Thursday, July 30, 2009

Sharp Rally Ends Softly on GDP Worries

US stock indices were up sharply early in the day on nothing in particular, though a more technical outlook might have foreseen the advance in the making after four days of sluggishness and little movement in US stocks.

The NASDAQ soared above 2000 for the first time since October, 2008, a span of ten months. The Dow and S&P reached 9-month highs during the session. Pent-up demand and an extension of the 5-month-long rally pushed stocks to their best levels of the year and had investors cheering despite contrary economic indicators and

Initial unemployment claims came in at 584,000, a touch higher than expected and a fairly sizable leap from the revised 559,000 of the prior week. Unemployment continues to be a key issue, though stocks don't seem to mind the unusually high levels of joblessness, probably a serious mistake.

In earnings news, markets were bolstered by positive developments in Avon Products (AVP), which saw profits plunge, but recruitment of sales representatives grow by 11%. Despite the poor quarter, the company actually bettered expectations and also announced layoffs of 1200 office staff. The stock trader up 2.41 (8.2%) on the news.

Other companies beating street estimates were Barrick Gold (ABX), health insurer Cigna (SI), Medifast (MED), Dow Chemical (DOW) and OfficeMax, which narrowed its quarterly loss by implementing a severe cost-cutting effort across the company.

Generally speaking, most public companies are weathering the recession better than the average consumer, though companies are narrowing losses or turning profits more from cost-cutting, labor force reductions, inventory depletion and other intra-company disciplines rather than increased sales. Most companies reporting this quarter have shown revenue declines from year-ago periods.

Those corporate results are what have many analysts baffled. With a healthy recovery nowhere in sight yet, stocks continue to gain in almost all sectors. While profits are still attainable, they have come on the heads of hourly or salaried workers or at the expense of organic growth. Profit expectations have been lowered nearly everywhere; still, the market gallops ahead as though the country were in a boom rather than at the mid-point of a major bust. There is likely to be a backlash and second leg down to price in the realities of a smaller overall economy in which companies are hardly flourishing but rather just hanging on.

Dow 9,154.46, -83.74 (0.92%)
NASDAQ 1,984.30, -16.54 (0.84%)
S&P 500 986.75, -11.60 (1.19%)
NYSE Composite 6,384.31, -103.74 (1.65%)

Late-day selling (after 3:30 pm) wiped out more than half of the gains on the major indices, however. The Dow, which had been up 175 points, finished higher by just 83. The NASDAQ drooped back below 2000 and the S&P failed to reach the magical 1000 mark. Advancers still beat decliners handily, 4784-1586. New highs skyrocketed to 267, versus just 106 new lows. A sign of the Wall Street mania could be seen in Starbucks (SBUX), which recorded a new 52-week high. Volume was improved over previous sessions, but was still not what would be seen in a serious bull market rally.

NYSE Volume 1,358,965,000
NASDAQ Volume 2,557,626,000

Commodities did an abrupt about-face in light of the positive tone on Wall Street. How much the street influences action in raw materials and other commodities is unknown, though today it seemed to be a major factor. Oil for September delivery rebounded $3.59, to $66.94. Gold spiked $7.60, to $937.30 and silver gained 23 cents, to $13.49. The sudden surge in prices may have had more to do with attitude than reality. Oil demand and gas usage is down, and unwinding upside-down positions may have influenced today's commodity action, though strong demand for a 7-year note auction by the Treasury was seen as a major positive. The debt machine continues to pump nearly non-stop, as though there is no limit to the unprecedented credit creation which is supposed to save us all.

The final numbers from Wall Street - especially considering the halving of gains in the final half-hour - were in anticipation of a major announcement tomorrow morning. At 8:30 am, the government announces preliminary second quarter GDP, the most relevant gauge of growth available, and it became obvious that there are some jangled nerves anticipating what many expect to be a very positive - though negative - number. The self-appointed "experts" say the economy shrank at the rate of 1.5% (annualized) in the three months ended June 30. That would be an enormous improvement over the average of 5.9% from the previous 6 months.

A negative growth rate ensures that the nation is still in recession, though the smaller number would indicate that conditions are improving. What that means as far as the second half of 2009 and all of 2010 are concerned is a matter of great conjecture. Nobody knows what the future holds, but most straight-thinking economists don't expect a very robust recovery. Of course, many of them have been wrong before, but tomorrow's opening bell should be a real loud clanger.

Wednesday, July 29, 2009

Stumbling Along Wall Street

Stocks extended their prolonged stagger into a fourth consecutive session. Trading was murky, directionless and, in many cases, pointless, as the debate over whether or not the economy was improving continued amid mixed signals from corporations posting earnings and generally positive tones from economic news and data. Meanwhile, the hoodlums in congress sounded downright belligerent as Barney Frank, Chairman of the House Financial Services Committee threatened the banks with forced writedown on mortgages if the banks don't stop the flood of foreclosures themselves.

Frank must think he's running for re-election soon (even-numbered years, Barney) to make such a blustery statement as he did today.

Dow 9,070.72, -26.00 (0.29%)
NASDAQ 1,967.76, -7.75 (0.39%)
S&P 500 975.15, -4.47 (0.46%)
NYSE Composite 6,280.57, -48.10 (0.76%)

The tone was definitely more to the negative today, however, as decliners raced past advancing issues, 3909-2416. New highs continued their dominance over new lows, 138-53. Volume was sluggish again, a trend which has persisted for months.

NYSE Volume 1,258,526,000
NASDAQ Volume 2,126,488,000

While stocks were just dawling along, commodities were taking it on the chin in a big, deflationary way. September crude fell $3.38, to $63.35. Gold was off sharply for the second straight day, losing $12.00, to $929.70. Silver also slid 48 cents, back down to $13.26. In the raw materials of the commodity world, where reality has a definite price, the outlook continues to sour. Due to the worldwide slowdown in industrial output, there is a glut of everything on the market; from livestock to oil to precious metals to grain, copper and natural gas, the abundance is evident on the ground, in the ground and above the ground. The deflationary spiral the Fed and other central banks have so stridently attempted to avoid is now becoming an unmistakable fact of life. Nobody's buying. All prices will fall, and continue to fall, for at least another six to twelve months.

The absence of pricing power will continue to cause economic disruptions, especially in areas in which prices are fixed, such as taxation. Property values have plunged, but governments have been slow and/or reluctant to re-assess property in accordance with the new reality. Thus, the coming wave of foreclosures will not only include mortgages, but municipalities are facing an avalanche of tax deliquencies and, subsequently, revenue shortfalls. The dance of death for governments across the landscape is only in the third inning of a nine-inning game and the big hitters are just beginning to get a bead on the ball. Upside-down balance sheets for towns, cities and states are quickly becoming the norm and not all the money created out of thin air by the Fed will save them.

This is the catastrophe which cannot be fixed by stimulus or bailout legislation. It will take an actual reordering of priorites by governments of all size, to stop the bloat at every level and make drastic cuts in expenses, personnel, pensions and benefits. If you thought the economy was on the mend, just wait until the end of the third quarter when the facts of life become naked to the eye. Americans are wallowing in seas of red ink in both the private and public sectors. Manufacturing has completely crumbled. Cottage indutries and home businesses will sprout from coast to coast in order to bring in extra cash or merely to survive.

Stocks are only a part of the bigger picture. The government has failed miserably and still won't admit it. Our political structure has been poisoned by lobbyists and liars in high position. Our social fabric is being held together with string and safety pins. Be prepared for another dip in the economy which may come out of the blue this time, not as well telegraphed as the October surprise of 2008.

Tuesday, July 28, 2009

Markets Take a Breather... Topped Out?

Just a quick peed at a short term chart of the Dow indicates that stocks have stalled over the last three sessions as earnings season winds down. What seems to be a psychological barrier exists at the 9100 level, but underpinning the pressure on traders is the non-confirmation in the Dow Jones Transportation Index (DJT) that was spoken of here last week.

Without confirmation of a breakout in the transports above the 3717 (January 6, 2009) level (currently 3523), there will be no talk of a new bull market, even though the possibility of one emerging still exists. Traders and analysts are becoming increasingly cautious about making market predictions, still reeling from the effects of last Autumn's tsunami of price declines.

There's also some confusion about just where stocks would have to go in order for a new bull to be proclaimed. Since the current bear is closing in on two years of age (October 2007), this bear may not have much further to proceed. At the very least, the rebound from March is encouraging to the bulls, as the incipient rally will soon reach 5 months. As bear market rallies go, that's a reasonable time frame. Naturally, continued gains would produce the much-desired "V bottom," though macro forces and experience tell us that a "W" is more likely, with the potential for either a truncated or extended third leg possible. For reference, take a look at a Dow chart of 2002-2003, where the Index bottomed just above 7500 at the end of September 2002, and rallied for a short time until hitting the next bottom around 7850 in March, 2003, just over 5 months later.

There were more zig-zags and I am oversimplifying, but the pattern is there for analysis, and could be re-emerging. Also notable is that the War in Iraq began with the beginning of the bull in March, 2003. There may be comparable political and military implications afoot, with increased troop presence in Afghanistan, though other conditions are not so closely aligned.

The issue is whether stocks on the Industrial and Transport indices have to reach January 2009 levels for confirmation or go back to November 2008 rebound highs. There's a big difference. On the Industrials, the November high was 9625; for the transports, a nip over 4000 is the sweet spot.

In any case, hedging for another down leg might be the prudent course at this point in time.

Dow 9,096.72, -11.79 (0.13%)
NASDAQ 1,975.51, +7.62 (0.39%)
S&P 500 979.62, -2.56 (0.26%)
NYSE Composite 6,328.67, -35.99 (0.57%)

The major indices spent almost the entire session in the red, with only the NASDAQ ending positive, a recurring theme. advancing issues held sway slightly over losers, 3163-3130. There were 165 new highs to just 71 new lows, lending credence to the bull ideology. Volume was moderately better than the past two sessions, another bullish signal.

NYSE Volume 1,280,160,000
NASDAQ Volume 2,236,427,000

If the stock market is taking a pause from screaming "recovery," commodities are singing a deflationary tune. September crude fell $1.15, to $67.23. Gold dropped $14.60, to $941.70. Silver lost 25 cents, to $13.74, though the precious metals are coming off two productive weeks of gains. Livestock and grain futures continued to experience price pressures.

There was little in the way of corporate earnings, though Office Depot (ODP) experienced a large second quarter loss. With businesses of every size cutting back, that's not much of a surprise. The stock lost nearly 20%, down 97 cents, to 4.38.

US Steel (X) reported a loss of $392 million, or $2.92 per share for the quarter ended June 30. Sagging demand for steel and steel products has pushed prices lower and crippled most producers. Fallout from the auto business is seen as a major factor affecting both prices and the profits of steel companies. The loss was the second straight quarterly for US Steel.

The S&P/Case-Shiller Home Price Index showed its first gain in nearly three years, though it could be more of a one-off than anything else. After dropping for 34 straight months, the 0.5% increase may amount to nothing more than a rounding error. With foreclosures still extremely high and unemployment showing few signs of abating, home prices may do a double-dip, just like stocks.

Monday, July 27, 2009

Stocks Flat As Consolidation Appears Likely

US stocks spent the majority of the session in negative territory, only to catch a bid late in the day and record modest gains. As there were few major companies reporting earnings, traders searched for signs of a recovering economy in new home sales data, which surged 11% from the previous month.

At this point, such news from the housing sector is extremely positive, though foreclosures continue to escalate in hardest-hit areas of the county, such as Michigan, California and the Southwest.

Dow 9,108.51, +15.27 (0.17%)
NASDAQ 1,967.89, +1.93 (0.10%)
S&P 500 982.18, +2.92 (0.30%)
NYSE Composite 6,364.66, +27.20 (0.43%)

Internals were in line with the headline numbers, though the trading range was extremely narrow (80 points on the Dow). Not to put too fine a point on it, but nothing much was moving in any direction following a week of relatively strong gains. Advancing issues outnumbered decliners, 3886-2522 and new highs continued their recent reign over new lows, 213-86. Volume was moderate, as traders change positions in what may be another consolidation phase.

NYSE Volume 1,045,247,000
NASDAQ Volume 2,159,129,000

The issue for markets is once again technical, as indices have surged again to positions indicating a recovering economy and possible renewed growth, though signs of such are remain few and far between. With many of the major companies already having reported, the market is likely to experience a bout of profit-taking near term, though many indicators are pointing towards a continuation of the rally.

It would be nice to be able to sound the "all clear" horn, but macro-economic forces, especially the solvency and liquidity issues in the banking fortress, are still in a state of virtual shutdown. Further out, the only geopolitical zone which shows any potential for long-term growth is the Pacific Rim, India and China. The US and Europe remain basket cases with far too much overhang in government deficits, an indirect result of last fall's near catastrophe. Money to lend remains on short leashes, with only the best credit-worthy of borrowers able to dip into the pool. Small business in the private sector offers great potential, but is being stifled without financing, causing a serious negative feedback loop into the general economy.

The US is being kept afloat by the patchwork done by the Fed, Treasury and the continued funding of the huge swath of entitlement programs. Payments to beneficiaries of Social Security, state and local pensions, disability, unemployment insurance and welfare are providing a floor upon which the broader economy will try to grow. It's a very bottom-up approach, and entirely built upon the generosity of Congress and borrowed funds from a variety of sources, a good deal of it in the quantitative easing being undertaken at the Fed.

While it is entirely possible that the Obama stimulus plan will provide enough of a boost to avoid a rerun of 2008, there are serious issues such as inflation, ballooning state government deficits and the unusually high rate of unemployment. Until there are actual jobs being created, it's more or less a slowly plodding domestically-based cash economy without real gains in either productivity and job creation. As such, it's difficult to recommend any long-term stock buying. The market remains a casino for quick returns or losses.

Commodity trading was also sluggish. September light crude rose 33 cents, to $68.38. Gold gained 40 cents, to $956.30, and silver was up 12 cents, to $13.99. Oil remains overpriced in consideration of demand, flat to declining even in the full bloom of summer.

More companies report on Tuesday. The ones which will be watched the closest are Deutsche Bank (DB), Hitachi (HIT), Universal Health Services (UHS), United States Steel (X) and Valero Energy (VLO).

Friday, July 24, 2009

Quiet End to Big Earnings Week

For the most part, investors cheered second quarter results from a wide swath of companies, sending the Dow Jones Industrials and other major indices to 2008 highs. The NASDAQ reached levels not seen since last October, while the S&P 500 careened back to its November 2008 levels.

Even though it was a down day for the NASDAQ - highly influenced by poor showings by Microsoft and Amazon after the close Thursday - that index ended a 12-day winning streak.

Dow 9,093.24, +23.95 (0.26%)
NASDAQ 1,965.96, -7.64 (0.39%)
S&P 500 979.26, +2.97 (0.30%)
NYSE Composite 6,337.46, +34.94 (0.55%)

For Friday, gainers led losers, 3818-2532. New highs cooled off after yesterday's exceptional showing, but still led new lows by a healthy, 2-1 margin, 164-82. Volume tapered off, with trading back to slow midsummer levels.

NYSE Volume 1,024,974,000
NASDAQ Volume 2,267,459,000

Commodities were again all over the map. September crude gained 89 cents, to $68.05, while gold fell $1.70 after a nice run-up, to end the week at $953.10. Silver was a winner, gaining another 11 cents, to $13.88, a magical level at which US silver coins are worth 10 times their face value. Both gold and silver once again seem poised to take off for new heights, though they've been in this territory before and rallies have been squelched by bouts of selling. with the US greenback under increasing pressure, however, this could be the moment for the precious metals to finally proclaim their value both as investments and hedges. Far and away, the precious metals have been the most stable investments this year, and since they are still in bull markets, there's little reason to believe they won't end the year shining.

The week was most impressive due to the relatively small number of companies posting poor second quarter results and next week may represent the last gasp of the long - now 5 month - rally. Within a rugged trading environment, wherein stocks and entire indices can turn on a dime, quick turnaround trades have been the best ally of most investors. The continued low volume indicates that the market is conducive to day-trading and that many players of all sizes are still sitting on the sidelines or have already been wiped out.

Next week is the highlight of the earnings season and also the end of another month. With the July employment report due out on August 7, there's ample reason to take profits and run, though the true high risk-takers may continue to hold, hoping that the incipient bear market rally erupts into a full-blown bull. The evidence for that happening is still a matter of great conjecture and clouded by a diversity of opinions and economic reports.

Best advice is to hang tight and hope for the best, though short term trading remains the obvious choice to avoid major losses. Wall Street has never resembled a casino more than at the current time. There are updrafts and downdrafts which could swing stocks in either direction. In such a context, apathy could be one's worst enemy and fear a grand ally.

Thursday, July 23, 2009

Revisiting Dow Theory As Industirals Reach '09 High

The midsummer rally caught fire on Thursday, as investors were encouraged by strong results from a wide range of companies, including Ford Motor Company (F), which announced better-than-expected earnings for the second quarter.

Also buoying the buyers was the third straight month of higher existing home sales, as reported by the National Association of Realtors (NAR). Not only were there more homes sold in June than in the previous month, but the number of foreclosure sales and short sales were of a smaller percentage than had been previously seen. The trade association also reported that the existing supply of homes for sale had fallen to just over 9 months.

3M (MMM) beat expectations, McDonald's (MCD) and American Express (AXP) missed. Amazon (AMZN), the world's largest online retailer, saw higher sales volume for the quarter but lower earnings, reporting 32 cents per share on $4.65 billion in sales. The stock was higher during regular trading hours, but had taken a $6.5% hit after hours.

Also after the close, Capital One (COF), a major credit card issuer, posted a $275.5 million loss as delinquencies continued to wrack the company's profits. They lost 65 cents per share in the quarter compared with a profit of $1.21 per share in the same period a year ago.

Another significant company reporting after the bell was Microsoft (MSFT), which missed both sales and earnings targets by wide margins. The global software, gaming and internet giant is being affected not only by the downturn in the economy, but by hardball competition from the likes of Google.

However, most of the trading day was cheery, with the Dow Jones Industrials exceeding its previous high from January 2nd, an initial sign of a possible new bull market emerging. However, the transportation index (DJT) failed to confirm, closing at 3506.12, far below the January 6 high of 3717.26. The mixed results after the bell, juxtaposed with the Dow's closing high and non-confirmation, sets up an interesting close for the week on Friday. As opposed to the nearly 300 companies which reported on Thursday, Friday will pale by comparison, with fewer than 80 companies scheduled to release earnings, none of them major firms.

Dow 9,069.29, +188.03 (2.12%)
NASDAQ 1,973.60, +47.22 (2.45%)
S&P 500 976.29, +22.22 (2.33%)
NYSE Composite 6,302.52, +151.12 (2.46%)

The good news is that the NASDAQ rally has now reached 12 straight sessions, and the majority of companies reporting are turning profits and many are beating expectations. On the day, advancing issues trampled decliners, 5206-1305 and new highs catapulted past new lows, 272-112. The number of new highs for the day was the most in nearly 2 years, a remarkable number. Volume also offered an encouraging signal, with a massive number of shares traded on the NASDAQ and a solid showing for the NYSE as well.

NYSE Volume 1,396,542,000
NASDAQ Volume 3,083,885,000

Commodities responded with mostly higher futures prices, especially oil, which gained $1.76, to $67.16. Gold was up another $1.50, to $954.80, while silver continued to rally off recent lows, up 7 cents, to $13.77.

While the economy may still be a little wobbly, the worst may indeed be behind us. However, investors are still skittish over stocks following last year's October surprise, the worst spate of stock selling since the Great Depression. Whether or not the transportation index will confirm a new bull market remains a distant outlook and how far investors will stretch their gains through the earnings season will also bear close attention.

Wednesday, July 22, 2009

NASDAQ Extends Streak, Earnings Up and Down

Editor's Note: I sincerely apologize for the last two days in which I have not posted as I regularly do. Unfortunately, events of the past few days have completely overwhelmed my usual habits, as my father passed away on Thursday of last week and the wake (Monday), funeral (Tuesday) and other family affairs have been very time-consuming. It is my sincere hope to get back onto my regular schedule as of today.

The markets continue to gyrate around second quarter earnings news and reports from a wide variety of companies. While the majority of companies have met or exceeded - mostly-lowered - expectations, a number of major firms have posted shoddy numbers, reflecting the struggles being felt across the US economy.

By the close, the only index posting a gain was the NASDAQ, extending its own winning streak to twelve days. The Dow ended an eight-day run of positive finishes with a modest loss.

That the NASDAQ has been a best-performer over the past few weeks should come as no surprise. Many of the companies comprising the index are younger and leaner, without many of the legacy costs and high debt loads usually associated with the companies on the Dow, for instance.

Apple (AAPL) and Starbucks (SBUX), both listed on the NASDAQ reported solid earnings for the quarter, while Advanced Micro Devices (AMD) and Wells-Fargo (WFC), two NYSE stocks, posted steep losses for the quarter.

Dow 8,881.26, -34.68 (0.39%)
NASDAQ 1,926.38, +10.18 (0.53%)
S&P 500 954.07, +0.51 (0.05%)
NYSE Composite 6,151.40, -2.99 (0.05%)

Market internals were in-line with the headline numbers. Advancers finished well ahead of losing issues, 3779-2585, while new highs continued their winning streak over new lows, finishing ahead, 142-96. Volume was very strong on the NASDAQ, but continued to slump on the NYSE, barely making it past the benchmark of 1 billion shares traded.

NYSE Volume 1,079,660,000
NASDAQ Volume 2,371,615,000

Commodities traded all over the map. September crude finished 21 cents lower, at $65.40, while the metal shone, with gold gaining $6.40, to $953.30 and silver up 22 cents to $13.70. Grains and livestock were mixed.

Earnings reports will keep investors on their toes Thursday, with nearly 300 companies reporting. Some of the bigger names include United Parcel Service (UPS), Raytheon (RTN), KLA-Tencor (KLAC), 3M (MMM), Burlington Northern (BNI), Capital One (COF), Credit Suisse (CS), McDonald's (MCD) and Microsoft (MSFT).

Friday, July 17, 2009

Split Friday, Positive Week for Stocks

Earnings results were just good enough - from Bank of America and Citigroup's weakness, to IBM and Google's strength - to push stocks modestly into positive territory for the day on two exchanges and marginally in the red on two others. The general ambivalence displayed by the day's trading is indicative of another topping out, or, at least a weekend resting point, as the Dow has rung up gains for 5 straight sessions, the NASDAQ, 6. It's a winning streak worthy of note and one that put an end to 4 consecutive losing weeks.

Over the past five sessions the Dow has tacked on an impressive 597 points, the NASDAQ perked up 130; the S&P gained 61 and the NYSE Composite added 411. For all the talk about there being no recovery in sight, the first wave of corporate earnings provided enough positive vibe to send the markets off on a nice upward run.

The question still remains as to whether the gains are sustainable, though given the early returns, the companies being traded seem to have adjusted to a new set of economic circumstances. While earnings are still down from what they were a year ago, so are stock prices. Investors are weighing the current results against an uncertain future, but remain positive, though skeptical. At least there seems to be little worry about a complete melt-down a la last fall.

Dow 8,743.94, +32.12 (0.37%)
NASDAQ 1,886.61, +1.58 (0.08%)
S&P 500 940.38, -0.36 (0.04%)
NYSE Composite 6,038.11, -4.94 (0.08%)

On the day, declining issues narrowly beat advancers, 3376-2936, but new highs bested new lows, 103-71. Volume remained down, though not down to levels of previous sessions, but close. The low level of trading velocity continues to be a topic overlooked by the mainstream financial press. Sluggish trading is a clear sign that investors ate still skittish and widely risk-averse. The vast majority of trades are of the short-term variety, more akin to gambling than traditional investing.

NYSE Volume 1,290,375,000
NASDAQ Volume 1,890,890,000

Commodity traders were also encouraged, sending crude futures higher again, up $1.48, to $63.50. Gold brought an additional $2.10 per ounce, at $937.50. Silver tacked on 17 cents, to close at $13.40.

The coming two weeks will be chock full of earnings hits and misses, though the general indications are that most companies have avoided all-out bust scenarios and may be looking to avoid returning to near-term bottoms from March. The US and world economies have stumbled badly, but they're still functioning, albeit at a decreased capacity.

Sorry for the Delay...

Stocks were up yesterday, but I was unable to report, as personal events took precedence over my work routine.

Nick Gagliano, my father, 84 years old, passed away overnight. I discovered him early Thursday morning, and, as any of you who have dealt with a family death know, spent the rest of the day consoling and being consoled by other family members, friends and neighbors.

My father was an investor, trader, and options player. It was he who introduced me to the world of finance and stocks. Not always the most prudent investor, he made some very savvy trades in his day. He was a survivor of the Great Depression, a WWII veteran, an attorney, a good and honest man. During the recent downturn in the fall of 2008, he, for once, had followed my advice and was out of the market. He will be missed by many, none more than this writer. He joins his wife of 55 years, Molly, who passed away in 2003.

I will try to keep up with events in the markets as much as possible over the next few days.

For the record, here are the results from Tuesday:

Dow 8,711.82, +95.61 (1.11%)
NASDAQ 1,885.03, +22.13 (1.30%)
S&P 500 940.74, +8.06 (0.84%)
NYSE Compos 6,043.05, +49.89 (0.78%)

Advancing issues did better than decliners, 4232-2045. There were 100 new highs to 74 new lows. Volume moderated back toward the low end, though the rally is now four days on the Dow and five for the NASDAQ.

NYSE Volume 1,144,284,500
NASDAQ Volume 1,908,150,750

Current commodity prices:
Crude oil: $62.02
Gold: $935.40
Silver: $13.24

One note on JP Morgan Chase (JPM) results, earning 28 cents per share in the second quarter, as analysts were seeking 4 cents per share profit, is that the estimate had been lowered dramatically over the past 30 days, from as high as 39 cents per share. Since the quarter was very robust, the bank received a good deal of government largess and the FASB allowed the banks to employ mark-to-market accounting in their reporting, it was no wonder that Morgan was gushing with fresh capital.

These bank earnings are more than just a little suspicious.

Wednesday, July 15, 2009

Intel Earnings Report Lifts Stocks

After the bell on Tuesday, chipmaker Intel reported second quarter earnings results far ahead of Wall Street expectations. That was enough to give investors confidence that the economy was continuing to mend - albeit slowly - and that stocks - especially tech companies with strong balance sheets - would weather the storm and produce solid results.

As a result, all the major indices gapped up at the open and continued to tack on impressive gains for the entire session.

There have been conflicting data and no consensus on the economy or the stock market of late, but as earnings roll out, opinions are beginning to shift to more positive tones, and nothing will light up a rally like a strong report from a solid company, such as Intel.

Intel reported a second-quarter loss of 7 cents a share, compared with a profit of $1.6 billion, or 28 cents a share, for the year-earlier period. The loss was attributable to a hefty fine imposed by the European Union. Excluding the charge, Intel posted profits of 18 cents a share, better than analyst's expectations for 8 cents per share.

Dow 8,616.21, +256.72 (3.07%)
NASDAQ 1,862.90, +63.17 (3.51%)
S&P 500 932.68, +26.84 (2.96%)
NYSE Composite 5,993.16, +187.58 (3.23%)

Gainers outnumbered losers by a wide margin, 5583-936. New highs took back the advantage over new lows, 87-70, and, in what was probably the most encouraging sign for market participants, volume was significantly higher than it had been over the past month, a sign that more money was in the market for gains on the day. Whether stocks can build on the momentum of the first three days of the week will be telling. The Dow has rung up gains in each of the three session, while the NASDAQ is on a four-day winning streak.

NYSE Volume 1,374,278,000
NASDAQ Volume 2,577,142,000

Taking their lead from the stock market, commodity traders pushed prices higher in a spasm of buying. Oil gained $2.02, to $61.54; gold picked up $16.60, to close at $939.40, while silver added 35 cents, to $13.21.

On the agenda for tomorrow, second quarter earnings report from JP Morgan, one of the banks which took a roller-coaster ride, price-wise, over the past 12 months. The company is expected to have turned a profit in the current quarter, and earnings are expected in the area of 4 cents per share, which is a number significantly lower than just a month ago, when analysts were looking for 37 cents a share. Depending on the size of the rally and Morgan's results, the snake oil could be flowing come tomorrow. Buyers of this current snort-term rally may get less than what they've bargained for.

Tuesday, July 14, 2009

It Was Another Sucker Rally

Answering the question posed on Monday, the suckers are about to be reeled in.

After Meredith Whitney singlehandedly boosted the Dow by 185 points - the best performance in 6 weeks - with her call for an ever-higher, ever-growing Goldman Sachs, Tuesday's follow-through was nothing more than a gaping, loud yawn which could be heard booming down the canyons of Wall Street all the way to the beaches at Del Mar.

Action was spotty and choppy as the indices see-sawed across the break-even line. Eventually, some brave bulls hung in until the final bell, but the sentiment was far from universal. In fact, Goldman Sachs, which reported better-than-expected earnings for the second quarter, and was up 7 points Monday, finished the day up a very modest 22 cents.

Dow 8,359.49, +27.81 (0.33%)
Nasdaq 1,799.73, +6.52 (0.36%)
S&P 500 905.84, +4.79 (0.53%)
NYSE Composite 5,805.58, +44.21 (0.77%)

Although advances were broad-based with winners getting past losers, 4054-2274, new lows retained their edge over new highs, 59-56, and volume was pretty much confined to the boys at Goldman and JP Morgan plus a few hedge funds in New Canaan, CT. Everyone else, it seems, is where they should be: on vacation.

NYSE Volume 978,933,000
Nasdaq Volume 1,890,954,000

On a happier note, Bernie Madoff began serving his 150-year prison sentence at the Butner Federal Correctional Complex, in Durham, North Carolina, today. Bernie will be in good company. The prison also houses John Rigas, the Aldephia Communications scoundrel among other tax cheats, forgers and scammers. I case you want to check on Bernie's well-being, he can be found under prison number 61727-054, at the federal prison system's web site.

Commodity traders apparently aren't sold on either recovery or recession, as prices stalled out on Tuesday. Oil fell 17 cents, to $59.52, gold gained 30 cents, to $922.80, while silver tacked on 7 cents, to $12.86. Most other commodities were traded within small ranges.

The Bureau of Labor statistics released the Producer Price Index for June, showing a 1.8% seasonally-adjusted gain over May, which is a little bit misleading since the finished goods prices declined 4.6% over the past year. While the 1.6% gain in one month may be alarming to some, most of the veterans on Wall Street realize we're in a bit of deflation, so the number didn't engender more "inflation" talk.

After the close, Yum Brands (YUM) and Intel (INTC) both issued 2nd quarter results that beat the street. The rally could have been merely taking a breather, though investors may also be getting pickier with earnings increases slim.

Monday, July 13, 2009

Financials Fun or Another Sucker Rally?

With 2nd quarter earnings about to begin rolling out tomorrow, Monday's movement in the markets was something to ponder befor possibly jumping into the breach. Leading the way were financials, the very same banks that caused huge financial failures less than a year ago.

Are the banks fully rejuvenated? Can they be trusted as guardians of important capital - for mortgages, college, retirement, etc. - or have investors forgotten so soon how cavalier these same bankers were with other people's money. Sadly, I am of the camp that says they cannot be trusted. Every time financial stocks lead rallies, I see the same fraudulent faces, the same lying CEOs, none of whom have been rightfully indicted, prosecuted and jailed for their various crimes: collusion, delusion, evasion and deceit.

After falling for four straight weeks, maybe the market was prime for gains, but one must bear in mind where we are in the greater cycle. Stocks are just coming off highs, and, with the economy still struggling, one has to question the wisdom of jumping in at this particular juncture. Maybe for short term profits, this is the right move, but longer term, stocks could easily become cheaper in months ahead. If this is a short term timing rally and an in-and-out play, which is predominantly what our markets have become, this may be worthwhile, but waiting until the first few days' worth of earnings results come to the fore seems to be a more prudent position.

In any case, stocks were brought higher by the banks, which lifted every sector by at least 1%.

Dow 8,331.68, +185.16 (2.27%)
NASDAQ 1,793.21, +37.18 (2.12%)
S&P 500 901.05, +21.92 (2.49%)
NYSE Composite 5,761.37, +133.85 (2.38%)

The movement was broad based, with advancing issues beating out decliners, 4980-1400. New lows, however, maintained their edge over new highs, 79-40. Volume was nothing about which to get excited, another indication that not all hands are on board with this move. Weak volume has been an consistent feature marking the end of the rally and the beginning of the correction four weeks ago.

NYSE Volume 1,189,460,000
NASDAQ Volume 1,921,335,000

Commodities were all over the map. Those in the energy-related sector followed oil's downward draft of 20 cents, closing at $59.69. The metals were all up, with gold higher by $10.00, to $922.50, and silver up 14 cents, to $12.79. Livestock and foodstuffs finished in mixed fashion.

Banks will be in focus the rest of this week as a number of big names announce earnings. Goldman Sachs, a particularly important bellwether, reports tomorrow.

Friday, July 10, 2009

China Exports, Fed Investigation Fuel US Stock Sell-Off

News from the People's Republic of China (the most Westernized Communist nation ever) that imports rose 13.2% while exports fell 21.4% in June underscored the sheer depth of worldwide trade contraction (a better word than depression, but along the same meaning). In the prior month, China's trade balance fell to a paltry $8.25 billion, a far cry from the enormous trade surplus during the mid-2000s.

Since the US economy has contracted at an alarming rate over the past year, China has suffered the consequences of being too-highly dependent upon one major trading partner. For its part, the Chinese will likely devote heavy sums of its manpower and money to infrastructure development and strengthening the domestic economy over the next two to three years, areas ripe for growth.

Compared to the US, China can outspend America for years on building new bridges, buildings, rail and highways, and not bat an economic eyelash, most of its development financed by domestic banks. To the contrary, the US has to borrow its way back to "prosperity" and doesn't have nearly the real need for new infrastructure the Chinese do, though repairing much of the existing stock is a tall order.

In the end, somewhere around 2013, China will rival the United States as the dominant economic power in the world, and they'll have done so without firing a shot - although waging a military war with the Chinese is surely a last-gasp scenario in secret DC boardrooms.

There's little doubt that China is the ascendant power of the 21st century, just as America was the powerhouse in the century prior. Now that we have shipped our manufacturing over to mainland China, there's no chance of retaining our dominant position. It will not happen overnight, or suddenly, but slowly and less painfully for US interests, but betting on America's future is a fool's gambit. Our economy is shrinking while our debt enlarges. It is a recipe for catastrophe and the winner will be China.

Also of note on the final day of the week is the call by 3 Democrat and 14 Republican House members for the Obama administration to investigate the Federal Reserve over its role in the Bank of America/Merrill Lynch merger. While the House members' move sounds interesting and potentially a blockbuster, it's more than likely nothing more than bluster and grandstanding. The Administration is not going to peer too deeply or with any grand degree of rigor into the activities of its own operatives. While there's little doubt Henry Paulson and Ben Bernanke pressured BofA to do the deal and save Merrill from bankruptcy - which would have triggered more financial fallout and stock losses - nobody in the world is going to get anyone from Treasury or the Fed to 'fess up to that dirty deed.

The news did send some shockwaves across the market, however, as stocks continued to reel for a fourth straight week. On the Dow, the 8146 finish was the lowest since April 28 and a loss of 134 points on the week. All of the major indices except the NASDAQ opened on the negative side of the ledger and stayed there throughout the session. While NASDAQ finally finished in the green, damage was limited by a late-day short-covering rally on extremely low volume.

Nine of 12 sectors were lower, with Transportation, Consumer Cyclicals and Technology the only winners.

Dow 8,146.52, -36.65 (0.45%)
Nasdaq 1,756.03, +3.48 (0.20%)
S&P 500 879.13, -3.55 (0.40%)
NYSE Composite 5,627.52, -39.85 (0.70%)

Declining issues outweighed gainers, 3227-3021, but new lows continued to dominate new highs, 99-23, on the day. Volume again was anemic, appearing to be the lowest single-day number of shares traded since the first trading day of the year, January 2.

NYSE Volume 922,061,000
NASDAQ Volume 1,673,932,000

Crude oil for August delivery closed down 52 cents, passing the psychological $60 mark, at $59.89. Gold dipped $3.70, to $912.50, with silver down 29 cents to $12.65. If one is seeking a gauge for deflation, there's likely no better place to look than to commodities, a leading indicator. They have taken some time to fully commit, but there are indications aplenty that raw material prices have fallen and are staying down. Lack of demand will continue to erode raw material prices now that China has eased up on some of its buying. If there was a time to sell commodities - especially metals and energy - it was over the last two weeks. The stampede for the exits may only be beginning.

Looking ahead to next week, which will be chock-full of earnings reports, the banking sector may predominate, as Goldman Sachs (GS), JP Morgan Chase (JPM), Citigroup (C), and Bank of America (BAC) will all issue 2nd quarter results.

Thursday, July 9, 2009

Why Debate? The Economy Stinks, So Do Stocks

It's becoming somewhat amusing to listen and read the various pundits, analysts and stock jockeys who are still buying the "green shoots" recovery mantra propagated so often by the feds and the media this past Spring. Amusing, and maybe a little sad, especially since the Obama administration has quietly wandered away from that framework, having more recently adopted the "going to get worse before it gets better" approach of tamping down expectations, or, a Joe Biden has opined, "we underestimated the recession."

There's hardly any debate worth considering except how best to get out of the way of falling stocks once the carnage of second quarter earnings results commences. Yesterday, Alcoa (AA) kicked off earnings season by announcing a loss, but one that was not as bad as analysts had expected. Now, while that may have worked with first quarter results, the logic is wearing thin. After Alcoa was pumped in after-hour trading on Wednesday, and opened higher Thursday, it ended the session down 23 cents.

Talk about separating a pigeon from his money! Anyone who bought in the brief euphoria period overnight and into the first hour of trading is now sitting on a pile of losses which will likely only deteriorate over the coming days and weeks.

The rally from March through June has topped out. In case those with a bullish bias haven't noticed, it's July, and time for stocks - and traders - to take a breather. Economic reports of late have been either benign or sorry, indicating that recovery, once thought to be just around the corner, has taken a detour into a dark alley and can't be located.

Topping off everything else are the state-by-state tales of woe and despair. Most of the comptrollers or treasurers who put together budgets were hoodwinked into thinking that tax receipts would somehow miraculously keep pace with those of the past three years. They were also bailed out largely by the federal government (taxpayers borrowing) and failed to make the most modest of adjustments in spending. California is passing out IOUs, New York will be next, likely followed by Pennsylvania, Florida, Nevada and Arizona. State budgets are so far outside the realm of reality one wonders how we evey survived so long.

While the economy erodes daily, the news media ponders the feds' next move, pointing toward another stimulus of some kind, instead of doing what has been needed all along, cutting spending, freezing hiring and slashing salaries. The one segment of the population that hasn't suffered layoffs is government, and while they remain insulated, the correct approach should be to cut workdays or pay rates. States, municipalities and the federal government would be doing themselves a favor by slicing salaries by 10-15% all around and renegotiating health care contracts. Such a move would position the politicians as egalitarian, and, despite the howls and yelps from the minions of government workers, those could be reminded that they still have jobs and should be happy for that.

It sounds like a great plan, but it will never happen. We're moving along the path of cradle-to-grave socialism, and unless there's a quick and radical shift in thinking in government circles, they'll simply print more worthless paper before taking real action on spending.

Dow 8,183.17, +4.76 (0.06%)
NASDAQ 1,752.55, +5.38 (0.31%)
S&P 500 882.68, +3.12 (0.35%)
NYSE Composite 5,667.37, +42.80 (0.76%)

Today's minute gains underscores the futility of trading in such an environment. There simply aren't many stocks that look good over any horizon, especially, short-to-medium term. On the day, advancing issues managed to beat out decliners, 3642-2698. New lows are beginning to persistently beat back new highs; today, they won again, 81-25. Volume, however, was the real story. There just wasn't much action to be had.

NYSE Volume 1,006,111,000
NASDAQ Volume 1,892,060,000

Commodities muddled through a session without much in the way of direction. Oil gained 11 cents, to $60.25. Gold reversed its recent downtrend, adding $6.90, to close at $916.20. Silver was up as well, picking up 8 cents, to $12.94.

All tolled, the day was unspectacular and probably more worrisome than it appeared. Investors - those still left standing and/or holding - seem to be on edge, awaiting the next round of dismal news. That could come any day, but probably not until next week, when a slew of big names will be reporting earnings and losses.

Wednesday, July 8, 2009

Observations In Present Time Forecasting Dim Future

There's a great degree of anxiety over the health of the US and world economies, and for good reason. Countries are experiencing contractions in trade that they have heretofore never before seen, such as Japan's 40% drop in exports and the mounting stockpiles of cars, trucks and other vehicles in US storage lots.

As expected, disruptions in the business cycle are everywhere, and Wall Street insiders are reeling from the pressure while putting on a game face as companies and their CEOs get set to face the music when 2nd quarter earnings are reported.

Meanwhile, beneath the veneer of stocks, bonds and assets, the banking crisis has not gone away, but has been merely submerged by the government and the compliant financial media.

James Grant, editor of Grant’s Interest Rate Observer recently said, “If the Fed examiners were set upon the Fed’s own documents - unlabeled documents - to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down. The Fed is undercapitalized in a way that Citicorp is undercapitalized.”

When I saw Grant's quotes, it reminded me of something I actually pondered a few months back, actually, January 23, 2009, in a post entitled Who Flipped the Switch? and, Is the Fed Busted?

Well, I guess we have our answer now. Thank you, Mr. Grant.

Actually, the plight of the Federal Reserve, though inexorably tied to that of the US government and eventually you and me, continues to deteriorate. There are only so many bad assets you can carry on your books before you start stinking up the place all by yourself. Confidence in the unofficial US central bank (a private institution, mind you) has fallen to new lows and congress, finally, reluctantly, is refusing to broaden its powers. Having the federal government and the Federal Reserve at loggerheads might actually be beneficial. Neither can point fingers for fiscal irresponsibility, for both are guilty. Should push actually come to shove, the government can simply legislate the Fed out of existence. That day may be coming sooner than anyone dares think. (Not a few people have suggested that severing ties to the Fed should have happened years ago.)

Bank of America is probably still insolvent, as is Citigroup (recently removed from the Dow Jones Industrials), JP Morgan Chase and Wells Fargo. After the next public stimulus, there will be another round of bank refinancing, as the last $700 billion will have proven to have fallen just a little - like $2.5 trillion - short of the mark.

Dow 8,178.41, +14.81 (0.18%)
NASDAQ 1,747.17, +1.00 (0.06%)
S&P 500 879.56, -1.47 (0.17%)
NYSE Composite 5,624.57, -30.07 (0.53%)

The various indices finished in mixed fashion once again, a fashion that's become a trend over the past three weeks. Overall, though, stocks were lower as declining issues far outpaced advancers, 4258-2118 (2:1) and new lows raced past new highs, 102-28, the largest margin in that metric in over a month. Volume was higher than recent days, indicating that stealth selling was being undertaken in a big way. Brokerages were likely unloading losers and ridding themselves of excess shares bought as window dressing at the close of the last quarter.

NYSE Volume 1,437,925,000
NASDAQ Volume 2,497,659,000

There is little doubt that investors are expecting the worst from the coming earnings seasons and have taken profits in a wide swath of securities. A major sell-off - something on the magnitude of 300-400 points on the Dow - could occur at any time while upside potential appears to be severely limited. Whatever the news or the government has been saying about the economy improving, Wall Street isn't buying it, and neither should the American public. The so-called "second shoe" is about to drop.

Even though stocks were spared somewhat during Wednesday's session, the economic currents have not been misread by commodity traders. Oil fell for the sixth straight session, losing $2.79, to close at $60.14, after US stockpiles were more robust than expected and an OPEC report suggested that production levels and therefore, the price of crude could be under pressure until 2013 due to a prolonged business downturn.

Gold fell by $19.80, to $909.30, getting precariously close to the $900 level, when most of the "gold bugs" have been screaming that gold will soar over $1000. That scenario looks to be more and more unlikely each passing day, as deflation continues to tighten its grip. Gold usually rises on fears of inflation, but in times like this, reacts like any other asset or commodity. If there's slack demand, there cannot be a rise in price. The same goes for silver, which lost another 37 cents on the day, closing at $12.85. Expect the metals to retrace prices from earlier this year or from last fall. For silver that would be $8.80-$11.60. For gold the range is from $712 to $880. If commodities as a whole continue to deteriorate along with world economies, expect gold and silver to decline along with them. Deflation is an all-inclusive club.

Tuesday, July 7, 2009

Bears Bag More Bulls

Those "green shoots" we heard so much about in April and May have apparently withered and died with the onset of summer. Fact of the matter is that the US economy is being kept afloat by a combination of stimulus money, bank accounting rules changes, gobs and gobs of fresh currency via the Federal Reserve and the burgeoning welfare-government state.

US consumers are alternately tapped out or scared, or both, and the tiny steps the federal government has employed thus far have done little to stimulate the economy. Trade flows are down, sales everywhere have redlined and state governments are on the verge of default. In California and New York, the two largest states by population, tax revenues have not kept pace with projections. Incomes are stagnant and tax increases have not filled the budget gaps which threaten to implode the entire apparatus of those two state governments.

With the economy in such desperate throes, stocks - and, for that matter, all other asset classes - cannot sustain current price levels, especially after the huge run-up from March through June. Stocks fell to their worst levels in two months as the Obama administration begins touting another round of stimulus, the latest trial balloon coming from presidential advisor Laura Tyson.

The problem with more stimulus is that it is exactly what won't work. Job creation programs for small business and fiscal restraint from Capitol Hill and state assemblies are the proper medicine. Government spending, the Keynesian solution, is simply piling up new debt that has to be repaid at some later date. The American people have had their fill of deficit spending, but the voices calling for restraint have been silenced and neutered by congress, the administration and the mainstream media. Instead of solving the crisis with spending cuts, the plain truth is that the government now is in a no-win position in which it has to keep spending to prevent the economy from falling even deeper into a deflationary spiral.

Government payments to welfare moms, disabled persons, and the aged are all that's keeping the US economy from complete collapse and taking down most of the rest of the world economies with it.

In all likelihood there will be another stimulus bill, aimed at selected, favored industry groups with their hands always out, instead of the rock-solid small business segment from which 2/3rds of all new jobs are created. We are entering an even more dangerous phase of the recession cycle: another retreat and round of job cuts is not far off. There simply has been no new job creation for more than 18 months, and with the recession by most accounts now stretching into month 20 or longer, it's time for the big wigs to admit that this one is different, longer, deeper and more serious than anyone has previously thought.

We're hurtling headlong into the most severe crisis in the history of our nation. Worse than the Great Depression and possibly even the Civil War. We are looking at the complete destruction of our financial system, fiat currency, Federal Reserve system and all the rest. The damage done by years of neglect, greed and horrible decisions by the Fed and Treasury is likely far beyond the understanding of even the brightest economists. We are in uncharted territory and the crowd which got us into it - the Larry Summers, Ben Bernankes, Tim Geithners, et. al., are uniquely unequipped to get us out of it.

By this time next year we could see vast segments of the economy completely wiped away, the currency (Federal Reserve Notes) unwanted by foreigners and US citizens alike, and a return to hard cash and barter. Nothing the government has done or will do (unless they have some miracle cure) will save us from currency debasement. It's going to be a long, hard time for many and not over in just a couple of months or years. This depression will last well into the next decade, probably until at least 2013.

On the day, stocks continued their descent back to the March lows. There's almost no doubt that we'll revisit the 6500 level on the Dow before year's end. The Dow has lost some 637 points since its close of 8799 on June 12.

Dow 8,163.60, -161.27 (1.94%)
Nasdaq 1,746.17, -41.23 (2.31%)
S&P 500 881.03, -17.69 (1.97%)
NYSE Composite 5,654.64, -115.36 (2.00%)

Today's trading was a continuation of Monday's downbeat tone, but with more participants on the selling side. Advancing issues were bludgeoned by losers, with declining issues ahead, 4879-1498. New lows continued their recent trend of outnumbering new highs, 76-43. Volume continued to be anemic, but these low trading levels are becoming a permanent feature of the market as many participants have either tapped out or left for either safer or more lucrative venues.

NYSE Volume 1,107,764,000
Nasdaq Volume 2,047,618,000

Oil took it on the chin again, losing $1.12, to $62.93. Other energy-related commodities registered similar declines. Gold bucked the trend with a gain of $4.80, finishing at $929.10. Silver lost 2 cents, to $13.22, just below the point at which old silver coins produce a melt value 10 times their face value.

Stocks and commodities should continue to fall over the next few weeks and continue their downward trajectory into the late summer and fall months. Second quarter earnings from US corporations are predicted to be marginally better than those from the first quarter, and how investors treat the news should provide direction for the overall market. The betting is that most will not be happy with "less bad" at this juncture. Investors with cash on the line will want to see actual improvement in reports. If not, profits will be quickly taken off the table, leading to another round of outright selling in which nobody wants to be left holding the bag. The final week of July and first two weeks of August could be quite disruptive to many portfolios, rivaling the declines seen last fall and earlier this year.

We are headed for a sizable shakeout. Alcoa (AA) starts the earnings parade on Wednesday.

Monday, July 6, 2009

Deflating Away

Stocks traded in different directions on different exchanges, with the Dow and S&P up and the NASDAQ and NYSE Comp. lower. This has been a recurring theme of late due to the diversity of opinion on market direction and the relative benefits and deficiencies of various sectors in play.

The bottom line is that no sector has been a safe haven and that stocks as a whole have withered over the past month. With earnings reports coming out soon, stocks are sure to be under pressure for the next three to five weeks.

All of the major indices spent most of the day in the red, though there was noticeable buying effort in the afternoon, mostly among financials and health care-related issues.

Dow 8,324.87, +44.13 (0.53%)
NASDAQ 1,787.40, -9.12 (0.51%)
S&P 500 898.72, +2.30 (0.26%)
NYSE Composite 5,770.00, -5.24 (0.09%)

While the headline numbers may have been confusing, there was clarity in the internals, as declining issues raced past gainers, 3932-2446. New lows checked in at 83, with only 34 stocks making new highs. Volume remained at embarrassingly low levels.

NYSE Volume 1,140,635,000
NASDAQ Volume 1,996,618,000

Commodities continued to take on water, as they did at the end of last week. Oil sank to its lowest level in six weeks, closing down $2.68, at $64.05. Gold was down $6.70, to $924.30. Silver fell 17 cents to $13.24.

Deflationary pressure remains a key issue for economists world-wide.

Thursday, July 2, 2009

Stocks Hammered on Unemployment Data

Taking its queue from another back-sliding non-farms payroll report, stocks sold off right from the opening bell and finished with a loss rivaling the June 15 and June 22 losses of 28 and 22 points, respectively, the difference being that those prior losses occurred on Mondays, opening weeks, whereas this one ended a week, and was leading into a holiday weekend to boot, an ominous sign.

The data from the Bureau of Labor Statistics (BLS), released an hour prior to the market's opening bell, showed a worsening condition in the labor market, with a loss of 467,000 jobs for the month of June. Expectations were for many fewer job losses, in the range of 385,000. May job losses of were revised positively, to -322,000, from -345,000. The unemployment rate rose to 9.5%. True unemployment, including those whose unemployment insurance had expired without securing a new job, was estimated at 16.5%.

First time claims came in at 614,000 for the most recent week, another blow to the recovery crowd.

President Obama called the numbers, "sobering," while many others were calling the increased unemployment predictable and Obama's recovery plans ineffective. The administration is facing increased pressure to right the economy, as most average Americans are not seeing any improvement in their standards of living, better job prospects or assistance meeting mortgage and credit obligations.

Major indices fell for the third consecutive week, confirming beliefs that the market has made a short term negative turn. The Dow, NASDAQ and S&P all finished within support ranges - 8300, 1800 and 900, respectively.

Factory orders were up 1.2% in May after a revised gain of 0.5% in April, but the employment numbers overshadowed those marginally improved results.

Dow 8,284.21, -219.85 (2.59%)
NASDAQ 1,796.52, -49.20 (2.67%)
S&P 500 897.04, -26.29 (2.85%)
NYSE Composite 5,779.64, -174.37 (2.93%)

Losers beat gainers by a huge margin (5206-1155) and new lows overtook new highs, 59-29. Perhaps the most "sobering" figure was that of the day's volume of trade, which hit levels so low as to ring the liquidity alarm. Markets are so turgid and corrupted, that, in addition to the normal summer slowdown, trading volumes have hit multi-year lows. If US markets cannot be relied upon as providing some degree of flexibility and volatility, traders will seek out more pliant markets.

It is quite possible that the low volume levels are reflective of net outflows from US equities into other markets. This was the fear in Treasuries, though the poor liquidity scenario may have struck Wall Street instead. If that is the case, one could hardly blame an investor for seeking safer havens offering better returns. As the new high-new low indicator has been relevant throughout the market's decline, now volume is becoming more intriguing by the day.

NYSE Volume 626,027,000
NASDAQ Volume 1,955,272,000

Sentiment from the unemployment numbers spilled over into the commodity market, where crude oil stumbled badly, off $2.58, to $66.73. Gold slipped $10.30, to $931.00, with silver finishing lower by 35 cents, at $13.41.

Earnings reports will begin to fill the news hole next week. Judging by current data, some expectations may have to be lowered and the start date for recovery pushed back to a more realistic date, some time next year.

Enjoy the 4th, remembering that the holiday is all about FREEDOM.

Wednesday, July 1, 2009

Stocks Start 3rd Quarter with Modest Gains

After closing out what was a very good quarter with a final bummer of a day, investors toed the waters at the opening of the third quarter, nibbling at positions in a very slow session. Stocks finished with solid gains on low volume, after a slew of economic reports showed the economy remaining in the throes of recession, though clearly not in as rough shape as 3 to 6 months ago.

The Chicago Purchasing Manager's Index (PMI) was up sharply in June, to 39.9, after a reading of 34.9 in May. Still, the number was well below 50, which is the threshold for expansion. The report confirmed continued weakness in manufacturing, though slightly improved on a month-to-month basis.

The Institute for Supply Management (ISM) index was also up in June, with a reading of 44.8 following a 42.8 number in May.

Construction spending for May was off 0.9%, offsetting a gain of 0.6% in the prior month. Pending home sales were up a marginal 0.1% in May, after April's surprisingly good showing of a 7.1% gain.

Finally, the ADP Employment Report [PDF}, an unbiased snapshot of the private labor market, recorded a loss of 473,000 jobs in May, slightly better than the 485,000 jobs lost in May.

With all that to chew on, stocks were up sharply right out of the gate, but peaked early in the day. After 10:30 am, the major indices lost value for the remainder of the session.

Dow 8,504.06, +57.06 (0.68%)
NASDAQ 1,845.72, +10.68 (0.58%)
S&P 500 923.31, +3.99 (0.43%)
NYSE Composite 5,953.82, +48.67 (0.82%)

Advancing issues took back the initiative over decliners, beating them, 4476-1870. New highs outnumbered new lows, 74-62, but volume was depressingly low, not uncommon in a holiday-shortened week. The markets will be closed on Friday.

NYSE Volume 950,845,000
NASDAQ Volume 2,000,025,000

Crude oil futures fell 58 cents, to $69.31, after the government reported a build in gasoline inventory of as much as 2.3 million barrels. That kind of data could spark a real rout in oil futures, as prices traditionally peak nearing the 4th of july holiday. With that much of a glut on the market and the economy generally weak, demand for oil and gas may remain slack for months, cutting into prices. One would normally think that in a true open market, but the futures market is anything but, dominated by hedge funds and large traders who can exert enormous control over price movements.

Gold shot up $13.90, to $941.30, while silver tacked on 16 cents, to $13.76.

The Commerce Department releases June Non-farm payroll data tomorrow morning prior to the market open. With the ADP figures already in hand, the government's massaged figures may prove anti-climactic. Still, we're off and running in the quarter which was promised to be the one in which recovery really began. There are still signs that the recession is easing off, but actual recovery may still be as many as 6 months away, if not more. Investors may find themselves hoping for more than companies can deliver, though there have been reports of analysts raising estimates for a large number of companies. If they can meet those numbers, stocks could actually advance further. We are now in the 23rd month of the bear market, so a turn could actually occur at any time, though I'd hedge my bets against it. Another sharp decline, and possibly a retest of the March lows are probably more likely.