Tuesday, December 15, 2009

Ending String of Advances, Markets Lower Ahead of Fed

Was Monday the top?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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