The Party... and the Rally May be Over

Equity investors took an early exit on Friday after the government's non-farm payroll data failed to inspire any new-found confidence in the economy, nor in the prospect of a 50 basis point rate cut next week by the Fed.

The November labor data showed a gain of 94,000 new jobs, less than the break-even of roughly 150,000, but better than the estimate of 80,000. So, these numbers suggest that the economy is in OK shape, but that the job market may be shrinking a bit relative to natural population growth.

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The figures were good enough, however, to blunt any talk of a 50 basis point cut when the Fed meets on Tuesday next week. 25 basis points may be all they can muster, if that. Presumably, rate cuts mean the economy is weak, but to Wall Street it means more nearly-free money to toss around. When the Fed announces either no rate cut or just 25 BPs at exactly 2:15 on December 11, this current rally will be officially over and investors will resume worrying about the credit squeeze and subprime mortgage fallout.

It could happen sooner, on Monday, as savvy investors are wont to get out of the way when there's a rush for the exits. After a more than 800-point rally on the Dow and 100 on the S&P since November 26, the rally was a combination of hype and hope, and now the hope (rate cut) is gone. With more sorry numbers expected from the retail sector, the hype will also disappear soon. Happy Holidays.

Dow 13,625.58 +5.69; NASDAQ 2,706.16 -2.87; S&P 500 1,504.66 -2.68; NYSE Composite 10,023.58 -6.57

Trading was especially light for a Friday, as decliners took a razor-thin edge over advancers, 3187-3160, but new highs finally exceeded new lows, barely, 214-212. This marked the first win for new highs since October 31, a span of 25 trading sessions. After such a spectacular run-up, this distribution indicates there's either a load of undervalued stocks or we're still in the throes of a long-term bear market.

It's likely to be the latter. With the Dow just about 500 points from its all-time high, one would expect more new highs than what's being recorded. The new lows are likely to expand slightly for the remainder of the month, then really add to their ranks once earnings reports being to flow in January.

As if taking its queue from the stock market, oil went for a dive on Friday, dropping $1.95 to $88.28. Gold and silver followed suit, with gold down $6.90 to $800.20 and silver losing 12 cents to end the week at $14.51.

Some of the nations largest brokerages kick off earnings season a little early - next week - and the outlook is not very rosy. So, get those fingers warmed up to hit the sell button. Monday could be somewhat of an unwelcome surprise to a week that is fraught with potential pitfalls.

NYSE Volume 3,145,841,500
NASDAQ Volume 1,898,631,750

Straight Up, Non-Stop Stock Buying

Since the ephemeral bottom of the market on November 26, the Dow has, like an old, single uncle gorging on multiple holiday repasts, put back on 876 points. In just eight short sessions, US blue chips have availed themselves an average of nearly 110 points per day.

What changed? Attitude, and little else.

While there were some remarkable productivity numbers thrown out on Wednesday (pretty much more fudged government numbers) and an early indication that November job growth was going to register as nothing short of spectacular, the market blithely overlooked November retail figures which showed a spotty and rather lackluster performance by some of the major participants.

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Instead, investors tripped over each other rushing to buy stocks, especially on Thursday, when the Bush administration announced its plan to help homeowners avoid foreclosure. The plan is fairly laughable, extending the payment period on the interest-only portion of option-ARM loans to five years, from the customary two. The plan merely delays the inevitable, allowing more time for people who shouldn't be living in overbuilt, expensive homes to remain in them.

But what the government plan really does is bail out the banks. They simply do not want all those toxic loans exploding all over the place. Bankers are obviously in a position in which they are willing to accept a little than lose a lot, and that's troubling. The weight of the sub-prime mess threatens the very lifeblood of the global financial system and the bankers have been scared to the point of renegotiation with what are basically nothing but deadbeat borrowers.

So, it's a little bit funny how investors react. It's almost like a self-fulfilling prophecy. If stocks are going up, everything must be A-OK, and they'll continue to go up. For the better part of the past two weeks, they have, and tomorrow's gently-massaged non-farms payroll report for November will indeed supply icing for the top of the cake. Or, if you so please, froth on the head of the elixir they're all drinking down at Wall St. and Broad.

Dow 13,619.89 +174.93; NASDAQ 2,709.03 +42.67; S&P 500 1,507.34 +22.33; NYSE Composite 10,030.15 +142.55

For the second straight session, advancing issue pummeled decliners, 4804-1513. New highs haven't yet gotten past new lows - an edge held by the lows since October 31 - but they're close. New lows carried the day, 260-214. With everything set up nicely for tomorrow's employment numbers, this indicator should turn over, vacillate for about a week, and then head back to dominance by the new lows.

As Christmas rallies go, this one is a little early, but don't be surprised if the Dow and other indices reach new highs within the month. January, however will be another story. The current uptrend is unsustainable, especially in light of the 4th quarter warnings already circulating from the Fed, individual companies and elsewhere.

While stocks were soaring again, the oil merchants figured to get in on the action, hoisting the price for a barrel of crude $2.74 to $90.23. Apparently, the oil futures traders figure that with all the extra money floating around this time of year, consumers might as well pay more for gas, home heating fuel, etc.

Gold gained $3.40 to $807.10. Silver added 17 cents to $14.63. Everything was up today. Doesn't that make you feel good? No need to feel any pain. It's the holiday season, after all. Deck the halls with ticker tape.

NYSE Volume 3,575,942,250
NASDAQ Volume 2,031,019,625

Stocks Chilled by Resistance

Stocks fell broadly on Monday, the first day of trading in the final month of 2007. If this is any indication of how trade will behave in December, we may be looking forward to a somewhat unhappy New Year.

On the Dow, resistance levels at or around, 13,500, were tested on Friday and shied further away on Monday, towing all other indices along to the downside. Continued fears of a full-blown recession in 2008 contributed to a quiet continuation of the trend lower. Market sentiment is decidedly defensive, citing unwinding problems stemming from the sub-prime mortgage and associated credit crises.

Dow 13,314.57 -57.15; NASDAQ 2,637.13 -23.83; S&P 500 1,472.42 -8.72; NYSE Composite 9,811.86 -44.99

Overhanging everything, as it is the Christmas season, are concerns that holiday shopping may fall short of expectations. With an additional weekend of shopping time as compared to last year, retailers may be forced to pull the trigger on markdowns sooner rather than later this time around.

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Retailers are necessarily nervous, as data on consumer spending and incomes, released last week, was hardly encouraging. Shoppers may have less in their wallets than last year and may also be waiting for deals equal to or better than were available on Black Friday.

It bears watching the major retailers to see which of them, if any, begin discounting earlier in the season than normal. Later this week, on Thursday, Wal-Mart and Target release November same-store sales figures, which will give some indication of what December may bring, but already analysts are wondering whether last week's good news (sales up as much as 8% at major retailers against last year) was due more to price (and profit) slashing following the Thanksgiving feast.

Whatever the case, investors voted by sending shares lower in advance of the numbers. Declines outweighed advances on Monday, 4013-2391, while new lows maintained their long-standing edge over new highs, 313-134, with the margin increasing over Friday's figures.

Commodities gained on the day, with oil up 60 cents to $89.31, gold higher by $5.60 and silver up five cents. Oil traded as low as $87.15 during the day, but rose as traders saw a continuation of high demand through the holidays and the possibility of a production increase by OPEC nations about a 50/50 proposition.

It could turn out to be a slow week on Wall Street with the really important numbers coming out on Thursday and Friday, when the government reports non-farm payroll numbers.

Hurry up and wait.

NYSE Volume 3,293,912,500
NASDAQ Volume 1,994,717,625

Stocks Finish Week Higher on Bernanke Blather

Wall Street has become Disneyland.

Despite economic reports that generally signal a continued downturn through the 4th quarter and into 2008 - Personal Income was up just 0.2% while consumer spending increased by the same amount, but the core PCE deflator was also up 0.2%, with the year-over-year increase at 1.9%, within the Fed's "comfort zone."

Despite numbers begging to be interpreted as benign, the words "alert" and "flexible", when uttered yesterday by Fed Chairman Ben Bernanke, somehow signaled to investors that the Fed would cut rates again at their December 11 meeting.

Like I said, Disneyland. When you wish upon a star...

Dow 13,371.72 +59.99; NASDAQ 2,660.96 -7.17; S&P 500 1,481.14 +11.42; NYSE Composite 9,856.84 +83.27

Additionally, Construction Spending fell 0.8% in October, adding more impetus to the already dismal housing picture and indicating that economic woes are spreading into the commercial sector.

Advancing issues led decliners, 4054-2373, but new lows continued to hold sway over new highs, 239-172, though the gap has narrowed considerably over the past four sessions.

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Crude fell below the $90 mark, dropping $2.30 to $88.31. Precious metals continued to retreat from recent highs. Gold was down $13.20 to $789.10, while silver declined 28 cents to end the week at $14.17. The drops in commodities are beginning to make sense against the backdrop of a inadequately-growing US economy.

Slower growth, or even recession, here, is going to crimp demand for all raw materials. Forget inflation. We're staring straight at Japan-style deflation.

So, that makes stocks go up? The Dow registered a gain of 628 points over the past four sessions, mostly on speculation that the Fed would lower interest rates to avert a recession. And that, dear reader, is why they call trading equities "speculative." Sometimes, everybody's wrong. And this time, it sure looks like they are.

Pass the fairy dust, Tinkerbell. I'm ready for another ride on the Magic Mountain.

NYSE Volume 4,335,490,000
NASDAQ Volume 2,571,377,500

Consolidation Day

After two days of unprecedented gains, the markets were a bit worn out, and by Thursday, they traded in a more narrow range, ending mostly to the upside, with the notable exception of the NYSE Comp.

Overnight, the Fed released guidance that the US economy would slow in 2008, than during the day made overtures to the public that they would stand vigilant and flexible to confront a variety of concerns. With most of the economic news being mostly credit and mortgage-related and negative, investors mostly sat back, took some profits and continued to worry-waiting game.

News that mortgage delinquencies were actually on the rise calmed the pace of trade and that was magnified by a major fire at a vital oil pipeline serving the Midwest which prompted a five dollar spike in the price of crude early in the day. By the end of the day, however, oil only added 39 cents on the NY Merc, finishing the day at a more reasonable $91.01.

Dow 13,311.73 +22.28; NASDAQ 2,668.13 +5.22; S&P 500 1,469.72 +0.70; NYSE Composite 9,773.57 -17.48

Internally, decliners took back the advantage over advancing issues, 3466-2903, but new lows remained in control, 286-133. While the new lows have been declining over the past three days, few stocks are making new highs. This indicator is currently at even, with a slight bias to the downside. Unless markets improve even more in the next few trading days, the trend to the negative will remain in place.

It doesn't take a genius to understand the movement of the markets over the past few days. Stocks were oversold on a purely technical basis. November was a brutal month for stocks until the nearly 600-point recovery of Tuesday through Thursday. The chances for a continuation of the rally into the weekend remain slim.

Volume moderated, indicating the widely held wait-and-see attitude. With traders expectant of nothing but moderately bad to outright horrible economic news, it wouldn't take much to stoke the flames and ignite another rally, though the strength and breadth would be largely constrained.

Since we're in the midst of the holiday season, more attention will be focused on retailers. Considering the uphill fight they have ahead of them, prospects are mixed at best.

NYSE Volume 3,539,243,500
NASDAQ Volume 2,180,081,000