A day after one of Wall Street's more impressive downflights, the suits got back on their trains this morning as usual and began buying some stocks.
It wasn't exactly an overwhelming affirmation of the miracle of capitalism, but Wall Street, being the fickle beast that it is, turned the tide and restored some confidence after a severe battering on enormous volume - the largest ever for the NYSE.
Like I said yesterday, nobody should have been in a big hurry to dump their 401k or empty the college fund because yesterday's event was highly staged and will barely be seen as a blip in the long run of events. The fact remains, however, that all of the gains of January and February were wiped out in one day, so we're starting all over again for the year, like some version of an economic do-over.
There were probably more than a few millions made on the short side in options and most of that was likely in the hands of the big brokerages and other uber-traders. Today's mini-rebound notwithstanding, the overall mood is a bit dour and anyone who's anyone knows that stocks were overbought and in need of some kind of reversal. One should also be aware that in this shock-and-awe environment, yesterday's Bear barrage was only the first salvo and more down days are on the horizon.
A 3-4% wallop on one day is certainly a good start for a protracted correction, which is well underway and should see a fair share of up and down days over the next couple of months. Naturally, the down days will be larger and more dynamic that the speculative uppers, and the bottom will eventually be found well below current levels.
For the record, the Dow gained 52.39 points, the NASDAQ plowed ahead 8.29 and the S&P picked up 7.78. Those numbers are dwarfed by yesterday's hammering, but it shows there are still Bulls ready for slaughter.
Make no mistake, the correction has now been well-greased and there are still overvalued stocks aplenty. A couple of my favorites, Yahoo and eBay, are trading at current p/e ratios of nearly 60 and 40, respectively. (I've a mind to buy about a zillion Yahoo April 30 puts but I don't want to disturb the market. I just want to report on it.)
One doesn't have to look far to find stocks to sell. Tuesday's sell-off was rather uniform and orderly - as orderly as a mini-crash can be - and while there were a number of severe casualties, there were no fatalities.
Today's muted reaction was more of a calming session, even though suckers could be found on every issue. Volume was once again abnormally high. There is more downside risk, much more. Keep an eye peeled on oil, silver and gold. Crude has broken above $60 for now, closing today at $61.75, the last day of trading for April futures. Expect a pull-back tomorrow on crude, while gold remains rangebound. Silver is on the verge of a breakout and bears watching if not an outright screaming buy. Considering the carnage from Tuesday, the precious metals certainly displayed some generous giveback today.
Wednesday, February 28, 2007
Tuesday, February 27, 2007
Sensational! Spectacular! WOW!
Finally, something to get excited about.
In case you missed it, US stock markets nearly collapsed wholesale on Tuesday.
Check out these figures:
Dow: 12,216.24, -416.02; NASDAQ: 2,407.86, -96.66; S&P 500: 1,399.04, -50.33
Like I said in the headline, WOW! But it wasn't as though we weren't warned. Just yesterday, right here, my headline read The Correction Has Begun. If my word wasn't enough of a warning to start taking those profits and paring losses, then maybe former Fed Chairman Alan Greenspan's remarks to an economic conference in Hong Kong yesterday might have given us a clue that something was in the works.
And boy was it. This was telegraphed like a club boxer's left hook.
The fact of the matter is that today's response from, first, the Chinese stock market, then Europe's markets, and finally the US markets, was entirely well-organized and a classic prototype of blatant manipulation.
In the long run, it means little. The biggest hit in the US, on a percentage basis, was taken by the NASDAQ, which lost nearly 4% on the day. We'll survive. That stunner was, however, dwarfed by China's 9% decline, which, according to the so-called experts, was the real reason for US stocks to take a beating.
What utter hooey! If the Chinese economy stutters and stumbles, we should, as a nation, applaud long and loud. Maybe we can get a better deal on plasma TVs if they feel a little pain for a change. We're all in it together, though the US trade deficit and government overspending does play into the whole mess.
Our loose fiscal policies are the prime factors behind the whole worldwide bubble economy and we're mortgaged to the hilt. But if China takes a hit, should we worry? Maybe a little, since they hold our debt and could start calling it in or floating their currency - the yuan - a little higher, or both. But it certainly isn't the end of the world and nothing's really changed since yesterday, right?
Oh, no. That's where you would be wrong. This story by Seymour Hersh in the New Yorker makes some very poignant and troubling claims about the state and nature and inner doings of our political leadership. I won't tip it off here, but leave it to you to read it for yourself.
Well, here's a clue. Hersh is the preeminent investigative reporter of our day. He broke the Iran-Contra story and he's been on to the shenanigans of the Bush administration from the start of the Iraq War. So, would the hoi poloi in the White House and on Wall Street and in London's City get a little bit twitchy if the leaders of the world's superpower were about to get a serious spanking by the media and maybe the Congress?
Here's the timeline:
Hersh's article hits the newsstands and the web on 2/25.
Greenspan warns of a US recession on 2/26.
China's markets implode, Europe and US markets follow on 2/27.
Welcome to the winter of our discontent. My advice: Watch for falling stocks... and politicians. Yesterday, I said the Dow should settle out in the 10,350 to 11,100 range. We've still got at least another 1100 points to go.
In case you missed it, US stock markets nearly collapsed wholesale on Tuesday.
Check out these figures:
Dow: 12,216.24, -416.02; NASDAQ: 2,407.86, -96.66; S&P 500: 1,399.04, -50.33
Like I said in the headline, WOW! But it wasn't as though we weren't warned. Just yesterday, right here, my headline read The Correction Has Begun. If my word wasn't enough of a warning to start taking those profits and paring losses, then maybe former Fed Chairman Alan Greenspan's remarks to an economic conference in Hong Kong yesterday might have given us a clue that something was in the works.
And boy was it. This was telegraphed like a club boxer's left hook.
The fact of the matter is that today's response from, first, the Chinese stock market, then Europe's markets, and finally the US markets, was entirely well-organized and a classic prototype of blatant manipulation.
In the long run, it means little. The biggest hit in the US, on a percentage basis, was taken by the NASDAQ, which lost nearly 4% on the day. We'll survive. That stunner was, however, dwarfed by China's 9% decline, which, according to the so-called experts, was the real reason for US stocks to take a beating.
What utter hooey! If the Chinese economy stutters and stumbles, we should, as a nation, applaud long and loud. Maybe we can get a better deal on plasma TVs if they feel a little pain for a change. We're all in it together, though the US trade deficit and government overspending does play into the whole mess.
Our loose fiscal policies are the prime factors behind the whole worldwide bubble economy and we're mortgaged to the hilt. But if China takes a hit, should we worry? Maybe a little, since they hold our debt and could start calling it in or floating their currency - the yuan - a little higher, or both. But it certainly isn't the end of the world and nothing's really changed since yesterday, right?
Oh, no. That's where you would be wrong. This story by Seymour Hersh in the New Yorker makes some very poignant and troubling claims about the state and nature and inner doings of our political leadership. I won't tip it off here, but leave it to you to read it for yourself.
Well, here's a clue. Hersh is the preeminent investigative reporter of our day. He broke the Iran-Contra story and he's been on to the shenanigans of the Bush administration from the start of the Iraq War. So, would the hoi poloi in the White House and on Wall Street and in London's City get a little bit twitchy if the leaders of the world's superpower were about to get a serious spanking by the media and maybe the Congress?
Here's the timeline:
Hersh's article hits the newsstands and the web on 2/25.
Greenspan warns of a US recession on 2/26.
China's markets implode, Europe and US markets follow on 2/27.
Welcome to the winter of our discontent. My advice: Watch for falling stocks... and politicians. Yesterday, I said the Dow should settle out in the 10,350 to 11,100 range. We've still got at least another 1100 points to go.
Monday, February 26, 2007
The Correction Has Begun
On Monday, the Dow drooped for the 4th straight session. The correction has begun.
Since closing at 12,786.64 (an all-time high) on Feb. 20, the Dow has lost 154 points to its resting place today at the close of 12,632.26. Four straight losing days: a trend? Maybe, and at this point in time, likely.
There does not need to be any reason for a decline in the price of stocks as investors will make up any assortment of reasons to buy or sell, but when it comes to substantial increases or declines in the value of the blue chips of the Dow it's worth a second look.
On Monday, there were 16 Dow components in the losing column, one unchanged and 14 posting gains. The disparity was not large and neither was the point loss, a mere -15.22 for the session. Since the Dow is not a weighted average, a closer look at the components reveals that four of the five heaviest-traded issues were actually up.
Intel, the leader with 72 million shares traded, gained .09. Microsoft (63 mil.) was up .17. Citigroup (35 mil.) lost 1.09. Pfizer (32 mil.) gained .22 and General Electric (25 mil.) was up .24.
If the Dow was weighted, it would likely have shown a gain. But, it is not. The points are added and subtracted after being calculated by the Dow divisor, currently 0.14452124. So, that Citigroup loss of -1.09 ÷ 0.14452124 = -7.54. Citigroup's loss outweighed the gains of the other 4 stocks, even though those four stocks traded nearly 5 1/2 times the shares.
Adding a weighted average of the Dow might skew results to which investors have, over the years, grown accustomed, thus, it has not been changed in many years, though the divisor is routinely adjusted for splits.
So, we have the Dow in drop mode, while the other, weighted, indices march to their own beat. The finishes today were, however, similar. The NASDAQ lost 10.58 and the S&P was down 1.82. The reliably honest NYSE Composite showed a gain of just 1.24.
What we're witnessing and will be witness to over the next 5-7 weeks prior to the next round of earnings, is a bit of divergence between the indices. While the Dow and S&P should follow a similar path, I expect the NASDAQ, with its preponderance of tech and mid-cap issues, to outperform both of those.
Remember that in the dotcom implosion of 2000-2002, the NASDAQ took the most severe beating and has only recovered to less than half of its all-time high while the Dow has set new highs and the S&P is close to record territory. 1527.46 was the all-time high for the S&P. It's currently less than 80 points from that mark.
A 10% loss on the Dow would barely be noticeable. From its high of last week, a 10% decline would only put it at 11, 508. I believe a 15-20% loss on the Dow is now in the cards. It would signal to investors that the market is and has been overbought and that the colossal returns of the past 4 years cannot be sustained indefinitely.
I won't bore you with the details of my calculations, but note that Fibonaci numbers will be in play. Expect the Dow to bottom out around the 10,350 to 11,100 range. We're not in a position for a full-blown recession, but indications are that the economy is growing at a slow, sustainable rate. Dollars will be taken off the table in a combination of profit-taking and over-indulgent fears.
The entire episode should shake out by the end May, when the markets will likely go sideways for a while before setting sail for new highs in 2008. It's going to be a rough ride for a while, but nothing earth-shaking unless political machinations derail into some unlikely chaos.
The NASDAQ will fare much better, with an 8-10% decline being the absolute worst of this round.
Since closing at 12,786.64 (an all-time high) on Feb. 20, the Dow has lost 154 points to its resting place today at the close of 12,632.26. Four straight losing days: a trend? Maybe, and at this point in time, likely.
There does not need to be any reason for a decline in the price of stocks as investors will make up any assortment of reasons to buy or sell, but when it comes to substantial increases or declines in the value of the blue chips of the Dow it's worth a second look.
On Monday, there were 16 Dow components in the losing column, one unchanged and 14 posting gains. The disparity was not large and neither was the point loss, a mere -15.22 for the session. Since the Dow is not a weighted average, a closer look at the components reveals that four of the five heaviest-traded issues were actually up.
Intel, the leader with 72 million shares traded, gained .09. Microsoft (63 mil.) was up .17. Citigroup (35 mil.) lost 1.09. Pfizer (32 mil.) gained .22 and General Electric (25 mil.) was up .24.
If the Dow was weighted, it would likely have shown a gain. But, it is not. The points are added and subtracted after being calculated by the Dow divisor, currently 0.14452124. So, that Citigroup loss of -1.09 ÷ 0.14452124 = -7.54. Citigroup's loss outweighed the gains of the other 4 stocks, even though those four stocks traded nearly 5 1/2 times the shares.
Adding a weighted average of the Dow might skew results to which investors have, over the years, grown accustomed, thus, it has not been changed in many years, though the divisor is routinely adjusted for splits.
So, we have the Dow in drop mode, while the other, weighted, indices march to their own beat. The finishes today were, however, similar. The NASDAQ lost 10.58 and the S&P was down 1.82. The reliably honest NYSE Composite showed a gain of just 1.24.
What we're witnessing and will be witness to over the next 5-7 weeks prior to the next round of earnings, is a bit of divergence between the indices. While the Dow and S&P should follow a similar path, I expect the NASDAQ, with its preponderance of tech and mid-cap issues, to outperform both of those.
Remember that in the dotcom implosion of 2000-2002, the NASDAQ took the most severe beating and has only recovered to less than half of its all-time high while the Dow has set new highs and the S&P is close to record territory. 1527.46 was the all-time high for the S&P. It's currently less than 80 points from that mark.
A 10% loss on the Dow would barely be noticeable. From its high of last week, a 10% decline would only put it at 11, 508. I believe a 15-20% loss on the Dow is now in the cards. It would signal to investors that the market is and has been overbought and that the colossal returns of the past 4 years cannot be sustained indefinitely.
I won't bore you with the details of my calculations, but note that Fibonaci numbers will be in play. Expect the Dow to bottom out around the 10,350 to 11,100 range. We're not in a position for a full-blown recession, but indications are that the economy is growing at a slow, sustainable rate. Dollars will be taken off the table in a combination of profit-taking and over-indulgent fears.
The entire episode should shake out by the end May, when the markets will likely go sideways for a while before setting sail for new highs in 2008. It's going to be a rough ride for a while, but nothing earth-shaking unless political machinations derail into some unlikely chaos.
The NASDAQ will fare much better, with an 8-10% decline being the absolute worst of this round.
Thursday, February 22, 2007
Dow Dives Again
The markets today: Dow: 12686.02, -52.39; NASDAQ: 2524.94, +6.52; S&P 500: 1456.38, -1.25. More to follow...
Wednesday, February 21, 2007
Oil, Inflation End Dow Streak
After setting all-time closing records for 3 consecutive sessions, the Dow Jones industrial Average closed lower on Wednesday amid reports of heightened inflation risks and higher crude oil prices.
The Labor Dept. reported that core CPI rose an unexpected 0.3% in January, raising fears that inflation, and with it, higher interest rates, are on the horizon. Higher interest rates from the Fed are about the last thing this market wants, and if the Fed governors decide that inflation is running a little too hot (which it probably is), a quarter point increase will be in the cards come the next meeting.
The price of crude certainly was no help for the Dow. Oil closed at $60.07, crashing the ceiling that's been in place for more than 2 months. If rising oil prices persist, it's the end of this long, long rally, but that could be exactly what this overextended market is seeking - a reason for a pullback.
The Dow closed at 12,738.41, down 48.23; the Nasdaq finished the day at 2,518.42, up 5.38; while the S&P 500 lost 2.05 to finish at 1,457.63.
The Dow is severely overextended and it's now become just a matter of time as to when the downturn will occur. While a retreat on the blue chips seems inevitable, it's not likely to be long-lasting or particularly severe.
The Labor Dept. reported that core CPI rose an unexpected 0.3% in January, raising fears that inflation, and with it, higher interest rates, are on the horizon. Higher interest rates from the Fed are about the last thing this market wants, and if the Fed governors decide that inflation is running a little too hot (which it probably is), a quarter point increase will be in the cards come the next meeting.
The price of crude certainly was no help for the Dow. Oil closed at $60.07, crashing the ceiling that's been in place for more than 2 months. If rising oil prices persist, it's the end of this long, long rally, but that could be exactly what this overextended market is seeking - a reason for a pullback.
The Dow closed at 12,738.41, down 48.23; the Nasdaq finished the day at 2,518.42, up 5.38; while the S&P 500 lost 2.05 to finish at 1,457.63.
The Dow is severely overextended and it's now become just a matter of time as to when the downturn will occur. While a retreat on the blue chips seems inevitable, it's not likely to be long-lasting or particularly severe.
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