Blind Men Leading the Clueless: Late Day Selling Sinks US Equities

Yes, indeed, the dead cat bounced yesterday, but it lost its legs in the process. The follow-up to Tuesday's one-sided trade up was a complete dud. While the Dow briefly traded nearly 50 points higher, at the end of the day the sellers took all US equity indices back into red territory.

Dow 12,192.45 -15.14; NASDAQ 2,374.64 -10.50; S&P 500 1,391.97 -3.44; NYSE Composite 8,999.20 -6.81

The short leg today signify little buying interest. Any other explanation should be viewed with appropriate skepticism. Following the meltdown of Feb. 27, yesterday's rally was simply relief, as I said clearly and emphatically yesterday.

But here's a direct quote from (I believe) briefing.com, which posts directly to the market overview page on Yahoo! Finance, a site that is probably the most frequented of any in the financial world.

Since yesterday's huge rally was based as little on fundamentals as was last week's meltdown, and indicative of short covering activity amid an increasingly pessimistic mindset, today's breather wasn't overly disconcerting. In fact, some semblance of stabilization provides some hope that a bottom may have been put in place.

Now, I have a couple of problems with this. First, it's sugarcoating the past two weeks+ of trading in which the Dow has fallen in 9 of the last 11 sessions. The other indices have generally followed suit. February 27 was not an isolated event, even if it was somewhat contrived. Second, I don't know exactly how the author squares "short covering activity amid an increasingly pessimistic mindset" with "based as little on fundamentals as was last week's meltdown..." because if there is an increasingly pessimistic mindset, shorts wouldn't bother to cover and last Tuesday's meltdown was based on fundamentals - a fundamentally overbought market.

Third, that last line is a true gem and should end up in the annals of other official-sounding gibberish. "Some hope that a bottom may have been put in place" is like saying, "we're happy none of the survivors were killed," or "sure Kennedy was killed but Connally was only injured." Serious damage was done last week and it wasn't exactly unforeseen. Anyone hoping that a bottom is now in place is really pushing the envelope of stupidity right into the face of investors they hope are clueless.

There's more evidence that corporate media thinks the American public is stupid. As if we needed any more proof, writers Robin Farzad and David Henry penned the cover story for this week's edition (dated March 12, 2007) of BusinessWeek. In it they and their editors actually have the raw nerve to use this as a sub-head: "Volatility is back. Ominous signs loom. But the outlook for U.S. markets is surprisingly upbeat."

For them, maybe, but there are thousands of people with money in 401k's and other investments who aren't exactly rejoicing over a 400-point one-day drop on the Dow. The trading sessions which preceded and followed that ugly Tuesday aren't exactly joy-inspiring either.

The authors cite a glut of private equity money and other cash sitting on the sidelines and the fact that overseas markets still seem riskier than US stocks as examples for the "upbeat" feel. They also cite that the market was up on Feb. 28, as another reason not to worry, which certainly is reassuring, especially when it was down the following day, the day after that and so on...

These authors have an amazing nerve to think they can accurately read the market's signals and then tell us everything is OK. It truly is the blind leading the clueless.

Meanwhile, reports that the housing bubble has burst into full-blown collapse are beginning to emerge. It's not just sub-prime loans that are going bust, but buyers who purchased homes via adjustable rate vehicles at grossly inflated prices with little or no equity are being dragged into foreclosure as well. It's simple math. If you bought a home in 2003, 2004, 2005 or 2006 for $500,000 and today it's only going to fetch $400,000, you lose. And it's happening all over the country, but especially in Florida and California, which just happen to be two of the largest real estate markets in the USA.

The real culprits are interest-only adjustable-rate mortgages, which spread like wildfire through the mortgage industry as housing prices ramped beyond the reach of most Americans. Insidious lending practices let the buying boom continue, until every last loser with a job had his or her own home, affordable or not (most times, not).

Well, if our homes don't kill us, we can count on our cars taking every last nickel. Oil was up another $1.13 today to close at $61.82. The beneficent big oil companies just can't get enough, can they?

Gold gained 6.70 to 652.90; silver followed dutifully along, rising 12 cents to $13.11 per Troy ounce.

Did That Dead Cat Bounce? Yes, Indeed!

Is this how downtrends end? With a one-day wonder resurgence that erases any doubt that the US economy, American resolve and corporate equities are safe investments, the markets have made a bold statement.

Too bad it's impossible to believe.

The Dow added 157 points, the NASDAQ was up 44.46, the S&P gained 21.29 and the NYSE Composite index grew by 168. These were solid gains all around, led by the NYSE Composite and the NASDAQ's 1.9% improvement, but one good day, after a series of bad ones, does not a bull market make. The trend is still to the downside. The Dow, for example, is still nearly 600 points below it's high of 12,795.93, achieved less then a month ago. It's broken through the 50 day moving average and today's gain - albeit impressive - leaves it more than 300 points below that mark.

Further, the big 416-point drop last Tuesday was preceded by four consecutive down sessions. Today's winner was only the 2nd positive close of the last 10 sessions. Bulls, hard-headed as they are, usually need to be hit over the head with a mallet before they stop charging ahead, so maybe more evidence is needed. Give them a couple more weeks.

The advance-decline and volume numbers for today were real shockers. This was no ordinary buying spree. Every sucker in the universe was taking the plunge, a sign that cooler heads (Bears, shorts and put options players) are about to take more of their money.

Gainers outnumbered losers by a 4-1 margin, but the volume figures were extraordinary. Dow volume checked in at only 5-6% on the combined averages. Up volume of 94% signals just one thing - this is nothing more than a dead cat bounce on a temporarily oversold condition. Everybody moving at once is never a good sign because the chances of everybody being right are slim to none.

This market will likely give today's gains back by the end of the week. If this mini-rally gets legs and moves another step forward, it may take until the end of next week to unwind, but unwind it will. The market is not in any condition to regroup and head for higher ground. This correction is still in its earliest stage. We can call today the beginning of stage two, in which those who did not lose enough to be wary in phase one will be eaten alive.

New highs reversed the recent trend, though not by much, winning the day by a slim margin of 123-108. That's encouraging for the Bulls, but nothing to write home about.

Oil, gold and silver were up marginally. Commodities are still stuck in somewhat overbought ranges and cannot move higher when the global economy is in a cooling period or slowing down, which it is. For bulls of all persuasions, however, today was needed relief. But, like all relief rallies, they are usually dramatic and short-lived. This was no exception.

Wider and Deeper

The US stock markets are in a protracted downturn that isn't likely to end soon, though the measure of the carnage on the NASDAQ has already nearly reached my expectations (7-9%).

People (like headline writers for major news services) usually search to find reasons behind the numbers, but in this current case, there need be no rationale. Stocks are falling because people are selling, plain and simple. A combination of certain perceptions, including, a) a slowing economy (real), b) overvaluation of stocks (again, real), and c) fear that the future may not be so bright (perceived, and only possibly real), have all contributed to the sell-off of the past week.

These perceptions are not about to change soon. Only revaluation (i.e., lower stock prices) is going to solve the problem and that means lower we must go. There's little confidence on Wall Street or Main St. right now and it's being reflected in the indices on an everyday basis.

Today was no exception as we saw the Dow hang in positive territory until capitulation in mid-afternoon. The NASDAQ and S&P 500 spent most of their day in the red.

Dow 12,050.41 -63.69; Nasdaq 2,340.68 -27.32; S&P 500 1,374.12 -13.05

The real carnage was on the NYSE Composite, which lost 120 points today (1.34%). Market metrics established that the correction is broadening and deepening. Overall NYSE and NASDAQ advance-decline lines ran roughly 5-1 in favor of the losers. NYSE volume was 10-1 in the red. But the most compelling data to confirm the ongoing train wreck were the 189 new lows which swamped the 98 new highs. That number had been relatively flat until Friday, at which time the new lows took over leadership.

The new lows will have to reach more than 300 combined before we can begin to take sight on a bottom, so there's much further to go.

Watching the tape today was a painful, gut-wrenching experience for most investors, except for the brilliant few who had already departed. There's still time to get out, however, before a simple loss becomes a life-changing event. As I've repeatedly noted, we are only in the early phase of this downturn and while I may be wrong about the actual bottom for the Dow, I've already been proven vulnerable on the depth of NASDAQ losses. The upcoming earnings season should prove to be a doozy and we're still 5-6 weeks away from that. Prudence would prescribe selling now, not later.

Perhaps the only good news on the day was that oil for April delivery closed down 1.57 to 60.07. Lower oil and gas prices would be welcome relief and surely more representative of the actual supply-demand scenario. Gold and silver were also lower again, signaling that there truly is no safe haven.

The Dow has lost nearly 600 points in just the last 5 sessions. If that isn't enough of a departure signal for you, maybe being hit by the actual train will do. It's very clear that another 1000 points will be sacrificed over the next 3-5 weeks. Caveat emptor.

What a Week: Devaluing Corporate America

Our country is under attack, not by terrorists or a foreign army, but by foreigners, after all, who own most of our debt and a lot of the very same stocks they sold this week.

Corporate America took a nearly 5% devaluation in the course of trading this week. It wasn't a happy sight, nor was the close of trading today, with all three major indices closing at - or very close to - their lows. Such a close does not bode well for Monday.

Assessing the damage, Friday's numbers:
Dow: 12,114.10 -120.24; NASDAQ: 2,368.00 -36.21; S&P 500: 1,387.17 -16.00

And for the week:
Dow: -533.38 (-4.22%); NASDAQ: -147.1 (-5.83%); S&P 500: -64.02 (-4.41%)

What's surprising (at least to me) is the extent of the selling on the NASDAQ. I'd assumed that since the NASDAQ had not recovered from 2000 as well as the other indices, that it would be less prone to massive meltdowns, but the numbers don't lie: techs took a beating this week, nearly half again as much in percentage losses of the other major exchanges.

I can't put my finger on just what it is, but making the NASDAQ the whipping boy in this downtown doesn't exactly add up. Perhaps the market - or some entity acting as a proxy for the market - is trying to make the case that stocks on the junior circuit just aren't as stable and capable of handling bad news, that they are overvalued to an exaggerated degree, or that the NASDAQ is an inherently unsafe haven for investment money.

Call me cynical, but when 28 of the 30 Dow components show losses, as they did on Friday, I'd consider that to be a vulnerable situation. Of course, there's a degree of crossover, as some of the Dow stocks are listed on the NASDAQ, but that still doesn't account for the disparity.

Perusing the Dow components, one after another sports a p/e in the teens, dividend yield of less than 3% and a long history of positive earnings. With that in mind, perhaps there was somewhat of a flight to quality, with investors seeking safe haven in the Blue Chips. If that is indeed the case and we are in the initial stages of a serious correction, I may be out ahead of myself. Over the next 2-4 weeks, we should see the Dow - and the S&P - running a little colder than the NASDAQ. Eventually, bargains will emerge in the beaten down techs as the downtrend lengthens and broadens.

At some point - probably mid-to-late April - we will hear the term shooting the generals at which point I would suggest buying unduly depressed NASDAQ stocks with gusto. The aforementioned term comes from military parlance, and envisions the end-point of a war, when the well-protected leaders are finally rousted and dispatched. So it may be with the Dow stocks which look safe for now, but will eventually capitulate near the end of the correction.

The commodity markets also deserve a glance. Oil was off 36 cents to close at $61.64. I'd like to say that the price of crude has topped or is capped around $62-64, but that would be nothing more than wishful thinking. The charts show that oil isn't about to rise dramatically any time soon unless there is a politically-unstabilizing event or more outright manipulation of the price. With heavy driving months of Spring and Summer approaching, the price is expected to rise, but supply-demand dynamics and a slowing economy may derail such a movement. We can only hope that the charts, which indicate a retracement back into the 50s in the cards, are more prescient than the news media and crude hucksters who preach "driving season" economics.

Gold got slammed again, down 21.00/oz. to 644.10. Silver tagged along again, failing from its breakout at 14.35. Today, the price of silver slumped 0.69 to close at 12.96. Safe haven, my foot! You'd be better off stuffing mattresses.

Oopsie, Daisy, We Almost Did It Again

US equity markets opened in an ugly mood today. Gapping lower at the open the Dow quickly sold off over 200 points but quickly recovered all except 50 points, all in the first half hour of trading. The other indices followed roughly the same pattern.

From there, the markets dawdled just below the even line for most of the day, briefly going positive in late afternoon before selling off into the close.

All told, it wasn't very pretty.

This is a market that wants to sell off, knows it is going to sell off and will sell off. There's no impetus for further upside movement and jittery brokers know it. Volumes showed a heavy bias on the negative again today. New lows are beginning to proliferate; 176 today, topping out new highs by a slight margin.

Dow 12,234.34 Down 34.29; NASDAQ 2,404.21 Down 11.94; S&P 500 1,403.17 Down 3.65

Oil persisted in reflecting unreal expectations for future demand, tacking on another quarter to even out at $62.00 per barrel. The price is pure fantasy on the part of futures traders and is in now way reflective of actual supply-demand dynamics. The price of oil - and refined, of gas - is pure fiction, built on greed and monopolist politics. It's a surfeit of corporate and international culture that is out of control and continues to plague markets as the single most dangerous threat to stabilized markets in the world.

The oil gambit is doomed to failure, however, as are all frauds and schemes. Eventually, markets will adjust to what they consider unfair arrangements and move to alternatives. And alternatives are emerging at a more rapid pace than the oil organizers care to admit.

Gold took a beating again, and today, silver followed dutifully along, though silver's loss was less than half in magnitude to gold's injury of -7.40. The metals, like everything else, looks stuck, waiting for the other shoe to drop

...which could happen at any time.