April Fools? Stocks Gain as Oil Slips

There wasn't a great deal of news today but all of it was good and that helped restore some confidence to a shaky market. Since the fallout from mid-February to mid-March the markets have stabilized and rebounded quite well. The Dow has recovered 460 points off its March 5 low, the NASDAQ has added 110 points from the same date and the S&P 500 is up more than 60 points.

What fueled today's action were a series of unrelated reports and market action which together created one big buying spree on the street. A 0.7% rise in pending home sales got the market's attention and eased some of the fears of a spreading crisis. That minuscule rise would hardly be worth noting under usual circumstances, but the worries in housing are palpable, and this little bit of good news was welcome relief. What the market isn't seeing is another story. More on that later.

U.S. chain store sales rose 0.3 percent in the week ending Saturday, according to data released by the International Council of Shopping Centers and UBS Securities. This report came on the heels of a 4.6% gain in the previous week, so the fact that there was no pullback was a strong sign.

The price of oil also contributed to wealth creation in equities, with crude losing $1.30 to $64.64 a barrel on the NY Mercantile Exchange. As I've commented all too frequently, the price of oil (and by proxy, gasoline), is the key cog in the economic cycle.

If the oil barons (you don't really think there's actually a free, open un-rigged market in crude, do you?) can wrap their brains around the concept that lower gas prices actually means more money for them (supply-demand scenario) and let the price slide into the high-to-mid 50s over the next few months then the economy might actually flourish.

Despite auto sales of the big 3 US automakers slumping in March, the market shrugged off that bit of disappointment and surged ahead in a buying orgy that saw new highs for 469 issues with only 83 new lows. As I commented yesterday, that indicator is telling us that the market is poised for more upward movement, circumventing the big correction that many - including me - said was coming.

Indeed, the sewers of Wall Street are full of pundits and predictors who said a correction was imminent over the past four years. Incessant priming of the liquidity pump by the Fed has averted any notion of a downturn since the early months of 2003.

Dow 12,510.30 +128.00; Nasdaq 2,450.33 +28.07; S&P 500 1,437.77 +13.22; NYSE Composite 9,381.46 +75.91

Getting back to those tepid housing figures... there's still a problem in suburbia. Housing prices rose dramatically over the past 6 or 7 years and a pullback was overdue. There's going to be plenty of home buying in the next few years, but most of it is going to come at some expense to the sellers. Simply put, buyers in 2000-2006 paid too much and some are getting out at a loss today. Any abrupt economic disruption would likely cause a panic in oversold markets. In general, home sales are likely to be brisk, but at lower prices, producing a net loss in economic activity and the general market is too concerned with day-to-day observations to pay attention to that troubling longer-term trend.

Still, the credit and money spigot at the Fed is still wide open and there's no way to close it gently without spinning the economy into a recession. Despite what the Fed says about controlling inflation, it's mostly lip service. Prices and wages will continue higher.

Gold was up and silver down. Holding coins or raw metal is still bad practice in today's environment. Expect a pullback before another rally can occur in the precious metals.

Market Squeezes Out Another Positive Close

With first quarter earnings reports due to begin hitting the street later this week, the major indices managed to put on a smile at the close on Monday. Even the NASDAQ, which had traded in the red for almost the entire session, managed to gain fractionally.

Advancers and declining issues on the NASDAQ were dead even, with 1517 up and 1517 down, though gainers were far ahead on the NYSE, 2039 to 1214. New highs amounted to 317, near a peak, to just 108 new lows. This is a signal that the markets are about to make a break, either further to the upside (which means a 6-700 point move) or down about 4-500 points.

The Dow also registered its 15th positive day since the Feb. 16 top, more than the 14 down days, though the index is still 400 points off that high. It's been a real see-saw market, with alternating up and down weeks the past 5. If that's any kind of guide (probably not), we're due to finish on the plus side on Friday, though nobody's making book on it.

Dow 12,382.30 +27.95; NASDAQ 2,422.26 +0.62; S&P 500 1,424.55 +3.69; NYSE Composite 9,305.55 +43.73

Overall, it was a very tame day of trading. Even the oil bourses weren't bubbling as crude gained only 7 cents to $65.94. While that number is still too high for most of the public to want to comprehend, there seems to be some consensus among oil traders that there's not much more upside to this market. As the supply-demand scenario gives way to inflation and pricing pressure, oil, and its derivative, gasoline, may actually stabilize at slightly lower levels over the summer, all of which is good news for the economy and consumers.

The biggest news of the day was New Century Financial, the troubled sub-prime lender, filing for Chapter 11 bankruptcy protection. The company announced layoffs of more than half of its workforce, 3,200 in all, and other protections and refinancing arrangements with CIT Group and Greenwich Capital Financial Products.

The news was sobering and expected. However, the real fallout in the housing market may still be on the way as prices continue to fall in major markets. The cooling of the housing market is a slow process with the effects likely to be felt across the economy for a lengthy period of time.

After years of loose financing and consumers dipping into equity to finance all kinds of purchases, that spigot is slowly being turned off. The downward pressure in the economy will first be seen in large ticket purchases as households cut back on financing.

Gold and silver continued their in-range trading. It's almost gotten to be an inside joke, that holders of precious metals are now not hedging against inflation, but against their own well-being. After a dazzling run-up culminating at a peak of over $714 last May, gold has been one of the duller stories of the past year.

More Miracle Rallies Keep Equities Even

Just before noon on Friday, the Dow had lost over 100 points, with the NASDAQ and S&P following the trend lower. What the markets were reacting to was not immediately clear, though this session happened to be the finale for the 1st quarter, so there were certainly plenty of brokers and hedge funds clearing the decks.

Just as the decline was beginning to become serious, though, the trend abruptly reversed and all indices began climbing higher. By 2:30, the bulk of the activity was complete and all gauges had advanced to near break even. At the end of the day, the casual observer would conclude, by just grazing the closing figures, that it was a calm and orderly day on Wall Street. It was actually far from ordinary or calm.

Dow 12,354.35 +5.60; NASDAQ 2,421.64 +3.76; S&P 500 1,420.86 -1.67; NYSE Composite 9,261.82 -17.26

The broad indices - the S&P and NYSE Comp. - took the brunt of the blows, ending slightly lower, but the underpinnings of the market remain weak and confused. Investors are torn between conflicting economic reports, mostly positive, though with an inflationary undertone cutting into the euphoria.

When all was said and done, the day ended in no decision, mired between the recent highs and lows, apparently satisfied to wait until corporate earnings begin flowing next week. There are varying degrees of hope and trepidation in most camps, which augurs for a volatile earnings season this quarter.

Oil remained tame for at least one day, settling at $65.87, ensuring at least that the rapacious prices at the pump will continue for some time. The high price of crude - and gasoline - continues to damper enthusiasm in the U.S. economy.

Silver and gold both made small advances, but remain stuck in no-man's land, just like the U.S. equity markets.

Soft Bounce For Stocks As Oil Jumps Again

After significant selling over the past two sessions, the Dow, NASDAQ, S&P 500 and NYSE all posted modest gains on Thursday. Volume was again moderate, but better than what it has been. Once again, the NASDAQ caught the short straw, making up less than a single point. It's interesting to note that NASDAQ stocks, of which many are young tech companies and thus, somewhat speculative, are the laggards here. Apparently, market movers want more stability than risk. We are still in a risk-averse, tepid market. Gains are going to be difficult to come by.

Dow 12,348.75 +48.39; NASDAQ 2,417.88 +0.78; S&P 500 1,422.53 +5.30; NYSE Composite 9,279.08 +60.55

Advancing issues held sway over decliners by about a 3-2 margin, and there were 237 new highs to 97 new lows, roughly in line with the past few days. As always, a sharp eye is out on the new highs-lows ratio. Nothing remains steady for very long, so when this begins to turn, we'll all be aware that something big is happening.

At the moment, market sentiment is still nervously negative. Upward momentum is far from evident and there hasn't been follow-through on many of the up days.

Today's rise was nothing short of more market pumping by institutions, who still naively believe that mammoth profits for Big Oil must be good for them. It's difficult to wrap one's mind around this kind of clubby thinking, but it exists - today is yet another example as the price of crude leapt ahead $1.95 to close at $66.03 on the NY Merc. Shameful.

Stocks should have taken another wallop, but the manipulators were in early and kept indices in the green all day long. As pointed out yesterday, Big Oil is the bane of the American consumer, and sky high gas prices will send the fragile economy into a death spiral if not contained soon.

To dispel the myth that all commodities move in unison and that markets are not rigged, gold and silver both sold off today, though the hit on gold was larger, drooping $5.30 per ounce to $667.60. Silver lost only 12 cents to fix at 13.34. Both of the shiny metals are still rangebound and nowhere near breakout or breakdown.

Hard to believe tomorrow is Friday and the end of the trading week. The tally for up days vs. down since the beginning of the correction is now close to even at 14 down, 13 up. Regardless of that tight race, the Dow, even after today's gains, is down nearly 450 points over the past 6 weeks. Those number don't lie.

Well-greased Skids

If the price of oil goes up much more, the Dow and other US equity indices will readily slide down that slippery slope. The traders know this, investors know this, even the oil executives know this is true and that's the #1 reason the price of oil isn't going to go through the roof.

Oil executives are not fools. They realize that in a slowing economy, they can't be out there greasing the skids with higher fuel costs (well, not too high, anyway), because there's a breaking point and we're getting pretty close to it. The big oil companies charge higher than market prices because they can. Congress and our lax regulatory agencies allow them to effectively rig prices so as to effectively maximize profits. They are not, however, the only corporations with skin in the game. After a while, some of their corporate brethren might want a piece of the greed gravy train as well. If the oil companies siphon off all of the disposable income in the economy, there's little to nothing left for the Wal-Marts, Citigroups and Microsofts of the world because the Exxon-Mobils are taking more then their fair share.

Big oil has been getting fat at the public trough for a long time, but they've really beefed up recently. And they've done so at considerable expense to everyday consumers, governmental bodies and other corporations. It's time for the oil companies to make a little less money and act a little more like responsible corporate citizens for a change (I know, it's very wishful thinking.).

The handwriting is on the wall, and has been for some time. The US economy would be in much better shape if people were spending 20% less for fuel (and not just gas, but home heating oil and natural gas, too) than they are now. The oil companies in the US are an effective monopoly or cartel and Congress should have taken action long ago to curtail their illegal price-fixing operations. Big oil can profess all they like that the refineries aren't operating at full capacity or that they have no control over the price of oil. Unfortunately for them, nobody's buying that argument any more, but it's going to take a pretty big scare on Wall Street for them to mend their ways, and that scare has begun.

Today's trading was more of what we've become accustomed to over the past six weeks: sluggish and lower, pessimism abounding, plenty of rational reasons. The elephant in the room still remains big oil. They're a drag, both in real terms and euphemistically. High fuel prices are getting old and stocks are taking a beating on it. Wealth is not very evenly distributed and there's little new money coming into the markets. Big oil is sucking the life out of the economy.

Whether the oil execs are smart enough, visionary enough, to understand how they'll be damaged in an outright recession remains to be seen. Keep an eye peeled on oil prices, which shot up another $1.15 to $64.08 today. That's now about $6-8 per barrel higher than the economy can handle. Forget about a crash in housing prices. That's a fait accompli. $3.00 per gallon gas will just be more fuel on the fire and will, without a doubt, drag the nation into a recession. While it may already be too late, some relief at the pump would be more than just welcome, it may be necessary.

Dow 12,300.36 -96.93; NASDAQ 2,417.10 -20.33; S&P 500 1,417.23 -12.38; NYSE Composite 9,218.54 -70.25

After Monday's negligible trade, Tuesday and Wednesday have cost the Dow and the other indices anywhere from 1 to 1.5% for the week. After rocketing up 370 points last week, the Dow's given back more than half, 180 points, this week, but still 225 points ahead of the March 13 low point of 12,075.96. There's little doubt that number will be tested again, and soon. First quarter earnings are due to make their way to the street in a week's time, and the trickle down could easily turn into a deluge. Corporate profits have been solid, maybe too good, because companies have some tough numbers to exceed from a year ago. Many will not make the grade.

Wednesday's market internals were nearly a carbon copy of Tuesday's. declining issues were ahead of advancing ones nearly 2-1, with 207 new highs versus 91 new lows. Pessimism is spreading, however, as down volume was 3 times up volume. Traders are getting very picky and that's not generally a sign of a healthy market. The remainder of the week could turn out to be very discouraging indeed.

Today's economic events - a 2.5% rise in durable goods orders and a slackening of crude inventories were just enough to keep buyers on the sidelines. Tomorrow, the government finalizes 4Q '06 GDP, and the tepid pace of 2.2%, if confirmed, will only serve to dampen attitudes. Initial claims may have some effect, but only if it's very much a negative. Friday's miasma of reports, from Personal Income to the Chicago Purchase Manager's Index, may just tip the markets over the edge.

Of course, much more of the now non-stop nonsense emanating from our nation's capitol may prove to be the unseen straw that breaks the camels back. We have a dysfunctional executive branch being hounded by an impatient Congress, all of it heading for a nasty cataclysm. There are a lot of angry, bitter, upset people out there who are certainly not in any kind of mood for any more distasteful news. The American people are fed up and the discontent is growing.

Be prepared for some very unsettling days and weeks ahead.