner over the past three months, with the best gains in the first 10-12 days of the month.

NYSE Volume 4,568,939,000
NASDAQ Volume 2,076,633,000

Strength in the US Dollar didn't stop gold from continuing its dramatic climb, posting another record close at $1,213.00, after gaining $12.80 on the day. Silver improved, though only by 12 cents, to $19.33. Crude oil lost $1.77, to $76.60, though that decline was keyed mostly to improvement in existing supply than anything else. In general, the energy and food complexes were all lower, with precious metals the only sector showing gains.

After the close came news - from CNBC's Charlie Gasparino - that Bank of America would exit the government's TARP program, with plans to raise capital to repay the entire $45 billion to get out from under the government's thumb. Some of the reasoning behind such a move would surely include the search for a new CEO to replace Ken Lewis, who has stated that he would step down from the position at the end of 2009. Government strictures on pay levels for executives whose firms have received TARP funds have limited BofA's search for a new CEO. Lifting the government pressure from the firm would pave the way for a new Chief Executive free to earn a competitive salary.

The surprising announcement also revives the conspiracy theory that the entire "financial armageddon" scenario of 2008 was smoke and mirrors orchestrated by the banks in the largest swindle ever perpetrated on the public. If Bank of America - like many of its colleagues - can suddenly find the means to repay an emergency loan all in one fell swoop, the veracity of the entire financial industry should be scrutinized with a more curious eye.

No matter the case, Bank of America's departure from the TARP is welcome news at a time the market needs a bit of a catalyst to move ahead. Whether this is really the kind of event which will propel stocks will have to wait until tomorrow.

Tuesday, December 1, 2009

New Highs for Gold, Silver Bucks Higher

Now that fears of another financial meltdown - a la Dubai - have subsided, world markets have bounced back nicely. Taking a look at the charts from the past three days of trading, we see the Dow, S&P and NASDAQ have all just about recovered from the swift down-kick from Friday. The Dow, in fact, made a new 52-week high today.

Most of the experts who have been covering the situation considered the Dubai dilemma to be nothing more than a hangover from last year's malaise. Certainly, the sultans and magnates in charge of one of the world's most robust commercial real estate build-outs had to know there were risks - overbuilding, high prices - but were blinded, like most of us, by the glorious profits which emanated from the global peace-time asset expansion.

While some of the projects in Dubai have been halted or scaled back, there are issues remaining to be worked out, such as rental prices, debt restructuring and all manner of price upheaval, but most of the companies and people who made investments there are well-heeled and not likely to bat much more than an upturned eyelash at the situation.

So, it's back to the risk trade, with the dollar down against the Euro mainly, and most other currencies, driving more and more money into stocks. As long as the dollar remains weakened - due to our high deficits, low interest rates and an implacable central bank (the Fed) intent on keeping things that way, stocks should have little impediment to move forward through the end of the year. What happens after that, in 2010 and beyond is another matter, though nobody seems particularly concerned about untidy matters such as inflation and the new bubble in government bonds, so long as there's money to be made in stocks, everybody's favorite game.

And while stocks have done exceedingly well, gold has outperformed everything in sight and continues to do so, today making its 25th all-time high in price. What people do not understand about the move in gold, as it usually responds to inflation - not deflation - as we are currently experiencing, is that it is a bet against all paper currencies. As long as they are floated and priced against each other, gold provides its investors with a surging supply of wealth in a hard asset. Unlike the fiat currencies, gold is tangible and its supply cannot be expanded easily. It costs more than $400 to extract one ounce of gold, so the miners, currently digging as furiously as they can, cannot produce enough supply to meet the growing demand.

The same is true, to a degree, for silver, though it is more abundant than its yellow cousin and used in more industrial situations. It has not eclipsed the highs of 2008, though today's move above $19/ounce puts it on track to shatter the $20 mark by year's end - maybe even the end of this week. Investors in the precious metals are enjoying the best price appreciation of all time.

With stocks up well from the March lows (nearly a 60% gain), all asset classes seem to be in good condition, though there's still some searching for value. Having some gold and/or silver mixed in with your paper assets has been a much better idea than just a hedge. The hard assets have actually returned quite handsomely.

Dow 10,471.58, +126.74 (1.23%)
NASDAQ 2,175.81, +31.21 (1.46%)
S&P 500 1,108.86, +13.23 (1.21%)
NYSE Composite 7,212.08, +119.72 (1.69%

On the day, the simple indicators were right in line with the headline numbers. Advancers trampled all over declining issues, 4916-1650. There were 406 new highs, to just 79 new lows. Volume was the best it's been in the past two weeks; all indications are for another leg up in the markets. Besides the A-D and high-low lines, volume and the unusual pattern of the markets - in which rallies have burst forth at the beginning of each of the last four months - are screaming to investors to buy now, despite recent highs. The pattern has been for stocks to pull back 3-5% after each of the subsequent runs, but this time the Dubai incident managed to sting only about 2%. Stocks are poised for another move higher, with the Dow heading to 10,750-10,850 or higher, by year's end.

Valuations may get a little on the pricey side, but that is a normal feature of raging bull markets, of which this undoubtedly is.

NYSE Volume 5,002,317,500
NASDAQ Volume 2,199,957,750

Commodities took the dollar down trade in stride. Oil popped another $1.75, to $78.75. Gold surged $17.90, to $1,200.20 and silver vaulted 68 cents, to $19.20. As well as gold has been going, silver should outdo it over the next few months if today's outsize gain is any indication.

Investors aren't waiting for retail figures or any other metrics at this point. They are snatching up investments in a chase of performance, led by the nay-sayers who haven't had enough faith in this market. The current condition is the perfect set-up for a true blow-off topping rally, especially once the S&P clears 1115. Stocks could gain another 5% before we close out 2009.

Monday, November 30, 2009

Cyber Monday Overshadowed by Dubai Issues

The continuing worldwide real estate debt saga was revived last week when developer Dubai World announced to anyone interested that it might like to rework the terms on some of its loans. In particular, the developer of some of the most expensive and outlandish buildings and communities in the world wanted a six-month moratorium on its outstanding debt.

That message roiled markets worldwide as bankers around the globe rolled their eyes. It was as though the entire financial community was to revisit the financial crisis of 2008 that nearly crumbled the entire global structure. That was last week.

On Monday, markets worldwide recovered, on consideration that the Dubai issue would be contained. In the US, stocks spent the majority of the session in the red, but leapt into positive territory after 3:00 pm on word that Dubai World would seek to restructure $26 billion of its debt.

Crisis averted? For now, that seems to be the case, though there are still billions of dollars worth of commercial and residential real estate worldwide that is similarly upside-down, with what's owed being more than current valuations, so, debt, blow-ups similar to what's occurring in Dubai may become more and more commonplace rather than an outlier event.

Such a backdrop makes investing of any kind somewhat more risky than normal. Imagine that all assets are under scrutiny, that the valuations of everything - right down to the currency in which the assets are denominated - are of skeptical nature. That's at the crux of not only the decline in residential real estate values, but also in the rise of gold, the decline of the US dollar and the upward swing in stocks.

Wherever investors feel less risk, or more opportunity for arbitrage, that is where money will flow. Whenever there's a crisis, such as over the past five days with the Dubai issues, money flows into the US dollar, seen by many as the absolute last safe haven. On mellower days, stocks are the choice, and the dollar is sold off. Through it all, however, two constants have remained: gold is moving steadily higher; residential (and now commercial) real estate is devaluing. There's more safety, supposedly, in bricks of ore than in houses.

Realistically, neither the gold bugs or real estate speculators have all the answers. Some areas of the world are in better shape than others, obviously, but so extreme is the fear that gold is seen as a better bet than houses. In other words, the market is telling us, shouting at us, to become more liquid. Cash, gold and stocks, which can be converted readily and without much fuss, are currently preferred to hard assets like buildings, homes, and land, which cannot be moved and are not easily liquidated.

What the ongoing Dubai issue says is that the world is facing a very uncertain future, one in which value may be placed more upon the liquidity of assets rather than some intrinsic value. After all, you can live in a house. You can't do that with bars of gold, cash money or stock certificates. Thus, all trading is risky, though, bottom line, cash remains king (until that is devalued, too).

Dow 10,344.84, +34.92 (0.34%)
NASDAQ 2,144.60, +6.16 (0.29%)
S&P 500 1,095.63, +4.14 (0.38%)
NYSE Composite 7,092.36, +22.27 (0.31%)

Simple indicators confirmed the small gains of the day. Advancing issues, which had been lagging all day, turned around and beat decliners, 3463-3031. There were 145 new highs to 96 new lows. Volume, like it or not, continues to moderate around 2 billion on the NASDAQ and 5 billion on the NYSE, in what has to be recognized as a kind of "new normal." Obviously, there are more than just a few investors - of all sizes and stripes - who have not re-entered the market after last fall's collapse. Those types can hardly be blamed. Surely some of them were completely wiped out. Many others simply prefer now to preserve cash rather than invest it. This could become all the rage as the baby boomer generation - badly burned in last year's financial conflagration - pulls back from riskier behavior as they approach retirement age.

NYSE Volume 4,935,098,500
NASDAQ Volume 1,926,715,500

Commodities snapped back as the dollar fell late in the day. The price of crude oil was also affected by news that a British yacht had been captured by Iranian sailors on November 25 and the crew are still being held. This brings into play not only international relations, but trust of the news media, as the world is just now hearing about an event 5 days old.

In any case, when the news broke late today, the price of crude catapulted higher, closing at $77.28, up $1.23. Gold advanced $7.50, to $1,183.00, with silver gaining 21 cents, to $18.54 at the close.

Anecdotal evidence from Black Friday seems to be confirming that shoppers spent slightly less than last year, though results have been mixed. Not surprisingly, nearly every report states that consumers are shopping for "value."

During times when the value of everything is in question, that ordinary people would be careful of their spending confirms the global, macro-economic outlook.

Saturday, November 28, 2009

Short Session, Big Losses on Dubai Debt

Friday's abbreviated session answered the question of why stocks did not advance much in Wednesday's pre-holiday trading, when all of the economic news was positive. Overhanging the market was word from Dubai - on Wednesday - that the government was requesting a six-month moratorium on interest payments, mostly from its major real estate developer, Dubai World.

While the news did not noticeably affect markets in the US, the news shook Asian and European markets violently on Thursday. US stock exchanges were closed for Thanksgiving.

Quoting the NY Times:
According to data from the Bank for International Settlements, foreign banks have $130 billion of exposure to the United Arab Emirates, with Britain having the largest exposure, $51 billion. Banks in the United States have debts of $13 billion.

At the open on Friday, stock futures were indicating a massive sell-off, with Dow futures down more than 200 points. After an initial selling spree which sent the Dow down more than 230 points, cooler heads prevailed for a time, bringing the indices back to some level of respectability and calm. By the close, however, fears of another round of banking crises had investors scurrying for the exits, not wanting to hold positions over a weekend in which many of these issues would be pondered.

Dow 10,309.92, -154.48 (1.48%)
NASDAQ 2,138.44, -37.61 (1.73%)
S&P 500 1,091.49, -19.14 (1.72%)
NYSE Composite 7,070.09, -162.03 (2.24%)

On the day, declining issues far outpaced advancers, 5211-1086. New highs held a slim edge over new lows, 98-85. Volume was only average, indicating a hope that markets would return to a more normal tone in days ahead. There was little panic to speak of, though every sector finished in the red.

NYSE Volume 2,846,343,000
NASDAQ Volume 972,038,750

Commodities took the bigger hit. Oil tumbled $3.06, to $74.90, its lowest close in months. Gold fell $12.60, to $1,176.00, though the price had fallen by as much as $30 during the day. Silver slipped 47 cents, holding at $18.34.

What Dubai means to US banking interests is a relatively small matter, as only Bank of America (BAC) and Citigroup (C) hold anything approaching what would be considered large obligations. The general fear - a holdover from last year's major meltdown - is a more severe liquidity issue, cascading across the financial landscape in unpaid loans and the roll-over of resultant guarantees (Credit Default Swaps) which would put more banks at risk.

While it is possible that another severe shock could ensue, it's more likely that central banks will intervene in the interest of the banks, propping them up with more guarantees and looser credit facilities, much like last year's rescue. Still, there are palpable fears out there, that the entire system is prone to disruptions like this as more emerging markets face similar issues.

Paper money rolling off printing presses at high speed can only delay the inevitable. Eventually, losses must be taken or parties made whole. The most probable outcome is continuation of the deflationary spiral, which the central bankers of the world wish to avoid.

The simplest way to understand the issue is in terms of mortgages. As more money is pumped into the system, chasing the bad, assets - everything from stocks to houses - become less valuable. The home purchased for $200,000 a year ago is only worth $160,000, an so on. Devaluing currencies to reflect lower asset values, a hard, painful choice, seems the proper medicine, but one which world banking and political leaders have yet refused to consider.

Wednesday, November 25, 2009

Wading Through Data, Stocks Up in Light Trading

For the second straight session, investors were met with a slew of economic reports prior to, and then, during the trading session which influenced decisions on stocks. However, with the Thanksgiving holiday on the horizon, volume was so light that no reasonable conclusions can be drawn from the day's results.

As it was, stocks returned modest gains which more than offset Tuesday's slim losses, though given the positive tone of the news, one would normally have expected much better.

Dow 10,464.40, +30.69 (0.29%)
NASDAQ 2,176.05, +6.87 (0.32%)
S&P 500 1,110.63, +4.98 (0.45%)
NYSE Composite 7,232.12, +61.86 (0.86%)

Advancing issues led decliners, 3849-2576, and new highs beat new lows by an impressive 332-66. Despite the horrendously low volume, sentiment, driven by some key numbers, was quite positive.

NYSE Volume 3,479,942,250
NASDAQ Volume 1,414,185,375

Among the data received in the morning was an unexpected drop in initial unemployment claims, down to 466,000, when expectations were for around 500,000. Also positive were the readings on personal income (up 0.2%) and personal spending (up 0.7%). The lone negative result was in durable orders, which showed a 0.6% decline for October, though most of the loss was based on lower defense spending, which, in the long term, is likely a positive. Having the government spending less on arms for war would likely rank high on the list wishes of most Americans.

After the session began, bew home sales also showed an unexpected uptick, to a seasonally-adjusted 430,000 units in October. Even with those solid numbers in place, stocks showed barely any upward interest, meandering along in a very narrow range throughout the day.

The US dollar show weakness once again, boosting gold prices to new records. Gold closed up $20.60, to $1,188.00. Silver gained 31 cents, to finish at $18.80. Oil, after a sluggish morning, was up $1.94, to $77.96.

Overall, there simply was not enough money going into stocks to create much of a stir. Despite the slow trade, however, the Dow and S&P managed to finish at 13-month highs.

Markets are closed on Thursday for Thanksgiving, and re-open for a short session, from 9:30 am until 1:00 pm ET on Friday.

Tuesday, November 24, 2009

Stocks Slightly in Red Amidst Heavy Economic Data

With investors digesting an avalanche of economic data, stocks spent the entire session in the red, even though the major indices finished with modest losses by day's end.

The overall tone was set early on, when the government reported its first revision to 3rd quarter GDP, which came in exactly at the estimates, showing the economy grew at a 2.8% annualized pace. That seemingly wasn't good enough, as futures fell immediately after the reading.

At 9:00 am, the S&P/Case Shiller 20-City Home Price Index showed a decline of 9.4% for September, slightly more than estimates. That reading didn't help matters, nor did a positive reading on consumer confidence - 49.5, up from 48.7 in October - at 10:00 am.

The negative tone was exacerbated by a stronger US Dollar, discouraging the normal risk trade. At 2:00 pm, minutes from the latest FOMC meeting of the Fed (Nov. 3-4) were released, and that seemed to calm some nerves into the close. What was revealed in the minutes was unsurprising, as the Fed saw industrial production improvements, slight increases in personal expenditures, low inflation risk and continuing high unemployment.

There was some actual discussion amongst the participants concerning the ever-decreasing value of the US Dollar, though overall the committee was unfazed by what they say as a natural, orderly unwinding of "safe-haven demand" as the economic conditions stabilized around the world. With that kind of language coming straight from the Fed, investors should be quite a bit less concerned that the dollar is going "off the deep end" in relation to other currencies, and about to lose its favored reserve status.

Dow 10,433.71, -17.24 (0.16%)
NASDAQ 2,169.18, -6.83 (0.31%)
S&P 500 1,105.65, -0.59 (0.05%)
NYSE Composite 7,170.26, -16.07 (0.22%)

On the day, simple indicators were in line with the headline numbers, with declining issues beating back advancers, 3658-2799. New highs exceeded new lows, 186-65, and volume continued to poke along at the new-normal pace.

NYSE Volume 4,345,491,000
NASDAQ Volume 1,873,632,375

Commodities were mixed, as they have been in recent days. Crude oil futures continued to slip, down $1.54, to $76.02, the lowest level in more than two months. Gold gained $1.90, to $1,166.60, though silver dropped 16 cents, to $18.49.

Tomorrow's trading will again be influenced by economic data, including readings on personal income, weekly unemployment claims, durable goods orders, another consumer sentiment reading from the University of Michigan, new home sales and crude inventories. With all that to consider throughout the day, traders will likely be giving thanks just to get away from the flurry of facts, numbers and statistics being thrown about.

After the one-day holiday on Thursday, markets will be open for a half-session, with everything shutting down at 1:00 pm on Black Friday. With retail's biggest one-day event as a backdrop, the focus will be turning from drab economic data to how robust or dull the holiday shopping season will be. Estimates have been somewhat tempered, with most calling for only slight improvement from last year, which was one of the worst on record.

Any anecdotal evidence from Black Friday will make for another spurt in the indices, which are close to a high point, even though the usual talk of the market being "tired" has not surfaced of late. There could be another 5-10% or more left to run before the year is out, as stocks do not seem to want to stay down for long, as has been the case since the beginning of the rally back in March.