Merrill Lynch Wasn't Speaking, Listening or Paying Attention

Thursday's activity on Wall Street more resembled a mad scramble for the exits than an orderly trading session. After a brief excursion into the forbidden land of UP, the major averages all fell into negative territory at 10:00 and remained there for the rest of the day.

The main driver was once again a beleaguered banking and investment outfit, this time the veritable Merrill Lynch (MER). The company ads from years bygone used to tout, "When Merrill Lynch speaks, people listen." Well, Merrill certainly got lynched today, and good, as the company posted a colossal loss of $12.01 per share, the worst in the firm's 94-year history. In actual dollar terms, the total was $9.91 billion. Additionally, Merrill wrote down $14.6 billion in bad debt, mostly mortgage-related.

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Wall Streeters took notice, slamming the stock down to $49.45 (-5.64), a 10% haircut.

During the morning affairs, Fed Chairman Ben Bernanke spoke to Congress about the condition of the economy, wryly stating the obviously false: that the Fed thought the economy would not fall into recession, rather that growth would be slow.

On the other hand, the chairman urged congress to swiftly propose and pass "stimulus" legislation, and those remarks obviously rattled traders as stocks began to tumble as he spoke.

Also contributing to the steep declines, the Philadelphia Fed regional manufacturing survey came in at -20.9, its lowest number since October 2001, and far below the consensus estimate of -1.5. Any negative number reflects a contraction in manufacturing in the region, and this number was serious.

Dow 12,159.21 -306.95; NASDAQ 2,346.90 -47.69; S&P 500 1,333.25 -39.95; NYSE Composite 8,818.95 -254.48

The extent of the carnage was obvious, even to the most casual observer. All of the major indices fell to levels not seen since last March, and, in the case of the S&P 500, the close was the worst since October, 2006.

Certainly, the worst is not nearly over for the US economy nor for stocks. While in November of last year, there were those doubting that we were looking squarely at a market correction, we find today these same types doubting the existence of a bear market.

Let's get one thing clear, right here, right now: We are in the beginning of the second stage of a serious bear market. The second stage (the one we are currenlty in) is where the steepest losses occur.

The next 6-9 months will be extremely challenging to anyone who is either holding or buying stocks for gains.

Only nimble traders playing bounces or astute market adherents going short or playing puts in the options markets will come out of this period unscathed.

On the day, declining issues trampled advancers, 5189-1195. This is not yet at the preferred washout level of a 5-1 or better ratio, so the indication is still heavily biased toward continued losses. New lows, which have held sway consistently over new highs every day save two since October 31, 2007, expanded again. There were 848 new lows to 78 new highs.

In the commodities market, oil eased again, losing 89 cents to $90.13. Gold lost -2.60 to $877.30, while silver dropped 9 cents per ounce to $15.81

With most of the severe investment bank earnings losses now out of the way, the market may be able to take a bit of a breather on Friday, but don't bet the bank on it. This is the worst environment for investors to chase gains and any upward movements will be met with waves of concerted selling.

NYSE Volume 5,536,065,500
NASDAQ Volume 2,836,430,000

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