Tuesday, June 30, 2009

Consumer Confidence and the Second American Revolution

Proof that I'm not a pessimist, but rather a realist, comes from The Conference Board's latest Consumer Confidence reading. As it turns out, pessimism may turn out to be a new national pastime if the 5000 households surveyed are any indication.

Check out these figures:
The overall index stands at 49.3 in June, down from 54.8. That number is much worse than it would appear on the surface. Consider that the index is calibrated to conform to a 1985 reading of 100. Well, life certainly wasn't perfect in 1985, so the index being more than halved in the subsequent 24 years means what? People are only half as satisfied or confident as they were then? In any case, it's not good.

Here's the really terrifying stuff. though. The percentage of people claiming that business conditions were "good" fell to 8.0%, from 8.8%. 8 percent! Now that's what I call pessimistic. There's more: People who thought jobs were plentiful: 4.7%; people who thought their incomes would increase in the next six months: 9.8%. Less than one in ten people expect a raise by December. That's pretty gloomy, no? Or maybe, just maybe, the people in this survey, which we assume is a nice cross-section of America, are not pessimists, but realists, who have seen the government's attempts at stimulus fall flat, who maybe don't believe all the lies from the controlled media, and who may have been around long enough and been through enough to lose faith in the federal government and its promises to fix everything.

America has always been an optimistic nation, but considering the current crop of politicians (largely failures) in the power structure of Washington, it is conceivable that many people have lost their patience and are losing faith in the "system," which is clearly broken and not about to be fixed by the people who broke it.

This is not to say that Americans are becoming pessimists, it's just saying that they're fed up with the status quo, and actually have been for quite some time. Americans may also be sending a message to Washington which goes something like this:

"We don't want more debt. We don't want a $1.75 trillion deficit. We want you (the government) to tighten your belts, cut spending and trim some of the fat. We are not on board with tax-and-spend, cap-and-trade, more expensive health care and the rest of your proposed plans for us. We are not standing with you, because you don't stand for us. If you continue, we shall stand against you."

That's pretty much it, isn't it? Americans are pretty tired of the US government, their state government and their local government sticking their noses into every last aspect of their lives and taxing them into oblivion. Nobody in Washington is currently listening to the American people and there's pretty good evidence that nobody's been listening for the past 10 years. Since they're not going to listen, then why pay them tribute? We owe them nothing. In fact, they owe us plenty.

Change will come, and mostly by the actions of government. Voting obviously hasn't made an impact, so the natural progression is for people to vote with their wallets and purses, and that's already occurring. Less and less revenue is flowing into government coffers and the flow will continue to slacken until it is just a trickle. This device, known as "starving the government" will produce change because the government will be unable to fund anything but the most rudimentary programs, and maybe not even those.

Americans, realists all, will not pay taxes and government will fall. That is our history, that is our right. The second American revolution has begun.

Noting that confidence is waning, Wall Streeters quickly abandoned their "window dressing" strategy in favor of a "jump ship" approach. After the Conference Board's report, stocks turned from narrowly positive to grossly negative in a hurry and stayed down for the remainder of the session. Coupled with yesterday's gains, the Dow is up a mind-boggling 8 points this week.

Dow 8,447.00, -82.38 (0.97%)
NASDAQ 1,835.04, -9.02 (0.49%)
S&P 500 919.33, -7.90 (0.85%)
NYSE Composite 5,905.14, -57.36 (0.96%)

Internals confirmed that the turnaround was no fluke. Declining issues outpaced advancers, 3653-2712. New lows surpassed new highs, breaking a three-day trend, 64-59. Volume was very light, as has been the case for most of the past month.

NYSE Volume 1,296,750,000
NASDAQ Volume 2,064,647,000

Like stocks, oil turned around on Tuesday, shedding $1.60, to close at $69.89. Gold also beat a steady retreat, losing $13.30, to $927.40. There was some dumping of silver as well, down 38 cents, to $13.60.

Americans are neither happy nor optimistic, a fairly obvious condition after being promised change but receiving more of the same. The time for real change has been at hand for some time. Whether Americans actually have the nerve and fortitude of their forefathers, only time will tell. Unheeded citizen complaints can only take one of two paths: reformation or tyranny.

Monday, June 29, 2009

Stocks Gain to Open Week; Madoff Gets 150 Years

The most significant news story of the day was the sentencing of serial Ponzi-schemer Bernard Madoff by US District Court judge Denny Chin, who figuratively "threw the book" at the convicted swindler, issuing the maximum sentence of 150 years in prison to the 71-year-old. Madoff will spend the rest of his life behind bars for masterminding the largest securities fraud in history.

Perhaps one of just a few bright lights from the unwinding of the US economy, Madoff may never had been discovered if not for the horrific losses taken by the market in the fall of 2008. It was amid crashing stocks that Madoff first admitted his guilt as he could no longer maintain that his investments were making profits.

Ads Madoff heads out of the spotlight and behind bars, it's worth noting that various frauds, scams and scandals come to light during serious market declines. If Madoff proves to be the worst of them, all well and good, but there was surely more than the solitary machinations of a singular evil genius at work within the latest market crash. The bodies are all now safely buried in the books of Citigroup, Goldman Sachs, JP Morgan, Bank of America, Wells Fargo and Morgan Stanley. The real crimes have been neatly swept under the rug by Treasury Secretary Geithner and Fed Chairman Barnanke.

The words "toxic assets" have been swiftly dispatched from the standard economics news lexicon; those have all been absorbed by the Federal Reserve for future disposal. Accounting rules have been changed to accommodate the bankers, as usual. The same kinds of things happened before and during the Great Depression. Incompetence and lack of foresight in allowing a speculative bubble to get out of hand were the causes then, as now, and there will likely be more scandal, finger-pointing, accusations, firings and eventually, prosecutions of those who undermined the core of our economy.

The economy has suffered severe damage, stocks are overpriced in an unsustainable trading range, but the word on the street is that the bad times are already behind us. We can almost hear Roosevelt's campaigners singing "Happy Days Are Here Again."

We so wish it were so, but evidence points in the opposite direction. While our maladies may not ever approach those of the Great Depression, by some standards they already are. True unemployment figures point to 18-20% currently, but what never gets reported and is at the root of our problem, is the black market or "underground" economy, which the government stopped trying to measure back in the 1970s. From pot dealing to off-the-books labor, this illicit economy grows daily, eroding the tax base along with our confidence in government institutions.

So broad, vast and rapacious are federal and state taxes that companies and individuals are nearly coerced into cheating if only to ensure their own survival. The costs of taxation on business are so odious today that there's actually a disincentive to entrepreneurism. Nobody wants a partner that takes but never contributes. Still, people make money without paying taxes, and that's what - besides the incredible amount in aid to states - is really keeping the economy from going bust. There's a lot of money around, and nobody's starving or freezing yet. Let's hope it stays that way.

Dow 8,529.38, +90.99 (1.08%)
NASDAQ 1,844.06, +5.84 (0.32%)
S&P 500 927.23, +8.33 (0.91%)
NYSE Composite 5,962.50, +55.54 (0.94%)

As market participants apparently had cash on hand and nothing better to do with it, they bid up stocks early in the day and traded sideways after 10:00 in the AM. As well as the final numbers look, the internals were conforming but far from encouraging. Advancing issues beat back decliners by a modest margin, 3540-2858. New highs surpassed new lows, 88-52, but volume was the most tepid in some time, somewhat expected in this shortened holiday week.

NYSE Volume 1,065,345,000
NASDAQ Volume 2,021,623,000

Oil shot up $2.33, to $71.49, as Nigerian rebels attacked an offshore oil rig and China announced it would add to its strategic reserves. Gold finished the day down 30 cents, at $940.70. Silver dropped 18 cents, to end the day at $13.98.

Again, there was little in the way of corporate or economic news. It looks like another slow trading week ahead.

Friday, June 26, 2009

Stocks End Week Quietly Mixed

Stocks suffered through another listless session, though on much higher volume, finishing the day and the week in the red on all major indices excepting the NASDAQ which finished above the break even line both on the daily and weekly measure.

It was the second straight week that the market had closed lower, though the extent of the losses were marginalized by Thursday's strong showing.

The weekly figures are: Dow, -101 points; NASDAQ, +11; S&P 500, -2; NYSE Comp., -27.

Dow 8,438.39, -34.01 (0.40%)
NASDAQ 1,838.22, +8.68 (0.47%)
S&P 500 918.90, -1.36 (0.15%)
NYSE Composite 5,906.96, -4.07 (0.07%)

Advancers continued their trend of dominating the losing issues, 3961-2356. New highs beat out new lows for the second straight session, 129-58. That is the largest number of new highs on any single day since the middle of 2007, just about two years ago. Those new high-new low numbers are a little difficult to believe, especially since the Dow stood above 11,300 at this time a year ago.

As mentioned above, the volume numbers were rather outsized as compared to recent days. That level of volume could mean that funds are doing some early window dressing (or house cleaning) as the quarter - and the month - comes near a close. Tuesday will be the final trading day for June and the 2nd quarter. Nearly half of Friday's volume came in the final minutes of trading, making the numbers all the more suspicious.

NYSE Volume 2,310,427,000
NASDAQ Volume 3,659,184,000

Oil took a breather, losing $1.07, to $69.16. Gold continued to trend slowly higher, gaining $1.50, to $941.00. Silver tacked on 12 cents to close at $14.16.

Following Thursday's powerful move, Friday's action has to be considered a complete flop. There simply was no continuation of the rally, not surprising in this environment. That late day volume spike is strange, though and may have been a rebalancing by index funds or something to do with Cisco and the Travelers being added to the Dow, but it is probably something more nefarious than that.

Investors are still a little bit rattled and unsure, as there have been an equal number of encouraging and discouraging sings in economic data of late. Next week may well be more of the same slow pace, especially leading up to the Independence Day Holiday, with all exchanges closed on Friday, July 3.

Thursday, June 25, 2009

Stocks Unexpectedly Higher on Short Covering

Somebody pulled the "buy" switch on Wall Street, or, perhaps more to the point, shorts got caught with their pants down, as stocks staged the strongest rally since June 1, with the Dow up 172 points and the other major indices tagging along with similarly-sized gains.

There was no real news to serve as a catalyst, though after taking losses over the past two weeks, investors may have been looking for bargains and their buying may have initiated a temporary short squeeze, as just about everybody on the planet is aware of the topping out which occurred the second week of June.

Dow 8,472.40, +172.54 (2.08%)
NASDAQ 1,829.54, +37.20 (2.08%)
S&P 500 920.26, +19.32 (2.14%)
NYSE Composite 5,911.03, +115.31 (1.99%)

Advancing issues finished well ahead of decliners, 5191-1273, and new highs took a slim edge over new lows, 61-60, ending a nine-day run in which lows led. Volume was only marginally higher than in recent sessions, another hint that the move could have been based on a short squeeze.

NYSE Volume 1,177,536,000
NASDAQ Volume 2,247,375,000

Crude oil was up $1.56, to $70.23. Gold was also up $5.10, to $939.50. Silver added 9 cents, closing at $14.03.

Thursday's action certainly looks like the garden variety snap-back rally made on the backs of short-sellers, who must be in abundance at this juncture. It will be interesting to see whether the rally has any legs as the week comes to an end.

Wednesday, June 24, 2009

Fed Comments Don't Help

As expected, the FOMC of the Federal Reserve left interest rates alone, but, in the press release accompanying the non-event said that economic conditions had improved slightly since April, though the Fed's policy statement was peppered with pejoratives and qualifiers, lending to an overall uneasy feeling on Wall Street.

Possibly the most annoying part of the release was the comment on commodities and inflation: "The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time."

At least the Fed is being honest about future prospects, but, on Wall Street as well as on Main Street, no inflation means no or a slow recovery. Collapsing pricing power means that business will have to deal with margins as they are, or lower, and sales volume also at or close to current levels. Overall, it's a picture of stagnation, though not as bad as conditions might have been six months ago.

After the 2:15 announcement, stocks gyrated in both directions briefly before taking a slight nose-dive. Especially hard hit was the Dow, which had been sporting solid gains, but ended up as the only major index in the red. All of the other indices finished the session off their highs, though only marginally.

What did boost the market was the positive reading on durable goods orders, which spiked to a gain of 1.8% in May, the second straight gain of that size, lending some credence to the bottom of the recession having already passed. Naturally, there are skeptics still, and even more who wonder whether the gains of recent months hadn't already priced in such positive developments. After watching the economy write while the market soared, investors may be facing a complete reversal of fortune: watching stocks slip as the economy actually improves.

Dow 8,299.86, -23.05 (0.28%)
NASDAQ 1,792.34. +27.42 (1.55%)
S&P 500 900.94, +5.84 (0.65%)
NYSE Composite 5,795.72, +36.23 (0.63%)

Advancing issues far outpaced decliners, 4251-2184, but new lows finished ahead of new highs for the ninth straight session, 67-50. Volume was roughly the same as yesterday, due primarily to the Fed announcement. Without that catalyst, it would have been one of the slowest sessions of the year.

NYSE Volume 1,101,553,000
NASDAQ Volume 2,171,782,000

Crude oil slipped on gasoline supply data, down 57 cents, to $68.67, a positive sign for motorists, as gas prices are almost certain to decline after the July 4 weekend. Gold posted a gain of $10.10, to $934.40. Silver added 7 cents, closing at $13.94 the ounce. The metals remain in no-man's land, stuck between interim lows and all-time highs reached last year. There's some doubt about gold and silver entering the picture of late. Failing to retest the highs may signal a breakdown and turn from the 7-year bull market. If that's the case, it presents an incredible buying opportunity, as the price of both gold and silver should rise significantly once the world economies are back on track.

When that is going to happen, however, is anybody's guess. Even the Fed is now couching its comments, and if they don't know, who does? Best guess at this point is that recovery occurs some time next year, but is relatively weak. GDP growth may not exceed 3% until late 2011 or later.

Tuesday, June 23, 2009

Stocks Continue to Slump on Low Volume

As expected, stocks are trading in dawdling fashion due to a dearth of economic reports and almost no news of note. This kind of slowness should continue for another two weeks at least, through the 4th of July weekend, before second quarter corporate earnings reports begin trickling to the market.

Until that time, there's little to get excited about, presenting a wide window of opportunity for investors to shift positions, take profits or get out of the way. We've seen some of this activity already expressed in the prior 9 or 10 sessions and are looking forward to more of the same. There simply isn't any catalyst working in either direction.

To say that the trading range was tight would be overstatement. The Dow covered a mere 84 points from top to bottom today; the S&P moved less than 10 points up and down through the session.

The NAR reported an uptick in existing home sales, to an annual rate of 4.77 million units in May. While the number was better than April's revised 4.66 million, it wasn't as good as the expectation number of 4.82. Overall, it was a real yawner for the market, signifying less than nothing.

Kroger (KR) reported increased profits on lower sales, citing more people eating at home for the profit uptick and lower prices for gas for the declining sales from the same period a year ago. That kind of data should influence Darden Restaurants (DRI), which reports tomorrow. The owners of Olive Garden, Red Lobster and other popular chains has been beating expectations for the past two quarters, contradicting generally-accepted trends. Tomorrow's report could be telling, one way or the other.

Dow 8,322.91, -16.10 (0.19%)
NASDAQ 1,764.92, -1.27 (0.07%)
S&P 500 895.10, +2.06 (0.23%)
NYSE Composite 5,759.49, +34.42 (0.60%)

Declining issues beat back advancers once more, 3496-2905. For the eighth consecutive session, new lows surpassed new highs, 70-21. Also, the gap between the two was the largest since the index reverted to its 21-month-old form after a brief period (6 sessions) with new highs on top. As the volume and velocity of trading slows to a crawl, sentiment seems to be expanding toward the negative at an accelerating rate. In this period, no news may turn out to be bad news.

NYSE Volume 1,209,363,000
NASDAQ Volume 2,171,108,000

Crude oil for August delivery (first day of the new contract) gained $1.74, to $69.24, while most other commodities posted marginal gains. Gold finished $3.30 higher, at $924.30; silver added 14 cents, to $13.85. While the prices of both gold and silver are quite a bit lower than, say, two weeks ago, they may not present the buying opportunity some see. If deflation continues to persist, all commodities will suffer, even the best-performing ones. Traditionally a hedge against inflation, gold, in particular, could find itself lower by as much as 20% in coming months.

Here's an excellent article on the relationship between the US dollar and stocks and commodities by Simon Maierhofer. The author supports my long-standing contention that deflation will persist as the dominant theme. I predict that prices will be down, the business condition tough, for more than two more years before inflation rears that ugly head again. Once more, the "experts" are completely in the dark as to the nature of price inflation or deflation. Despite the creation of trillions of dollars "out of thin air" now being vaporized in malinvestments, final demand is still slack and will continue to be so until economic conditions are rebalanced, and that's not going to happen for some time.

Monday, June 22, 2009

Stocks Continue Relentless Decline

Without any prodding from economic reports or corporate catalysts, stocks began the day and the week on a lower footing and spent the entire session in a protracted, broad retreat. If there's any better signal that stocks are on a negative bias, it's a big down day in the absence of news.

Not surprisingly, energy stocks, financials and raw materials were the biggest losers on Monday. These are the same sectors which investors had pumped to extraordinary gains in recent weeks.

The major indices hit their lows of the day around 1:30 pm, but no serious attempt at a rally ever materialized as stocks drifted, closing at or near their lowest levels of the session. The broadest measures - the NYSE Comp. and NASDAQ - were the hardest hit, suffering losses in excess of 3%.

Dow 8,339.01, -200.72 (2.35%)
Nasdaq 1,766.19, -61.28 (3.35%)
S&P 500 893.04, -28.19 (3.06%)
NYSE Composite 5,725.07, -209.17 (3.52%)

The number of advancing issues was dwarfed by declining ones, 5526-961, and new lows surpassed new highs for the 7th straight session, 69-33. Volume was once again a non-factor, remaining at generally sluggish recent levels, though marginally better than last week's levels.

NYSE Volume 6,119,741,000
Nasdaq Volume 2,238,124,250

Commodities responded to the downturn in equities by selling off sharply. Crude oil contracts for July delivery were down $2.62, to $66.93, a two week low. Gold was off $14.70, to $921.50, while silver lost 50 cents, to $13.71.

The declines in both equities and commodities reflects a complete change of sentiment from just a week ago, when all the talk concerned inflation. It seems investors had gotten a bit ahead of themselves regarding not only prospects for a recovery, but for inflationary forces, as well. Deflation remains dominant, as businesses struggle for pricing power. Slack demand across the board, due to stagnant wages, generalized fear of the future and excess household deb burdens, has kept a lid on prices and will likely do so for some time, no matter how much money the Fed attempts to pump into the economy.

A report by the World Bank, which sees the global economy shrinking by 2.9% may have contributed to the dour tone on Wall Street, though european bourses were already trading lower prior to the release. The general mood is one of resignation that the recession will continue through most, if not all, of 2009, and recovery will be tepid, at best.

Noting that, prospects for individual companies are being reassessed. The process of unwinding the gains tacked on from March through June is now well underway. The Dow has shed 460 points since closing at 8799 on June 12, a span of just 6 sessions.

Friday, June 19, 2009

Dull Trading with Minimal New Flows

Considering what the US economy has been through the past 2 years, maybe a little break in the action now and then is a welcome relief. The considerable slowing of news flows over the past few weeks have truncated trading volumes in US equity markets by as much as 40% in recent days.

There were absolutely no economic reports on which to hang a trade on Friday.

Volume was quite a bit healthier due to a quadruple witching condition which produced a touch of volatility and a good deal more trading activity than has been the norm of recent days. It was another split session for stocks, the third in as many days, which is likely a symptom of the general insecurity and lack of direction which has plagued the markets for two weeks running.

The general direction is down, but people are far from convinced. Meanwhile, many of the biggest players have already headed for vacation spots and have money parked in either defensive positions or fixed investment vehicles.

This was, however, the worst week for the major indices since the week ended May 15 this year. The Dow surrendered 260 points, the S&P gave back 25 points, the NASDAQ shed 31 points, and the NYSE Composite lost 214 points.

Dow 8,539.43, -16.17 (0.19%)
NASDAQ 1,827.47, +19.75 (1.09%)
S&P 500 921.19, +2.82 (0.31%)
NYSE Composite 5,934.05, +27.85 (0.47%)

For the day, advancers finished far ahead of decliners, 3854-2487. New lows narrowly led new highs, 56-55. It was the 6th straight session marking the lows above the highs, though the margin continued to deteriorate over the past 3 sessions.

NYSE Volume 2,127,423,000
NASDAQ Volume 2,954,731,000

Finally, the speculators eased off their ridiculous bid on crude oil, sending it to steep losses, down $1.82, to $69.55. Perhaps this is a sign of a topping point in the seasonal bid. With no real demand rationale to push prices higher, maybe the speculators thought better of their positions and see an end to the over-hyped, and over-extended, trade.

Gold gained $1.60, to $936.20; silver went the other way, down 4 cents, to $14.20.

There is scant economic news next week as the end of the second quarter approaches. After a blank Monday, figures for Existing Home Sales are released on Tuesday, with New Home Sales on Wednesday along with Durable Goods Orders and Crude Inventories. Wednesday is also slated for a rate decision by the Fed's FOMC, so trading should be less than robust until 2:15 in the afternoon, in anticipation of what is surely to be a "no change" call. Regardless, many market participants will hang breathlessly on every word and make trades according to the whims and innuendo of the FOMC.

Markets really ought to begin churning a little bit just before the 4th of July weekend, because right after that, companies will be reporting 2nd quarter earnings, so there will be some fur flying. Until then, investors are either getting out of the way or just staying put, waiting for another seminal trading moment. That next moment may come when the Dow breaches 8000, probably within a month's time.

Thursday, June 18, 2009

Trends Continue to Weigh on Stocks

Despite Thursday's overall gains - except on the NASDAQ, yesterday's only winner and today's only loser - the tenor of trade is definitely showing all the requisite signs of a significant market breakdown. After slipping at the open, stocks quickly ramped up, with the Dow reaching 8550 by 10:00 am. From that time until 3:45 pm, the Dow traded in a very tight 40-point range between 8550-8590, so the entire session looks somewhat suspect. In the final 15 minutes, the index dipped below 8550 briefly, but caught a bid late in the session.

Dow 8,555.60, +58.42 (0.69%)
NASDAQ 1,807.72, -0.34 (0.02%)
S&P 500 918.37, +7.66 (0.84%)
NYSE Composite 5,906.20, +41.65 (0.71%)

There was little in the way of economic news or reports, though weekly unemployment claims came in slightly higher than expected and the continuing claims number actually fell for the first time since January. That's another actually positive sign, but far too little upon which to pin any trades. In fact, volume dipped again to levels resembling last week, which was horribly slow.

The Conference Board Leading Economic Index increased by 1.2% in May, marking the first time since July 2007 that the 6-month change in the index has been positive. May was also the second straight month that the LEI had improved, another positive sign that the recession was easing.

The problem with these kinds of numbers are that twofold: they are subject to revision, and they do not - outside of any other context - presage the end of the recession, only showing that the rate of decline has eased. In other words, If you are operating at 50% capacity when you should be at 90%, an increase for a month to 55% is good, but in now way predictive of getting production back to 90%. The new reality is that the economy is not going to come back to anything closely resembling the credit-fueled days of 2002-2007, a reason the Obama administration and its lapdog media are so careful when commenting on the economy. The very last thing they want to do is offer false hope, an indication that they know how severe the current condition really is and aren't sharing it with everyone else.

On the day, advancers narrowly beat back decliners, 3574-2827, and new lows finished ahead of new highs for the 5th straight session, 51-39. Volume, as mentioned above, was well below par, which, unlike scoring at the US Open, is not good.

NYSE Volume 1,088,429,000
NASDAQ Volume 2,118,909,000

One thing that's becoming tiresome is the continuing rise in the price of oil, which was up again today by 34 cents, to $71.37. There's no compelling reason for oil prices to be hiking at this time, except the kneejerk seasonal trade that figures US motorists to travel more in summer months. One has to consider this to be one of the worst trades of the decade, and there have been plenty of them. With the world economy in recession and prices falling for just about everything, the only way oil rises is by naked insider speculation. As risky strategies are concerned, this one is nearly off the charts and could easily backfire. If the recession continues through the summer - and who doubts that it won't? - supplies may actually indicate that prices should fall, and quickly. That's when these contracts get unwound and the speculators take on some serious losses. Look for oil to stall out fairly soon (July 4 is usually the high) and head back to a more reasonable level around $55-$60/barrel, if not lower.

The annoying thing about the oil futures trade, is that, like the elections in Iran, they are so blatantly out of kilter with reality. Other commodities were mostly lower, including hating oil and natural gas, so why should oil have some special status? It's all speculation, and with any luck (for automotive travelers everywhere) their price-rigging scheme will blow up in their faces.

Gold ended down $1.40, to $934.60. Silver was off 4 cents, to $14.24.

Unless there's a massive rally tomorrow, the major indices will finish the week with losses, which, after three months of nearly unrelenting gains, is likely not only expected, but healthy.

Wednesday, June 17, 2009

New Regs for Financials; TARP Repayment Sparks Midday Rally

The Obama administration announced a number of proposed regulatory changes which, if enacted, would materially impact the overall functioning of the US economy. The Office of Thrift Supervision would be replaced by a new Consumer Financial Protection Agency and the Federal Reserve would have a larger role in the supervision of the US economy.

To some - including myself - giving the Federal Reserve any more control of the economy is a step in the wrong direction. The Federal Reserve, far beyond any other government or commercial body, bears the brunt of any blame for current economic conditions. After all, they are the issuers of the currency.

Requiring banks and mortgage brokers to offer simplified, clear, concise mortgage documentation is a step in the right direction. Imposition of a national usury law would be even more helpful. The recommendations now fall into the lap of congress to debate.

On the markets, Dan Gallagher has an excellent piece on the record-breaking supply of new issuance in May and speculative analysis of the condition.

S&P lowered credit ratings on 18 banks including Wells Fargo and Capital One, among some of the largest. The first banks began to repay TARP money to Treasury and began negotiating terms to purchase warrants from the government. 10 banks are reportedly repaying $68 billion. While this is truly good news, it is dilutive to the banks. That understanding sent financials to substantial losses on the day.

Stocks began to hit their best stride in late morning, reaching highs of the day shortly before 2:00 pm, but the advances were spare and not broadly-based with only 5 of 12 sectors sporting gains. By day's end, only the NASDAQ ended in positive territory. As far as snap-back rallies are concerned, this had to rank as one of the more disappointing. Besides the NASDAQ, this is the third straight day of losses for major indices. Not only was the midday rally cut short, but the usual late-day bounce failed to materialize approaching the close.

Dow 8,497.18, -7.49 (0.09%)
NASDAQ 1,808.06, +11.88 (0.66%)
S&P 500 910.71, -1.26 (0.14%)
NYSE Composite 5,864.55, -22.21 (0.38%)

Advancing and declining issues were nearly even, with losers leading winners, 3292-3003. New lows surpassed new highs for the 4th straight day, 70-32. Interestingly, volume was at its highest level in the past 8 sessions, suggesting that there's more dumping of stocks than would be apparent and that most of the buying was concentrated in tech and health care.

NYSE Volume 1,316,102,000
NASDAQ Volume 2,561,073,000

Commodities spent the day without much direction, but eventually ended mostly higher. Crude oil gained 56 cents, to $71.03, while gas prices in the US increased for the 50th straight day. Gold finished $3.90 higher, to $936.00. Silver gained another 15 cents, closing at $14.28 the ounce.

May CPI showed an increase of just 0.1%, a far slighter rise than analysts expected, furthering the deflationary argument. Stripping out the gains for gasoline and adjusting for the margin of error, consumer prices were net negative for the month.

Another sign of the times is today's bankruptcy filing by retailer Eddie Bauer (EBHI) and bid agreement to sell the remaining assets to a private equity firm.

For the optimistic crowd, here's Charles Schwab Chief Investment Advisor Liz Ann Sonders declaring that the recession is over. We'd like to believe her, but isn't she really longing to say that the worst of the recession may be over? See for yourself.

Tuesday, June 16, 2009

Stocks Bombed Second Straight Session

The turning point for the stock market has finally come. Stocks sold off broadly and sharply for the second straight session as investors increasingly take profits and head for the sidelines. Others, specifically speculators, have quite literally been shut out of the market by excessive valuations, which, as anyone who has ever done any kind of investing knows, is a path to ruin. Buying after a significant rally, such as the one which lasted from March 10 to June 12, will almost always lead to sizable losses mounting quickly.

Technical indicators have presaged the end of the rally astonishingly well. Just as the S&P 500 50-day and 200-day moving averages converged, the selling commenced. Today's market action was particularly acute and different from the usual fare. Instead of a positive response to benign PPI figures for May (a gain of 0.2%, against an expected rise of 0.5%) analysts took this as a sign that the economy was not recovering as quickly as some might hope and that inflation fears have been wildly overblown. Stocks were up mildly at the open, and after vacillating across the break even line for most of the morning, finally began to fall off just before noon. By 2:00 pm, the indices were striking new lows, and, instead of a late day rally, stocks sold off wildly in the final 15 minutes, closing at the lows of the day.

This should come as little surprise to anyone following the money. The Fed has more than doubled the size of its balance sheet since fall of 2008, the money supply has been ramped up gigantically, yet the banks still aren't lending, defaults on credit cards and auto loans are now matching up to the foreclosure numbers, and wages remain flat, if not declining. Companies are finding little in the way of pricing power, except in industries which have virtual, government-allowed monopolies, such as energy and utility companies.

Where has all this money gone? Directly into the hands of the banks, and much of it was certainly used to pump up stock prices. The timing of the rally and the second round of TARP funding were surely more than coincidental. Now that the money has been spent and distributed through the market, it has to be removed and put back on the banks' balance sheets. There is one fatal flaw to the government-Wall Street scheme: nobody's buying on the way down, just as nobody was buying during the secondary crash in early 2009, nor during the subsequent run-up. The entire three-month rally was nothing more than massive self-dealing, a complete sham, with the bank CEOs, the Fed, the Treasury and high-ranking government officials fully complicit in the charade.

While there's nothing implicitly illegal about buying stocks cheap and selling them a few months later at a profit, the obvious questions to ask are, first, how prevalent among the insider banking community and the government was the knowledge that stocks weren't really worth the asking prices of recent weeks and, second, what was being to to the general public and the banks' clients?

Telling clients to buy securities at the same time your own brokerage is unloading them is fraud, though, as far as Wall Street practice is concerned, it happens all the time, day in and day out. Seemingly, the only way to make money in this environment is to play along with the big money. Buy when they are buying, sell when they are selling. It's now time to sell.

Dow 8,504.67, -107.46 (1.25%)
NASDAQ 1,796.18, -20.20 (1.11%)
S&P 500 911.97, -11.75 (1.27%)
NYSE Composite 5,886.76, -80.50 (1.35%)

Once again, decliners beat back advancing issues, 4475-1914. For the second straight day, new lows outnumbered new highs, 68-26. Volume remained subdued, so get used to this level of activity. It's summer, and many of the usual heavy players are not involved.

NYSE Volume 1,176,238,000
NASDAQ Volume 2,262,585,000

Commodities were mixed. Oil spent most of the day with gains, but closed down 15 cents, at $70.47. Gold was up $4.70, to $932.20. Silver, after Monday's 85 cent bludgeoning, was up just a dime, to $14.13. Natural gas was down slightly. Pork bellies continued to price higher.

Other economic data of note included industrial production, down 1.1%, and capacity utilization, checking in at 68.3% for May, after posting a revised 69.0% for April. These numbers are continuing evidence of the severity of the recession. Rather than seeing "green shoots," of potential recovery, the latest round of figures suggests what reality is really showing us, a deepening and swelling depression which threatens to take down every segment of the US economy, and with it, much of the world's.

The banks and other far-flung, covert, secluded monied interests are hoarding capital. The only way to wring it from their cold, clammy hands is through inflation, and that's not happening. Nobody knows where the bottom is, but a good bet would be that we're nowhere close to one. Government bailouts and stimulus have only quieted the rout for the time being. Unemployment continues to increase and deficits are growing as far as the eye can see. Now is definitely not a time to be speculating for stock gains.

Monday, June 15, 2009

Stocks, Commodities Belted; New Highs-Lows Indicator Calls Shot

After a week of listless trading which ended Friday with an upside-down condition between the headline number and the market internals, the measurement of new highs vs. new lows indicated that a reversal was at hand. On Friday, June 12, the Dow reached its highest level since January 6 of this year, and true to form, marked an interim market top from which a fall was not only predictable, but almost too obvious.

The Dow index was trapped between the last vestiges of a long bear market rally and the nearly-impossible condition of making new highs, converting to a new bull market. Since the transportation index failed to confirm the highs on the Industrial, there seemed to be no other direction but down, and on Monday, investors took the bearish signal and ran with it.

The major indices fall in line with the Dow decline, the worst hit being the Composite, with the broadest base of stocks. As usual, market participants tried to force a last-hour rally, as has been their behavior on nearly every down day, but their efforts failed to recover much of the ground lost during the session. At the low point of the day, the Dow was down 223 points, rallied from 3 pm to 3:45 pm to -175 points, but lost traction in the final 15 minutes of trade with all of the major indices ending near their lows for the day.

As concerns our most valued (and simple) indicator, the new highs-new lows measure went positive for five straight sessions, reversing a 21-month-old pattern, before rolling over into the negative (more new lows than highs) on Friday, in stark contradiction to the upside move on the Dow. Interestingly, the advance-decline line on Friday also went negative, nearly telegraphing Monday's direction.

Dow 8,612.13, -187.13 (2.13%)
NASDAQ 1,816.38, -42.42 (2.28%)
S&P 500 923.72, -22.49 (2.38%)
NYSE Composite 5,967.26, -181.35 (2.95%)

On the day, declining issues led advancers by an enormous margin, 5283-1174, (9-2); while new lows remained in control over new highs, 65-34. Volume was once more in the negligible range, close to levels seen last week, so, not influential. It may be that we are witnessing the summer level of activity on the market. Many participants may have already retreated to the sidelines, and will seek re-entry points at some later date. There are still large amounts of profits to be taken as the markets have not yet gone into "gran mal seizure" mode, though that may occur at any time.

Refreshingly, the new lows-new highs indicator rang true and maintained the negative bias from Friday, restoring faith in the one simple indicator that has been absolutely dead on throughout the market decline of the past 22 months.

NYSE Volume 1,150,418,000
NASDAQ Volume 2,178,292,000

While stocks were sliding, commodities were doing the same, with losses across the spectrum. Notable contrarians were Natural Gas and Pork Belly futures, both up sharply. Crude oil for July delivery fell $1.42, to $70.62. Further pullback, to the $55-62 level is expected, unless there's evidence of increased demand. One can safely assume that the recent rise in oil prices was the result of naked speculation of a seasonal variety, and thus, unlikely to produce long-lasting gains.

Gold was sent southward once more, dipping $13.20, to $927.50. Silver also took a large hit, losing 85 cents (a massive one-day loss), to $14.03. It's likely that the metals may remain somewhat range-bound, much of the trade dependent upon this week's PPI (tomorrow) and CPI (Wednesday) figures. If gains in both are sizable, that would indicate inflation, taking up all commodity prices, but there seems to be unfolding evidence that markets have cooled considerably and will remain moribund for the foreseeable future, making speculation difficult, it not foolish.

The world's economies are not as badly damaged as they appeared to be back in the fall of 2008, though the stresses to the overall global system has been significant. Market players are discovering that the recent rally in stocks may have been quite overdone and without justification, forcing many investors into a more defensive posture. Additionally, with the recent Treasury data indicating that foreign involvement has dried up considerably, there's increased pressure on bonds, forcing yields higher, and, thus, moving money away from riskier stocks and commodities.

Given the current conditions, there appears to be few places to make money, so a flight to the relative safely of bonds may be the preferred route for many.

Friday, June 12, 2009

Breakdown in New Lows Signals Sell-off

Advice for the wicked: Sell stocks now.

This week marked the slowest level of trading activity of the year and probably much longer. The unprecedented level of indecision in equity markets is due to a wide variety of factors, not the least of which being the dead cold economies of the major industrialized nations. Europe is a basket case, and, while India and China are still in growth phases, the lifeblood for both of them - the United States - is being sucked dry as Americans try to make the best of a bad situation.

Personal spending has all but dried up despite promises from the Fed that they are willing to do anything in their power to keep the US from falling deeper into recession. That the economy continues to deteriorate is the main fear among investors, which has put a temporary lid on stocks. Despite that, the Dow Jones Industrials ended the week at its highest level since January 9, though the gains were all made in the final twenty minutes of trading, as usual.

If the rally doesn't end today, then it must shortly. Stocks are at levels unsustainable in relation to the overall outlook.

Dow 8,799.26, +28.34 (0.32%)
NASDAQ 1,858.80, -3.57 (0.19%)
S&P 500 946.21, +1.32 (0.14%)
NYSE Composite 6,148.61, -14.52 (0.24%)

On the day, decliners held sway over advancers, 3509-2903, but, more importantly, new lows exceeded new highs for the first time in the past six sessions, 99-83, signaling that the day's gains were manufactured on the backs of multiple losers. Volume returned to extremely pathetic levels. For the week, they might as well have just closed the exchanges and saved the effort for more productive pursuits. Maybe its time for people to realize that 21st century stock investing is more challenging than its worth, and highly subject to the whims of powerful monied interests.

NYSE Volume 2,066,007,000
NASDAQ Volume 858,232,000

Volatility has shifted away from stocks to commodities. Even crude oil, which had been a stalwart gainer over the past two weeks, took a bit of a tumble, off 64 cents, to $72.04. Gold took the largest hit, down $21.30 to $940.70. Silver also fell, off 62 cents, to $14.88. The losses in gold compels one to ask whether another liquidity crisis is looming, though the tightest analysis would be to assign the losses to temporary dollar strength, which is likely the case.

After a week like this, with subdued trading in tight ranges, investors are either relieved or even more worried than before. The latter case is probably the most prudent attitude at this particular juncture as the approaching second quarter earnings season may be a real stinker. We got through the last quarter with "not as bad as predicted" figures which met or exceeded watered-down expectations. Traders may not be as forgiving this time around.

With little wiggle room from a chartist's point of view, stocks have been poised for a downturn for quite some time, at least two to three weeks. We are still waiting.

Thursday, June 11, 2009

More Stocks Making New Highs

For the fifth consecutive day, new highs have exceeded new lows, today, by 91-69.

To some, that may sound like fairly mundane news, but to readers of this blog, it's an important turning point. Daily new lows have outnumbered new highs every day for some 21 months (with the exception of about 6 days) until last week.

So, has the spell been broken? Is the economy on the verge of recovery? Are we headed for a new bull market?

The answers, in order, are: YES, NO, and PROBABLY NOT.

Until the economy begins showing real signs of strength, such as, home prices increasing instead of declining, month-over-month; new jobs being created; corporate profits showing real improvement, not just "beat the (watered-down) street numbers"; and maybe getting the national debt under control, the US economy is in for a rough ride. While the solitary new lows-new highs indicator may be turning green, it's more likely because the new highs set in 2008, much like earnings forecasts, are of the low-bar variety. The new highs in '09 are likely well below the previous highs in '07 or '06. and, since the market was hammered so badly both in the fall of '08 and the first quarter of '09, there aren't many more new lows to be had. Some of the real losers have been delisted (see GM, etc.), while others are resting comfortably in the single digits.

As for a new bull market, well, such is the stuff of dreams and fairies. It would be more in the realm of Harry Potter to conger up a new bull market than for the economic conditions to present such a scenario. Stocks are currently overvalued, as will be seen some time later this summer or into the fall. Some selling would indeed be healthy right about now, though there is a general push-back from Wall Street, the federal government and mainstream media against any show of weakness. It's very odd, but much akin to the Japanese (or is it Chinese?) concept of "losing face," wherein one puts on the best show possible in order to appear wholesome, vibrant and strong.

Naturally, that's not what investing in equities is supposed to be about. It's supposed to consist of discounting future value, dividends and solid profitability, product lines and market share. Fundamentals of business and economy, dear Watson.

Dow 8,770.92, +31.90 (0.37%)
NASDAQ 1,862.37, +9.29 (0.50%)
S&P 500 944.89, +5.74 (0.61%)
NYSE Composite 6,163.13, +65.07 (1.07%)

As far as this week is concerned, the movement of the stock market has been kind of like a bad joke, or, watching paint dry. It's been a near-total waste of time. The big winner has been the NYSE Composite, up a whopping 80 points. The NASDAQ has put on 13 points; the S&P almost 5, and the Dow a miraculous 7 whole points!

Index traders are falling asleep at their desks, the excitement is so rare.

On the day, advancing issues outnumbered decliners, 4164-1405, though, while the disparity was large, the actual movement was tiny. You already know the score on the new highs vs. new lows, and volume was a little better than Wednesday's, which really doesn't say much. Investors worldwide are still awaiting some kind of pull-back, though it may be a long time in coming, if at all.

NYSE Volume 1,223,187,000
NASDAQ Volume 2,501,569,000

Oil hit a new high for the year, to nobody's surprise, rising $1.35, to $72.68. Gold was up as well, gaining $6.80, to $961.50, and silver added 27 cents, to $15.49. Commodity prices, outside of crude oil, have been trading up and down without much direction for the past three to four weeks, much like the stock market. The entire globe has been engulfed by an acute condition of indecisiveness, worse than any H1N1 Pandemic.

Tomorrow, we're hoping the market will be up, or down. Something to hang one's hat on would be welcome after a week of dullness.

Wednesday, June 10, 2009

Stocks Fall; America In Ruins

Not much in the way of gains or losses with the final numbers, but the range was more significant than yesterday's tired session. The Dow covered nearly 200 points from start to finish, with the requisite last-half-hour rally knocking 75 points off the loss.

There's now little doubt that stocks are in a distribution pattern (meaning they are being distributed from the hands of those who bought them low to the hands of those stupid enough to buy them now. Also telling is the pattern of trade, which for the second time in the past four days, showed upticks in the morning and concerted selling later, an obvious sign of a market ready to capitulate.

Of course, such capitulation may take weeks or even months to play out, as investors, a sometimes stubborn bunch, on the one hand may not be willing to part with some stocks, while others may not be so easily induced to buy into a rally that has persisted for so long, so the process could be tiresome, to say the least. More on this point below.

Dow 8,739.02, -24.04 (0.27%)
Nasdaq 1,853.08, -7.05 (0.38%)
S&P 500 939.15, -3.28 (0.35%)
NYSE Composite 6,098.06, -3.51 (0.06

Advancing issues were overwhelmed by decliners, 3648-2713, but new highs bested new lows for the fourth straight day, 87-72. This is a landmark worthy of note, being the first four-day run of more new highs than new lows in 21 months. The caveat is that stocks were already being taken down during this same period of 2008, so many new highs weren't very high, though quite a few new lows were being made. It may be best to put away notions about that one indicator being significant for the time being, or, at least until the end of summer, or until it rolls back over again. We should actually be expecting more new highs than lows, considering the size of the recent rally. Additionally, the period between June and September 2008 was one of the least volatile of recent vintage. Once the dow dipped below 12,000 on June 20, they remained in the range of 10,962 to 11,842 until September 17.

Volume was better than it had been the first two days of the week, and that is significant, especially in light of the hard selling off the morning rise.

NYSE Volume 1,220,393,000
Nasdaq Volume 2,375,555,000

Oil made another new high, spiking another $1.32, to $71.33. Gold was unchanged at $954.70, while silver added 9 cents, to $15.23.

Fiat's deal with Chrysler was finalized today, as the Supreme Court refused to hear arguments by a number of Indiana pension funds and lifted their stay. Thus, the highest court in the land can now be counted upon to deliver decisions wholly unconstitutional or not hear arguments in which they would have to uphold long-standing precedents. Clearly, our entire system of government is completely off the rails and cannot be trusted to do anything in the public interest.

The United States used to be a nice country where the rule of law was sacrosanct. Kiss those days good-bye. Those in power over the past 40 years have abused it to the point at which the future of the nation looks dismal and ruined. Best advice for now is to just pack up and leave.

Tuesday, June 9, 2009

Seriously Stupid

Over the past three sessions, the Dow Jones Industrial Average has gained 13 points. It's hardly worth watching, much the less actually investing in anything. Now that the economy is officially flat-lining, market moves are going to actually require some kind of impetus and the Obama administration, the Fed and the Treasury have made sure that everything is buttoned-down, nice and neat. Further, the big money has pushed stocks to a level at which there are no bargains.

Therefore, welcome to the summer of '09. Blah. Boring. Stupid.

Dow 8,763.06, -1.43 (0.02%)
NASDAQ 1,860.13, +17.73 (0.96%)
S&P 500 942.43, +3.29 (0.35%)
NYSE Composite 6,101.57, +33.01 (0.54%)

Winners beat losers, 3905-2464. New highs finished slightly better than new lows for the 4th straight session, 73-63. Volume was well below average. No surprise there. Did somebody mention that stocks weren't cheap?

NYSE Volume 1,060,306,000
NASDAQ Volume 2,161,562,000

As though there were some compelling reason, like outsized demand, oil gained another $1.92, to $70.01. This is the result of still-unregulated speculation in the commodity markets. There's no good reason by crude oil should be more than $35 per barrel, much less $50, or $60. If there's anything that will put a lid on the economy and bury it for good, it's high energy prices. Good for those greedy bastard oil companies. Bad for everyone else.

Gold gained $2.20, to $954.70. Silver was up 19 cents, to $15.14.

It was a really dull day.

I need a nap.

Monday, June 8, 2009

A Market You Cannot Take Seriously

Foreign investors must look at the US stock markets as a major joke. Of course, theirs may or may not be any better, but the abnormal late-day trading patterns in US equity indices really should be held up for ridicule and scorn.

Today was just another in a series of predetermined outcomes. Stocks were down all day, until 3:15 pm, with the Dow index down as much as 130 points during the session. Naturally, the crooks and thieves controlling the trading have to keep up appearances - that America is still OK - so all of the losses were erased in the final 45 minutes.

That's become standard operating procedure on the Street. Whether or not anyone actually believes stocks should be levitating around their recent highs is another matter altogether. For most chartists and analysts, the evidence of manipulation is pretty clear, and has been for some time. Valuation means little anymore. It's all perception and innuendo, with the hope that people will forget that stocks are up some 35-40% since early March, haven't taken even a slight correction and may move even higher.

The feeling is that the insiders wish that everyone would just close their eyes for the next few weeks and wait for the inevitable push higher, which will, no doubt, be accompanied by some cockamamie economic report that purports to show the US economy on the mend. Should stocks take another step forward, one would be well advised to take profits, invest in oil, gold or silver and move out of stocks completely, because some day, sooner or later, there will be a hellish crash, something akin to the pounding stocks took last fall.

In the current case, it sure looks like the heavy hitters are firmly in control, taking profits as they please, bolstering their bottom lines with blatant disregard for retail investors, client money or anything even remotely resembling morals.

Dow 8,764.49, +1.36 (0.02%)
NASDAQ 1,842.40, -7.02 (0.38%)
S&P 500 939.14, -0.95 (0.10%)
NYSE Composite 6,068.56, -14.08 (0.23%)

Despite the narrowly mixed results in the headline numbers, decliners finished far ahead of advancing issues, 4013-2391. New highs finished just ahead of new lows, 59-58, but most telling was the light volume, far below even the reduced levels of the previous two weeks. The word best descriptive of this session's volume would be "feeble," though "feckless" also comes to mind.

NYSE Volume 1,077,228,000
NASDAQ Volume 1,993,720,000

Commodity prices were down nearly across the board, though the favored position of oil and energy-related raw materials was evident. Crude fell by a mere 35 cents, to $68.09, as though $68.00 is the magical fixed price for the slippery stuff. The metals took a more serious hit, with gold down $10.10, to $952.50, and silver off 43 cents, to $14.96.

Meanwhile, the crafty Chrysler bankruptcy, engineered by Washington bureaucrats, may be falling apart, as the Supreme Court issued a stay while justices mull over the appeal of a group of Indiana pension and construction funds who say their secured interests were unduly ignored in the original filing. Justice Ruth Bader Ginsburg issued the terse notice today, putting the entire matter on hold until Monday.

The American public is about to learn just who holds power in Washington. If the deal isn't done by Monday, June 15, Fiat, the purchaser of most of Chrysler's assets, has the right to walk away. Meanwhile, the court must take seriously the claims by the pension funds, which stand in stark opposition to the plan laid out by the Obama administration.

With the stock market and federal government appearing to be more "theatre of the absurd" than substantial operating mechanisms of capitalism and democracy, the recovery picture becomes more fuzzy and less believable every day. It should, because in more than just general terms, but specifically in instances ranging from the TARP "loans", to the bank stress tests to the pre-packaged bankruptcies of GM and Chrysler, the process has been deceptive, shady and unfair to the parties being harmed the most: the US taxpayers.

Friday, June 5, 2009

Jobs Data Improving, But Stocks Fail to Gain

At the release of May's non-farm payroll data from the Labor Department, stock futures rose dramatically, as the government said 345,000 job losses occurred in May. Most analysts were looking for a loss of about 520,000, so the improvement was substantial and the futures trade spilled over into the open, with stocks sharply higher in the opening minutes.

Just about 10 minutes into the session, though, something odd happened. Stocks lost their momentum and before 10:00 am, all of the indices were trading in the red. For the remainder of the session, the various indices either stayed marginally positive (the Dow), hugged the flat line (NASDAQ and S&P) or remained in the red (NYSE Comp.).

By 2:00 pm, the bloom was off the rose, and the expected rally on "real" good economic news, instead of the media-spun variety, never materialized. Stocks generally slumped when they should have been soaring.

The mainstream and financial media will attempt to put some kind of cover story on how the numbers were "already discounted" or some other rubbish, but let's allow for some degree of inside baseball (manipulation) as the true explanation. If one examines the timeline between the March 9 bottom and today, it's fairly evident what has occurred. The banks, through their brokerage arms, which received government money through TARP and other lending facilities - B of A, Citi, Goldman, JP Morgan, et. al. - pumped the markets back to life, and, not satisfied with a reasonable rebound of 15-20%, extended gains to the 35-39% range, all of this based on media innuendo, fudged accounting and hopes pinned on stress test results.

Now, when there is actual positive news on unemployment, the banksters find themselves in a topped out position. Further gains would seem frothy, despite the good news, so they are nakedly doing what every chiseling, cheating, Ponzi player would: they are dumping stocks at inflated prices back to the rabble. The whole process has been very untidy and wholly opaque. Fewer words of truth have ever been spoken around Wall Street than during the past three months. Big money is bailing, taking profits and heading to the sidelines and the Hamptons while the rest of the market hammers out the details over the summer.

Investors had best pay close attention next week and especially the trading week of June 15-19, when June options expire. There are likely large put positions already staked out by the large money players. The markets remain remarkably overbought and poised for a move in one direction or the other. With 2nd quarter earnings season still more than a month off, the chances are good that some external event will precipitate a trundle to the downside.

Dow 8,763.13, +12.89 (0.15%)
NASDAQ 1,849.42, -0.60 (0.03%)
S&P 500 940.09, -2.37 (0.25%)
NYSE Composite 6,082.64, -28.12 (0.46%)

In deference to the flat headline numbers, declining issues far outpaced advancers, 3408-2908. New lows vs. new highs remains at a crossroads, with the new highs a narrow winner, 91-87. Volume was pathetic, so, once again, it's influence as an indicator is marginal.

NYSE Volume 1,261,973,000
NASDAQ Volume 2,333,721,000

Commodities spent the majority of the day in the red. Oil backed off 37 cents, to $68.44, though gold saw a much larger decline, down $19.70, to $962.60, backing far away from the magic $1000 level. Silver tracked along the same path, losing 51 cents, to $15.39 the ounce. Its difficult to get a handle on commodity trading with so much speculation going on, but there are small indications that the general deflationary environment is keeping a lid on prices, for now. How that plays out a year or two down the road is also very uncertain.

Stocks still showed another positive week, despite the sleepy results of Friday. Next week may very well show more liquidation in equity positions and consolidation, otherwise known as profit-taking. It bears watching,

Thursday, June 4, 2009

Stocks Up, Outlook Still Cloudy; Retail Sales Horrible

Investors took little time this morning putting stocks back on a positive path, after initial jobless claims came in lower for the 4th consecutive week. Gains were broad-based, though marginal in most cases, with all indices trading in very narrow ranges. The Dow, for instance, traversed just 116 points from the morning low to the afternoon high, finishing close to the top and near recent highs.

Without much to move the markets, stocks were fairly settled as investors seem to be on hold for now, at least awaiting word from the Labor Dept. on May job losses, released tomorrow at 8:30 am EDT. That number should not be much of a surprise, as there's little to indicate that job losses are going to narrow appreciably. The consensus estimate is for about 525,000 more jobs being shed from the pool in the prior month.

Financials led the way again, with Bank of America and Citigroup both gaining more than 5% by the close, providing a significant boost to the Dow Jones Industrials. General Motors was officially removed at the end of the day, as it will now trade over the counter, under the symbol, GMGMQ.PK. Citigroup will also exit as of Monday. The two Dow components will be replaced by Cisco Systems (CSCO) and Travelers Insurance (TRV).

Apparently of less importance to investors were the ugly retail sales figures released by a number of America's largest chain stores. Same-store sales for a group of 30 retailers fell 4.8% from a year ago. The numbers for some of the nation's best-known stores were horrific, reflecting the reality of a declining economy in a deflationary environment. Limited Brands fell 7%; Gap, down 6%; Abercrombie and Fitch collapsed 28%; Dillard's was down 12%; Macy's fell 9.1%; Nordstrom's sales were of 13.1%; Sak's was down 26.6%. even discounters Target and Costco were off by 6.1% and 7%, respectively.

The retail figures underscore the disconnect between Washington, Wall Street and Main Street. While the pols in D.C. and the monied financiers in New York continue to preach that the economy is recovering, real life experience is posting a different message altogether. The condition is becoming particularly acute, and can be seen in the strain for stocks to gain further momentum. Add to the retail woes the coming closure of nearly 4000 auto dealerships by Chrysler and GM and the condition can only deteriorate over the near term.

Dow 8,750.24, +74.96 (0.86%)
NASDAQ 1,850.02, +24.10 (1.32%)
S&P 500 942.46, +10.70 (1.15%)
NYSE Composite 6,110.76, +76.86 (1.27%)

Advancing issues finished well ahead of decliners, 4769-1643, a rather large bias considering the paucity of gains. New highs barely beat new lows, 66-65, so the indicator remains poised to signal either a renewal of the rally or the beginning of a precipitous decline. Volume was a touch higher than Wednesday's, though still not remarkable and thus, not signaling anything.

NYSE Volume 1,358,776,000
NASDAQ Volume 2,488,895,000

Commodities completely reversed yesterday's performance, with nearly everything gaining in value. Oil rose $2.69, to $68.81. Gold was higher by $16.70, to $982.30, with silver up 59 cents to $15.90.

Tomorrow's non-farm payroll report could be significant, no matter which way the numbers are interpreted, though it's becoming increasingly clear that stocks cannot go much higher without support from the real world. Investors are either living in a dream world or seeing a different new reality, obscure to most Americans.

In the best news of the day, former Countrywide CEO, Angelo Mozillo and two other top executives were formally charged with fraud and insider trading by the SEC. It is a civil lawsuit, but may pave the way for the Justice Department to file criminal charges. Mozilo is the first and only executive to be charged with any crimes stemming from the subprime and general banking crisis.

Wednesday, June 3, 2009

Critical Turn for US Markets

Today marked a potentially critical turn for US equity markets, from a strict interpretation of a key indicator, that being the new highs - new lows measure.

On Monday and Tuesday, new highs surpassed new lows on the daily tally for the first time in six months. New lows have held the edge every day since September of 2007, save for five or six occasions. On those occasions in which new highs surpassed new lows during this period, once new lows took back the lead, stocks fell for a time until the new lows were 25-100 times the number of new highs, at which point a bottom was reached in the market.

Today, there were 50 new lows to 48 new highs, a technical win for the lows, indicating that a market turn is at hand. This is the strongest selling indicator that has been seen in the past three months. While it's obvious that stocks are severely overbought and have been for weeks, this sole indicator is all that's needed to predict the immediate future for stocks. They are ready to roll over and die. The extend of the carnage cannot be known, but within the next 3-6 trading days, there will be dramatic movement to the downside.

Market action today was somewhat hidden, though the real damage was done on the NYSE Composite, the largest index, and the one least prone to manipulation. While losses on the three majors were limited, the Composite was down 2.41%, nearly twice that of the S&P, three times the decline of the Dow and triple the NASDAQ on a percentage basis.

Dow 8,675.24, -65.63 (0.75%)
NASDAQ 1,825.92, -10.88 (0.59%)
S&P 500 931.76, -12.98 (1.37%)
NYSE Composite 6,033.90, -148.97 (2.41)

Declining issues far outpaced advancing ones, 4346-2059. That is a significant number, much moreso than the feeble tape-painting attempt on the Dow, which had been down as much as 140 points at 3:30 pm. Of course, the manipulators in the market made sure to limit the damage with a 75-point rally in the final half hour. It should be disregarded, as should every index, as they are absurdly valued at present. Consider that the Dow is still more than 2000 points higher than it was less than three months ago. The game is nearly up. Savvy investors will be locking in profits very soon as waves of selling are set to hit the market. Volume was on the low side, but still meaningless. The warmer weather and shakiness of the markets have removed many participants.

NYSE Volume 1,323,971,000
NASDAQ Volume 2,320,685,000

Commodities may have telegraphed the next move in stocks. After weeks of rallying, nearly all commodities sold off on the day, indicating that speculators are scurrying for safer havens in bonds and money markets. The catalyst may have been the ADP Employment Change report, which showed a loss of 532,000 private sector jobs lost in May, and also revised April from a loss of 491,000 to a 545,000 job loss. With the official Labor Department Non-Farms Payroll report for May due out prior to the market open on Friday, there is every possibility that the report will show further deterioration in the US employment market, not "incremental improvement" as the media and government officials have been touting.

Oil dropped $2.43, to settle at $66.12. Gold dipped $18.80, falling to $965.60. Even silver, the strongest commodity over the past three weeks, fell 65 cents, to $15.31 per ounce. Almost every commodity, from energy-related to foodstuffs, fell hard on the day. The grip of deflation is unmistakable.

There's another tsunami dead ahead. Government efforts to revive the economy have been minimal at best, and potentially harmful, at worst. Investors are nervous and big money is heading for the hills. Despite the positive spin which the government and media have tried to put on the economic picture, the reality is that the US economy is not gong to recover any time soon.

Look for sideways-down movement over the coming weeks, peppered with a couple of major downside days, with the Dow registering 200-400 point losses. Once the selling begins, it will not be easily stopped. The banks and their TARP money are pulling out - they have to - before they are stuck with losing positions. Before that happens they will unload on retail investors.

Happy days? Not for bulls.

Tuesday, June 2, 2009

The Incredible Levitation Stock Market Routine

Stocks managed another day slightly to the upside on Tuesday, the mood tempered somewhat as there wasn't another world-record bankruptcy to celebrate as on Monday. Without a General Motors going bust, the fat cats must have little to do, trying to keep the mood cheery and uplifting.

Despite the paucity of news - though pending home sales in April were up a reported 6.7% - investors still haven't gotten the idea to lock in profits, expecting the rebound and recovery to continue seemingly forever.

Dow 8,740.87, +19.43 (0.22%)
NASDAQ 1,836.80, +8.12 (0.44%)
S&P 500 944.74, +1.87 (0.20%)
NYSE Composite 6,182.87, +13.80 (0.22%)

Despite the smallish gains on the indices, the positive tone was notable, with advancing issues defeating decliners, 3764-2648. New highs recorded their second straight victory over new lows, 99-81, though it will take more than just a few instances for this to become a trend, and the betting - in this quarter at least - is against it. Volume was solid, roughly in Monday's range, and thus, unimportant.

NYSE Volume 6,945,081,000
NASDAQ Volume 2,406,962,750

Crude oil took a bit of a breather - or, rather, the pumping speculators did - losing 3 cents to $68.55. Gold gained, adding $4.40, to $984.40, in its inexorable push back above $1000. Silver continues to post impressive gains, adding another 22 cents per ounce, to $15.96. The silver rally is real, has legs and should continue unabated beyond $17 in short order.

As for stocks, well, they keep going up, too, but there are many reasons not to like them, the main one being that everyone has grown so complacent in recent weeks, setting up the potential for a swift and violent decline.

Monday, June 1, 2009

The Strangest Rally of All Time

It would be difficult, if not impossible, to describe the absurdity of the current rally in equities in terms that would do it justice. Mere mortals stand in awe of the magnificence, the enormity, and the one-sidedness of the US stock markets since March 9, 2009, until today... and probably beyond.

To try to offer some perspective, the S&P 500 closed today at 94xx, from the March 9 low of 676.53. That is a gain of 39.6% over a span of 57 sessions - 33 up, 24 down. Obviously, the days in which the index recorded gains, those were far superior in size than the days with losses. How well this has been orchestrated would make celebrated composer Leonard Bernstein blush.

Today's gains marked the 12th time during this span that the S&P has been up more than 20 points. By contrast, the index declined by that amount or more only 4 times through the same period. There has been no pullback or correction, as is almost always the case in rallies, no matter what the conditions or the degree of positive sentiment. This rally, unlike all others, has been nearly straight up, without any hint of a respite.

The kicker is that the S&P 500 index, should one like to apply Dow theory to it, should now be considered a PRIMARY BULL market, having successfully reversed the primary trend by topping the previous interim high of 934.70, posted at the close on January 6 of this year. That was off the low of November 20, 2008, of 752.44, and prior to the subsequent low of 676.53 (March 9, 2009). If one follows only the S&P 500, chartists would have to agree that we are now - without a doubt - in a bull market.

As an offset to that queer finding, the actual Dow Jones Industrial Index, upon which Dow Theory is based, still has room to run before breaking the primary - bearish - trend. The Dow would have to reach 9034.69, which it did on January 2, 2009, before declaring a new primary Bull market. The transportation index would also have to confirm, and, since those two events have yet to occur, one can safely assume that the current rally is indeed of the bear market variety, albeit quickly closing ground on fully debunking that data set.

All of this has occurred in an environment of growing, near-record unemployment, continuing declines in the median price of housing, a handful of Fed and Treasury initiatives to stimulate the economy, and the bankruptcies of Chrysler and General Motors, the latter occurring today and being the largest bankruptcy in the history of the United States.

While the Fed floods the world with newly-printed currency, commodities have also gained - not unexpected - as the dollar has declined against other currencies. All of this adds up to a great deal of uncertainty, a condition usually associated with market declines, not rapid, non-stop gains.

I, among others, have called the "top" incorrectly more times than we'd like to admit. There seems to be no stopping the engine of Wall Street, despite stocks on the S&P 500 having cut dividend returns to record lows while price-earning ratios have soared to levels normally associated with the end of long bull markets. The only way this rally continues is if the market is being manipulated, and that is the only conclusion which I can make at this point. There simply is not enough evidence that the economy has returned to a growth posture, nor any indication that stocks are actually being valued correctly, that is, discounting future growth. Most of the large gainers are actually showing a negative trend of declining earnings, which, in more normal times, would spark selling, not buying.

Dow 8,721.44, +221.11 (2.60%)
NASDAQ 1,828.68, +54.35 (3.06%)
S&P 500 942.87, +23.73 (2.58%)
NYSE Composite 6,169.0698, +165.00 (2.75%)

Advancing issues crushed decliners, 5159-1405. The biggest story of the day has to be the rollover of new highs finally surpassing new lows, 130-105. This is a reversal of a trend that has held in place every day except five or six since September, 2007. This is either the starting point of another bull run, which could dwarf even the current run-up, or a signal to sell everything as quickly as possible. The rally has pulled even the worst companies up by the bootstraps.

Volume on the day was higher than levels experienced last week, for no known reason, though not significantly.

NYSE Volume 1,500,474,000
NASDAQ Volume 2,647,576,000

Commodities in the energy area went ballistic. Crude oil gained $2.27, to $68.58, the highest point since November 4, 2008, seven months ago. Unfortunately, for those of us who still have to use gasoline to power our personal transportation devices, back in November of last year, prices were declining. They are now galloping ahead. Natural gas gained a whopping 41 cents, to $4.25, odd, because natural gas is primarily used for heating homes, and we are heading into warm summer months. The rise in natural gas was more than 11% in just one day.

Just as oddly, the metals responded in less-than-enthusiastic fashion. Gold actually fell 30 cents, to settle at $980.00. Silver gained 13 cents to finish at $15.74 per ounce in New York.

There were more "green shoots" of economic data, such as a 0.5% rise in personal income, a smaller-than-expected decline in personal spending and an 0.8% increase in April construction spending. Of course, those minor positives should have been more than offset by the largest bankruptcy in US history, the coming shutdown of 12-15 plants, job losses between autoworkers and dealers of more than 100,000, and a general malaise in manufacturing.

It just doesn't seem right that on the death of General Motors, Wall Street would throw a party.