Thursday, April 2, 2009

Was Today the End of the Bull Run?

Markets boomed worldwide on Thursday as the Group of 20 met, promised to pass along $1 Trillion to the IMF and the World Bank, promised to improve regulations on banks and other financial solutions and left jolly London amid smiles, niceties and bright lights.

Naturally, nothing will really change. Twenty leaders, from the world's largest and best-developed economies, meeting over tea, crumpets, dinner and wide tables can accomplish less than nothing, and this group surely succeeded in one regard: they put on a very nice show. The reality of the situation is that the United States, Europe and the BRIC nations (Brazil, Russia, India, China) are as far apart - and the animosity just as great - as before they staged their little confidence-fest.

Back in America, where real people set about to do real work, another 669,000 people filed for unemployment in the past week. The number of people continuing to receive weekly or bi-weekly unemployment checks set another record at 5.8 million. Once again, Wall Street completely ignored the dire employment numbers and all of the evil implications behind a growing number of idle hands in America, and shot straight up at the open, reaching heights not seen since early February.

The Dow surged past 8000, the NASDAQ pushed above 1600 and the S&P 500 touched, for an instant, the bottom of the clouds of heaven, hitting 845 just before 1:00, coincidentally about the same time the G20 meeting was concluding in London. Therein laid the crucial test - at 845 on the S&P - a key inflection point at which the index has closed on four separate occasions recently: on December 4, January 27, January 29 and February 5. Since then, the S&P fell to 676 (March 9) and hit it again today. It took 21 sessions to bottom out and another 18 to get back to 845, so, if you are of the camp looking for the perfect V bottom, this fits it to a tee.

Two problems arise immediately, however, and a slew of them continue in the background. First, the index did not close at the magic number; indeed, it ended the day 11 points below it. Second, the late day selling seemed to signal the end of a mammoth three-day effort just to reach for the stars. And, of course, with the G20 meeting now behind us, and the government's non-farms payroll data due out tomorrow morning, one has to wonder just how long Wall Street can continue to ignore the massive numbers losing jobs every day, week and month. Besides that, we are poised just days away from important first quarter corporate reports, of which every indication points to it being a very dull quarter for a wide swath of companies.

All this week, investors shrugged off economic data, most of which consisted of basic bottom scraping, calling it "improvement" as many of the numbers being tossed about beat expert expectations, though marginally. A more realistic reading might conclude that these numbers suggest that we may have hit a bottom and that it could be only a temporary one.

More pessimistic minds would contend that the figures released this week amounted to nothing more than statistical rounding and do not indicate any kind of trend, and that the economy is ready to dive once again. In any case, stocks have climbed the proverbial "wall of worry" all the way to the top, to a point a which any more gains will begin to confirm that a new bull market has begun, and that the bears are dead meat. Sadly, for the optimists, bears do not go into hibernation with the advent of Spring. In fact, they are now hungry for more red meat.

One other factor to consider. The overall volume of today's run was quite literally off the charts, the highest volume seen since investors were selling as fast as they could. Today stocks were changing hands at a lightning pace, indicative of a blow-off top. We will find out whether or not it was the end of the bull run in less than 18 hours, when the markets are open for the final time this week.

Dow 7,978.08, +216.48 (2.79%)
NASDAQ 1,602.63, +51.03 (3.29%)
S&P 500 834.38, +23.30 (2.87%)
NYSE Composite 5,267.10, +181.34 (3.57%)

Advancers beat down decliners handily, 5479-1140, but despite the huge gains of the past three sessions, new lows did not give up their advantage over new highs, beating them once more, 89-42. While the gap has narrowed significantly, and the number of new highs continued to grow, this indicator has yet to roll over. If and when it does, and if it is able to maintain a bias to the opposite, then we may begin looking at the end of the bear market, not now, and not any sooner.

NYSE Volume 1,874,517,000
NASDAQ Volume 2,820,056,000

Taking a peek inside the Dow at some of the components, we note that 28 were gainers and just two, losers: Microsoft (MSFT) and Pfizer (PFE). leadership came from basic materials and industrials, with Alcoa (AA), Caterpillar (CAT), DuPont (DD), General Motors (GM) and United Technologies (UTX) sporting the best percentage gains. Banks were subdued, with JP Morgan Chase up a mere 0.07 on the day. One outlier was Disney (DIS), which gained upwards of 7%.

As far as concerns the banks, they were handed another get-out-of-jail-free card today as the FASB eased mark-to-market accounting rules, allowing the institutions with the most toxic assets to reprice those entities in more favorable terms. In other words, it's a return to fairyland accounting for tier 3 assets. Tra-la-la.

Oil ramped up $4.25, to $52.64. Gold hit the skids, losing $18.80, to $908.90. Silver gained 5 cents to $13.03.

Stocks will almost surely record their 4th straight week of gains when the indices close tomorrow. How much of a gain depends on a number of factors, not the least of which being how eager investors are about locking in profits over the weekend and how seriously those same investors view the employment picture.

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