Greenspan Talks Off Rally With China Drop

Just when you thought everything was going swimmingly, somebody is sure to come along and throw salt into the pool. Today it was the old curmudgeon himself, former Fed Chairman Alan Greenspan, saying that there was trouble in China's stock markets, which have risen by as much as 90% in the past year.

The last time Mr. Mumbles muttered about China, it sparked a global selloff in stocks and a more than 400 point decline on the Dow. That was back on February 27. Today's mouthings sparked a spate of selling, wiping out gains made in the morning. The Dow had been up 70 points and the S&P was poised to set a record closing high, but after 1:30, the selling became vigorous and both indices ended in the red.

Dow 13,525.65 -14.30; NASDAQ 2,577.05 -10.97; S&P 500 1,522.28 -1.84; NYSE Composite 9,913.66 +12.70

What's troubling about Greenspan's comments are that they are coming from the mouth of a person with no official standing. Greenspan is retired and in his 80s, a time normally reserved for people to relax and enjoy what remains of their lives. Maybe he takes pleasure in moving markets - a likely explanation, since he did it so readily as Fed Chairman for so long.

The other problem is that China's markets have nothing to do with US markets. One can make a slew of arguments that they are somehow intertwined with the rest of the global economy, but they're not. Stock market exchanges are places where people are investing and betting on movements of individual issues.

The rise and fall of markets has something to do with the economic health of host nations, but barely. They have more to do with the perceived value of stocks and indices. Markets are moved by economic forces, not the other way around. Greenspan, and anyone who pays attention to his screed, make the mistake that stock markets are essential mechanisms of economies. They are not.

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China's stock markets are, by most measures, overvalued, much as ours were in 2000. The markets will make the corrections on their own. The economy of China - and certainly that of the US - will not collapse if the market drops 20%. Some rich people will lose money, likely to some other rich people who will take it.

Greenspan should just keep his comments to himself. Even better, people would be well advised to ignore what he says. In his lifetime, he's been dead wrong on issues often enough to make doubting his word a wise choice.

Whatever effect Greenspan had on the markets, they weren't widespread. Declining issues beat advancers by roughly a 3-2 margin. New highs numbered 483 to a mere 71 new lows. Obviously, not everyone was listening, though the after-effect, tomorrow and Friday, made be more severe.

What probably made traders shudder even more was the continued rise in the price of oil. The new July contracts came out today and even though US stockpiles continued to build steadily into the summer driving season. Despite rising stockpiles of gas and improved delivery from refineries, the price of crude still shook higher by 27 cents to $65.51 per barrel.

In other commodities, gold and silver both gained marginally, but remain stuck in a year-long rut.

Thursday's markets ought to be interesting, if only to see if Greenspan's mouth can move China's markets. If there's a selloff in China tomorrow or Friday, be prepared for a broad decline in European and US markets as well. It's uncalled for, but nobody ever made money by not paying attention, either.

Small Change, But a Big One

Please excuse the ambiguousness of the headline. Today's market movements were minimal, but the impact - for those paying attention - could be huge. Yesterday it was noted that while the Dow stumbled, the NASDAQ was having somewhat of a banner day, posting a gain of 20 points, which is close to 1% on that index.

Today was affirmation of our best hunch - that traders were moving away from Dow stocks and large caps to techs, mid-caps and small-caps. Contemplating the huge sums being paid by private equity to take certain companies private, it's obvious that there are a lot of undervalued companies out there. The private equity vultures are primarily interested in major names with established brands - a somewhat disturbing trend in itself - so the small and mid-caps are going to get the lion's share of attention during this summer's trading outside the M&A speculators.

Dow 13,539.95 -2.93; NASDAQ 2,588.02 +9.23; S&P 500 1,524.12 -0.98; NYSE Composite 9,900.96 +3.50

There's a caveat to the trade and it's called timing. Once the S&P tops its previous high, all bets are off. The markets could - and should - go on an unprecedented tear to the upside, similar to what the Dow has done over the past month and change. While the S&P will capture most of the headlines, the NASDAQ will be humming along with even more spectacular gains.

Remember, that since the downturn in 2000, the Dow has come all the way back and then some while the S&P is teasing us with a new all time high.

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Meanwhile, the NASDAQ has recovered only half its heft since the crash. Surely it was overbought back then, but by 2500 points? Doubtful. Figure that the top 20-25% of the Naz was real froth, so we're looking at an achievable number of 3,800 to 4,000 in relatively short order.

While that may sound like a stretch, take into consideration that the Naz crossed back over 2000 in January 2004 and has taken more than three years to gain just another 600 points. All the money that was being made on the Dow and S&P is going to get reinvested, and the most likely place for that to occur is on the NASDAQ and especially in computer and related devices, internet plays and generally anything that involves using a computer chip.

Computers and the internet don't use gas, and that's a major consideration. Media companies that are not newspapers should also do well, as will any disruptive technology company.

Advancing issues were better than decliners by a 4-3 margin. New highs outnumbered new lows, 433-68. The US dollar continued to show strength against most European currencies, though the weakness against the Yen (Japan) and Yuan (China) is still a concern. Oil dropped $1.30 to $64.97, gold and silver were down (again) and that's a wrap.

Shift From Blue Chips to Tech Starting?

Monday saw unusual movement in the various major indices. While the Dow was slightly lower, the S&P and NYSE up marginally, the NASDAQ powered ahead 20 points. As Friday was options expiration day for May, we can expect to see more of a realistic trading pattern for at least the next three weeks. Earnings for the first quarter are largely behind us, so the markets should move on M&A activity and economic reports.

Additionally, the price of oil and motor fuel should play significant roles in any movement over the next month. US motorists have just about had it with the managed price escalation by Big Oil. Unfortunately, there's little the US consumer can do about it. Nearly everybody in America owns a car out of necessity, except where public transportation is functional, like New York, Washington D.C. or Chicago.

Even in the grand metropolises, public transportation is either incomplete or only a portion of the total people-moving mechanism. Americans are overall tied to their cars and there's no easy solution. Therefore, gas prices are at a point right now that they are eating into disposable income in some classes. In the lower classes, high fuel costs are eating into necessities like food and health, and in some cases, savings.

Dow 13,542.88 -13.65; NASDAQ 2,578.79 +20.34; S&P 500 1,525.10 +2.35; NYSE Composite 9,897.46 +3.72

Keeping with the theme, light crude on the NYMERC shot up another $1.33 on Monday to settle at $66.27, the highest it's been in months. With summer driving season ahead and the American oil companies firmly in control of the pricing, the government, and soon, our wallets, don't expect any relief through the Memorial Day weekend at least. We're being gouged but good, and between our brain-dead (and oil rich) President and the supine Congress, the American public is on its own here. It's either fish or cut bait, or, more appropriately, drive or ride a bike.

Advancing issues held sway over decliners by a 5-3 margin (2-1 on the NASDAQ), and you wouldn't know it just from the headline numbers, but there were an impressive 540 new highs and just 71 new lows. For what looked on the surface like a dull day, there was plenty of movement out of the blue chips on the Dow and into mid-cap tech stocks. Whether this trend holds up over the short and long-term remains to be seen, though this kind of cyclical rotation is normal in bull markets. Sellers are taking profits and re-investing in what they may view as undervalued sectors. Tech is still rebounding from 2000, though it's been growing exceptionally, especially in the internet and computing space.

Gold was up $1.80 and silver gained 13 cents. Both of the precious metals have been depressed for over a year now - not so precious.

Update on Marvel Enterprises (MVL): Well, like I said in my original post on Marvel, the price decline after a stellar earnings report was more options-related and short term profit-taking than anything else. The stock dropped to a low of 25.50 on Friday, the options expiration date for May. Marvel finally closed at 26.25 as the week ended. On Monday, investors could not get enough of the Spidey-stock, boosting it 2.10 (8%) to a finish at 28.35. Volume was 4 times normal. The die has been cast. This one's a keeper in a big way. I re-reinterate my buy recommendation and price target of 38-42.

Another Day, Another Dow Record

The beat goes on and on and on...

Investors got back to their habitual buying on Friday - as the oil boom also continued apace - with little to hold them back. There was scant economic news and with the world awash with money, traders sent stocks soaring on all major indices.

Dow 13,556.53 +79.81; NASDAQ 2,558.45 +19.07; S&P 500 1,522.75 +10.00; NYSE Composite 9.893.74 +74.76

In addition to the Dow crashing through the 13,500 mark, the S&P closed to within 10 points of its all-time record closing high and the NASDAQ broke through a key support area at 2,553.00.

As has been repeated here ad nauseum the environment for corporations in the United States has never been easier and more conducive to high profitability. There is literally no government oversight and regulations are lax or outright disregarded.

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Empowered by a hands-off government, American corporations are able to bend rules and break laws at will and many of them are more than willing to take full advantage.

Investors sense this giddy atmosphere and are piling into US stocks like never before, the consequences be damned. America is at the height of its power and Wall Street is bent on cashing in.

The overall breadth of the market was not pronounced on Friday however, as advancing issues outpaced decliners by a modest 5-3 ratio, though new highs stepped up to 404, versus 126 new lows.

Oil was up only 8 cents, while the metals rebounded slightly after a recent spate of selling. Gold gained $4.80 to $662.00; silver was higher by 12 cents to close at an even $13.00. It wasn't but a week ago that silver was threatening to break above $14 and gold set to surpass $700, but the rally fizzled badly.

By any measure, this was one of the best weeks ever to be an investor, in one of the best years, so far.

Stocks Take a Thursday Break

Stocks traded in very narrow ranges on Thursday as all major indices turned slightly negative. While volume was still on the high end, there was more than enough selling to offset any optimistic buying.

Dow 13,476.72 -10.81; NASDAQ 2,539.38 -8.04; S&P 500 1,512.75 -1.39; NYSE Composite 9,818.98 -6.45

Losers led the way over winners by a 5-3 margin, while new highs outpaced new lows, 312-151.

Oil was the enemy of all economies again, leaping $2.31 to $64.86, the highest price in weeks. The metals continued their declines, with gold down $4.30 to $657.20, while silver dropped 5 cents to $12.88.

Friday could turn either way, as profit-taking seems to be in vogue, though the lack of economic news may prove a catalyst in itself.

It was really one of the duller days of the past few months. Friday offers options expiration, but that all seems played out already.