Market Dips Disguising Systemic Woes

For the second straight day, US equity markets mostly erased earlier losses and avoided facing the reality everyone owning stocks already knows: we're doomed.

High oil and gas prices continue to fuel unrelenting inflationary pressure which is putting pricing pressure on all manner of finished goods. From flooring to pastries, everything produced requires energy and transportation, and costs are spiraling out of control.

At the root of the dilemma is a stubborn Federal Reserve, which adamantly refuses to hold the line on interest rates in the face of screaming, double-digit inflation, instead focusing on "restoring growth" or "preventing recession" as its main objective.

Speaking before a banking group in Florida today, the Chairman expressed a need for banks to do more to prevent foreclosures. "Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," he said.

Bernanke went on to provide a solution that would be seemingly unpalatable to bankers in particular, saying, "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

In other words, Bernanke is asking the banks to forgive a portion (principal) of loans made to shaky buyers in the first place. Considering the sheer naivete of making such a remark to an audience of bankers, it's amazing that the chairman wasn't laughed out of the room.

One would imagine the normal response from any banker worth his salt would fall somewhere between "fat chance" and uncontrollable laughter.

On the other side of the ledger are responsible Americans who view such a bailout for delinquent homeowners a reward for bad behavior.

Underscoring the Chairman's remarks is the growing understanding that the housing predicament is not going to resolve itself and that it remains a considerable drain on the economy.

Meanwhile, the dollar continues to sink against other currencies, and especially against the price of oil, which oil ministers say is not their fault, but due more to the shaky US economy. It's a viscous cycle, and the evidence suggests Bernanke - and his henchman at Treasury, Hank Paulson - has no viable solution.

Dow 12,213.80 -45.10; NASDAQ 2,260.28 +1.68; S&P 500 1,326.75 -4.59; NYSE Composite 8,891.45 -78.94

Stocks sank on the news, then miraculously regained 3/4 of their losses by day's end. The continuing cycle of trimming losses late in the session has just about run its course. Not even the most adroit trader can fight the headwinds blowing against US stocks right now. Another significant downturn is currently more certain than ever.

While the headline closing prices may not be startling at all, the internals are eroding at a quickening pace. Declining issues thumped advancers again, 4058-2227. New lows New lows expanded the gap over new highs, 592-79.

Commodity traders took profits, sending oil lower by $2.93 to $99.52. Gold dropped $17.90 to $966.30. Silver shed 34 cents to $19.84.

The Dow, down more than 200 points at 2:00 pm, touched an intraday low of 12,032, its lowest point since January 23, another sign that capitulation is not far removed from the minds of burdened investors.

Those same investors will have plenty of data from which to extract any fragment of hope. ADP Employment, revised 4th quarter productivity numbers, factory orders, ISM Services Index and crude inventories are all on Wednesday's economic calendar. At 2:00 pm, the Fed's Beige Book, with minutes from the February meeting, is released.

And the week isn't even half over!

Hint: Friday prior to market open is the release of the monthly US labor report.

NYSE Volume 4,757,187,000
NASDAQ Volume 2,692,600,500

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