Housing Woes Weigh on Marginal Gains

The broken record that continues to skip at the passage... housing is down, housing is down, housing is down... damaged stocks again as 2007 drew to within one trading day of its conclusion.

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Stocks were stuck in a narrow range after initially lifting off to the highs of the day just minutes after the opening bell. However, when the November New Home Sales [PDF] showed a decline of 9%, down to 647,000, stocks sold off and spent the better part of the day hovering just below the break-even line.

Dow 13,365.87 +6.26; NASDAQ 2,674.46 +2.33; S&P 500 1,478.49 +2.12; NYSE Composite 9,803.87 +24.57

For the (holiday-shortened, 3 1/2 day) week, the Dow shed 85 points, the S&P lost 6 points, the NASDAQ was down 18, while the NYSE Composite ended 16 points higher.

On the day, declining issues bettered advancers by a narrow margin, 3352-3033. New lows once again thumped new highs, 434-105.

Commodities were mixed. Crude oil fell 62 cents to end the week at an even $96. Gold was boosted $10.90, to $842.70. Silver added 8 cents to $14.90.

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With just one more session remaining on Monday, Dec. 31, all major indices will - unless there's a dramatic crash on New Year's Eve day - show gains for the year, though all of the indices hit their highs in early August and again in October, with November registering as one of the worst on record and December producing a fairly flat performance.

Looking ahead into 2008, January almost certainly will be a lackluster month, setting the stage for what appears to be a challenging year for stocks and the general economy.

On Monday, we'll take a look back at my 2007 predictions and I'll offer my views on 2008.

NYSE Volume 2,350,111,000
NASDAQ Volume 1,270,277,125

Back to Selling Stocks

It could be year end tax selling. It could be fears of further deterioration in the banking sector. Maybe people are just taking profits after an unhealthy run-up through the Christmas holiday. Whatever it was, investors were selling stocks in bunches on Thursday, with only two days remaining in the trading year of 2007.

Dow 13,359.61 -192.08; NASDAQ 2,676.79 -47.62; S&P 500 1,476.27 -21.39; NYSE Composite 9,779.30 -114.85

Stocks gave back most of the gains achieved over the last three trading days - Dec. 21, 24 (half-session) and 26 - but there's a large gap between today's closing prices and 13,250 on the Dow. Markets hate uncertainty and gaps, which always get filled, and this 100-point gap n the Dow is certain to be filled soon.

The major drivers on the day were Goldman Sachs (GS) assessment of the banking industry, in which they generally hammered a few of their brethren (eating each other, a sure sign of bear markets) including CitiGroup (C), JP Morgan (JPM) and Merrill Lynch (MER).

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The Goldman Sachs note was especially savage concerning the prediction that CitiGroup (C) might lower its dividend by 40% and write down as much as $18.7 billion in the fourth quarter. CitiGroup closed down nearly 3% at 29.56.

From the tone and tenor of Goldman's analysis, the subprime and other credit concerns are far from resolved and will continue to drag on financial stocks and the general market at least through the first quarter of 2008, and likely longer.

Once again, all ten sectors finished in the red, after November Durable Goods Orders posted a 0.1% gain when analysts were expecting a 2% rise. Also weighing on the market was the assassination of former Pakistani Prime Minister Benazir Bhutto.

Declining issues held an enormous 3-1 advantage over advancers, with 4902 on the downside and just 1493 posting gains. New lows continued their dominance over new highs, 376-145, as has been the case for the past two months with the exception of just two days in December. The persistence of new lows exceeding new highs has been an absolute sell signal throughout this period. Investors could not have expected a longer or better warning to get out of equities.
Oil continued to march ahead, gaining 65 cents to close at $96.62. Gold finished up $2.30 at $831.80, while silver dropped 2 cents to close at $14.82.

With the pallor cast over the street by Pakistani politics and the Goldman Sachs report, the holiday spirit has all but vanished. Friday could go either way, though a continuation of the bearish conditions would seem appropriate.

With US financial institutions having to sell off portions of themselves to foreign entities, somebody needs to sound the alarm. I've repeatedly warned that we may be on the cusp of a major financial disruption and I will reiterate that sentiment as often as necessary. If you are not already at least 30-50 in cash, money markets or precious metals, you are needlessly putting your money at risk.

While the major indices are all but certain to show gains for the year, they are going to be small, likely in the range of 5-8%.

NYSE Volume 2,322,153,250
NASDAQ Volume 1,405,128,625

Small Change on Slow Day

Stocks were barely budged on Wednesday, as investors took an extended hiatus following the Christmas holiday. Volume checked in with one of the lowest readings of the year.

Underpinning the narrowly upward movement were hopes that retailers would see something of a rebound in the days after Christmas, as holiday sales overall have been less-than-inspiring.

The most recent figures suggest that retailers saw a 3-4% increase over last year, though specific companies, particularly Target (TGT) have warned that same-store sales may have actually fallen for the post-Thanksgiving period.

It was likely a good thing that traders were mostly on the sidelines on Wall Street, with more bad news in the housing sector weighing on stocks. The Standard & Poor's/Case-Schiller home price index showed home prices declining for the 10% straight month. The October decline was the largest since 1991. The index tracks home prices in 10 metropolitan areas.

Dow 13,551.69 +2.36; NASDAQ 2,724.41 +10.91; S&P 500 1,497.66 +1.21; NYSE Composite 9,894.15 +20.67

Advancing issues narrowly edged decliners for the third straight session, 3366-2960. New lows retained their lead over new highs, however, 256-238. The high-low metric has stubbornly resisted rolling over in favor of the new highs, suggesting that any rally in stocks is going to be short-lived and devoid of breadth or depth.

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The specter of continuing calamities in the housing arena and the unwinding bank/credit crisis is aligning with a growing chorus of economists suggesting that a recession may be difficult to avoid in 2008.

The price of crude shot up another $1.84 on Wednesday, as the combination of lower US inventories and fears arising out of Turkish air strikes in Northern Iraq sent crude to a closing price of $95.97.

Gold also showed healthy gains, rising $13.00 to $829.50. Silver also was higher, up 18 cents to $14.84.

With just three more trading days remaining, 2007 is on track to record positive gains on all of the major indices, despite all of them being off their 52-week highs.

Looking ahead, though, investors are skeptical about 4th quarter profits in a variety of industries and worry that the weakness in housing could spill over into the general economy. While an unwinding of a 50+ month-long bull market would not be surprising, how far and for how long stocks fall is still a matter of considerable speculation, with the majority of analysts seeing moderate growth at best for the entirety of 2008 and some kind of recovery in 2009.

NYSE Volume 2,010,497,250
NASDAQ Volume 1,260,348,625

Short Session Gains

On the day before Christmas, stocks flew higher in a shortened session, with the NYSE Composite leading the way.

The advance was broad, lifting all sectors. All of the major indices were markedly higher right out of the gate and remained in positive territory until the 1:00 pm close.

Dow 13,549.33 +98.68; NASDAQ 2,713.50 +21.51; S&P 500 1,496.45 +11.99; NYSE Composite 9,873.48 +85.55

Following Friday's explosive rally, advancing issues overwhelmed decliners, 4380-1861. New lows squeezed past new highs once again, 240-209. That particular indicator is on the verge of tipping over, and judging from past history, the final week of trading is usually bullish. Indications are for more gains for the remainder of the year, though volumes may be quite a bit lower than normal.

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Oil priced 82 cents higher, closing at $94.13. Gold was $1.10 higher, ending at $816.50, while silver was up 17 cents to $14.66.

Once again, befitting of the season, everything was up. Apparently investors just can't get enough of the jolly spirits and are willing to buy without regard to fundamentals.

Well, after all, maybe they're in a giving mood...

Merry Christmas

NYSE Volume 1,267,431,125
NASDAQ Volume 778,627,250

Santa Claus Rally At Last

Set against the backdrop of outstanding consumer spending figures for November, stocks exploded to the upside at the open on Friday and extended their gains throughout the session.

Dow 13,450.65 +205.01; NASDAQ 2,691.99 +51.13; S&P 500 1,484.46 +24.34; NYSE Composite 9,787.93 +165.66

Consumer spending was up a very healthy 1.1%, the best one-month reading since May, 2004. Naturally, with the figures coming from the Commerce Department, we take them with the appropriate dosage of salt and doubt. We may find in a month or two that the numbers are revised lower, or, worse yet, that December's figures - which are in fact much more important - were not very solid.

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Reports have been trickling out that retailers are a touch worried heading into the final weekend before the holiday. Most of what's being whispered is that sales will hold their own, may be better than last year, though nobody's betting the house on it.

Chances are good that retailers will be a mixed bag, as they usually are. Some have a better mix, some do better marketing, some have catchier ads than others. It's a fiercely competitive market at the hottest time of the year. While most of us go through the rituals of mall-walking and discount-seeking, behind the scenes it's a vein-popping stress-filled environment.

But, Americans being the generous lot that they are, many will spend beyond their means during this over-commercialized bargain hunt. Merry Christmas to anyone who works in retail. You're the last line of defense against outright mass insanity.

As one might expect, advancing issues hammered decliners on Friday, 4629-1767 (a 5-2 ratio), though new lows maintained their advantage over new highs, 392-235. Stocks broke through some upside resistance at 13,300, which could be notable as we head toward the end of 2007.

In keeping with the holiday spirit, oil priced $2.25 higher, closing at $93.31 per barrel. Gold was $12.20 stronger, to $815.40; silver was up 15 cents to $14.49. On the last full trading day before Christmas, everything was up.

Happy Holidays!

NYSE Volume 4,501,638,000
NASDAQ Volume 2,697,700,500