Plunge Protection Team (PPT) Saves Stocks

The markets bounced around the even line all day, with the Dow crossing no change a minimum of 12 times, but eventually, the market manipulators won out, pumping the Dow 100 points in the final 20 minutes, magically turning a losing session into a winning one.

These kinds of moves have been seen before and are somewhat old hat. They indicate the desperate straits the markets have been in since the sub-prime crisis was uncovered back in August '07.

Since that time, the indices have bounded up and down, jostled by the conflicting forces of poor economic news and massive capital injections (over $500 billion) by the Fed and the EU central bank plus a couple of remedial interest rate cuts. Still, stocks are struggling near seasonal lows with important 4th quarter earnings on tap.

Dow 12,827.49 +27.31; NASDAQ 2,499.46 -5.19; S&P 500 1,416.18 +4.55; NYSE Composite 9,462.25 Up 30.22

This is a frightened market with little to no upside potential. The Fed tried again today to jawbone about further rate cuts, but talk of a looming recession (if not already in one) continues to dominate market and economic predictions. Interest rate cuts can only do so much, and while they may encourage lending and spending by corporations, they are seen as inflationary and damaging to the already weakened US dollar.

Monday's market ups and downs were reflected in the advance-decline line, with higher issues eking out a win over decliners, 3289-3076. The persistence of new lows dominating new highs, however, remained in place and shows no sign of a turnaround soon. There were 799 new lows and an even 100 new highs.

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While stocks were see-sawing all day, commodities traders took a breather. Crude oil for February delivery fell $2.82 to $95.09. Gold was off $3.70 to $862.00, while silver sliced off 17 cents to $15.29. The metals may have gotten a little ahead of themselves, while oil prices are responding to unusually warm weather in the Northeast, which will tamper down demand for at least this week.

While the headline on the news wires and nightly newscasts will recognize the split decision at the close, few true market watchers will doubt that more down days are in the immediate future. At some point, technicians will point out the triple bottom being put in and when traders finally capitulate - ostensibly, later this month - the second leg of this young bear market will be apparent to all.

NYSE Volume 4,136,662,250
NASDAQ Volume 2,505,137,500

Jobs Data Slams Stocks

As posted here yesterday, only a very positive Labor Department report would keep investors from continuing the selling spree that began on December 27.

The stage was set an hour prior to the market open when the December Non-Farms Payroll report on the employment situation came in far below expectations. Jobs created in the month were pegged at 18,000, and the unemployment rate was ratcheted upwards to 5% from 4.7% in November.

The expectations were for creation of 78,000 jobs, a relatively benign number, but conditions in the US, particularly in construction, manufacturing and retail, worsened during the holiday rush.

Stocks sold off dramatically at the opening bell and stayed submerged throughout the session. All major indices suffered major losses, with the NASDAQ down nearly 4%.

Dow 12,800.18 -256.54; NASDAQ 2,504.65 -98.03; S&P 500 1,411.63 -35.53; NYSE Composite 9,432.03 -223.97

To put today's losses into some kind of perspective, since the December 26 close:

• The Dow Jones Industrials are down 751 points


• The NASDAQ is down 220 points


• The S&P 500 is down 86 points


• The NYSE Composite is down 462 points

Happy New Year indeed! Looking ahead, profit statements for the 4th quarter and full year are due to begin reporting next week, with Alcoa (AA) set to kick off the festivities on Tuesday, January 8. According to most anecdotal reports, the majority of companies are expected to meet or exceed lowered expectations, with profitability in the range of high-single digits to low teens overall.

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We are on the cusp of a major market meltdown. If we are not already in a recession, we will be soon. The impact from the collapse of the housing segment, the ongoing credit convulsions in the banking and financial area and overall slack consumer spending are hitting the US economy with the force of a category 5 hurricane.

Add to that mess a lame-duck president who continues to veto anything constructive sent by Congress, eight straight years of federal deficits, nearly a trillion dollars wasted on the wars in Iraq and Afghanistan, the stubbornly persistent trade deficit, and you have the makings of a long, deep and painful recession.

Worse yet, if the federal government is allowed to follow the policies in place, we're most likely to face a nation-crushing depression with no conceivable end in sight. Thankfully, we're in a major election year and, if the USA can continue to exist until January 20, 2009, we may make it through without suffering a national disaster.

Make no doubt, the policies of two men - President George W. Bush and former Fed Chairman Alan Greenspan - have placed the United States in one of the more perilous situations of the nation's brief history. Change in leadership will come, but probably not in time to prevent huge losses on Wall Street and a good dealing of economic suffering by the general populace.

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The carnage on Friday was widespread, sparing no particular sector or industry group. Declining issues outpaced advancers by a nearly 5-1 margin, 5127-1301. The gap between the new lows and new highs widened even more, with 1035 new lows to a mere 84 new highs, a disparity not seen since the double bottom collapses in August and November of last year.

In an odd response to the massive selling on Wall Street, the major commodities also lost some ground. Oil closed down $1.27 to $97.91. Gold fell $3.40 to $865.70, while silver dropped 4 cents to $15.46.

With earnings reports beginning next week, investors should be advised that the initial three days of trading for 2008 are likely only a prelude to further declines in a year that will have many twists and turns but almost certainly ends badly.

NYSE Volume 4,139,319,750
NASDAQ Volume 2,516,319,500

Stocks Fail to Maintain Gains

An afternoon selling spree diminished gains on all major indices as stocks spent Thursday searching for direction. The absence of any negative news, which has been a recent staple, helped the indices to a positive open which was maintained through most of the session.

Dow 13,056.72 +12.76; NASDAQ 2,602.68 -6.95; S&P 500 1,447.16 0.00; NYSE Composite 9,656.00 +8.50

After 2:30, however, buyers became scarce and stocks began to plunge. All of the indices went into the red after 3:00, and while the Composite and Dow managed small gains, the NASDAQ finished in the red for the second straight day of 2008. The S&P finished unchanged, a rare occurrence.

Once again, the price of crude oil was front and center on the radar of many traders. Price topped out at a nickel over $100 before retreating with a loss of 44 cents on the day, to $99.18. The implications for the general market with oil over $100 range from disgusting to dire. While some analysts believe that oil will reach the mark and maintain it for some time due to emerging economies in Eastern Europe and South America, others believe that gas prices over $3.25 cause many US drivers to significantly alter their driving habits.

In the larger scheme, many industrial type businesses rely on oil to meet energy demands and the higher price will either be passed along to consumers or negatively affect profits. Neither condition is particularly appealing, and both will hurt major corporations short term. Until the price of oil pulls back significantly from the $100 or surpasses it and stays, stock markets are likely to remain jittery with a negative bias.

Since the world needs energy at every juncture and oil is the main source, the ramifications of higher prices for crude are easily understood. For now, and for the past six months, oil has acted as an anchor on stocks.

Elsewhere, rumors from the employment sector remained positive in advance of the December jobs report, due out Friday morning at 8:30. As the report goes, so should the market. Analysts are expecting less than 100,000 new jobs created for December, and that mark could easily be met.

Traders will note that the number of new jobs created in December will likely fall short of the 150,000 necessary just to keep pace with the expanding workforce population. It looks like a mixed bag, though bears will be sure to point out the negative. And who can blame them? The overall economic condition is somewhere between poor and horrible. There's little reason to believe that companies are in a big hurry to expand their workforces.

On the day, the usual themes applied. Declining issues remained ahead of advancers, 3474-2877. New lows remained well ahead of new highs and actually expanded their lead, 575-124. Unless some succor can be seized from the jobs data, the first three days of January are going to be undeniably among the worst on record. In glossary terms, the January Effect of investors shedding stocks in the final days of a year before repurchasing them in the first days of January, seems to be almost forgotten this time around.

More interesting to watch is the performance of the S&P 500, to see if the January barometer will be in play throughout the year. The barometer is fairly reliable, showing an 89% correlation since 1970. If the S&P is up in January (don't hold your breath), there's a nearly 90% likelihood that the year will be a positive one for stock investors. This held true in both 2006 and 2007, but, with the index already off 21 points in 2008, this year may be an uphill climb.

NYSE Volume 3,408,176,750
NASDAQ Volume 1,970,244,250

Happy $100 Oil New Year

The new year began the same way the last one ended, with investors selling in earnest on fears of recession.

Make no mistake, the price of oil and gasoline at the pump will continue to drive the US economy over the edge and into recession. On Wednesday, traders took little time to drive the price of a barrel of crude to a high $100, backing off slightly to close the day at a record $99.62, a gain of $3.62.

Dow 13,043.96 -220.86; NASDAQ 2,609.63 -42.65; S&P 500 1,447.16 -21.20; NYSE Composite 9,647.50 Down 92.82

Contributing to declines on all indices on the first trading day of 2008 was the Institute of Supply Management's manufacturing index, which fell to 47.7 in December, a drop of 3.1 points from November's reading of 50.8. The number is particularly troubling since any reading below 50 indicates contraction in the manufacturing sector and that number is much further below even the most pessimistic forecasts.

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Notes from the December FOMC meeting of the Federal Reserve were also made available in the afternoon, but did little to temper the bear's enthusiastic selling. The Fed Governors suggested that more rate cuts would almost certainly be needed in 2008 to shore up shaky markets and restore confidence to credit markets.

Volume was stronger than it has been in weeks, signaling that there is still no end to the selling and raising the possibility that new 52-week lows could be reached in short order.

Advancing issues were overwhelmed by decliners, 3952-2420, while new lows remained in control over new highs, 461-125.

Gold priced an incredible $22.00 higher, closing at $860.00. Silver added 37 cents to $15.29.

If there's anything to be read into today's trading, it is that 2008 is certainly not for the faint of heart. On the heels of a weak December, a dour January will only act to fuel fears of economic crisis and near-panic level selling.

NYSE Volume 3,452,640,750
NASDAQ Volume 2,095,550,125

Stocks Stumble at Year's End

Recap of 2007 Predictions and 2008 Forecast Follows Regular Report

On the final day of 2007, stocks continued doing what they have been accustomed to in the final 5 months - they sold off from open until close.

In a market devoid of conviction over the past two weeks, stocks slipped at the opening bell, recovered some ground in the afternoon, but collapsed again into the close. If November and December are any harbingers of what's ahead, 2008 looks to be shaping up as a very challenging environment for value investors.

Dow 13,264.82 -101.05; NASDAQ 2,652.28 -22.18; S&P 500 1,468.36 -10.13; NYSE Composite 9,740.32 -63.57

Looking at just the Dow, which closed at 13,930.01, the index finished up the final two months - usually among the best for investors - nearly 700 points lower, including a ghastly close of 12,743.44 on November 26, the first "official" day of the holiday season. The number and date were notable, marking a 7-month low for the blue chips.

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While the final close was an improvement, December still registered a loss of over 100 points for the entire month, as markets took a huge bounce off that Nov. 26 low, stabilized in the mid-13,000s, but relented over the final two weeks.

On the day, declining issues stood ahead of advancers, 3435-2983. New lows closed out the year by demolishing new highs, by a 511-101 score.

Both the advance-decline line and new highs-lows have been decidedly negative for the final two months, indicating nothing but trouble heading into the new year. Stocks may be more fairly valued than they were during the summer, but the mood of investors has been significantly shaken by a continued stream of bad news from housing and credit markets.

Commodities were nearly at a standstill on Monday, with oil losing 2 cents to close at $95.98, gold off $4.70 to $838.00 and silver higher by 3 cents to $14.92.

NYSE Volume 2,440,879,750
NASDAQ Volume 1,516,866,750

How I did in 2007

Taking a look back at my market predictions for 2007, I should give myself some kind of award, because I not only was superbly close at the 2007 finish, but also foresaw much of the range. While my crystal ball anticipated highs for the Dow (~16,000) that were far ahead of reality, I caught the downdraft in the second half correctly. My analysis of the diverse indices was spot on, with, as expected, the NASDAQ leading the way, followed by the Dow and then the S&P.

Here's what I said at the end of my article on December 29, 2006:

Expected gains are 7% on the Dow, 12% on the NASDAQ and 5% on the S&P 500 at year end, though the range, especially the lows, could be dramatic.

Here's the reality:
DJIA: 12/29/06 close: 12,463.15; 12/31/07 close: 13,264.82; +6.43%
NASDAQ: 12/29/06 close: 2415.29; 12/31/07 close: 2,652.28; +9.81%
S&P 500: 12/29/06 close: 1418.30; 12/31/07 close: 1,468.36; +3.53%

My commodities forecast was so far off (I liked oil, gold and silver lower or stable) I'm not going to even comment and, since my niche is stocks, I won't make predictions on commodities any more.

2008 Forecast

With the housing market in the most severe slump in over two decades and a wrenching credit crunch limiting the lending stature of major financial institutions, 2008 looks to be the year the excesses of Bush/Greenspan policies finally begin to be paid back.

The hands-off, loose credit conditions which held sway over the first six and a half years of the promising new millennium have given way to frightened markets, shocked investors and a slew of scary predictions for the US economy and the stock markets in 2008.

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To blame Bush entirely for the current distress would be missing the point completely. It was Greenspan's Fed policy in the early years of the administration - especially his 1% "emergency" federal funds rate in 2002 and 2003 that set the stage for the subprime meltdown and credit crises in the banking sector.

2007 saw the unwinding of the mortgage market and the packaged loans that were the bread and butter of hedge funds as well as established financial institutions. Once mortgage borrowers began to default in droves, these SIVs (structured investment vehicles) fell out of favor, many of them selling off at pennies on the dollar.

The 2007 wound down, we were witness to major American financial institutions like Merrill Lynch, CitiGroup and others being forced to sell assets to foreign concerns from the Middle and Far East to secure their vary survival.

The worst is yet to come, however, as more subprime and adjustable mortgages are due to reset in 2008, which is likely to spark another round of regrets and losses from the very same banks and financial companies.

In turn, the mistrust in credit markets will lead to lower overall activity, especially in Merger and Acquisition activity while strapped consumer finally feel the pinch as well from higher energy and food prices. The only prices falling will be those of houses and stocks.

Credit concerns and the housing slump will dominate headlines though the first six months of the year, giving way to new hope for a Democratic president later in the year. But, the damage already having been done, Bush and Company will turn over to their successors an economy if not in a recession, certainly close to one.

For the full year, it's difficult to see stocks and indices any higher in 2008 than where they are right now. Life will go on, but in a much tougher environment for many Americans. The natural cycle of boom-bust will see companies from all industries laying off workers. By the end of either the first quarter or second, the US economy will almost certainly be in recession. GDP growth will be no better than 1.5% for the year and may actually turn in a negative performance.

With a recession broadly defined as two consecutive quarters of negative GDP growth, my money's on the 2nd and 3rd quarters being the worst as the Fed fights - to no avail - to fend off the inevitable.

Speaking of the Fed, it will be realized that they are somewhat impotent when it comes to using policy and rate changes to engender economic prosperity. Whatever the Fed does - and their most likely tack will be to lower rates to 3-3.5% - will be largely too little and too late.

There comes a point where pain must be spread around, and that point will occur most poignantly in the Spring and Summer of 2008.

My assessment of the year ahead is nothing short of dismal. Excesses must be wrung out and losses in US equities will be widespread. Profits will take a beating as consumer spending dries up and companies scramble to reorganize, downsize and redevelop.

The S&P 500 will lead the way lower, checking in at the end of 2008 with a 12% loss, though it's likely to be much worse during the Summer and into the fall. The Dow will end the year 9% lower, with the NASDAQ down 7%.

The mid-to-late-year losses will be more dramatic, however. Expect bottoms to be put in at roughly the 1230 level on the S&P, 11,120 on the Dow and 2250 on the NASDAQ. And even though markets may recover somewhat in the last quarter of 2008, it may take a while longer for investor confidence to return to markets. 2009 may just be the beginning of a long, slow tortuous recovery.

The US will not be the only country suffering. Europe, Japan, China and Japan will also be hard hit. Mostly spared will be resource-rich nations such as Canada, Russia and much of South America and the Middle East. Australia will muddle through, though they will still be dealing with an intense, decade-long drought.

Get ready. 2008 figures to offer a very bumpy ride for your money.