Stocks Stabilize, Still End Lower as More Trouble Looms

After Wednesday's wicked downdraft, cooler heads prevailed in Thursday's trading, keeping losses to a minimum as bargain-hunters swooped in to snatch up some shares of stocks which look to be marked down for a pre-Christmas sale.

Whether or not these so-called "bargains" will turn into winners is anybody's guess, though the real experts in market dynamics see more trouble ahead as Washington tries to come to a deal before January 1 of 2013, when mandatory spending cuts and tax increases are set to take place.

Placing one's hope - and one's money - on politicians in Washington actually accomplishing anything of such importance is akin to betting on a cheap claimer in a stakes race: the odds are very much against it.

As was the case with the battle over raising the debt limit last August, the DC crowd has shown no willingness to compromise on much of anything and the "fiscal cliff" issue is right up drama alley for our clownish elected leaders.

Eventually, the adult in the room seems to be the president, Barack Obama, who must navigate the press and the pressure of dealing with an intractable house of representatives, whose sole mission seems to be to spare the wealthiest two percent of earners any tax increases, even at the peril of the nation.

How this tableau will eventually play out is somewhat predictable. It will be taken out to the last possible moment, and quite possibly beyond. Word is that the legislators have until mid-February to actually come to their senses and a deal if the United States is to avoid an utterly avoidable recession, caused entirely by public policy.

This play has certainly caught Wall Street's attention, as evidenced by the sharp declines over the past month and especially since the election, just over a week ago.

What some market participants fail to realize - or won't say publicly - is that the market may well have already run out of gas, almost all of it supplied by the magnanimous Federal Reserve, whose QE policies have injected trillions into the hands of the banking cartel.

The Dow and S&P made double tops in mid-September and early October, then failed to surpass those highs later in the month, a classic chart pattern signaling a primary trend change and a bearish one, similar to the breakdown in the fall of 2007.

As for the NASDAQ, it didn't even bother to retrace the highs of September, simply capitulating in October and continuing a cascading fall, closing in quickly on the June lows.

If this is the beginning of a bear market, the foolery in Washington will be nothing more than a sideshow. The economy - both here and globally - is in a weakened condition already and may not be able to sustain even a medium shock, much less one that raises taxes and trims budgets, reducing head-count, and thus, overall spending.

Add to that the double-dip recession now official in the Eurozone and growing tensions in the Middle East and the recipe for disaster is laid bare.

Wall Street and its brokerage houses should emblazon their entrances with a warning sign: Beware Falling Stocks.

Today's minor decline could be seen as somewhat remarkable in the face of some disturbing economic events. Initial unemployment claims rose dramatically, from 361K to 439K this week, due partly to the effects of Hurricane Sandy. The Philadelphia Fed manufacturing survey laid an egg as well, posting a reading of negative 10.7 on expectations of a fat zero.

Besides the internal damage done to markets, all of the major indices are now firmly moored below their 200-day moving averages, not a pretty sight until some catalyst comes along to change the dynamic, and none appears to be on the horizon.

The advance-decline line was still severely negative and new lows exceeded new highs for the sixth day in a row.

All signs point to further weakness, though a technical bounce could send stocks up briefly, but the holiday season, thus far, isn't shaping up to be a very jolly time.

Dow 12,542.38, -28.57 (0.23%)
NASDAQ 2,836.94, -9.87 (0.35%)
S&P 500 1,353.32, -2.17 (0.16%)
NYSE Composite 7,896.87, -6.56 (0.08%)
NASDAQ Volume 1,975,168,625
NYSE Volume 3,892,497,250
Combined NYSE & NASDAQ Advance - Decline: 1954-3591
Combined NYSE & NASDAQ New highs - New lows: 25-456 (this is extreme!)
WTI crude oil: 85.45, -0.87
Gold: 1,713.80, -16.30
Silver: 32.67, -0.206