Get Out and Stay Out!

Today's headline should have appeared on all financial news outlets as a warning to investors. The waters of the US investment wading pool have been poisoned by bad sub-prime and interest only mortgage loans, mortgage-backed securities that are now not even worth the paper they're written on and a pile of derivatives - a true house of cards ready to collapse - as high as the moon.

There are numbers chartists will tell us to keep an eye on. These are, upside resistance and downside support on the S&P at 1490 and 1430 respectively. On the Dow, those figures are 13,695 and 12,860. Breaking to either side of those figures will indicate further movement in that particular direction.

People with practical risk aversion will see the problems looming - and already apparent - in the credit markets, and stay out of the market until a direction is confirmed. Those who have no appropriate understanding of risk will bet on one side or the other and go along for the ride. Unfortunately, the vast majority of US investors are always bullish, never willing to believe that there's anything wrong with the economy or the country, even when the evidence is clear.

And the evidence cannot be much more clear. The National Association of Realtors today released its index of pending sales for existing homes, which fell 16.1% in July from a year ago and 12.2% from the June reading. July's reading was the second-lowest ever for the index and its lowest since September 2001.

Of course, selling new and existing homes pales by comparison to the trillions of dollars that have been and will be blown up in the mortgage securitization fiasco. Meanwhile, the greed line on Wall Street starts with the analysts calling on the Fed for a rate cut. Easier credit, they assume, will save everyone's behind.

That's a fiction of the highest order. Repricing debt lower may have some soothing effect, but it's not going to heal the already deep wounds inflicted on mortgage companies, banks, hedge funds and others who trafficked in bundled mortgage-backed securities. And the president's plan is only going to shift the debt from the banks to the government (via the FHA), weakening the already weak dollar even more.

So, the message to investors should be GET OUT AND STAY OUT. Beware of falling stocks, which, by the way, took another tumble on Wednesday.

Dow 13,305.47 -143.39; NASDAQ 2,605.95 -24.29; S&P 500 1,472.29 -17.13; NYSE Composite 9,583.17 -115.51

Declining issues pounded advancers by a 5-2 margin while new lows surpassed new highs, 130-109.

About the only thing showing a gain today was the price of oil, which added 65 cents to $75.73. Talk about being out of touch! Gold and silver suffered marginal losses.

Tomorrow may see some moderation or more drifting to the downside, but Friday, when the Labor Dept. releases August jobs data, there will almost certainly be a wicked downdraft. Nothing's written in stone, however, so be patient until the markets confirm either bearish or bullish sentiment.

I know it's difficult, but SIT ON IT!

Stocks continue win streak

The Dow Jones Industrials closed on Tuesday at its highest point since August 8, though it is still 210 points below that level and a full 552 off the all-time high. On the first day back from the Labor Day weekend, the message was clear: there's room on the upside as well as the downside.

The Dow closed positively for the second day in a row, though follow-through beyond that is questionable. The Dow has not put together 3 winning sessions since that August 8 date, when the index closed at 13,657.86, and that number would need to be exceeded to re-confirm the bull market. Failing that, we would be in the early stages of a confirmed bear market.

Those of us willing to go out on a limb would suggest that we've already begun the bear, instead of being caught in the clutches of a nasty "correction", which was, in fact, cut off at the 10% declination by the Fed and the PPT, or Goldman Sachs, Lehman Brothers and the rest of that gang of thieving, conniving bankers and brokers.

While the Fed, the Treasury, the government, the big banks and brokerages, the financial press and that weird guy down the street with the funky hat don't want the general public to be alarmed that the stock market has turned bearish or that there's even a "correction", the matter seems somewhat already settled by scores of traders who are steering clients clear of US stocks and have been for the last three weeks.

Dow 13,448.86 +91.12; NASDAQ 2,630.24 +33.88; S&P 500 1,489.42 +15.43; NYSE Composite 9,698.68 +101.40

So, the sheeple investor is being led by the nose to a serious shearing, if not an outright, bloody slaughter. Those daring to dip a toe into the long side of the trade are willing to buy the absolute lie that the Fed and the banks can manage the destruction of trillions of dollars of investments without the US economy suffering so much as a hiccup. It's the blind faith of fools which is leading this market higher, without the benefit of any fundamental chart confirmation.

Buy if you like, but cooler heads are staying on vacation for the foreseeable future.

Volume on the markets today was better than it has been for most of the past three weeks, but hardly what anyone would call "heavy."

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Advancing issues were better than decliners by about a 5-2 ratio, and new highs outdid new lows (for the second day in a row), 164-101, though that margin is hardly convincing.

The Dow actually punctured upside resistance late in the day on Tuesday, but quickly retreated 40 points into the close.

Oil was up another $1.04 to close at $75.08, while gold added $9.60 to $691.50 and silver was up 22 cents to close at $12.45.

The peculiarity of the commodity surge is that it should not occur in a vacuum as this current manifestation is. The correlation between stocks, oil and metals is as broken as the credit markets. Albeit, life goes on, until, at least, the next calamity.

Keep an eagle eye on Dow 13,657. If that number is not exceeded, more downside can be expected in short order. Getting beyond that will take a herculean effort, or, failing that, extreme measures of manipulation by covert insiders.

Ba, Ba, Bernanke lulls sheep to sleep

For all the money they control, the investor class - and I use that term loosely - is not very bright. As an investor, you may find that statement offensive, but, if you've bought stocks over the past few weeks, well, then it does apply to you.

Sure the market has bounced back a little and today it was up sharply. But, pay attention and you'll get an inkling of why I think investors are more akin to sheep than wolves.

Fed chairman Ben Bernanke, speaking at an economic symposium at Jackson Hole, Wyoming, said that the Fed will "act as needed" to keep the credit crisis from harming the general economy.

Fine. Dandy. What did everyone expect him to say?

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"We at the Fed will not stand in the way of economic upheaval?" Or, "You idiots got yourself into this mess, so don't expect us to bail you out?" Actually, he did somewhat say the latter, suggesting that financial institutions and consumers who took bad risks in the sub-prime mortgage market - from both sides of the transaction - would not receive special treatment from the Fed.

And well they should not. These people made their beds, now they can sleep in them, whether they have four walls and a roof over their heads or not. If you parse Ben Bernanke carefully, he, much like his predecessor, Alan Greenspan, doesn't really say much. It's probably because they, like most artists of economics (remember, it's not science), don't really have any pat answers. They make it up as they go along.

So, those who cheered the Chairman's utterances today, are even more clueless than our wing-and-a-prayer Federal Reserve heads. Many take very little prodding to charge headlong into the maw of Wall Street, much like a sheep being led to shearing or slaughter. Baaaaaa!

Dow 13,357.74 +119.01; NASDAQ 2,596.36 +31.06; S&P 500 1,473.99 +16.35; NYSE Composite 9,596.98 +140.34

Today's advances exemplifies the current culture of wary wolves and unsuspecting sheep. The wolves sat back (looking more like bears), while the sheep followed the lead of both the Fed Chairman and the President (who believes anything he says?), who outlined plans to bail out people who stretched beyond their limits to get into homes during the boom.

It's actually laughable that the same president who sat back and did nothing while unregulated lenders were offering interest-only, no-down-payment loans to people who were poor credit risks in the first place. Trusting the Bush administration to help out the same people who were harmed by government's lack of oversight and regulation is like asking a fish to jump onto a hook. The result is the same: the fish gets snagged, scaled, grilled and eaten.

In any case, advancing issues were far ahead of decliners, by a whopping 4-1 margin. Volume, however, was once again anemic, so trusting this rally is for those with only the blindest of faith. New highs exceeded new lows, for the first time in over a month, narrowly, 123-107.

Most of the stocks moving were hoisted by the brokerages, after all, so Bear Stearns, Lehman, Merrill and their lot will be stuck with even more overpriced securities. Joke's on them. Ha Ha.

Oil priced 68 cents higher to close at $74.04 (Happy Labor Day). Gold was up $8.00 to $681.90, while a troy ounce of silver brought another 27 cents, at $12.23.

The markets and many businesses are closed on Monday, for Labor Day, a day in which many will be paid for taking a day off. Hey, it's the American Way, right?

Turning the screws slowly

Every day, the US equity markets get one day closer to implosion. Repeated interventions - overt and covert - by members of the Fed and the PPT (President's Working Group on Financial Markets) merely delay the inevitable bust. US stocks are still, by almost any measure, horribly overvalued, puffed up by mountains of debt, and ripe for collapse.

When the "reckoning day" does finally come, it may be spectacular. On the other hand, the Fed's management of the market may result in a long, slow, painful, tortuous decline over time, such as what we've been seeing lately. Monday, the market was down; Tuesday, down even more; Wednesday we witnessed a remarkable one-day rally the came from out of the blue, Thursday, down again. Friday's direction, nobody knows, but the general path is toward the bottom - of that, most of us who entertain to study such events are sure.

Thursday was pretty much a non-event as far as movement was concerned. The main US indices were down throughout most of the session and ended that way, except for the NASDAQ, which made a remarkable 45-point move early in the day and remained in positive territory through the close. PPT fingerprints were all over that particular market oddity.

Dow 13,238.73 -50.56; NASDAQ 2,565.30 +2.14; S&P 500 1,457.64 -6.12; NYSE Composite 9,456.64 -52.28

Volume was pathetic once more, as traders attempt to wring a last bit of sunshine out of the summer. Internally, the numbers revealed more of the same. Declining issues beat out advancers by a 4-3 margin. New lows beat out new highs, 166-84.

Oil futures took a moderate decline of 15 cents on the day to close at the absurd figure of $73.36. Gold and silver also were down on the day by marginal amounts. Silver lost a nickel to fall to $11.98. Gold was off $1.50 to $673.20.

Two pieces of news were noteworthy. As expected, Q2 GDP was revised higher. The preliminary read came in at 4.0% versus the advance estimate of 3.1%. Investors barely noticed, especially when news appeared that Sears Holding Co., which operates Sears and K-Mart stores, saw 2Q profit fall by 40%.

Much of Sears' problems are internal, though no doubt their results were partially colored by declining consumer interest in spending every last dollar. The retreat of the consumer is a vexing issue which will only exacerbate the ongoing credit and cash squeeze.

Tomorrow, Fed Chairman is scheduled to speak at the annual shindig of financial big-wigs at Jackson Hole, Wyoming. The event is usually a watershed for bluster and Fed policy mouthings, though why anyone will be even marginally interested is a good question. Bernanke's not about to tip his hand regarding internal Fed policy. Most of what he says will be gloss and devoid of substance.

Ho-hum. Friday's likely to be a really slow day in advance of the Labor Day holiday. Take a break, have a barbecue and some cold beer and get back to the depressing stock market on Tuesday. It will surely be more interesting then.

One-day wonder

1:45 pm Eastern, the Dow was up about 75 points. By the end of the day the geniuses who dropped it 280 just yesterday decide to tack on another 170 or so and send it soaring into the close. Naturally, all other indices followed diligently along.

This is textbook volatility in a decidedly bear market. It's not unusual for traders to act like sheep when the market makes bold moves one way or another. Usually the only winners are day-trading experts at brokerages and a few plucky individuals who play the market for a living. These moves to the upside are nothing more than knee-jerk responses to momentum. If one is really nimble and smart, one can make a bundle of cash on these moves. Unfortunately, most investors aren't constantly trading on momentum, and that's probably for the good.

Dow 13,289.29 +247.44; NASDAQ 2,563.16 +62.52; S&P 500 1,463.76 +31.40; NYSE Composite 9,508.92 +219.43

Advancing issues did an about-face from the previous day, with nearly 5 gainers for every loser. However, the rally on Wednesday failed to kill off the one supreme indicator of the bear. New lows buried new highs, 169-65, a measure that's been giving a bearish reading since the first major pullback on July 24, a span of 27 straight sessions. Until there are more new highs than lows, this market is going to be the haven of hucksters and day-traders, and there will be plenty of losing trades. Practically anything bid up will come down.

Volume was also somewhat on the moderate side. There simply is not a lot of serious activity in the markets. More people are afraid to take risks now than ever in the past 4 1/2 years and many are wondering how long they can ride along without selling whatever gains they have and/or paring their losses.

With stocks moving higher, it didn't take long for the oil traders to jump on board, boosting crude futures for October delivery by $1.78, to $73.51, citing supply shortages, which magically appear out of nowhere whenever the greedy bastards want to make more money. It's simply absurd to believe that oil is actually controlled by any kind of supply-demand cycle. The reality is that the entire market is rigged for the benefit of the major oil companies.

Gold was up $1.90 to $675.40 and silver added 8 cents to close at $12.01. The mini-moves in the metals, in relation to oil, were somewhat akin to a curtsy and a bow. In reality they mean little. All commodities are about to get sunk as the fallout from the credit miasma continues to eviscerate businesses around the world.

Little by little, the credit woes are creeping forward, silently. Eventually, they come into public view and everyone is shocked that Americans could not continue to borrow and spend indefinitely. It's just the way the world works.