Bear Market Confirmation (Again)

Well, if November's market collapse wasn't enough to convince you, today's massive sell-off is unmistakable.

We are officially in a bear market. And we're either already in a recession or close to being in one. In any case, the Dow Jones dropping another 238.42 points (much of it in the last hour) and closing at 12,589.07, is proof positive that the grizzlies are in complete control and we are in phase two of a major trend bear market.

Here's why:
On August 16 the Dow closed at 12,845.78.
On November 26 the Dow closed at 12,743.44.
On January 8, 2008, the Dow closed at 12,589.07.

The fact that the Dow recovered to set an all-time high (14,164.53) between the August and November lows is immaterial, because, though the index rallied in December, the high was well below the October record and now the new low is well below the November bottom.

Dow 12,589.07 -238.42; NASDAQ 2,440.51 -58.95; S&P 500 1,390.19 -25.99; NYSE Composite 9,326.08 Down 136.16

So, you can slice it any way you like, but it certainly looks like the bear market began in August, confirmed itself in November and now has reconfirmed. We are six months in and the questions now become, how low will we go and when will it end?

Huge Profits in Options
Stocks go up and down. Make money in both directions with exclusive options advisor.
dtmagazine.com/optionsadvisor.php

Bear markets generally last 18 to 30 months, and this one is likely to be a little on the deep side. Expect the Dow and other averages to shed 34-50% of their value. A 34% decline on the Dow puts the bottom at around 9,350. It's perfectly possible, especially considering that the Dow was the least affected of all the major indices during the last bear market, which ran from March 2000 until March 2003 (36 months).

The saving grace for this bear is that while it may be deep and steep, it may not last long, though much of that is sheer luck of timing. With the presidential and congressional elections 10 months off, Americans may finally get rid of the people who caused the imbalances in the economy in the first place (the Bush administration and a compliant Republican congress) and replace them with people who may restore some fiscal and monetary sanity.

By mid to late-2009, we may be bouncing off the bottom of the abyss.

Just in case you're keeping score (and who isn't?), the Dow has lost 962 points in just the last 8 sessions and is off just more than 5% for the year. Unless there's a technical rally, or the Fed decides on emergency rate cuts soon, or corporate earnings come in better than expected, the January barometer is going to forecast 2008 as an ugly year, profit-wise.

The internals were expectedly sad. While declining issues pounded advancers, 4279-2074, the ratio was only a little more than 2-1. New lows continued to expand the disparity over new highs, 961-124. The advance-decline line was not more pronounced due to the nature of the news driving stocks down, as it was focused on the financials once again.

Bloomberg reported that Countrywide Financial (CFC), poster child for the sub-prime meltdown, was about to file bankruptcy, though the rumor was once again dispelled by the company. Still, investors took the battered mortgage bank to task, dropping it by more than 2 points to a multi-year low of 5.57.

Moody's downgraded a bunch of Bear Stearn's (BSC) CDOs and Morgan Stanley slashed its bond insurers profit outlook. MBIA (MBI) dropped 22% and Ambac (ABK) lost 17%. This was just more of financial sector eating its own, a recurring and troubling pattern.

In response to the wicked selling on Wall Street, commodities took up the slack. Oil rose $1.24 to $96.33 a barrel. Gold closed at a record, up a whopping $18.30 to $880.30. Silver also priced higher, up 53 cents to $15.83.

Amid all the pain of the last six months, a caveat and some silver lining: We are only in the beginning of this downturn and may just be entering a recession now; the good news is that fortunes will be lost while others will be made. There are certain to be incredible opportunities in both beaten down and unnecessarily-punished stocks.

NYSE Volume 4,638,535,000
NASDAQ Volume 2,563,689,500

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.

Substantial Wealth and Riches Creation
The Path of Substantial Wealth and Riches: Your Parents' Influence on Your Finances
substantialincomes.com

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.

Forex Beginner's Resource Website
Forex Foreign Currency Exchange Trading Beginner's Resource Center.

forexforexforexforex.com

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.

Huge Profits in Options
Stocks go up and down. Make money in both directions with exclusive options advisor.
dtmagazine.com/optionsadvisor.php

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.

$100 Car Payments
Edmonton, Vancouver, Bad Credit, Divorced, Bankruptcy OK. Apply online.
secondchancefinance.ca

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