Friday, October 30, 2009

Volatility Returns to End Wild Week

If you're looking for direction in this market, you're not alone. Following a week in which triple-digit moves on the Dow Jones Industrials were the norm, with the other indices more or less in concert, investors are scratching their heads, backs, bottoms and anything else nearby in almost total confusion.

The Dow was down more than 100 points three days, culminating in the biggest move of the week on Friday (-249.85), and up nearly 200 points on just one day - Thursday - after the government announced the preliminary reading on 3rd quarter GDP at a positive 3.5%. Only Tuesday was tame, with the index up a mere 14 points.

For the week, the Dow lost 260 points, one of the larger weekly declines of the year, but shallow by percentage comparison, at 2.8%. The NASDAQ gave back 109 points, and was the worst performer on a percentage basis, with a loss of 5% for the five days just ended. 43 points were disgorged from the S&P 500, a 4.5% decline. The NYSE Composite was down 327 points, nearly matching the NASDAQ with a 4.7% drop.

The main catalyst for the wild swings in the market seem to have been two-fold. First, the date, October 30, marking the last trading day of the month, also was the final reporting day for many mutual funds, so profits were being locked in with wholesale selling of weak hands. Second, the dollar was very strong against the Euro in particular, and whenever that set-up has been present, stocks have been whacked. The entire rally from March through today has been fueled by a declining dollar, making commodities and US equities more attractive.

Dow 9,712.73, -249.85 (2.51%)
Nasdaq 2,045.11, -52.44 (2.50%)
S&P 500 1,036.18, -29.93 (2.81%)
NYSE Composite 6,739.45, -215.86 (3.10%)

Losers overwhelmed gainers, 5359-1162 (nearly 5-1), and underscoring the lack of direction, new lows scored over new lows by the narrow margin of 3, 89-86. Volume was again above the norm, though reading too much into the volume scenario may be risky. Both of the big down days - Wednesday and Friday - saw increased volume, though it bears notice that Wednesday was the day before the much-feared 3rd quarter GDP report, and Friday, as mentioned above, was the end of the year for many funds. Thus, these outliers may have overtly influenced the general direction and volume of trade.

NYSE Volume 7,883,697,500
Nasdaq Volume 2,512,938,000

As expected with the strong dollar scenario, commodity prices could not be maintained. Oil was slammed the hardest, it being the de facto favorite of the speculative groups, losing $2.87, to $77.00. Gold dipped $6.70, to finish the week at $1,040.40, while silver shed 40 cents, to close at $16.26.

Whether or not the closing figures are some kind of pivot point upon which one can trade one way or another is a matter for the chartists. The NASDAQ made an intra-day double-bottom at 1040, last touched on October 2, at the start of a brisk rally. The Dow is sitting right on its 50-day moving average, while the S&P has crossed over its 50-day MA three times in the last three sessions, is above support at 1019, but broke below the previous support line at 1039 on Friday.

It's a pivot point all right, the question is still which way?

The answer to that is probably more psychological than technical. Traditionally, a strong dollar was good for stocks, though in this situation, the liquidity trade is working the other way. At some point, the leadership of banks, materials and technology will have to give way, though technology will probably still stand up better through whatever short term condition is presented. Longer term, the dollar will decline, but as the Fed hints at raising rates - and then actually does - a change in attitude must attend if stocks are to continue to advance.

There is almost certainly going to be a period of pause, and we are likely in the middle of that right now. Another 4-7% decline on the major indices should be forthcoming while the market sorts out what to do with the absence of easy money. If there is no solution, stocks will continue to decline, at least until people think they're really cheap enough.

Much has been made of the huge amount of cash still sitting out the dance, and this may present those wallflowers with ample opportunity to put some of their money to work. Not a wholesale dive in, but at least sticking a toe in the water would suffice. That could spark another rally before the end of they year, but there's also a very good chance that the highs for 2009 have already been met.

Therefore, heading into next week, pay particular attention to the dollar, financials and basic materials or commodities, and be on the lookout for a divergence from the established trend. If the dollar is higher and stocks do not sell off, look for new leadership in the other sectors. If the dollar trades lower, expect the same trade, which does nobody any good, since we've already determined that it is flawed. A weak dollar cannot support a true recovery.

Best case scenario is another drift lower, or, maybe a swift downdraft for another week before volatility settles down. It doesn't mean that one should stop trading, only that one needs to buy protection and remain nimble.

Thursday, October 29, 2009

Positive GDP Growth Sends Stocks Soaring

All of the selling over the past three to four sessions based on fears that 3rd quarter GDP would come in lower than expected turned out to be dead wrong. even the high-and-mighty analysts at Goldman Sachs, who just yesterday downgraded their estimate to 2.7% growth, were well short of the true number, which came in at 3.5%, topping all but the most-optimistic estimates and sending shorts scrambling to cover and other investors cheering the solid results.

It was the first positive GDP report since in a year and the best quarter since the third quarter of 2007, when the recession actually began (though economists will tell you it was the 4th quarter of 2008, the slowdown was much earlier and was being felt in manufacturing especially. The result was the best one-day gain on the Dow Jones Industrial Average since July 23.

Perhaps more important than the nearly-200-point gain on the Dow were the levels at which the NASDAQ and S&P 500 averages closed, ahead of their 50-day moving averages, which were penetrated to the downside on Wednesday. With a solid base at those levels now intact (conceding that it must hold tomorrow), the major indices are aligned for another assault at the highs of the year, erasing all the bad karma from the meltdown of 2008.

On an even more fascinating historic note, the past two days marked the 80th anniversary of Black Monday and Black Tuesday, two of the worst performing days in the history of the stock market. On Monday, October 28, 1929, stocks fell 38.33 points (-12.82%). The Dow Jones Industrials closed that day at 260.64. The next day, Tuesday, October 29, 1929, the Industrial Average fell an additional 30.57 points (-11.73), closing at 230.07. We have come a long, long way since then, but it's intriguing that none of the financial press seemed willing to even mention the anniversary. To say that stock traders and those who report on such activity are superstitious may be putting it lightly.

Dow 9,962.58, +199.89 (2.05%)
NASDAQ 2,097.55, +37.94 (1.84%)
S&P 500 1,066.11, +23.48 (2.25%)
NYSE Composite 6,955.31, +189.62 (2.80%)

Today, thankfully, was nothing like those days of 80 years past. On this day, advancing issues solidly trounced decliners, 4934-1555. New highs rebounded to retake the upper position, beating new lows narrowly, 74-69, indicating that while we may have made a turn, the jury is still out. Stocks could actually vacillate over the next week or so, though most indications are that the rally is back on, using the solid GDP figure as a backstop.

Volume was not spectacular, but solid, in line with other days of the past two weeks.

NYSE Volume 6,477,558,500
NASDAQ Volume 2,251,900,500

What remains to be seen is where leadership is going to emerge. The 7-month-long rally has been fueled by banking, energy, technology and basic materials, correlating in inverse fashion with the dollar (which has been down precipitously and was priced lower today). At some point, the inverse correlation must come to an end, though the transition is not going to be smooth or particularly painless. Sooner or later, the regimen of easy money policy by the Fed is going to change, though that moment is likely 4-6 months in the future. For the time being, traders will look for new star stocks and other positive notes on the economy. With the holidays quickly approaching, consumer discretionary and retail stocks should receive much of the focus.

It's interesting to note the cross-over play with technology in companies such as Apple (AAPL) and Amazon (AMZN), which will likely benefit from strong sales of their leading products, the iPhone and Kindle, respectively.

Commodities also rallied as the dollar declined, snapping a week of dollar increases. Oil was up sharply, gaining $2.41, to $79.87. Gold was up $16.60, to $1,047.10. Silver gained 42 cents, to $16.66.

With no huge earnings news scheduled for Friday morning, investors will have to contend with readings on personal income and spending at 8:30 am, and a Michigan Sentiment revision at 10:00 am. That will probably be just fine with most. The market has covered a good deal of ground over the past four sessions and traders have to be just a little weary as the week draws to a close.

Wednesday, October 28, 2009

Fear of the Unknown GDP

There were some good reasons to get out of the market on Wednesday, but one of them was probably not fear of the nation's 3rd quarter GDP coming in at a level lower than expectations.

In the first case, nobody is really sure what the expectations really are, since there are estimates all over the place from a variety of sources, most of them in the 2.5-3.2% range of growth and that's likely where it's going to land. Early in the day, Goldman Sachs lowered their forecast for tomorrow's release, from 3.0% to 2.7%. It will be interesting to see whether Goldman's one-day crystal ball is effective or whether it was some kind of sly ruse to get people to sell on supposed weakness.

In any case, a positive number will no doubt be reported by the government, and that number will be revised twice before being finalized, but it is a very important figure. If the number turns out to be better-than-expected, the market will almost certainly gap up, making everybody who sold in order to get out of the way of the number - released at 8:30 am - look silly. Of course, if it's weak, those same people will appear brilliant.

It's a crap shoot, one way or the other.

In any case, stocks took severe declines into the close on Wednesday, fear of the GDP being the only plausible reason. Earnings for most stocks have been very good this quarter, but the market continues to sell off. A solid GDP reading on Thursday could change all of that. Durable goods orders came in at 1.0%, about what was expected, so that figure was a non-event this morning.

Dow 9,762.69, -119.48 (1.21%)
NASDAQ 2,059.61, -56.48 (2.67%)
S&P 500 1,042.63, -20.78 (1.95%)
NYSE Composite 6,765.69, -166.35 (2.40%)

Some very interesting data came out today from the simplest of simple indicators. Declining issues blasted advancers, 5676-891, a better than 6-1 ratio, and new lows actually outdid new highs, by a score of 94-73. Both of these numbers are more indicative of a market bottom rather than the continuation of a week-long decline, but there are other indicators and the overhang of tomorrow's GDP number with which to deal. Both the S&P and NASDAQ broke through their 50-day moving averages today, key support levels which normally should not be violated.

Volume was elevated today, indicating, again, more of a flushing action than middle-move reactions.

NYSE Volume 7,564,809,500
NASDAQ Volume 2,794,432,000

Of course, much of the selling was the result of a stronger dollar, which is traditionally good for stocks, but, now that so many US corporations do business around the globe, a stronger greenback may not be an advantage in terms of repatriating profits and denominating them in US dollars. Then again, costs will be lowered for labor in foreign countries, so, in a way, it's a wash for many companies.

What it's not a wash for is commodities. With the dollar up nicely again today, oil was lower by $2.09, to $77.46. Gold fell another $4.90, to $1,030.50, and silver dropped 30 cents, to $16.24. If the dollar move continues - and there are plenty of reasons why it should - over the short term (longer term, it's weaker), expect commodities and commodity-related companies and products to price lower. Once again, the ugly head of the severe contraction in credit is inducing a degree of deflation with which nobody wants to deal. However, it's there and it doesn't have to be a game-ender. Lower prices, after all, are good for consumers.

In any case, tomorrow's release of 3rd quarter GDP will be either a boon or a bane for the markets. I'll take a flyer and make a call, especially since Goldman Sachs decided to change their mind so close to the release. At least mine won't move any markets, unless you're foolish enough to trade after hours on my recommendation.

My call is 3rd quarter GDP comes in at +3.2%.

Tuesday, October 27, 2009

Mixed Messages

Stocks began the day and finished it in mixed fashion, as the Dow was the only major index to close above the break-even line. Especially hard-hit was the NASDAQ, which suffered from a very downbeat report from (BIDU), China's version of Google, when the company reported third quarter earnings, but guided investors of a revenue shortfall upcoming due to a change in advertising placements. The stock opened down 77 points, but recovered to close only 49 points in the red. Still, the stock took an 11% hit by the end of the trading session.

The Dow was helped along by three components: ExxonMobil (XOM), Chevron (CVX) and IBM (IBM), which accounted for almost all of the smallish upside. The two oil majors were helped by a positive 3rd quarter from British Petroleum (BP), while IBM announced a $5 billion increase to its stock buy-back program.

Dow 9,882.17, +14.21 (0.14%)
NASDAQ 2,116.09, -25.76 (1.20%)
S&P 500 1,063.41, -3.54 (0.33%)
NYSE Composite 6,932.04, -28.05 (0.40%)

The session was overall a weak one, as declining issues beat gainers by a wide margin, 4263-2205. What is of particular interest is the small margin of new highs over new lows (123-71), the worst performance for new highs since that particular metric rolled over back in May. The easy comparisons to last year's stock prices, especially off the monstrous 7-month+ rally, would normally presume a large number of new highs, which was evidenced during the summer and early fall, but the recent pullback has changed the outlook considerably.

Volume on the day was in line with the overall trend of the past two to three weeks.

NYSE Volume 6,203,113,500
NASDAQ Volume 2,405,401,500

Commodities, like stocks, were tied somewhat to the stronger dollar, as gold fell $7.40, to $1,035.40, silver dropped 56 cents, to $16.54, but oil bucked the general trend, gaining 87 cents, to $79.55, though the $80 mark continues to appear to be a led on price. Demand is simply not high enough to support a price over $80, much less in the $70s. Additionally, supply is robust, with nary a shortage anywhere in the world. Price of energy commodities will continue to be pressured by warmer-then-normal weather in the Northern Hemisphere, which is predicted through December.

Investors, through their trading stratagems, are offering a very good insight into how earnings results are being played. With most of the big names already having reported, unless companies are beating both earnings and revenue projections, they are being bid up prior to the release of their reports and quickly sold off. This has all the earmarks that would accompany a market top, and the indices are generally 3% below the heights reached last week.

A 5-8% dip from here would be no surprise, especially with some severe headwinds approaching in terms of 3rd quarter GDP (Thursday), though first September Durable Goods orders before the bell tomorrow, which yesterday I incorrectly said would be reported today (hanks to Yahoo Finance).

Monday, October 26, 2009

Trend Reversal on Dollar Strength?

As perverse as our economic system and financial trading regimen (the stock market) has become, today's action should have surprised none but the greenest rookie investor. Stocks hit triple tops (at Dow 10,100 and S&P 1100) in the past two weeks, and the reversal has been underway since Friday, when stocks took a nosedive.

Monday's early gains (Dow up nearly 100 points) were erased in one swift movement between 11:15 and 12:10, when stocks went from close to their highs of the day to the lows of the session, conveniently blamed upon strength in the US dollar, which rallied sharply against a basket of currencies. The dollar move was well telegraphed. Being short the dollar was one of the most overcrowded trades seen in the history of the market. Sooner or later, this condition was bound to unwind, and today was probably just the beginning - or, more to the point - just another data point on the way to eventual dollar strength, the demise of gold and the stock market.

Dow 9,867.96, -104.22 (1.05%)
Nasdaq 2,141.85, -12.62 (0.59%)
S&P 500 1,066.95, -12.65 (1.17%)
NYSE Composite 6,960.09, -106.71 (1.51%)

Simple indicators confirmed the oversized downside. Declining issues beat advancers handily, 4796-1687. The bias was evident in the new highs-lows, in which the highs only surpassed the new lows by a score of 262-63, one of the smallest margins in months, especially important against the backdrop of last year's meltdown and easy comparisons to today.

Volume indicated more selling to come, at elevated levels.

NYSE Volume 6,480,251,000
Nasdaq Volume 2,344,048,750

Commodities were a major part of the story, erasing outsize gains from the past few weeks. Oil tumbled $1.82, to $78.68. Gold slid $13.60, to $1,042.80. Silver fell 63 cents, to $17.10. Once again, there is no denying deflationary pressure.

Tomorrow marks a day with more earnings from major companies, though earnings season has quickly become the sideshow as investors await Thursday morning's preliminary release of 3rd quarter GDP from the federal government. Prior to that, though, durable goods orders from September, the Case-Shiller Home Price Index and October consumer confidence numbers will move the markets.

Probably not overtly stated, there is more angst and aggravation with government meddling, especially with Barney Frank and the Fed's attempts to define regulations around "too big to fail" companies, than any financial commentator is willing to admit. The threat of government takeover of individual businesses is a threat the market will not handle kindly.

Friday, October 23, 2009

Economy Worries Overshadow Tech Titans

Stocks slid badly on Friday, marring an otherwise upbeat earnings week by ending marginally lower. The Dow Jones Industrial Average, which crashed through the 10,000 mark on Monday, and closed at the high point for 2008, wavered back and forth all week, finally capitulating on Friday, finishing 24 points in the red for the week. Other averages reacted in similar manner, with the NASDAQ losing just more than two points and the S&P 500 dropping 8 points. The NYSE Composite, the broadest measure, was down by 68 points for the 5 days.

Investor skepticism over the health of the economy dimmed the outstanding results from Amazon (AMZN) and Microsoft (MSFT), both of which blew away analyst estimates when reporting 3rd quarter results. Amazon was by far the biggest winner, gaining 25 points, to 118.49, an historic high for the stock, and a one-day gain of nearly 27% for the world's largest internet retailer. Volume on the stock was 9 times the average daily.

Unfortunately, market participants were taking hard-fought gains in other companies amid speculation that the recovery may not be as robust as previously assumed. Underscoring the market sentiment was the massive downside slide on the Dow Jones Transportation Index (^DJT), which slid 137.73 points, a decline of 3.5%.

The major issue upon which many are dwelling is still unemployment, or the lack of new job creation, and the government's abject refusal to offer programs which would stimulate job creation. The halls of congress and the White House have been focused on a partisan health care debate, no doubt a matter of great importance, but paling by comparison to the general welfare of the American people and their need for steady, solid employment.

Talk of a "jobless recovery" has begun to circulate, though even the most ardent proponents of fiscal stimulus have to admit that a recovery without new jobs is really not a recovery at all. There is also growing impatience with the federal government on their handling of the financial crisis and various "socialist" policies, not the least of which is capping executive pay via proclamation from their "pay czar" Kenneth R. Feinberg, who this week proposed 50-90% pay cuts for executives whose companies received TARP funds and have yet to repay.

If there has been one culprit responsible for any slowness in the nascent recovery, the finger can be pointed directly at he White House and congress, whose plodding pace and partisan bickering have been a detriment, rather than a benefit, to the public welfare. With the huge federal government out of the way, the American people and American businesspeople could surely forge a new way forward, but threats of pay cuts and excessive taxation are killing the attitude of everyone from Main Street to Wall Street and from Skid Row to Beverly Hills.

Then again, stocks have been rocketing skyward for some time now, and the market seems to have run considerably out of steam. even though roughly half the companies in the S&P 500 have already reported, the indices haven't budged out of a range from 9950 to 10,100 for more than a week.

Dow 9,972.18, -109.13 (1.08%)
NASDAQ 2,154.47, -10.82 (0.50%)
S&P 500 1,079.60, -13.31 (1.22%)
NYSE Composite 7,066.80, -116.11 (1.62%)

Simple indicators offer a snapshot of the depth and breadth of Friday's decline. Losers hammered winners, 4881-1566, a better than 3-1 ratio, the worst in some time. New highs were 356, to just 54 new lows. Volume was roughly in line with the pace set Tuesday through Thursday.

NYSE Volume 5,506,861,000
NASDAQ Volume 2,476,571,750

Commodity prices continued to retreat from mid-week highs. Oil slipped 69 cents, to $80.50. Gold was off $2.20, to $1,056.40, but silver bucked the trend, gaining 18 cents, to $17.72.

More companies report next week in what will be the busiest week for earnings reports. It's also a busy week for economic reports, highlighted by Thursday's preliminary release of 3rd quarter GDP, which will be a market mover.

Thursday, October 22, 2009

Amazon Blows Away Estimates After Huge Up Day

Markets were mixed early, but a day-long rally, helped along by earnings results from key Dow components including AT&T (T), McDonald's (MCD) and others, pushed stocks back near recent highs after yesterday's late-day sell-off.

After the bell, online retailer Amazon (AMZN) blew away estimates for the quarter, posting earnings of 45 cents per share on $199 million profit, far ahead of estimates of 33 cents per share and well ahead of the prior year's 3rd quarter of 27 cents and $118 million in profits.

On a day which witnessed the largest number of S&P companies reporting to date, stocks flew higher and prospects on the back of Amazon's earnings look especially juicy for technology companies. Microsoft, the undisputed world's leader in personal computer operating systems, reports before the bell on Friday.

Dow 10,081.31, +131.95 (1.33%)
Nasdaq 2,165.29, +14.56 (0.68%)
S&P 500 1,092.91, +11.51 (1.06%)
NYSE Composite 7,182.91, +75.70 (1.07%)

Advancing issues, which were beaten down earlier in the day, handily beat decliners, 4142-2301. There were 263 new highs and 43 new lows, both numbers negatively affected by the trading range of the past week, between 9500 and 10,100. Volume was in line with most active days over the past two weeks.

NYSE Volume 5,985,040,500
Nasdaq Volume 2,282,756,500

Commodities were held down after strong recent advances. Oil for December delivery fell 18 cents, to $81.19. Gold was clipped $5.90, to $1,058.60, while silver slid 28 cents, to $17.55.

More earnings are being released after hours and early on Friday. The markets are set to record yet another week of gains, though this week will be rather muted in comparison to others unless markets soar again on the final day of the week.

Wednesday, October 21, 2009

Where the Volatility Came From

Stocks did a complete about-face in a late-day sell-off that had investors scratching their heads for explanation. From a high of 10,119 on the Dow, that index closed near the low of 9945, for a full-day swing of nearly 175 points. It was the most dramatic turnaround to the downside since, well, last October.

At issue is how the actual decline came about. Stocks had been drifting lower since making what would be the highs of the day around 10:45. But, at 3:15, things really got interesting, as the Dow quickly erased a 35 point gain and turned negative, extending those losses into the close with no escape mini-rally.

Some said that a sell recommendation by analyst Dick Bove on Wells Fargo, which had reported before the opening bell, caused it and all of the bank stocks to sell off. Others cited the Obama administration's directive to cut executive pay for financial firms which had accepted TARP funds - Bank of America, Citigroup, Wells Fargo, Morgan Stanley, JP Morgan Chase, others - by as much as 90%, as the culprit. The most succinct explanation came from CNBC's Fast Money contributor Tim Seymour, founder and Managing Partner at Seygem Asset Management, who opined that program trading moved the market in such spectacular fashion. Calling them "the machines," Seymour reiterated his position that the move was technical and that the S&P would be on the rise on the morrow.

While it's plausible that the move was "machine-made," because the move was so sudden and on such high initial volume, it's not easy to accept Seymour's recipe for tomorrow's trade. We'll all know whether he was prescient within 16 hours. In any case, it was an ugly end to a few days of trading that has produced a mid-week loss overall. Today's full-trip stock move produced a double engulfing day, taking out the highs and lows of the previous two sessions, and was close to being a triple or quadruple engulfing move, as it nearly took out the lows of Friday and definitely engulfed all of Thursday's move from last week as well. That is not an encouraging sign for anyone who is long, which is just about everyone. The technicals are screaming sell, as the market also hit a double top today as well on both the Dow and the S&P, when it failed at S&P 1100.

Dow 9,949.36, -92.12 (0.92%)
NASDAQ 2,150.73, -12.74 (0.59%)
S&P 500 1,081.40, -9.66 (0.89%)
NYSE Composite 7,107.21, -51.06 (0.71%)

Simple indicators, all of which were positive most of the day, turned ugly in the final hour. Declining issues battered advancers, 4257-2207, and all sectors (not just the financials), except utilities were down. New highs beat new lows, 608-84, though mostly because of easy comparisons, so these figures have become nearly meaningless, except when taken in the proper context. If new lows expand considerably over the next few sessions, we'll have something then on which to chew. Until then, best ignore the highs-lows.

Volume was considerably higher than most recent sessions, another omen for the downside.

NYSE Volume 6,514,343,500
NASDAQ Volume 2,600,789,500

Another cause give for the decline was the high price of oil, now into the December contract, which gained $2.25, to $81.37 on the day, which many complain may be a price too high. Gold added $5.90, to $1,064.50, and silver gained 27 cents, to $17.83, very close to a 15-month high.

Markets are getting very jittery and investors appear to be losing patience with companies, as earnings reports are being scrutinized and tossed into the trash heap on the way to the sell button. Investors are also not very happy with the government's plans for everything from the general economy, to bank executive's salaries to health care reform. The discontent on Wall Street is nothing compared to the rabble-rousing in the streets, which is reaching fever pitch. Stocks may have to come down if only to appease the working man and woman in the US that Wall Street isn't running ahead of the pack and leaving Americans behind (it is).

Whatever the cause of today's collapse, it should not be taken lightly, if only for the reason that it is a technically-reversing pattern. If stocks suffer mildly tomorrow and Friday, it could be time to head for the exits for at least a few weeks. When the dust settles, stocks will be cheaper.

Tuesday, October 20, 2009

Dollar Strength, PPI Weigh Against Strong Earnings

Typically, during earnings reporting season (now), traders mostly ignore external economic details in favor of focusing on individual companies, but on Tuesday, the opposite occurred as FIVE Dow components posted better-than-expected earnings reports prior to the opening bell.

At 8:30 am, however, the monthly PPI figures were released, stunting what appeared to be a blossoming rally. September PPI figures showed a decline of 0.6%, indicating that pricing power in the production cycle was feeling a bit of a deflationary tinge. Stripping out food and energy, core PPI came in slightly negative, at 0.1%.

Why such a small change would influence the entire market, considering how much business done by US corporations is outside US borders, is something of a puzzle, and may not have had the overall effect of dampening down expectations as did the strength in the dollar, which gained against the Euro, Pound, Yen and other major currencies. The dollar index gained strength from 9:00 am until Noon EDT, precisely the time period in which stocks were suffering their worst declines.

While there is certainly a throng of economists who believe some dollar strength is healthy - and possibly essential - to America's long-term prospects as a world-leading economy, Wall Streeters apparently do not agree. The dollar and PPI data are the only cogent explanation for a decline in stocks on a day in which Pfizer (PFE), Caterpillar (CAT), United Technologies (UTX), DuPont (DD) and Coca-Cola (KO) all beat earnings estimates, but were mostly hammered by eager sellers. Of the five, only Caterpillar finished the session on positive ground.

Adding to the confusion was Apple's (AAPL) blowout quarter, which sent shares of the computer and personal hardware maker up nearly 5%, reaching a new 52-week high and all-time high for the stock.

So, maybe it wasn't the dollar or the PPI which sent stocks down all day on each of the major indices. Maybe the market is just a bit tired, and any little bit of bad news prompts enough potential sellers to pull the trigger. The market has been ablaze since March with hardly a hiccup. To take a small decline - even in the midst of hearty earnings - might be what's best for the overall health of the market. It's quite extended and some say over-extended, and due for a pull-back. What was witnessed today was about all the give-back that there is going to be, unless some titan company - say Cisco, McDonald's, Microsoft or Boeing - completely misses their numbers for the quarter.

This little foray into the dank downside concluded about as abruptly as possible when the Dow sank below 10,000 for two brief moments during the noon hour. The afternoon session was mostly sideways to up, ending closer to the highs of the day than the lows. Taking 50 points off the top of the Dow wasn't as much of a big deal as the S&P failing to break 1100 yesterday and sinking well below that level today. The late-day recovery leaves open the potential for a gap up above 1100 at the open, since it's only 9 points away and there is still a ton of money sitting on the sidelines.

What could trigger an opening rally are earnings reports from the likes of Freeport-McMoRan (FCX), Northern Trust (NTRS), Boeing (BA) or Wells-Fargo (WFC), all scheduled to report before the opening bell. The best bet would be a blowout quarter from FCX and Wells-Fargo combined, boosting two separate sectors (basic materials and financial) and offsetting the effects of Boeing, which is widely expected to show a large loss.

Dow 10,041.48, -50.71 (0.50%)
NASDAQ 2,163.47, -12.85 (0.59%)
S&P 500 1,091.06, -6.85 (0.62%)
NYSE Composite 7,158.27, -63.94 (0.89%)

On the day, simple indicators were in line with the poor overall showing, perhaps amplifying that with breadth. Losers beat gainers by a wide margin, 4487-1996, better than 2-1, while new highs beat new lows, 491-60, those results due primarily to easy year-ago comparisons, when stocks were mostly in free-fall. The paucity of new lows, even on a down day, is an encouraging sign for market bulls, however. Volume recovered significantly from yesterday's unusually-low level, back to standard.

NYSE Volume 6,047,379,500
NASDAQ Volume 2,136,783,250

Commodities felt the heat of a higher dollar, mostly trending lower. Oil lost 52 cents, to $79.09; gold was up 50 cents, to $1,058.60; silver lost 17 cents, to $17.56. It's become fairly clear from the commodity and forex markets that there isn't going to be any major economic disruptions any time soon. The dollar isn't going to fall over a cliff, oil isn't going back over $100, inflation isn't about to reappear any time soon, to the great chagrin of the horde of gold-bugs in the world (mostly detached from reality).

Sanity has been restored in the land of fiat-funny-money, at least for the time being. The apple cart will not be upturned and the rally will resumed in short order.

Well, just after I posted the above missive, Yahoo (YHOO) announced 3rd quarter earnings of 13 cents, blowing away estimates of .07. Can you say, Yip-yip-Yahoo!?

Market Gains on Low Volume

A quick overview of Monday's trading follows. More on Tuesday after the bell.

Awaiting the 3rd quarter earnings report from Apple (AAPL), investors were encouraged by the number of S&P companies which reported earnings better than estimates (78%) last week and further weakness in the dollar as the session unfolded.

Dow 10,092.19, +96.28 (0.96%)
NASDAQ 2,176.32, +19.52 (0.88%)
S&P 500 1,097.91, +10.23 (0.94%)
NYSE Composite 7,222.21, +88.25 (1.13%)

Advancing issues led losers, 4415-1889. There were 819 stocks making new 52-week highs, to 100 new lows. Volume was exceedingly low, signaling a large degree of caution at the very start of the biggest week of earnings reports. If the low volume pattern continues through the next few days, it could be indicative of a short-term market top. However, most companies have not yet reported, so not much can be read into one day's trading volume.

NYSE Volume 3,816,968,500
NASDAQ Volume 1,725,801,875

Oil reached a new high for the year, trading up $1.08, to $79.61. Gold advanced $7.90, to $1,066.00. Silver tacked on 21 cents, to close at $17.63 per ounce.

Besides Apple reporting after the close, five Dow components will report prior to Tuesday's opening bell. Caterpillar (CAT), Pfizer (PFE), United Technologies (UTX), Coca-Cola (KO) and DuPont (DD) are the companies reporting.

Saturday, October 17, 2009

Friday's for Profit-Taking

Stocks finished lower on Friday, though up nicely for the week, as investors took a sour view of Bank of America's (BAC) poor 3rd quarter performance and punished Dow component IBM for missing revenue targets, even though the company beat EPS estimates.

The drop-off was dramatic right at the opening bell, with the major averages hitting their lows for the day within the first two hours of trading. Much of the action had to do with options expiration, and, sure enough, the afternoon session saw stocks gain strength, hitting their highs with about 20 minutes left in the session.

Though the major averages were down anywhere from 1-1.7% during the day, they finished at higher levels, keeping the stock market's winning week intact.

Dow 9,995.91, -67.03 (0.67%)
NASDAQ 2,156.80, -16.49 (0.76%)
S&P 500 1,087.68, -8.88 (0.81%)
NYSE Composite 7,133.96, -70.09 (0.97%)

Declining issued outpaced advancers, 4283-2136 (nearly 2-1), the widest disparity between losers and winners of the week. New highs remained better than new lows, 363-45. Volume was in line with the previous 3 days and most of the past few months. There was nothing surprising at all about the downturn. Stocks have been on a tear to the upside since March, and occasional pauses are expected and healthy. Investing is all about profits, and Fridays are usually good days on which to take them, as many obviously did.

NYSE Volume 5,708,362,000
NASDAQ Volume 2,237,903,750

Oil reached a new 2009 high, gaining 95 cents, to $78.53. Gold stopped its temporary slide, gaining 90 cents, to $1,051.50, and silver added a penny to its price, at $17.42. With oil taking the lead late this week, the price above $78 is signaling a potential top. There still is inadequate demand to command prices over $80, a level at which the market may balk. Those promoting an oil bull have not considered the overall implications of higher oil and gasoline prices on the global economy, nor have they taken into account the impact of alternative fuels, which continues to tamp down demand slightly, but with more force every day.

Commodities have had a nice run, but the potential for overpricing is evident. There's no rationale behind the move in gold and silver except for the prospect of inflation, which has yet to appear. Maybe nine months from now, or 18, but certainly, there is no inflation present in the economy anywhere. Stable prices should be considered a positive for recovery, though the supply-siders want and actually need inflation to verify their outlooks. Whether or not there will be further upside in commodities (read: dollar weakness) is uncertain and maybe even unlikely. The dollar may have already bottomed.

While the markets continue to grind higher, a couple of trends have developed. First, the chorus calling for a 10-15% correction continues to chirp, though their analysis fails to comprehend the enormity of the rally and the strength of the virtuous cycle which has developed. Despite some $3 trillion still sitting in money market funds and not being put to work in equities, those holding that sidelined money are hoping for the worst in earnings reports, the volume of which will increase dramatically over the upcoming two weeks.

Sadly, those waiting for an entry point may have had their best opportunity on Friday, as more than 3/2rd of companies reporting thus far have beaten estimates, and some, like Google, Intel and JP Morgan Chase, have beaten them by country miles. There will surely be weak hands and weak reports issued, but they're more than likely to be drowned out by the bullish drumbeat of companies which report better-than-expected earnings for the quarter.

That virtuous cycle, of investments making money, turning profits and investors moving from stock to stock and sector to sector keeps the indices churning higher. The pernicious cat-calls from those outside the Wall Street money machine, decrying everything from pure profits to executive compensation as evil, have just plain missed the boat and are likely drowning in debt.

The moans and screams from "Main Street" (which, incidentally, is holding its own) are mostly tied to the employment picture, which continues to flatten out, despite the largely anecdotal references cited by the doom-and-gloom crowd.Certain areas of the country are doing better than others, which is absolutely normal, as is the trend of certain industries now hiring while others continue to bleed jobs.

Eventually, jobs will find people, though the government, at all levels, continues to pamper job-losers with extended benefits, mortgage workouts and various other stimuli. Not surprisingly, state and local governments have had their hands out to the feds the longest, and still continue to run deficits, resist downsizing and tax reductions, even in the face of the next wave of job stress, right in their own wheelhouses.

Federal, state and local governments have weathered the financial crisis without shedding even a small percentage of what the private sector has endured, and as companies begin to hire (some already say they cannot fill jobs), expect these spendthrift government bodies to begin mass layoffs which should have occurred months ago. They are the reason the unemployment rate will remain high for some time. Even though the private sector will be thriving, the freeloading public employees will face cuts, layoffs and terminations in months ahead.

Meanwhile, stocks will continue higher until the really late and really stupid money enters the market, flooding the bourses with fresh cash as longer-term investors exit, producing a market top within the next 3-6 months and slamming the door on the rally in the short run. What to look for in the coming months, after earnings over the next two weeks (a period which will probably produce a small upside), is a series of smaller and smaller rallies, first in early November (followed by a lull through Thanksgiving into the first two weeks of December), a Santa Claus rally, a small Janaury run and then a serious lull in which everybody will be calling it a "stock picker's market" in which only the best companies will continue to rise.

Stocks will get a boost from 3rd quarter GDP, which is expected to show the first quarterly growth in a year, and, surprisingly, from October and November jobs data. There is a high degree of probability that September's poor employment picture was more of an aberration than a trend-starter.

The next two weeks seem almost certain to produce profits in many stocks, even though trading may be choppy and jittery. The wall of worry that the markets must climb gets even more worrisome near the top, and we are getting close to nose-bleed territory. Before the year is out, however, expect the Dow to close in on 10,750-11,000 and the S&P 500 to reach for 1200.

Thursday, October 15, 2009

Late Day Action Boosts Stocks; Google Soars; IBM Sours

As is often the case during earnings season, much of the real action happened after the closing bell. That was when tech bellwethers Google (GOOG) and IBM (IBM) announced third quarter earnings results. But first, a recap of the day's trading, which was, by most accounts, choppy and surprising at the end.

Stocks spent most of the day in a narrow range just below the break even line. Around 2:30 pm, the major indices managed to pop into the green and stayed there into the close, marking new 2009 highs for the major indices. These moves were in spite of the chorus of boos surrounding Goldman Sach's 3rd quarter earnings announcement before the bell, which was better than expectations, but not good enough to keep the stock from sliding throughout the session. Most of the interest was focused not on Goldman's stellar 3rd quarter, but on the bonuses being paid to executives.

The company practically owns the deal-making space, now that Bear Stearns and Lehman Bros. have departed, and they made boatloads of money - $3.19 billion, beating the estimates handily - but because of a Meredith Whitney downgrade on Tuesday (based on valuation - Goldman shares have nearly quadrupled since last November) and general dislike for the firm many believe runs the government, the banking business and most of the known universe. Like them or hate them, making 300% on your money in a year isn't hard to take. Sure, they pay their executives handsomely, but they bring in huge money for their shareholders, so the only people griping are those not smart enough to have gotten on the bandwagon.

The stock lost a whole 3 points and change on the day. I'm sure owners of the stock are really crying in their champagne.

Also before the bell was the usual horrid unemployment claims number. Another 514,000 Americans filed for unemployment benefits this week. These numbers cannot be taken seriously. First, unemployment benefits are so easy to come by these days that the people claiming them probably shouldn't even be counted as seriously unemployed. All you have to do is a poor job and somebody will certainly furlough you. Additionally, according to the figures, which have been over 500,000 for more than a year, there have been at least 25 million people collecting benefits in the past 12 months. That's an enormous figure, even in bad times. What matters more is how long these people stay out of work, not how many are stepping up to the collection plate.

The number of people still collecting benefits fell below 6 million, and that number has been trending lower for months, a positive sign for the economy.

Citigroup also reported before the bell and the results were mixed. The company which received the most assistance from the feds, and is partially owned by you ,me, and our neighbors across America, hasn't done a very good job of managing our money, which came as no surprise and had little influence on the general market.

Dow 10,062.94, +47.08 (0.47%)
NASDAQ 2,173.29, +1.06 (0.05%)
S&P 500 1,096.56, +4.54 (0.42%)
NYSE Composite 7,204.05. +21.67 (0.30%)

Declining issues finished slightly ahead of advancers, 3338-3081. There were 727 new highs to just 73 new lows. Volume was in the range it's been since Tuesday. There is still a ton of money on the sidelines, missing out on the rally. This stagnant money will be great for savvy traders, because when it finally does come in, it will send a strong selling signal at a supposed market top. Smart guys and gals will be able to maximize profits upon exiting. Look for an unusually high volume number to send the signal that it's time to unload.

NYSE Volume 6,184,697,500
NASDAQ Volume 2,199,385,750

Commodities were led by oil, which gained $2.40, to $77.58. The price of oil, and its derivative, gas, is approaching a level at which it can damage the economic recovery. more money being spent on fuel means less to spend on all the other things Americans enjoy. Though there's unanimity in the chorus of oil traders that the price will go higher, I'd still not engage in that trade as it can only go so far before crimping its own demand. Many would agree that it's already too high, but, since all hatred is currently focused on bankers, the oil moguls are getting a free ride. Buy some Chevron or ExxonMobil stock if you don't like the higher prices for gas. The gains will even out, and if prices do fall, your stock will only be worth a little less. It's a zero sum trade if you play it properly.

The precious metals were hit by profit taking. Gold sold off to $1,050.60, a key inflection point, down by $14.10. Silver dipped 49 cents, to $17.42.

As for Google, the company posted its largest profit and revenue ever. That about covers the state of the internet. Technology companies are extremely healthy, with squeaky clean balance sheets. Like Google, most of the larger ones have no, or very small amounts of, debt.

IBM also beat forecasts, but revenue slipped. Big Blue is still recovering from the last year in which many of its major clients suffered or went out of business. They're doing just fine, however, having hit new 52-week highs in just the past week.

Google also posted a string of new 52-week highs in recent days. The search giant is branching out into other areas, a sign that they feel supremely confident about the economy going forward.

You should too.

Wednesday, October 14, 2009

Dow Pops 10,000

I am actually exhausted from playing today's breakout rally. I've been up since 4:00 am, so great was my anticipation of the day the Dow finally popped 10,000. Here's what you need to know:

The last time the Dow crossed and closed above 10000 was on December 11, 2003. By January 26, 2004, it had topped out at 10,702, finally peaking in October, 2007 above 14,000.

Prior to that, the Dow's first cross of 10,000 was March 26 of 1999, during the heat of the dot-com boom. After testing the level for 5 trading days, the index finally climbed above the mark on April 7. On January 16, 2000, it peaked at 11722.98.

The people telling you that Dow 10,000 is insignificant and that it has crossed over that point 26 times are misleading you, whether on purpose or through partial ignorance. Every time the Dow has pierced the 10,000 mark to the upside in the midst of a rally, it has continued higher, significantly.

Today's move was interesting in that it came with options expiration just 2 days away. This kept a lid on stocks through most of the session, frustrating all but the most savvy investors, who knew that option positions were being flipped with every uptick short of 10,000. By 3:00, the lid came off as players sat back, counted their profits and held overnight. Some of the biggest options payoffs come on the final days of trading, though recently, Wednesdays have been the most active. Nobody wants to be caught in an upside down position with no way out, so holding until the final expiration is only for the best or the worst options traders.

Noting that, Thursday and Friday may be a little light, but Monday, when new positions are being staked out, should be explosive. There are more earnings due out over the course of the next three weeks, with the next two the busiest. Knowing which stocks to play will be essential to profits.

Dow 10,015.86, +144.80 (1.47%)
NASDAQ 2,172.23, +32.34 (1.51%)
S&P 500 1,092.02, +18.83 (1.75%)
NYSE Composite 7,182.38, +150.51 (2.14%)

Today really was all about the Dow Jones Industrials, but only 25 of the 30 stocks were gainers. Home Depot (HD), Johnson & Johnson (JNJ), AT&T (T), Verizon (VZ) and Wal-Mart (WMT) were the only losers and their losses were light. There will always be laggards, but as long as there are leaders, the Dow Index is still relevant.

On the day, simple indicators expressed exactly what kind of session it was: BULLISH! Advancers clobbered declining issues, 4887-1640 (3-1). New highs were all over the place, 921 of them, the most in over two years. There were 94 new lows. Volume was average, which means that those still out of the market have not yet found the courage to get in the game. They have missed the most significant rally of a generation, but the best part is that they don't know it's not over yet. There are still plenty of success stories to be told in this rally. When the outside money comes in, it will just add fuel to the already overheated fire and probably cause a correction as profits are taken with enthusiasm. Market tops always occur when the late money or stupid money gets involved and this is no different.

NYSE Volume 6,248,702,000
NASDAQ Volume 2,383,078,250

Talk has been rampant about predictions for the end of the year. Dow 10,700 and 11,150 and S&P 1200 have been popular numbers thrown out by experienced, professional traders. Those sound like reasonable targets. All of the major indices made new 2009 and multi-month highs.

Commodities took a back seat to stocks. Oil gained $1.03, to $75.18. Gold fell 30 cents, to $1,064.70. Silver was up 7 cents, to $17.91. They were a side show, but still tradable on pullbacks.

The rally was led by a troika of grand news. Intel posted exceptional 3rd quarter numbers and even better guidance. JP Morgan Chase blew the lid off, beat the 52 cents the street was expecting by 30 cents. 82 cents per share! Then, at 8:30 am, retail sales showed improvement when the cash for clunkers was stripped out. Finally, consumer demand has emerged. Just n time for Christmas.

There are more companies reporting tomorrow, notable Goldman Sachs (GS) and Google (GOOG). They are both expected to have blockbuster results.

The importance of Dow 10,000 cannot be underestimated. everyone who works on Wall Street feels better tonight than they did this morning. All investors who are in the market are probably a little more at ease. We, after all are human, and the number is an emotional one. It just plain makes us feel good about the economy. Everyone on the planet can relate to the big, round number, especially following the events of the past year.

There are more gains ahead.

Happy trading!

Tuesday, October 13, 2009

Slow Day, But Intel, CSX Movers After Hours

Stocks largely marked time on Tuesday as investors awaited third quarter earnings results from Intel (INTC), the world's largest chip maker, and CSX (CSX), one of the nation's largest freight railway operators.

After something of a disappointment from Johnson & Johnson (JNJ) before the bell, stocks sold off at the open and struggled close to break even throughout the rest of the day. It was apparent that there would be no major movement in the indices until the Intel announcement.

Dow 9,871.06, -14.74 (0.15%)
NASDAQ 2,139.89, +0.75 (0.04%)
S&P 500 1,073.18, -3.01 (0.28%)
NYSE Composite 7,031.87, -19.29 (0.27%)

Decliners beat advancers, though not broadly, 2808-3571. New highs continued to outperform new lows, 312-56. Volume was expectedly moderate.

NYSE Volume 5,026,830,000
NASDAQ Volume 2,052,388,000

Most of the real action that will affect markets for the near term occurred after the closing bell, when CSX reported 3rd quarter earnings results.

Net income from continuing operations was $293 million, or 0.74 cents per share. CSX said revenue in the quarter fell 23 percent to $2.3 billion, in line with analysts' expectations. The earnings beat expectations by .03 cents per share. The stock, which was traded lower by 63 cents during the regular session, was up sharply - +1.24, to $45.52 - in after hours trading.

Just minutes after CSX reported, Intel blew away estimates in all areas, reporting 3rd quarter earnings of $1.9 billion or 33 cents per share, compared with a net profit of $2.01 billion, or 35 cents per share, in the year ago period.

Revenue also beat forecasts handily, at $9.4 billion when expectations were set at $9.06 billion. After being halted pending the release, the stock soared nearly 6% in after hours trading, gaining more than $1.00 per share, pushing the stock above 21.50, a new 52-week-high. Significantly, Intel's earnings boosted a slew of other stocks after the close, including many in the tech and computer sector. Companies like Apple (APPL), Hewlett Packard (HPQ), Google (GOOG) and Cisco (CSCO) all gained in after-hours trading.

Commodities were solid during the session, with oil up 88 cents, to $74.15; gold up to a new record high of $1,065.00 on a gain of $7.50. Silver lagged somewhat, picking up 2 cents, to $17.84.

With real news coming both from the base (CSX) and the top (Intel) of the economy, unless there's some kind of disaster between here and the opening bell on Wednesday (retail sales for September are due out at 8:30 am), stocks should soar at the open, led by technology.

Monday, October 12, 2009

Dow, S-P, NYSE All Hit New 2009 Highs

On the day Americans celebrate the man who discovered our continent - Christopher Columbus - investors were discovering new 2009 highs on three of the four major indices. The Dow Jones Industrials, S&P 500 and NYSE Composite all closed at highs of the year, with the Dow eclipsing an intra-day high with the new mark now 9931.82, just 69 points shy of the enormously psychological 10,000 mark.

Stocks were up sharply in the opening hour, but weakened into the afternoon, and sold off sharply between 2:00 and 2:30 pm, sending the Dow and NASDAQ into negative territory. The Dow recovered to close modestly positive, but the NASDAQ, surprisingly weak on the session, finished fractionally lower. It was the only major index to close in the red. The sudden drop on the indices, though very sharp, was probably due to options expiration this week, as a major trader likely closed a large number of positions. The general market didn't seem to make much of it, as all of the indices recovered nicely with strong buying into the close.

Interestingly, the Dow Jones Transports sported solid gains on the day. The transports have been something of a laggard in recent sessions, but showed remarkable strength into the close, led by Ryder Systems (R) nearly 10% one-day move.

The act that the Transportation Index also closed at a new 2009 high is a bullish signal, inferring that rail and truck transport - the things that move goods across the nation and to the ports - are showing signs of recovery. Those issues are at the bottom of the economy, with shipping of energy - coal, natural gas, oil - and goods of all manner on the rise.

Dow 9,885.80, +20.86 (0.21%)
NASDAQ 2,139.14, -0.14 (0.01%)
S&P 500 1,076.18, +4.69 (0.44%)
NYSE Composite 7,051.16, +35.62 (0.51%)

Market internals were positive, in line with the headline numbers. Advancing issues beat decliners, 3386-3002, though there were quite a few more losers than gainers on the NASDAQ. There were 731 new highs to 67 new lows, a bullish sign. The new high-new low indicator has been the most reliable metric for market movement, though there is some fear that stocks may be getting to an overbought condition as earnings begin rolling out. Companies will have to show top-line growth this quarter in order to keep pace with their high valuations.

Volume was low due to the observance of Columbus Day.

NYSE Volume 4,169,401,250
NASDAQ Volume 1,758,818,250

Commodities were a big story on the day. Oil sipped past the $73.00 mark, gaining $1.50, to close at $73.27. Gold caught a bid higher, by $8.90, to finish at $1,057.50. Silver also gained 13 cents, to $17.82. The resumption of the rally in the precious metals seems to have been re-ignited by oil's gains.

The only notable earnings-related news was from Black & Decker, which pre-announced better-than-expected results. Market direction for Tuesday may be guided by Johnson & Johnson (JNJ), which is supposed to released 3rd quarter earnings prior to the bell. There will be some anticipation concerning Intel (INTC), which reports after the close.

Friday, October 9, 2009

Blowing The Top Off

On strength in the health care and technology sectors, US equities managed to finish one of their best weeks of the year with a strongly positive session. IBM led the Dow to new 52-week and 2009 highs, while the S&P finished just .17 short of its high for the year, set back on September 22 (1071.66). The NASDAQ also closed within shouting distance of its 200 closing high, just 7 points short of 2146.30, also the close on September 22.

The major indices closed higher every day this week except for the Dow, which posted a 6-point loss on Wednesday. This sets up an interesting scenario for the first big week of earnings season. A number of highly-traded stocks report next week, including Charles Schwab (SCHW) on Monday; Intel (INTC) and Johnson & Johnson (JNJ) on Tuesday; JP Morgan Chase (JPM) on Wednesday; Citigroup (C), Cypress Semi (CY), Goldman Sachs (GS), Google (GOOG), IBM (IBM) and Nokia (NOK) on Thursday; and Bank of America (BAC) and General Electric (GE) on Friday.

Dow 9,864.94, +78.07 (0.80%)
NASDAQ 2,139.28, +15.35 (0.72%)
S&P 500 1,071.49, +6.01 (0.56%)
NYSE Composite 7,015.54, +24.87 (0.36%)

Advancing issues beat decliners, 3942-2445, though the gains were not as broadly-based as earlier in the week. New highs beat new lows, 482-45. Volume was significantly below the levels of the rest of the week, but nobody seemed to care, with stocks soaring, even on a day in which the markets decoupled from the dollar trade, which was strengthened through intervention by the Bank of Japan and some veiled comments from the Fed Chairman, friendly uncle Ben Bernanke.

NYSE Volume 4,310,388,500
NASDAQ Volume 1,900,588,625

Due to the strong dollar, moves in the commodity markets were muted, though oil managed to gain 8 cents, to $71.77. Gold kicked back from its three-day record run, losing $7.70, to $1,048.60. Silver relinquished 13 cents to close at $17.69.

Considering the conditions in the market, it was something magnificent to see the Dow soar to a new closing high, but the US economy appears to be something of a coiled spring, about to explode with growth in all directions. Companies have cut the workforce to the bone while recovering from the worst financial crisis since the Great Depression. While there are still voices of macro-economics who believe that our debt levels are too high (they are) and the banking sector too weak (probably not in comparison to the rest of the world) to promote significant expansion, companies and investors are not convinced. Most of the working population is working, though this latest recession and the accompanying stimulus may have created an even larger underclass of unproductive cretins living off the earnings of the producers.

The big fear is that unemployment stays at elevated levels for too long a period. The government, by its actions such as extending unemployment benefits and increasing welfare payments only serves to exacerbate the condition, and washington must reign in its own profligacy. Otherwise, the massive spending the feds have thrown at the problem will create an ever more severe economic crisis in which the government cannot meet the demands of the people it is sworn to serve.

It's likely a very positive development that the dollar exhibited some strength and that bonds have sold off, increasing yields. If anything, the market, especially bond yields, will telegraph the next Fed move to raise interest rates, which seems to be coming sooner rather than later, and would be a good sign of real recovery and strength.

What most economics fail to include in their calculations are the robust dynamics of the US economy and the magic of innovation, which usually serves as a spur to both economic and job growth. The government jawboning about clean and green energy is a step in the right direction, but the markets will be the ultimate arbitrageur of what works and what doesn't. New products continue to come to market, and that builds economic activity more than any feeble weak-dollar trade ever could.

The US economy appears poised to break out into a new era of prosperity and the market is forecasting that development. As trite and cliche as it may sound, those who say that it's a mistake to bet against the US economy are probably dead right.

Thursday, October 8, 2009

Jobless Claims Drop; Gold, Retails Rock

Responding to positive September same-store sales data from a wide array of national retail chains in virtually every category and improving new unemployment claims figures, stocks rolled into positive territory at the open and remained there the entire session. Finishing well off the highs, possibly due to nervousness over the shaky success of a 30-year Treasury bond auction and other factors in the market, stocks nonetheless responded positively to solid economic news.

Following Wednesday's closing bell, Alcoa (AA) reported and that company's street beat gave the market strong footing from which to launch new gains.

The dollar-equity reverse trade remained well in place. Oil and gold were sharply higher. Demand for commodities is noticeably gaining momentum and prices are following.

Dow 9,786.87, +61.29 (0.63%)
NASDAQ 2,123.93, +13.60 (0.64%)
S&P 500 1,065.48, +7.90 (0.75%)
NYSE Composite 6,990.67, +78.02 (1.13%)

Internals were wildly positive for the 4th straight session. Advancing issues galloped ahead of decliners, 4285-2147. There were an extraordinary 672 new highs - the highest in over two years - and only 54 new lows. Volume was steady and in line with recent days.

NYSE Volume 5,833,707,500
NASDAQ Volume 2,425,962,750

Oil finished at $71.69, up $2.12. Gold set another record high at $1,056.30, a gain of $11.90. Silver continued to rally along, up 32 cents, to $17.82. The metals, in particular, are staging an enormous rally, being caught in the perfect storm of rising demand, competitive pressure, a general worldwide commodity boom and a declining dollar. Conditions are perfect for a parabolic move, or, pardon the expression, a bubble, though not soon, especially concerning the precious metals, whose values have been depressed for many years and are gaining as larger concerns unwind losing positions.

While it's difficult to imagine a world in which gold and equities could peacefully coexist for long, that's the current hand being dealt and it should be played. General economic conditions are improving in various locales around the globe and eventually will leak into American prosperity. There are simply too many embedded interests for stocks and the global economy not to survive and succeed, regardless of the brainless policies of politicians and other government numbskulls. The sheer amount of money that has been thrown at the problems confronting the American people and American business is enough to keep things humming for several more months, if not years.

Eventually, inflation will destroy all gains, unless you secure assets quickly, quietly and are in the proper allocations. The disruptions in the bond markets today may be worth watching. Yields on longer term debt instruments may have bottomed as of yesterday. Interest rates cannot remain this low - and they are exceedingly low - for more than another 4-6 months. Sooner or later, the Fed will act, and they are likely to be too late as is their habit. However, well-measured small incremental increases spread over time - not necessarily in a succession, another bad Fed habit - could keep the economy on an even keel once its stabilized, which likely date is sometime in early Spring, if not sooner. Until then, the bull market will proceed without much more than the occasional hiccup.

Wednesday, October 7, 2009

Alcoa Worth the Wait; Gold Makes Another New High

The rally took a bit of a breather on Wall Street Wednesday, as traders awaited word from aluminum giant Alcoa (AA) on third quarter earnings. Traditionally the first Dow 30 stock to report, the company did not disappoint, reporting earnings of 4 cents per share and revenues of $4.62 billion, well ahead of analyst expectations of a 9 cent loss on revenue of $4.55 billion. Alcoa closed up 31 cents (14.20) at the close of regular trading, but, after their upside surprise, was about 6% higher, at 15.00, in extended trading.

This followed a day in which stocks vacillated along the break even line, in a narrowly split decision. Of the major averages, only the Dow finished in negative territory, and that was marginally there.

Dow 9,725.58, -5.67 (0.06%)
Nasdaq 2,110.33, +6.76 (0.32%)
S&P 500 1,057.58, +2.86 (0.27%)
NYSE Composite 6,912.65, +12.97 (0.19%)

Advancing issues beat decliners by a slight margin, 3284-3021, and new highs trounced new lows, 365-48. Volume was a bit on the low side, owing to the anticipatory nature of the market, kicking off 3rd quarter earnings season.

NYSE Volume 4,890,557,000
Nasdaq Volume 2,239,362,000

Commodities were split as the dollar gained some strength, though very little. Crude oil closed down $1.31, to $69.57, but gold set a new all-time high for the second day in a row, up $4.70, to $1,044.40. Silver tagged along for a gain of 21 cents, to $17.50, its high for the year. Analysts expect resistance for gold at $1050, but expect it to blast through that, and, with the weakened greenback, to reach $1100 by the end of the year.

With Alcoa's strong showing, stocks should be on the move to the upside again on Thursday.

Tuesday, October 6, 2009

Gold Soars to New Highs; Stocks Up Big to Open Week

With earnings season about to begin, investors were jumping not only into stocks of all varieties, but especially into gold and other commodities in the first two trading days of the week, sprouting big gains in all sectors and sending gold to all-time highs above $1040 in NY trading.

The Dow and other major averages erased the losses of last week associated with the poor jobs data from September and began looking ahead to corporate earnings reports which begin on Tuesday with Yum Brands (YUM) and proceed into Wednesday with Monsanto (MON) reporting before the opening bell and Alcoa (AA) after the close.

As of this writing, YUM reported better-than-expected earnings of 69 cents per share in the third quarter, topping expectations of 58 cents per share, even though revenue slowed and same-store sales slipped 6% for the owners of Pizza Hut, Taco Bell and other national food outlets.

The moves in the market have been largely associated with a weakening dollar, which continues to delight stock traders but worries those who look at the macro-economic picture. A weaker dollar causes imports to cost more, wages to stagnate, but boosts profits on exports as their lower prices spur demand in foreign countries.

The greenback has been slumping of late, especially on Tuesday, as the Australian Central Bank increased key interest rates, saying that their economy was basically back on a sound footing. That sent the dollar index into a tailspin, boosting the price of commodities, in particular, gold.

Dow 9,731.25, +131.50 (1.37%)
Nasdaq 2,103.57, +35.42 (1.71%)
S&P 500 1,054.72, +14.26 (1.37%)
NYSE Composite 6,899.68, +104.55 (1.54%)

Stocks put in their second consecutive strong session, with all sectors positive and advancing issues beating decliners, 4965-1499, or better than 3-1. New highs were popping up everywhere, with 510 stocks making new 52-week tops, as compared to just 49 new lows. Volume was lighter than many trading veterans would have liked to have seen, though lower volumes have been a trademark of the now-7-month-old rally.

NYSE Volume 5,894,104,000
Nasdaq Volume 2,430,495,250

The commodity story was all positive, with crude oil advancing 47 cents, to $70.88; gold officially closing in New York up $21.90, at $1,039.70, and silver adding 76 cents, at $17.30.

Traders will be looking at earnings results from Monsanto (MON) before the market opens and will likely cheer the results of Yum! Brands, looking to go 3-for-3 in gains on the week.

Friday, October 2, 2009

Nervous Trading on Poor Employment Picture; Health Care Causing Problem

September's Non-farm payroll report was far worse than anyone expected, showing a loss of 263,000 jobs for the month when the market was expecting job losses somewhere around 180,000. Not only was the number far worse than expectations, it was worse than the previous month, a real break in the momentum of the recovery.

It has become increasingly clear that employers are not about to do any serious re-hiring or new hiring until the Congress gets off the entire health care reform kick. Legislation has been sloshing around the halls of Congress for months and have stalled, but, more importantly, business owners are holding back on hiring because of all the uncertainty, fearing increased costs or taxes on employees and the underlying businesses.

The longer Congress diddles with the health care issue, the longer the joblessness will continue in the USA. Also clear is that the Obama stimulus act of the Spring has not done nearly enough to boost recovery efforts. While the stimulus may have helped stabilize the situation, real job creation remains a distant mirage.

Also weighing on investors are the burgeoning foreclosures and number of Americans falling further into debt. Credit card and loan delinquencies are quickly reaching panic levels and unless those are somehow stemmed, the rally in stocks is going to be not only cut short, but trampled into dust. The level of fear in the marketplace has risen palpably over the past two weeks and especially over the past two days.

Despite the headline numbers from the major indices which showed marginal declines, the day on the market was actually much worse. First, a new short-term low was put in with stocks selling off right at the open. After a day-long rally back to positive territory, selling resumed just before the close, suggesting that Friday's trade was an unsafe bet heading closer to earnings season, though that will be preceded by Alcoa's earnings announcement on Wednesday and retail sales figures from the nation's largest vendors on Thursday of next week.

The technical damage done to the major indices over the past two days was significant, and, even though today's losses were modest compared to Thursday's massive selling effort, more damage was done today by the fact that the market did not properly respond to the horrible employment data. Because stocks set in a new low (9430 on the Dow, a 79-point loss) and closed near the mid-point of the day's trade, it created a situation similar to what occurred on Wednesday, when stocks put in a new low and finished well ahead of it. That telegraphed the next day's action, which, as we now know, was rampant selling.

Dow 9,487.67, -21.61 (0.23%)
NASDAQ 2,048.11, -9.37 (0.46%)
S&P 500 1,025.21, -4.64 (0.45%)
NYSE Composite 6,674.57, -43.48 (0.65%)

Simple indicators were a far better gauge of the damage than the closing numbers. Declining issues were ahead of advancers, 4253-2145 (2-1), and new highs tallied just 144, significantly lower than recent figures, while new lows ramped up to 59. Volume was lower than on Thursday, a real indication that the smart money was all-out on Thursday instead of waiting around and holding in front of the payroll data on Friday. Smart money is always out of the way first, and this seems to be the case currently.

NYSE Volume 6,468,782,500
NASDAQ Volume 2,385,079,250

Commodities were mixed, with oil trading down 87 cents, to $69.95; gold up $3.60, to $1,004.30; and silver down 21 cents, to $16.23.

As for the Dow components, reflected the bifurcated nature of the market, 19 were down and 11 closed higher, with IBM, Coca-Cola (KO), Merck (MRK) and JP Morgan Chase (JPM) providing most of the upside boost throughout the day. Without their participation, another triple-digit loss would almost certainly have ensued. Watch for those four to lead lower in coming days as their gains were largely unwarranted.

Today also marked the 7th day out of the past 8 that stocks have traded lower. The trend is clearly favoring the bulls right now and that sentiment should remain in place until some catalyst us found by investors to shake off the current funk. What that may be is difficult to fathom, the depth of distress caused by the reversal of the employment trend casting a heavy pall on the entire economic picture as the 4th quarter begins.

One technical note: this chart shows just how dangerous a position the Dow is at currently. The index touched its 50-day moving average today - something it hasn't done since the June-July timeframe. While it bounced right off it today - nobody in the financial media bothered to express this salient point - the prior period resulted in a very congested trading range to a small downside. The Dow could be in for a two-week consolidation period which may be sloppy and misconstrued as a return of the bear, though it's likely not. Look for a drop to the 9100-9250 range before earnings season begins in earnest.

Thursday, October 1, 2009

Correction in Motion

Yesterday in this space, it was reported that the stock market was ripe for a major sell-off and that's exactly what happened after the weekly unemployment claims data and a worse-than-expected ISM report hit the Street.

Stocks opened lower and stayed down, erasing Wednesday's bottom by 10:00 am and never recovering. Eventually, all the major averages suffered their worst losses since July 2nd when the Dow was battered 223 points and the S&P declined 27, the same as today. The NASDAQ suffered worse than its counterparts, falling 3.06%, nearly matching the worst one-day loss since the start of the current rally, on April 20.

Thursday's action marked the sixth decline for the market in the past seven sessions. Economic news has been uniformly weak over the past two weeks, leading investors to take profits or abandon positions altogether.

Dow 9,509.28, -203.00 (2.09%)
Nasdaq 2,057.48, -64.94 (3.06%)
S&P 500 1,029.85, -27.23 (2.58%)
NYSE Composite 6,718.05, -192.83 (2.79%)

Simple indicators confirmed the widespread carnage. Declining issues outnumbered advancers, 5314-1139. New highs led new lows, 205-51, though the margin of difference has declined markedly over the past three sessions. Volume was very high, indicating that the losses are not about to end here, especially since the indices ended at their lows of the day.

NYSE Volume 6,905,833,500
Nasdaq Volume 2,751,787,500

Oil finished the day 21 cents higher, at $70.82, but that bucked the overall trend. Gold lost $8.60, to $1,000.70. Silver was down 22 cents, to $16.44.

With the September non-farm payroll data set to appear at 8:30 am, it was obvious that many investors did not want to get in front of that number. All indications are that it will not meet expectations of -175,000. Something in the range of -190,000 to -215,000 would be more likely.