Tired Markets End Week Mixed; Economy Remains Top Concern

The floor traders weren't the only ones tuckered out as another volatile week came to an end. Economists and financial news journalists tired themselves out dissecting Thursday's remarks to Congress by Fed Chairman Ben Bernanke.

There was more substance than style to the Chairman's message. He basically held nothing back, telling anyone within earshot (read: the entire civilized world) that the American economy was in a very rough patch.

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Most of the action in stocks took place during and immediately after his testimony, leaving little to the imaginative traders who might have been looking for a bounce on Friday.

Sadly for those on the bullish side of the trade, Friday began in the red and remained there all day. There was some indication of PPT activity near the close, though it could just as easily have been short-covering that boosted the markets in the final hour.

The overall tone of trade was as dull as a old spoon, as the day's volume tapered off to merely a trickle, and with nearly no resistance, the insiders saw an easy path to offering some small glimmer of hope and goosed the indices up in the final fifteen minutes of the session.

The S&P popped over to positive with just ten minutes left to trade. With the markets closed on Monday in observance of President's Day, there weren't many traders left to compete with whomever was driving the mini-rally.

The overall effort was half-hearted and meant nothing in the larger scheme, still biased to the downside.

Dow 12,348.21 -28.77; NASDAQ 2,321.80 -10.74; S&P 500 1,349.99 +1.13; NYSE Composite 8,970.76 +2.35

Friday's main driver was industrial production, a figure released prior to the market opening, which showed an economy flat lining, with growth of 0.1%, essentially nothing. Capacity utilization remained flat at 81.5%, and that's a number that bears watching. If production tails off, that will be a prime indicator with layoffs following quickly behind.

Adding to the Street's bad mood, the Reuters/University of Michigan index of consumer sentiment fell to 69.6 in February from 78.4 in January, the lowest level since 1992.

The shocker from the New York Empire State Index, which fell to a level not seen since March of 2003 (the end of the last bear market and recession), at -11.7, was just more grist for the recession mill and certainly aided in the pervasively dour mood that clouded markets as the week ended.

Declining issues actually registered somewhat of an outsize edge over gainers, 3765-2456, and new lows trumped new highs once more, 275-56. The highs vs. lows reading implied that more stocks were being dumped on Friday and some sector adjustments were being made in larger portfolios. Difficult to tell with any degree of accuracy, but the shift seemed to be away from small cap techs (especially those in need of capital) toward larger caps with positive balance sheets.

Money on hand is going to be all the rage as economic forces push lenders closer to illiquid levels and insolvency in coming months. Cash will indeed be king, which also goes to explain the low volume of late. Smart money is sitting this dance out.

Commodities, even oil, languished. Oil was up just 4 cents to close at 95.50. Gold dipped $4.70 to $906.10 and silver fell 14 cents to $17.12.

Economic issues will take center stage again for the next four to six weeks, now that most companies have reported earnings. The outlook, including, somewhat amazingly, appears more dire than ever as America tilts closer the low end of the business cycle.

NYSE Volume 3,485,640,750
NASDAQ Volume 1,999,531,625

Bernanke, Paulson Speak, Markets Sink

One would suppose, with three-quarters of the Plunge Protection Team (PPT) busy testifying before congress, that there would be nobody at the controls to prevent a market sell-off.

That's precisely what happened - be it coincidence or otherwise - on Thursday, as Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson and SEC Chairman Christopher Cox delivered testimony on the economy to Senate Banking Committee members.

In their remarks, both Bernanke and Paulson both indicated they felt the economy was in a somewhat delicate condition, owing mostly to a continuing credit crisis in which bankers have had difficulty lending to any but the most credit-worthy applicants.

What their remarks did not reveal, though hinted at, was that the bankers themselves were the cause of the precarious credit conditions, by participating in the massive fraud and deception that is now the subprime mortgage and related derivative investment mess.

And what a mess it is. Bank of America report released today suggested that the losses related to subprime mortgages was more than $7.7 trillion globally.

Another money center was hit with unfortunate fallout on Thursday, adding to the market's woes. Swiss financial giant UBS revealed a net loss of 4.4 billion Swiss francs ($4.0 billion dollars, $2.7 billion euros) in 2007, including an $18 billion writedown in damaged securities.

Dow 12,376.98 -175.26; NASDAQ 2,332.54 -41.39; S&P 500 1,348.86 -18.35; NYSE Composite 8,968.41 -105.07

Today's losses nearly matched yesterday's outsized gains, and even though the markets are higher for the week, momentum has clearly swung back to the bears. Declining issues outpaced advancers, 4720-1530, while new lows expanded the gap over new highs, 203-97.

Friday's economic reports include the NY Empire State Index and capacity utilization, though neither will likely weigh more on investors than today's dire and apprehensive assertions by Paulson, Cox and Bernanke.

Volume continues to be on the tepid side, as money largely sits, awaiting a safe entry point or going elsewhere.

Oil gained another $2.19 today, closing at $95.46. For the second day in a row, precious metals barely budged. Gold was up 80 cents to $911.00; silver lost 10 cents to $17,26.

Here's a tip. Buy sugar futures and sell corn futures. It's seven times more efficient to produce ethanol from sugar than from corn. On top of that, Tata Motors (TTM) is financing in a company which has tested and is producing a car that runs on air. That should serve as quite a blow to the oil barons.

NYSE Volume 3,630,146,750
NASDAQ Volume 2,270,238,000

Tech Drives Stocks Higher

While Tuesday's rally may have been all about perception over reality, Wednesday's massive move had everything to do with tech stocks.

Led by volume leaders Microsoft (MSFT), Cisco (CSCO) and Applied Materials (AMAT), the NASDAQ outperformed the other indices by a wide margin. The NASDAQ was up 2.32% at the close, followed by the Dow (+1.45%) and the S&P (+1.36). The broad-based NYSE Composite gained 1.21%.

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Stocks across the board were aided by consumer spending figures for January which were up 0.3% after losing ground in December, and while the gain is a plus, it's significance is minimal in the overall economic picture.

So too the current rally, which has put this week in stark contrast to the dismal performance of the prior one. Stocks bumped up against formidable resistance in the Dow 12,550 area and backed off going into the close.

Dow 12,552.24 +178.83; NASDAQ 2,373.93 +53.89; S&P 500 1,367.21 +18.35; NYSE Composite 9,073.48 +108.13

All of this sets up an interesting couple of days to close out the week. On Thursday, the only important economic news will be new unemployment claims, which will be released at 8:30 am. Friday, investors will be mulling over capacity utilization figures, net imports and exports, the NY Empire State Index and the University of Michigan's Consumer Sentiment reading.

Thursday could go either way, though breaking through the congestion and resistance could prove difficult. If stocks manage gains, the next level to overcome is in the 12,740 range, at the closing high of Feb 1st.

Advancing issues pounded decliners, 4419-1926, though new lows persisted in their long-standing (back to Oct. 31, 2007) advantage over new highs, 176-85. Expect that gap to decline if stocks stage another strong effort.

Oil gained 49 cents to $93.27 per barrel. Gold and silver were down and up marginally, respectively.

NYSE Volume 3,728,637,500
NASDAQ Volume 2,246,132,000

The Warren Buffet Rally

In typical fashion, the pre-market futures were pumped higher to avoid a massive sell-off at the open. Prior to the opening bell, General Motors (GM), Schering-Plough (SGP) and Credit Suisse Group (CS) all announced 4th quarter earnings that were... well, horrible.

General Motors posted the largest one-year loss in US automaker history, a staggering $38.7 billion for 2007. The company also announced buyouts to some 74,000 employees.

At Schering-Plough, the losses were explained away as charges related to the buyout of Organon Biosciences, but nevertheless were massive. The drugmaker said it lost $3.4 billion in the fourth quarter, or $2.08 per share, compared with a year-earlier profit of $182 million, or 12 cents per share.

Credit Suisse reported profits off 72% from the year ago period due to writedowns in subprime and other bad investments.

So, with that news in tow, the indices rocketed skyward, with the Dow up more than 100 points just twenty minutes into the trading day. This broke a string of six consecutive sessions in which the Dow had not surpassed the previous day's high and, for all intents, it appeared as though a massive short squeeze was underway. In fact, by 10:45, the Dow had surpassed the highs of the previous four days.

Having had their way via juicing the futures, the Fed saw fit to only accept $6.25 billion in repos. With $8.25 billion maturing, it left the investment banks to do the Fed's bidding with $2 billion less than yesterday. This cash shortage would come into play later in the session.

Within the first hour of trading, the Dow was up a whopping 190 points, a 1.5% gain, with the other indices following its lead.

By 11:30, it was clear that the battle lines were drawn at Dow 12,400. The bears kept trying to break it down, but the bulls defended it fiercely until just after 3:00.

Dow 12,373.41 +133.40; NASDAQ 2,320.04 -0.02; S&P 500 1,348.86 +9.73; NYSE Composite 8,965.35 +97.07

The bears finally drove the Dow down to 12,310 before giving way late and allowing the market to float back up to where it closed. It was an odd day, but indicative of a market that is being day-traded by professionals and a very dangerous place for the novice or buy-and-hold investor.

Bias remains to the sell side, and after today's questionable trade, Wednesday will almost surely spend much of the day in the red. Tuesday's rally was built on false promise and only a slight oversold condition, so a resumption of selling is expected.

On the day, advancers topped decliners again, 3838-2529. New lows exceeded new highs, 201-104. Volume was improved over the previous three sessions.

Tuesday's rally was largely tied to investor Warren Buffet who told CNBC that Berkshire Hathaway has offered to assume $800 billion in municipal bond liabilities from MBIA (MBI), Ambac Financial (ABK) and FGIC Corp., the three main insurers of muni bonds and also the companies which insured much of the toxic subprime debt held by the largest banks in the world.

The idea is nice in theory, but Buffet's bold offer neatly avoids the subprime slime, so the market shouldn't really have pinned much hope on it as a rescue measure. Besides, at least one of the insurers has rebuffed Buffet already.

Mr. Buffet is not a savior. He is a skilled financier and investor. The market is obviously full of fools who think that somehow he'll single-handedly fix a world-wide credit dilemma. Buffet made his offer because he thinks he can make money at it, not because he's a beneficent saint.

Commodities all eased. Oil slid 81 cents to $92.78; gold fell $15.60 to $911.10; silver was off 22 cents to $17.25.

NYSE Volume 4,028,390,500
NASDAQ Volume 2,221,637,500

Minimalist Movement

Left to their own devices in a beaten down market, investors generally buy stocks. Such was the case on Monday, a day in which a dearth of news and/or economic reports left traders mostly on their own.

After an early mishap - the Dow was down more than 110 points - traders got just enough urging from the PPT to push stocks into the green and kept them there for the duration of the session.

Volume was once again on the "who cares?" side of the ledger, as all but hard-core day-traders and bullish lemmings are content to sit back and wait for the next economic shoe to fall.

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One feature of the recent market is that today marked the sixth straight day that the Dow failed to reach the previous day's high, an indication that the bears are having their way overall.

The president delivered his annual economic report to congress amid much yawning and little else, restating his opinion that the economy was essentially sound (it's not) but there are short-term concerns (understatement of the year).

With few paying attention, the Financial Times released their version of good news, with this story: A repeat of the Great Depression is unlikely - a commentary that was neither concise nor convincing.

Of the Dow stocks, 11 were down and 19 up, with American International Group (AIG, -5.49, -11.72%) taking down insurers and General Motors (GM +1.32, +5/12%) leading the gainers, mostly on valuation.

AIG, the world's largest insurer, faced renewed calls that their exposure to subprime and other risky credit products had been underreported in filings.

Bargain hunters pumped up General Motors, despite reports of engine fires in Chevy Tahoe and Yukon SUVs.

In the broader market, advancers garnered a slender edge over losing issues, 3305-3009, though new lows continued to dominate new highs, 254-92.

Dow 12,240.01 +57.88; NASDAQ 2,320.06 +15.21; S&P 500 1,339.13 +7.84; NYSE Composite 8,868.28 +45.16

Commodities generally priced higher, with crude oil for March delivery registering a gain of $1.82, to end the day at $93.59. Gold added $4.40 to $926.70 and silver gained 36 cents to $17.47, nearly closing off the bargain window which has only been left open less than two weeks.

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The balance of the week looks to be dominated by Fedspeak, as a number of Fed governors, including Chairman Bernanke himself (slated to testify to the Senate Banking Committee), are scheduled to address a variety of groups.

The guvs should take pains to avoid use of the "R" word so as to not spook the markets. Investors are still clearly on edge and it doesn't take much to trigger an avalanche of selling, as we've seen in recent weeks.

Wednesday's retail sales figures, Thursday's initial unemployment claims and Friday's capacity utilization and NY Empire State Index should provide most of the economic chatter.

Earnings reports continue to flow. On Tuesday, Applied Materials (AMAT), General Motors (GM), Schering-Plough (SGP) and Credit Suisse Group (CS) will give traders plenty to mull over, as all but AMAT report prior to the opening bell. Caveat emptor.

NYSE Volume 3,507,467,750
NASDAQ Volume 2,072,297,125