More Pounding for Stocks

Every day it just seems to claim another victim. Today, it was Wells Fargo, which announced a $495 million writedown due to mortgage loans. The continuing crisis still centers around banks and major financial institutions, though Countrywide Financial (CFC), which today lost another 1.16 points to close at a multi-year low of 12.21, could be said to be the poster child of the housing collapse in America.

Countrywide was the largest loan originator in the USA through most of the boom years from 2003-2006, and they also were the most aggressive in originating exotic loans and repackaging them for sale to investors as SIVs (Structured Investment Vehicles). Hedge funds ate them up, though now, most of these investments have gone totally sour, many worth fractions of their original values, and many may be worth just pennies on the dollar when the truth of their toxicity is made known.

Through 2005-2006, Countrywide wrote one out of every 7 mortgages in America, so if there's any one company responsible for the continuing crisis, it is Countrywide, and their over-tanned leader, Angelo Mozilo, who as recently a two weeks ago was still selling his shares as the stock price cratered.

Mozilo also masterminded the stock buyback program when Countrywide was at its peak this past summer, at upwards of $40 per share. In less than six months, the stock has lost 70% of its value and there's no bottom in sight.

Countrywide continues to borrow at short rates higher than what they lend long term, in hopes that they can make up for the massive weight of defaults with new originations, though the mortgage business has shown a steady decline in volume over the past year and especially over the past two months.

Dow 13,110.05 -120.96; NASDAQ 2,618.51 -25.81; S&P 500 1,451.15 -19.43; NYSE Composite 9,652.52 -156.63

As far as today's trading was concerned, it was another day of disappointment for the bulls, as the markets sold off broadly in afternoon action. Advancers were overwhelmed by declining issues, by a ratio of better than 3-1. New lows expanded their advantage over new highs, 530-92. All told, it was another rout. Any vestiges of the bull market have been eviscerated and there's concern over the upcoming holiday shopping season as retailers brace for what figures to be a competitive race to the bottom, with margin-eroding sales events the key for many.

In commodities, oil fell another 66 cents to $93.43, while gold was routed, down $27.40 to $787.30 and silver lost 58 cents to $14.48. Once again, the gold trade may have been the result of institutional selling in a scramble for cash.

As I close out here very late in the evening (12:10 am), the Nikkei and Hang Seng indices are sharply lower. The Hang Seng is being particularly brutalized, down more than 1100 points, nearly 4%. Trading in New York resumes in just over 9 hours. Better get some shuteye, because tomorrow promises to be another rambling ride down.

NYSE Volume 3,982,506,500
NASDAQ Volume 2,351,474,250

Stocks Slapped Down Again

Following yesterday's whoopee, one would have hoped for a little better follow-through than what occurred on Wednesday. Stocks vacillated above the break-even line for most of the day, but sold off dramatically in the final half hour as investors got cold feet in advance of Thursday's CPI and crude inventory numbers. It is probably the latter of those two economic indicators that spooked traders, as oil has been consistently a drag on the market and inventories have been lower than expected more often than not.

Dow 13,231.01 -76.08; NASDAQ 2,644.32 -29.33; S&P 500 1,470.58 -10.47; NYSE Composite 9,809.15 Down 51.83

The overhang of ridiculously-high oil prices and the crunch at the gas pump heading into the holiday season (Thanksgiving is only a week away) has retail and institutional investors alike running scared. Buying gas at 3.35 and up is not sitting well with the American consumer, and there's likely to be bad news come Christmas. Holiday shopping will likely fall below any optimistic estimates, though the high gas prices may bode well for internet retailers, which have racked up impressive numbers over the past five holiday seasons.

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For the remainder of the market, however, the picture is fairly bleak. Mainstream retailers are already talking about big markdowns as early as Black Friday to lock in whatever revenue and profit gains they can early on. This holiday shopping season is going to be particularly long, with Thanksgiving coming somewhat early and three full weeks in December with a final weekend push on the 22nd and 23rd. That gives people more time to shop, but also more time to look and linger and think about what's left in their wallet.

Any advantage from a slightly longer shopping season will likely be blunted by the pallor of high oil and gas and the lingering effects of the sub-prime problems and related banking writedowns.

The damage on Wall Street wasn't severe, with declining issues beating advancers by a 3-2 margin. New lows totaled 359 to only 121 new highs. The market continues to trend lower, despite the obvious bottom-fishing, short-covering rally of Tuesday. The Dow is still only 400 points ahead of the August lows and is less than 1000 points higher than on January 1, a 7% gain for the entire year thus far.

Oil gained $2.92 to $94.09, while gold rebounded strongly, up $15.70 to $814.70. Silver notched another 46 cents to $15.07. With so much strength in commodities, there's plenty of evidence that inflation is worse than what the Fed is calling "contained."

It's beginning to look a lot like Christmas, and Wall Street doesn't like what it sees.

NYSE Volume 3,932,845,500
NASDAQ Volume 2,463,395,500

Bounce for Bulls

Stocks shot skyward on Tuesday, in a reflexive rebound after two weeks of concerted selling pressure. If this was a relief rally, investors certainly were well-relaxed, though the suspicion is that at least half of the gains were due to short covering.

Dow 13,307.09 +319.54; NASDAQ 2,673.65 +89.52; S&P 500 1,481.05 +41.87; NYSE Composite 9,860.98 +291.01

Advancing Issues held a 7-2 edge over decliners though new lows remained well above new highs in a continuation of a trend.

The oil trade contributed to the spirited rally, as crude futures fell $3.45 to $91.17. Gold dipped $8.70 to $799.00, while silver fell another 15 cents to $14.61.

Oops, They Did It Again

Broken record. Drop. Skip. Drop. Skip. Drop. Skip.

If you haven't bailed out of your long - and likely losing - positions by now, there's still time to limit your losses. The stock markets continue to fall, day by day, lower and lower. It's plain that there are problems with the economy, with stocks, with investments, and you don't want to be stuck holding the bag.

Dow 12,987.30 -55.44; NASDAQ 2,584.13 -43.81; S&P 500 1,439.18 -14.52; NYSE Composite 9,570.04 Down 163.30

The Dow careened through the 13,000 mark late today. Apparently, the PPT has given up attempting to fly the market higher into the close. They now prefer mid-day propping instead, as the Dow was at one point 100 points to the good, but it could not hold gains.

To illustrate the depth and breadth of the selling, declining issues overwhelmed advancers by 3894-1377. New lows trampled new highs, XX-XX. The NYSE Composite, the broadest measure of mainstream stocks and one of the least-watched, has lost 740 points since October 31, a span of just 8 sessions.

What's almost a certainty at this juncture is that the Dow will retest the August lows of 12,800, possibly as early as this week. Tomorrow, pending home sales for September will be released at 10:00 am, and the numbers are not likely to be encouraging. As the week rolls on, PPI, CPI, Industrial Production and Capacity Utilization reports flow into the market. With earnings season pretty much behind this market, though Home Depot (HD) and Wal-Mart (WMT) report Tuesday prior to the open, economic reports will be market-movers.

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Oil slipped $1.70 to close at $94.62. Apparently, there was another round of debts being called or heavy profit-taking as gold dropped an enormous $27.00, ending the day at $807.70. Silver also declined 78 cents to $14.76. I say there was a credit crunch because this is precisely what happened one day in August, when everybody rushed to raised cash - they sold gold. Panic selling of assets is endemic to this environment.

Panic selling of stocks might actually be a virtuous undertaking here since there are better places for money - like in a sock or tucked under a mattress - than sending them down the black hole on Wall Street.

I close today with a tribute to all veterans, and one very special one, my father, Nick Gagliano, who served in the Army in WWII and fought in the Battle of the Bulge. I salute you all and thank you for your service. God Bless America.

NYSE Volume 3,749,867,750
NASDAQ Volume 2,732,693,250

Correction? Close Enough!

Wednesday night on the CBS Evening News, Katie Couric, no financial wunderkind herself, posed the question of whether the market was in a correction to one of her crack business reporters. The answer was, "no, not yet," as though the magic 10% figure would send some all clear signal for investors to resume buying stocks.

While we are not technically in a correction - which is a 10% decline in the market - we are certainly close. From the high of 14,280 (intraday) on the Dow, a correction would necessitate a loss of 1,428 points. At the close today, the Dow has only lost 1,237 points, or roughly 9%. What makes the argument all the more interesting, is that the Dow - and most other major indices - dropped significant amounts at the close and ended near the lows of the day. The Dow itself, in an unusual reversal of fortune, lost over 150 points in the final 40 minutes of trading.

Dow 13,042.74 -223.55; NASDAQ 2,627.94 -68.06; S&P 500 1,453.70 -21.07; NYSE Composite 9,733.34 Down 144.13

In case you haven't gotten the memo, owning stocks this week was not in your best interests.

For points of reference, let's just take this month. Since October 31 the Dow has dropped nearly 900 points. The NASDAQ lost 232 points over the same span. It's not very pretty, and the culprits are the same: sub-prime mortgages, credit disruptions, falling dollar, higher oil.

The US economy is pretty much kaput. We've binged for too long and now it's time to pay the piper. I reiterate my statement that bank failures are a distinct possibility. And not just any bank, banks like Citibank, Bank of America, Chase, and others are on the hook for literally hundreds of billions in bad loans. That is exacerbating the credit crunch. Banks are just not loaning out any money unless your credit is absolutely perfect. They've been burned - by themselves - and they're scared stiff. So should you be.

Advancing issues were overwhelmed by decliners by a 5-2 margin and new lows continued to ratchet up to 742, while new highs sunk to a 3 1/2-month low of 85. There aren't a lot of success stories out there. If your holdings managed only a 5% loss since August, consider yourself either smart or lucky. However, this is only the first leg down. We haven't even sunk to the August lows (12,800 on the Dow) yet, though we're closing in on them quickly.

Commodities were mixed. Oil ended the week at the absurd level of $96.32 per barrel, ahead 86 cents on Friday. Gold lost $2.80 to $834.70, while silver gained 3 cents to $15.55. It wasn't a month ago that I said silver was a buy at under $13.50. Boy, was I right!

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There may be a technical bounce next week, as stocks have taken quite a hit over the past seven sessions and are oversold. Don't be a bargain hunter here, though, as gains will be quickly wiped out before Christmas. There's an equal possibility that the selling will continue, though, without much of a respite. Monday, in particular, could be a bloodbath.

Volume was high once again. Even the not-so-smart money is getting out of US stocks. If you haven't already, it's still not too late.

NYSE Volume 4,587,501,500
NASDAQ Volume 3,004,066,500