Market a fickle friend

Monday's market movements were more of the same, with a zig-zag pattern ending slightly on the up side for most of the indices. In particular, the Dow was up on the open, traded 80 points lower just before noon, slowly moved to the highs of the day after 3:00 and faded badly into the close.

One trader was heard to say, "this is like my wife. I never know when her mood will change." And so it is in this most fickle, direction-less market in recent memory. After being hammered lower mid-August, it's been sideways ever since.

Much of today's gain was likely the cause of covert manipulation, short covering or butt-saving, since, with volume so dismally low, the only people trading are Wall Street hot shots and hedge fund managers.

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Sooner or later they will run out of witless fools to buy stocks and the markets will dry up completely, much like those serving corporate credit. In some ways, the stock market has already becoming illiquid, especially for low-priced, low volume stocks.

The S&P came dangerously close to support, hitting a low of 1439, and that's precisely when the trade reversed course. The big money doesn't want a meltdown, even though world markets are dangerously close, and buyers stepped in today to avoid collapse. Major European markets all closed lower, with the credit squeeze becoming front page news in Great Britain as the Bank of England on Friday was forced to make statements similar to our own Fed's, that they would continue to supply liquidity.

Dow 13,127.85 +14.47; NASDAQ 2,559.11 -6.59; S&P 500 1,451.70 -1.85; NYSE Composite 9,457.64 -28.80

Market internals indicated more weakness as declining issues outpaced advancers by better than a 3-2 margin and new lows superseded new highs, 257-92.

Oil priced higher by 78 cents, to $77.49; gold continued its rally, up $2.50 to $712.20, though silver lost 6 cents to finish at $12.70.

The most significant piece of trading information probably came from watching Countrywide Financial (CFC) drop nearly another point on Monday after announcing 12,000 layoffs after the market closed on Friday. Investors are not buying the stock even though the company is making an attempt to reduce costs. Rather, there was widespread selling early on, with institutional holder, AXA, reducing its exposure dramatically. Essentially, Countrywide, the nation's largest mortgage lender, has so much downside risk, that even massive layoffs (25% of their workforce) could not turn it around. The company has so many non-performing loans on its books and no place to sell their new originations that it could face liquidation itself in coming days.

In the spirit of full disclosure, I have a short position via January 20 put options on the stock. I am comfortable that the stock, currently at 17-and-small-change, will hit 12 within a month.

Happy trading.

Welcome to the Recession

Stocks were slammed again on Friday after the non-farm employment report showed the nation lost a net 4,000 jobs in the month of August. The consensus opinion was that the report would show a gain of 110,000 jobs. So much for the opinions of so-called experts. About the only thing the assembled group of economists, analysts and forecasters are expert about is being totally, completely and hilariously wrong.

Additionally, the numbers from June and July were adjusted lower, to gains of 69,000 for June and 68,000 from July. Essentially, the total of 133,000 new jobs in the prior three months, does not even come close to keeping pace with growth in the employment sector, as roughly a net of 130,000 persons enter the workforce per month.

So, the question is if employment growth is not keeping pace with the overall size of the workforce, how soon does that shortfall become reflected in GDP and plunge the nation into a recession? Broadly defined as two consecutive quarters of negative real GDP growth, the current employment numbers suggest that the 3rd quarter of 2007 - July, August and September - could show up as a net loss in GDP.

That would be one quarter. If the 4th quarter doesn't show improvement (and there's good reason to believe that this government - which has shown a propensity to lie about just about everything else - will fudge the numbers), we'll officially be in a recession.

It's not that evil a situation. A recession is just an ordinary, orderly slowdown in business activity. Some businesses are affected more than others. Some actually will do better. There will be job losses, lots of whining, more fear-mongering by the government and the press, but most of us will be able to go about our lives without too much bother.

Of course, about 15% of the population will feel real pain, either in the form of a job loss, home loss, pay cut, layoff or other calamitous outcome of poor macro-economic planning. And if the government and private sectors don't respond properly, the recession woes could spread beyond the select group to a broader portion of the society, deepening and widening the pain.

Dow 13,113.38 -249.97; NASDAQ 2,565.70 -48.62; S&P 500 1,453.55 -25.00; NYSE Composite 9,486.44 -151.11

At the heart of all of this is the credit crunch and coming banking scandal brought on by the popping of the housing bubble and the inevitable unwinding of the sub-prime mortgage fiasco. More on banks, financial services and their arcane reporting policies and how this is likely to become the locus of an enormous banking scandal.

In any case, the indices approached confirmation of bear market conditions. For some, today's losses will suffice, though many will wait until the S&P crosses the rubicon of 1430 to the downside or the Dow drops below 12,860, as explained in Wednesday's post. That's where support exists. Upside resistance is now just a dot far off on a distant horizon to which nobody can actually navigate.

Breadth was spectacular, albeit on low volume. Decliners overwhelmed advancing issues by a 4-1 margin. New lows took over from new highs in a large way, 214-67.

The detachment from reality in the world oil markets is nearly consummate, as crude for October delivery rose another 40 cents to $76.70, approaching an all-time record.

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Gold rose another $5.10 to $709.70, and silver got a big boost, up 23 cents to $12.76 an ounce.

It was a short but painful week for investors, as fears of complete financial meltdown reappeared. The Fed may want to lower interest rates at their next meeting, though that alone will not solve the problems created by years of loose credit policy and poor fiscal and monetary management at the top of our system.

Banks, bankers, economists and financiers are mostly to blame. Unfortunately for the rest of us, those same people will be called upon to fix this mess. Americans are in for a continuation of a long, ugly ride down the economic food chain. It's sickening.

Enjoy the weekend. We can set about to fixing this mess on Monday.

Are you buying?

The market was up today, so, were you one of the buyers?

Usually, it takes more than a day of small gains to convince me to dive in, especially one day after I told anyone interested to stay out of this market.

The indices were simply marking time, on low volume, in advance of tomorrow's non-farm payroll employment report for August, which will be released at 8:30 am, prior to the market opening.

So, now do you understand why there were so few dipping their toes into the muddy market waters. They could be stuck in a downdraft before they're able to make a move.

What's important to note about today's sluggish volume was not who was trading, but who wasn't. The smartest money on the street is clearly sitting this dance out until a clear direction is indicated.

Dow 13,363.35 +57.88; NASDAQ 2,614.32 +8.37; S&P 500 1,478.55 +6.26; NYSE Composite 9,637.55 +54.38

So, if you were a buyer today, there's a palpable risk that you'll be a loser at the opening bell, because, non-farm payrolls for August are expected to be around 110,000, but may come in at half that number due to the huge layoffs in mortgage and banking related businesses. Of course, the Labor Dept. could do what they usually do, gently massage the numbers higher and then revise them next month, but, rest assured, this economy is barely producing enough new jobs to keep pace with the population and replace the jobs being lost. Sooner or later, there's going to be a settlement on what the figures really are, and it's not going to be a pretty sight.

Tomorrow could be that day.

Advancing issues on Thursday slipped by decliners by a 4-3 margin, while new highs recorded the slimmest of victories over new lows, 128-127. If you're looking for confidence, it certainly isn't in these numbers, which can best be characterized as breadth-less.

Commodities, especially gold, took a surprising turn today. Crude oil for October delivery was up 57 cents to $76.30 on lower inventory readings, but gold shot past the $700 mark, gaining $13.90 to end the day at $704.60. Silver also rose, but not in the same proportion, adding 18 cents to $12.53.

Something is surely afoot, as the spectacular rise in the price of gold could be presaging some serious difficulty ahead for stocks. Friday is shaping up to be a very interesting day indeed.

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.