No Respite Supplied by Powerless PPT

Traders wore their fingers to the bone on Wednesday in a wickedly volatile session.

The major indices see-sawed their way from losses to gains, but eventually fell prey to the relentless bears stalking Wall Street.

During the session, the Plunge Protection Team (PPT) swung into action on at least two separate occasions, though their presence was evident in the severe swings heading into the close.

On the day, the Dow was both up and down more than 110 points, while the NASDAQ - which spent the majority of the day in the red - swung from a loss of 56 points to a gain of 12, before sellers finished off the techs into the close.

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While the Dow's blue chips were the least affected on a percentage basis, the last half hour was particularly vicious to, as the Dow sold off 115 points heading into the 4:00 pm close.

Dow 12,466.16 -34.95; NASDAQ 2,394.59 -23.00; S&P 500 1,373.20 -7.75; NYSE Composite 9,073.43 -98.74

What investors are trading are all of the ominous signs of recession. Corporate earnings estimates have been slashed - not only in the financial sector, but in consumer discretionary (retail) and technology as well - inflation roared back in 2007 at a pace not seen since 1991 and there seems to be no end to the troubles in the housing and credit markets.

Amidst the chaos, the PPT and the Federal Reserve fight valiantly against the natural forces at play. The economy has either slowed, is frozen or retreating, and all of the money the Fed prints and sends to its agents in the markets does no good. Every rush of buying is followed by vigorous selling.

Most of the carnage was done in the broader markets, with the NASDAQ and the NYSE Composite losing 0.95% and 1.08%, respectively.

Advancing issues actually surpassed decliners, 3324-3070, though new lows maintained their wide gap over new highs, 737-90. All indications suggest the bear is just beginning to show its teeth and a losing bias should be the norm at least until the Fed meeting on the 30th.

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Anyone looking for a bounce after weeks of ravaging is engaged in just so much wishful thinking. The only hope for any kind of positive trend will come on January 30 when the Fed is expected to trim the federal funds rate 50 or 75 basis points.

However, the Fed, like the PPT, is nearly powerless to prevent a full-blown market meltdown as investors shed stocks like worn our shoes. Volume was extremely heavy, nearly matching January 9 as the highest volume session of the year thus far.

Tomorrow could prove to be the bloodiest day yet, as Merrill Lynch (MER) will announce an expected loss of $4.57 per share for the 4th quarter of 2007 prior to the market open. Should Merrill's losses exceed the already ghastly expectations, a 150-point gap lower at the open could occur. Additionally, with options expiration on Friday, volatility should be equal or more erratic than today.

NYSE Volume 5,336,274,000
NASDAQ Volume 3,391,137,750

Stocks Slammed; CitiGroup Loss Worst Ever

The destruction of corporate America continued unabated on Tuesday fueled by a nearly $10 billion 4th quarter loss at Citigroup (C), the worst quarterly loss in the company's 196-year history.

The far-flung financial services empire took write-downs of $18 billion on bad paper, mostly mortgage-related, and cut its dividend nearly in half. All of the bad news was reported in the company's 4th quarter earnings statement, released prior to the market's opening bell. The company lost $1.99 per share in the quarter.

Citigroup closed down 2.12 (7.3%) at 26.94 as it announced plans to raise $14 billion from government-owned investment trusts in Kuwait, Singapore and the state of New Jersey, and cut an additional 4,200 jobs. The dividend was cut from 54 cents to 32 cents and Standard & Poor's cut the bank's credit rating.

Aghast at the numbers, Wall Street trembled, and sold off throughout the session.

Dow 12,501.11 -277.04; NASDAQ 2,417.59 -60.71; S&P 500 1,380.95 -35.30; NYSE Composite 9,172.17 -267.17

But Wall Street's woes do not end at CitiGroup's doors. More financial firms, including Merrill Lynch (MER), Washington Mutual (WM), Wells Fargo (WFC) and J.P. Morgan (JPM) on Wednesday and Thursday of this week. Adding to the downbeat tone was the reported -0.4% retail sales for December. It was the worst holiday season for retailers in recent memory and the worst showing for retailers in six months.

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After the bell, Intel (INTC) reported profits of $2.27 billion, or 38 cents per share, up from a profit of $1.5 billion, or 26 cents per share, in the same period a year ago - a gain of 51%. But the chipmaker missed its own sales forecast and investors took the opportunity to punish shares by 14% in after-hours trading.

In the broader market gauges, declining issues held sway over advancers to the tune of 4799-1556, a better than 3-1 ratio. New lows once again expanded, to 796. There were only 79 stocks posting new highs.

The Dow bounced off the key 12,500 level just after 3:00 pm, rallied over 100 points, but gave it all back in the final half hour.

Certain that stocks are headed still lower and the economy is either already in recession or headed for one soon, there was little buying save for short-covering.

From a technical standpoint, the Dow has made a triple bottom breakdown, with no visible support until the 12, 100 level. The Dow has lost over 1000 points since Christmas 2007 with no end in sight.

What can be expected in the near future is a pattern of stocks being sold off regardless of their earnings reports. While companies showing poorly will surely be beaten down worse than their competitors, even positive results are going to be met with disdain and vicious selling.

In the longer term, a 33% retracement from the highs in October would bring the Dow to about 9550, the NASDAQ to 1875 and the S&P to 1050. While those numbers are probably not going to be exact, they should be kept in mind as guideposts to the ravages of the current bear market.

The actual time and date of the bottom cannot be fathomed, a time-frame somewhere between August and November would seem reasonable, though the bear market could easily extend well into 2009. The failing economy should propel voters to repudiate the Republican administration and sweep Democrats into power. The emotional response may take some time to actually reveal itself in stocks, as will bona fide changes in government to begin making substantive changes.

There is no doubt that stocks and investors are headed for hard times, but it is exactly during these times that bargains can be found and fortunes made as well as lost. The best advice is to stay out of the market or maintain short positions until there is an actual reversal of the primary trend. That will be reported right here on this blog. No other source should be trusted, except that of the Dow Theory Letters, published by Richard Russell, the preeminent market analyst of our day.

Oil closed down $2.30 to $91.90. Gold and silver recorded marginal losses.

NYSE Volume 4,561,016,500
NASDAQ Volume 2,440,952,250

Bump for Stocks Short-Lived ?

Monday's reaction rebound was delivered courtesy of IBM, which announced earnings that beat street estimates prior to the market opening. Stocks bounded clear of the break-even line at the opening bell and remained in positive territory throughout the session.

There is some doubt concerning the strength of today's rally, due to persistently disturbing underlying factors and the absence of volume, which was markedly lower in the wake of Friday's sell-off.

Dow 12,778.15 +171.85; NASDAQ 2,478.30 +38.36; S&P 500 1,416.25 +15.23; NYSE Composite 9,439.31 Up 91.84

While Monday was mirthful, Tuesday promises to be a challenging day, with a series of economic reports - Retail Sales, PPI, NY Empire State Index for January and Business Inventories for November - all to crash the market party by 10:00 am.

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Corporate earnings will also add to the intrigue. Genentech, Inc. (DNA) reports after the bell on Monday, and CitiGroup (C) reports prior to the open and Intel (INTC) takes its turn after the close.

While Genentech has long been the leader of biotech stocks, shares are still down 22% from a year ago. Anticipation for Citigroup is high, as is anxiety. The company is reported to be writing down somewhere in the neighborhood of $12 billion in nasty subprime debt, but the real numbers will offer more clarity to the depth of the crisis - not only for CitiGroup, but for the economy as a whole.

Intel is expected to return 40 cents per share, a 60% improvement over last year's 4th quarter. The chipmaker's stock was up nearly 5% (+1.00, 23.05) after being under severe price pressure last week.

Wednesday through Friday will focus more on earnings as more companies begin to report. Wells Fargo (WFC) and J.P. Morgan (JPM) on Wednesday, Merrill Lynch (MER) and Washington Mutual (WM) on Thursday will hoard attention until General Electric (GE) finishes the week with their quarterly on Friday.

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Advancing issues held a solid advantage over decliners, 4076-1301, but new lows continued to dominate new highs, 407-123.

Commodities continued ascendant. Oil for February delivery was up $1.51 to $94.20 per barrel. Gold reached and exceeded the $900 benchmark, rising $5.70 to $903.40. Silver added 6 cents to $16.43.

NYSE Volume 3,570,775,000
NASDAQ Volume 2,108,366,500

Wall Street Imploding over Credit Concerns

Wall Street was in retreat mode from the opening to closing bells on Friday as investors sold stocks amid an ongoing credit and banking crisis.

Today's headliners were American Express (AXP) and Merrill Lynch (MER), both of which were seen suffering the consequences of an eroding US economy.

American Express was down more than 10% as the company warned that it would miss first quarter analyst estimates due to having to bolster reserves for delinquent credit card users. Stocks of other credit card companies such as Discover, MasterCard and CapitalOne also suffered losses on Friday as panic selling took hold of virtually anything even rumored to be close to a financial, banking or credit company.

Merrill Lynch joined a growing number of banking/brokerages that are having to write off billions of dollars worth of near-worthless credit-backed paper, due to the unwinding of subprime mortgages and a gnawing mortgage meltdown which is showing no signs of abating. The company reportedly will have to write down as much as $15 billion in the most recent quarter alone. More losses may be forthcoming for Merrill and other banking/finance concerns.

There was no doubt about the direction of stocks on Friday, as the selling began at the opening bell and did not relent all day long. Investors are finally awakening to the depth and seriousness of the credit crisis engulfing the entire world economy.

Dow 12,606.30 -246.79; NASDAQ 2,439.94 -48.58; S&P 500 1,401.02 -19.31; NYSE Composite 9,347.47 -143.29

While Fed head Ben Bernanke has pretty much promised more interest rate cuts, it's becoming increasingly apparent that the Fed and

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other central banks can do little to prevent consumers from falling behind on everything from mortgage payments to credit card bills as the most basic of necessities, food and energy, continue to rise in price and eat away at family budgets. Easy credit, from 2000 though 2006, is the culprit and easing interest rates to make money even more affordable is clearly not the answer.

In the most obvious indicators that are tracked here, declining stocks beat back advancers by 4344-2020. New lows, which have consistently led new highs since November 1, 2006, expanded the bulge once again, 516-96.

From a technical standpoint, all the major indices closed at or near new lows for the new year, all within the closing bottoms put in on Tuesday of this week. The late-day Wednesday PPT-led closing rally and Thursday's Bernanke bounce were nearly completely repudiated on Friday.

Although 2007 will go down as a positive-return year for US stocks, those gains have all but been eviscerated in the first 8 trading days of 2008, and the worst may yet be forthcoming. According to the steadfast January Barometer, which is 85% accurate, the direction of stocks in January carries a strong correlation to the direction for the remainder of the year. 2008 currently looks like an iron-clad lock to be a negative one for investors, though Bernanke and Co. will have the final say when they will almost surely announce a rate cut of somewhere between 50 and 100 basis points on January 30.

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All of this has somewhat of a snowball effect. As homeowners default and banks and mortgagors suffer losses, equity investors also take a hit. When homeowners and consumers are squeezed, they liquidate assets, including stock portfolios, in order to pay for necessities. Outflows from funds accelerate and there's less money to go into stocks. A declining market is inevitable as is recession.

What's worse, our uninspired leaders in government and finance show little wherewithal in extracting us from this morass. Taking a cue from the political debate, if there ever was a time for change - and we're talking about major changes in policy and implementation - now is the time.

NYSE Volume 4,438,587,500
NASDAQ Volume 2,355,680,750

Bernanke Engineers Bullish Bolstering

After yesterday's "surprise" rally off the 12,500 mark on the Dow, today's action was a little more predictable, as apparently the fate of the US economy hangs on every word uttered by Federal Reserve Chairman Ben Bernanke.

At 1:00 today, Bernanke gave a speech at the Women in Housing and Finance and Exchequer Club Joint Luncheon in Washington, D.C. The full text of the speech was posted to the Federal Reserve web site, here.

The key points, in my view, can be boiled down to the following italicized phrases with my comments following in plain text:

More-expensive and less-available credit seems likely to impose a measure of financial restraint on economic growth.

Banks aren't being so loose with lending. Expanding a business or buying a new house? Unless you have perfect credit, forget it.

...notwithstanding the effects of multi-billion dollar write-downs on the earnings and share prices of some large institutions, the banking system remains sound.

Thanks to our friends in Aub-Dhabi, Singapore, China and Dubai, Citibank, Merrill Lynch, Bank of American and other big national banks have avoided shutting down completely.

Thus far, inflation expectations appear to have remained reasonably well anchored...

There's no inflation unless you buy gas, home heating oil or food.

...we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.

Are we going to cut interest rates and destroy the dollar? You bet we are.

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So there you have it. According to Chairman Ben, the Fed will cut, inflate and keep Wall Street happy until the 2008 elections. Then when we select another Republican president, we can allow everything to go to hell in a hand basket because we'll have four years to fix it, lie about it, blame it on Congress, etc. If you are a middle class wage earner. you lose. Rich investors will win. Good night.

The reaction on Wall Street wasn't exactly as the Fed had planned, though the volume was extraordinarily strong. After yesterday turned in the highest volume of the new year, today's was the best in terms of shares traded since November 8, when the Dow went on a 462-point round-trip journey.

Stocks actually struggled before, during and after Bernanke's speech, so the PPT apparently was called to action about 2:15, engineering a 200-point spike over the next hour. After that, things settled down, closing about 73 points below the day's high.

At around 2:30 news emerged that Bank of America (BAC) was in talks to buy troubled mortgage lender Countrywide Financial (CFC). Stocks took off on a tear at that point. Well, timing is everything.

Dow 12,853.09 +117.78; NASDAQ 2,488.52 +13.97; S&P 500 1,420.33 +11.20; NYSE Composite 9,490.76 Up 66.07

So, the Dow is up 350 points in just one day and two hours of trading. That's perfectly normal, but hardly indicative of either a bottom or a turn around. It's a bounce and a fairly technical one at that, though in a completely unrestricted market, the downside would have been greater and the upside less abrupt and smaller.

On Thursday, advancers took the lead from declining issues, 4060-2294. New lows contracted considerably from yesterday, though still besting new highs, 531-111.

Oil was down again, suggesting that futures traders are responding to expected slack demand in months ahead, losing $1.96 to close at $93.71. Gold, however, exploded to another new high, gaining $11.90 per ounce to $893.60. Silver went along for the ride, rising 44 cents to $16.48. Fed head Ben can downplay inflation all he likes, but don't tell that to the gold bugs. They're in the midst of a major bull run.

The next policy meeting of the FOMC is January 29/30, so expect another bounce when they decide to cut rates by at least 25 basis points, possibly 50. Until then, prepare for some serious choppiness, with a downward bias. Corporate earnings reports will be heaviest from the 16th to the 25th, and they're expected to manifest the overall sluggishness in the economy. In other words, they're not going to inspire much buying of stocks.

NYSE Volume 5,132,203,000
NASDAQ Volume 2,640,165,500