Begging for Losses

A grizzled, experienced veteran of the trading floor once mentioned never to buy or sell stocks before ten o'clock or after three o'clock.

The reasoning, he explained, "that's when the big money is at work - the brokerages are placing heavy bets and once the momentum gets going, it takes a lot of money to move it in the other direction."

I've heeded this sage advice through many sessions of market-watching, trading and analysis, but the prescience of this wisdom has never been more prevalent than over the past two months, especially on the Dow.

Today was a perfect example of the volatility that often overwhelms inexperienced or fearful traders who are looking for safe entry points. Just before 10:00 am, stocks hit a low of 12,175. Everybody, it seemed was selling.

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By 10:30, however, the Dow was nearly unchanged. It traded in a narrow range, staying just slightly to the downside all day... until just before 3:00. It made the low of the day, at 12,161, a loss of just more than 100 points, right before the clock struck three.

Of course, we all know what happened next. Stocks continued to climb, erasing most of the losses and leaving everyone with the impression that stocks were going down, but not much. No worries, people.

Dow 12,258.90 -7.49; NASDAQ 2,258.60 -12.88; S&P 500 1,331.34 +0.71; NYSE Composite 8,970.39 +7.93

Meanwhile, commodities continued their ceaseless march to record highs. Oil closed up 61 cents to $102.45. Gold was up another $9.20 to $984.20. Silver added 27 cents to $20.18. Just a week ago, silver could be had for $18 and change. Inflation has arrived in a very, very big way.

The internals, of course, tell a slightly different story than the nightly news. Declining issues once again sped ahead of advancers, 3750-2588. New lows carried the day again over new highs, 526-87. That spread continues to grow, indicating further price deterioration for stocks is in the offing.

To get an idea of the flavor in this ridiculous market, consider the running commentary from briefing.com, at 3:05. "Sellers now outpace buyers by 2-to-1 on the NYSE. Pessimism is broad based." Just to underscore the monstrosity of the market, the NYSE advance-decline line ended with losers ahead by a 6-5 margin. One would suppose that the pessimism, so "broad based" at 3:00, was washed completely away in the final hour of trading.

I reiterate. The US stock markets are rigged, to prevent stocks from falling too much, too fast. The money the Fed continues to supply the banks in terms of overnight, 14-day and clandestine, exotic, never-to-see-the-light-of-day loans over the discount window through auctions and other sinister devices, is going to eventually collapse the entire system.

Please, please, please, examine the chart at the right. It makes no sense in any way, unless you understand that the market is, has been and will be manipulated to avoid showing losses. The it all becomes crystal clear. Might as well not trade before 10:00 or after 3:00, just like the old guy said.

Banks are already unwilling to lend unless your credit record is perfect, so why must they continue to borrow from the Fed? They aren't loaning any out, so they must be... ah, there's the answer, shoring up their own feeble, nearly-penniless balance sheets which are fraught with accounting black holes.

We're sitting on top of a pile of bad checks that have been written by the major money center banks and Wall Street, the Fed and the high reaches of government continue to act like there's nothing going on. Business as usual. Ho-hum.

What an evil, bad joke is being played on the American public - investors or otherwise. While many cannot afford gas for their cars, heat for their homes or food for the hungry mouths of families, the slick Wall Street pitchmen are still touting equities over commodities, and they all know, some day, like it or not, there will be a reckoning, and it won't be a happy occasion. Until then, the phoniest party on the planet carries on.

NYSE Volume 3,933,841,000
NASDAQ Volume 2,128,272,500

Stocks Back in the Tank; Investors Throwing in the Towels

Investors didn't need any more news to tell them to sell. They should have been selling all along. Some just got the memo today that, a) the economy is faltering, b) the US dollar continues to lose value in comparison to other currencies, c) gas prices are through the roof, d) food prices are following gas prices, e) the economy is headed for a deep recession, f) the Fed rate cuts don't matter, g) corporate profits have been slowing for the past six months, etc., etc.

Why go on? The news has been nothing but bad. In fact, it's worse. The news has been horrible with mentions of worst since 1981, largest drop in two decades, and the like.

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So it should come as no surprise to anyone that stocks dropped like rocks over the past two days. We have thieves running Wall Street and imbeciles running the government.

Dow 12,266.39 -315.79; NASDAQ 2,271.48 -60.09; S&P 500 1,330.63 -37.05; NYSE Composite 8,962.46 -259.42

The decline today was not limited to any particular niche. All kinds of stocks were hit across all sectors. Declining issues beat advancers, 5206-1103, that's nearly a 5-to-1 ratio. New lows continued their dominance over new highs, 420-77, completing four straight months with new lows winning every day (except for two days in November).

There has not been a single day in 2008 in which there were more new highs than new lows. Get used to it, because things aren't going to get any better any time soon.

Oil priced a bit lower today, down a whole 71 cents to close the week at $101.84. Gold and silver hit new record highs again, at $975.00 and $19.92, respectively.

With the markets having taken another downturn, the next move should be to plumb the depths of January 22-23. The Dow closed today less than 300 points above the most recent closing low, though it is still 800 points above the intraday lows. Both could, and probably will, be tested within the next two weeks.

And by the way, did anyone see the rescue plan for Ambac Financial, the announcement of which sparked a 225-point rally on Friday? No? Really! I said previously that the announcement was bogus as is the supposed plan, along with S&P continuing to rate the company's debt at AAA. It was nothing but a sleazy, insider trick and the jig is up. The phony rally is over.

Wise words to follow: Gambling is the act of creating risk where there is none; investing is managing risk that exists. There's certainly plenty of downside risk to go around. Anybody buying now is engaging in gambling.

NYSE Volume 4,354,759,000
NASDAQ Volume 2,516,537,500

Bernanke Mentions Bank Failures, Market Swoons

Ben Bernanke, in his second day of testimony to the House Financial Services Committee, finally let the cat out of the bag, saying, "I expect there will be some failures," referring to smaller, regional banks which got in over their heads in mortgage financing.

Pointing out that the larger, money center banks had sufficient capital ratios, Bernanke made it clear that he didn't anticipate "any serious problems of that sort," with larger banking interests.

The only problem with the Chairman's statement is that the bigger banks are the ones with the serious problems, a few of which, including Citigroup, Merrill Lynch, JP Morgan (Chase), have had to scurry to raise funds from foreign governments in so-called "sovereign Funds" from countries such as Abu Dhabi, Kuwait, Singapore, and Dubai.

Smaller, regional banks are generally more circumspect and conservative in their financing and investing operations.

Bernanke's words stunned the markets, but he used a velvet hammer to deliver them, knowing full well that the larger banks are teetering on the brink of insolvency and, so serious are their liquidity and confidence problems, that they are loathe to lend to anyone but those customers with perfect credit portfolios.

Stocks were down across the board, with some of the hardest hit in the banking and financial sector. The Dow ended its streak of four straight positive gains with a pullback from resistance above the 12,725 area.

Dow 12,582.18 -112.10; NASDAQ 2,331.57 -22.21; S&P 500 1,367.68 -12.34; NYSE Composite 9,221.88 -71.01

Those calling for a bottom or resumption of the bull market (HA!) should likely take this as a warning that the January 22-23 lows are there to be retested and likely broken to the downside.

Corporate earnings have by and largely been uninspiring, new unemployment claims were up sharply this week (+19,000) and the banking crisis is hiding behind the housing slump, which only seems to worsen with each passing day.

A couple of notes about housing are worth mentioning. Some estimates put the value of all US households at around $20 million. Thus, if prices dropped 9%, as recently reported, that's a $1.8 TRILLION loss in perceived value. That has a sting.

Secondly, realtors mention that the slump has hut most in large cities, and especially in Florida and California. 2nd and 3rd tier metropolitan areas (cities under 300,000) and many rural communities never experienced the dramatic rise in real estate values and thus are not witnessing severe discounting in prices.

Overall, the action on Thursday was decidedly negative. Losing issues beat gainers by a hearty 5-2 margin, 4323-1944. New lows continued to hold the upper hand on new highs, 233-135, a condition which has now persisted for some four months.

Oil priced at a new record of $102.60, up a whopping $2.95 on the day. Gold gained $6.50 to close at another record high of $967.50. Silver continued to skyrocket, up another 38 cents to $19.71.

Those guys who were telling you to buy gold last year, the year before and the year before that? They were right. And, judging from the looks of things, it's still not too late. Many experts are expecting the precious shiny stuff to easily reach $1500 over the next 18-24 months.

NYSE Volume 3,814,476,250
NASDAQ Volume 2,017,081,000

Bears Bite Back: Two O'clock Dump

The technical, oversold rally of the past three weeks may be coming to an end. As the Dow met resistance in the 12,750 range (as mentioned here yesterday) for the second time on Wednesday, stocks trailed off during testimony before the Senate Banking Committee by Fed Chairman Ben Bernanke.

On Tuesday, the value of the US dollar vs. the Euro fell to its lowest level ever and continued to decline Wednesday, with the Euro pushing above $1.51 after Bernanke's comments failed to reassure that fighting inflation was a priority.

Essentially, Bernanke's approach is to keep the US economy from faltering into recession, regardless of the macro-economic implications. In simpler terms, US stocks will benefit more from exports as the value of the dollar falls. That's the game plan.

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All indices opened lower following more down-beat economic news. First, durable goods orders fell by 5.3% in January, and then the Institute of Supply Management's January manufacturing index offered a reading of 50.7, just above the break-even point, after posting a 48.4 number in December. Anything below 50 signals a contraction in manufacturing.

Reaching intra-day highs around the noon hour, stocks began a grinding descent until 2:00, when the S&P index slipped into the red. Like pebbles cascading down a woodland waterfall, the other indices followed. The NYSE Composite was next, followed by the Dow and the NASDAQ. By 2:03 all of the majors had turned negative but a tug-of-war between bulls and bears was just getting underway.

By day's end, buyers and sellers had battled to a draw, with the Dow and NASDAQ up, the S&P and Composite down. But clearly, much of the momentum created by last Friday's bogus announcement that a consortium of banks and financiers were working to rescue troubled monoline insurer Ambac Financial, has vaporized.

Dow 12,694.28 +9.36; NASDAQ 2,353.78 +8.79; S&P 500 1,380.03 -1.26; NYSE Composite 9,292.90 -9.90

Traders are eying the resistance levels and meteoric rise of the indices which have gained in the neighborhood of 8% over the past six weeks off the intraday lows of January 22-23.

Perhaps an even more emphatic argument for the bears can be made from the fact that advancing issues failed to push by decliners on Wednesday, with losers holding the edge, 3321-2910. New lows remained ahead of new highs, which, if the market was really showing resolve, should have flipped today, but failed to do so. There were 164 new lows to 130 new highs. The lows have held sway every day for four months straight, except for two days in December.

Sales of new homes dropped 2.8% from December, to an annual rate of 588,000, the third consecutive monthly decline. According to the Commerce Department report, the median price of a new home fell to $216,000 in January, down 15% from a year ago.

The double whammy for real estate - lower prices and slower sales - expresses just how deep the slump in housing really is. While some stock-picking pundits were saying the bottom in stocks was already in (Jan. 22-23) this week, the message from home buyers and sellers was clear: housing woes are far from over and may be getting even worse.

Crude prices settled $1.31 lower at $99.57 per barrel after hitting an all-time intraday high of $102.08. Gold rocketed to another all-time record close, finishing up $12.10, to $960.00. Silver added 49 cents to $19.33, slicing completely through the $18 level in just three days total.

Lest we forget, today is the one-year anniversary of the Chinese stock market contagion and Alan Greenspan's "recession" comment, which was the precursor and early warning sign of the market's August reversal.

NYSE Volume 3,773,681,750
NASDAQ Volume 2,165,846,500

An indication of the relative strength of stocks, here are the top ten Dow stocks for 2008 (after close of trading 2/26):

01) Up 8.1%. WMT
02) Up 7.3%. DD
03) Up 7.0%. HD
04) Up 5.8%. IBM
05) Up 5.5%. AA
06) Up 3.5%. BAC
07) Up 1.9%. DIS
08) Up 1.0%. CAT
09) Up 0.5%. PFE
10) Up 0.2%. JPM

Fully Detached Markets Ignore News, Post New Gains

The January Producer Price Index (PPI) rose 1.0% month-over-month, compared to the expected rise of 0.4%. That leaves PPI up 7.4% y/y, the highest level since October 1981 and PPI ex-food and energy up 2.3%.

In response to the alarming PPI figures, Federal Reserve Vice Chairman Donald Kohn said the danger the U.S. economy will weaken is a bigger worry than higher inflation and the Fed is ready to do what it needs to respond.

The Fed governors have reached new levels of financial hilarity. Let's keep the money flowing, even if a raw chicken costs $15 and a gallon of gas is $4.25. It's OK for people to (take your pick) freeze or starve, so long as the GDP continues to grow.

With interest rates at 3% and promised to go lower, maybe by this time next year, the Fed will pay us to borrow their worthless greenbacks.

In other economic news, The Conference Board said February consumer confidence fell to 75.0 from the prior reading of 87.3. Economists expected a reading of 82.0. The market tends to overreact to these readings, as they are only surveys. Briefing.com puts more weight into the personal consumption data that comprise 72% of the GDP, which will be released later this week.

Standard and Poor's reported existing home prices fell at a record pace of 8.9% in 2007. in the S&P/Case-Shiller U.S. National Home Price Index.

On the other side of home-ownership ledger, total foreclosure filings in January, which include default and auction notices as well as bank seizures, increased 57%, tracking firm RealtyTrac said.

Minyanville posted an excellent article by Mike Shedlock, a registered investment advisor representative for SitkaPacific Capital Management on the corrupted debt ratings issued by Moody's and S&P.

Mr. Shedlock makes comparisons between MBIA, which had its AAA rating confirmed and Pfizer (PFE), which had its rating cut from AAA to aa1.

Maybe the most obvious discrepancy was in the return on equity. MBIA's was a head-turning -35.54%, compared to Pfizer's +12.13%. The debt-to-equity ratios are equally out of whack, and Mr. Shedlock makes no bones about calling the puzzling ratings discrepancies either "incompetence or corruption."

Amid the toilet-like swirl of depressing economic news, mention that oil priced at over $101 a barrel in mid-day trading and finished at a record close of $100.88, up $1.65, was hardly worth mentioning.

Whew! That's quite a load of bad news.

One would have expected - considering that all of the news was not only negative, but extremely negative - stocks to lose value. But in this bizarro-world stock market, they went up. And not just a little. They went up a lot. Shortly after 1:00 pm, the Dow was 150 points higher, the NASDAQ up 31 points and the S&P had tacked on a gain of more than 13 points.

The rally settled out into the close, with all indices posting healthy (?) gains.

Dow 12,684.92 +114.70; NASDAQ 2,344.99 +17.51; S&P 500 1,381.29 +9.49; NYSE Composite 9,302.80 +92.72

Maybe some good news will deflate the market. It couldn't hurt. Seeing the fabulous rises in the indices, I figured it was time to fire up the bong, crack open a bottle of aged whiskey and join the party. Whooopie! Talk about irrational exuberance. I expected to see Joe Cocker appear on the trading floor, singing, "Let's Go Get Stoned."

The Dow should be just about petered out, as there's a significant area of resistance in the 12,724-12,783 range. Considering the prevailing attitude, however, a breakout is now more likely than not.

As expected, advancers crushed decliners, 4420-2084. By the narrowest of margins, new lows maintained their edge over new lows, 159-158. Look for that measure to flip to the new highs for at least a couple days before the market heads back down. The last time there were more new highs than lows was a two-day stretch in December. This one could last a few weeks unless some kind of sanity is returned to trading desks.

Gold was up $8.40, to $948.90. Silver continued to shine, adding 64 cents to $18.72.

Only one question remains: When will the markets crash?

NYSE Volume 4,014,953,250
NASDAQ Volume 2,317,563,500