GE, Consumer Sentiment Savage Stocks

The forecast for Friday was fair, but it turned gloomy as General Electric reported 1st quarter earnings well below analyst estimates and the University of Michigan Consumer Sentiment Survey recorded its lowest reading in 26 years, plunging to 63.2 after checking in at 69.5 in March.

Investors did what anyone would rightly expect, they sold as fast and as much as they could. Shortly after the 10:00 release of the Michigan survey, the Dow was off more than 175 points. It never got much better than that as the Dow recorded its first loss of more than 200 points (a common occurrence in January) since March 18, a span of 17 sessions.

Dow 12,325.42 -256.56; NASDAQ 2,290.24 -61.46; S&P 500 1,332.83 -27.72; NYSE Composite 8,936.11 -160.75

The double dosage of damming economic news was exactly what the market needed to shed its overbought position, leaving the Dow less than 600 points from it's near-term closing low from March 10. With new lows being put in place just about every two months, the markets are in a condition of flux and should remain so unless quarterly reports begin to come in worse than expected. Even if that's the case, a few headline stocks meeting or exceeding expectations will surely fuel big rallies.

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The market in equities continues to be highly volatile, which is a trader's dream or nightmare, depending on how well one reads the tea leaves in the news, economic reports and earnings releases.

As expected declining issues trounced advancers, 4893-1334, or nearly 3-1. New lows expanded their edge over new highs, 201-56. This particular indicator is pointed intensely towards the negative, flashing a bright neon sell sign which should not be missed. After relinquishing the lead to new highs for two days this week, the new lows are beginning to expand once again.

Oil barely moved, gaining only 3 cents to close the week at $110.14. Gold lost $4.80 to $927.00. Silver continues to take larger losses, relative to cousin gold, dropping 35 cents to $17.69 the ounce.

For the week, all of the major indices were lower by roughly 2%. The bear remains in a growling, angry, ravenous mood and with earnings due in force next week, the grizzly one may whet his appetite aplenty.

NYSE Volume 3,693,357,500
NASDAQ Volume 1,918,384,125

Faux Rally Sputters in Final Hour

Veteran market watchers can say they've seen this before, and they probably have, but there is little reasonable explanation for today's rally other than short covering. Seldom, if ever, is there a pre-earnings rally, as investors usually wait until companies actually release their earnings reports, not before them.

Equally unusual are stocks gaining on prospects of lower earnings expectations, especially after the company releases a pre-earnings warning. Various retailers released dismal same-store sales figures for March on Thursday, the worst, by some accounts, in 13 years. The actual figures were somewhat sobering:

• Dillard's Inc. -10%


• J.C. Penney Co. -12.3%


• Kohl's Corp. -15.5%


• Nordstrom Inc. -9.1%

But, amazingly, all of these stocks were up on the day!

• Dillard's (DDS) 21.14 +0.64


• J.C. Penny (JCP) 40.07 +1.15


• Kohl's (KSS) 43.72 +1.32


• Nordstrom (JWN) 34.39 +1.10

If anyone reading this has a plausible explanation for the phenomenon, please post a comment below. Surely, the brightest of the bright (CNBC analysts and Jim Cramer, in that order) will attest that the results were widely expected and already baked into the share prices. The result: massive short covering on a "buy the rumor, sell the news" upside-down trade.

OK, we've got it now, except that Dow Jones News has reported that the retailers blamed an early Easter and unusually cold conditions in the Northeast for the widespread sales declines.

Well, there are two good explanations. My very own perspective, upon witnessing this particular variety of bizarro-world trading, is to issue sell recommendations on those four companies and the one mentioned below, Boeing.

Some companies announce that they are encountering production delays in an anticipated big product. Such was the case yesterday with Boeing (BA), which gained nearly 5% after announcing that production of the 787 Dreamliner aircraft would not be finished on time, though, and we always love these statements, earnings would be unaffected Uh huh, sure, yeah, right. Boeing came back down to earth a bit today, dropping an entire 17 cents. Not to worry, the aerospace king will drift out of orbit and close below 70 in the not-so-distant future.

As for the general markets, with the retailing news in hand at 9:30 am, opened higher, lost ground and then climbed to the best heights of the session by 11:00 am. Drifting between 12,600 and 12,650 for the better part of the day, the day-traders which now overpopulate Wall Street had finally played enough and began to take profits. The Dow, which was up more than 120 points, fell back to show a gain of just 20 points with about 20 minutes left in the session. Those 20 minutes were spent as they usually are, adjusting the numbers to make them look better than they should.

Dow 12,581.98 +54.72; NASDAQ 2,351.70 +29.58; S&P 500 1,360.55 +6.06; NYSE Composite 9,096.86 +22.04

All told, the rally was built with borrowed money (nothing new there), exaggerated by short-covering and decimated by profit-taking near the close. Wall Street continues to play this game, holding the indices at unsustainable levels. Since the massive run-up of April 1, stocks are down, but barely. The Dow, for instance, is off 72 points from the April 1 close. They've absorbed day after day of discouraging words, and while the Street is no home on the range, the skies are anything but not cloudy all day.

Once actual earnings being to flow, one would expect stocks to take somewhat of a beating, unless, of course, we'll be forced to stomach the various vacuous analysis of "cold weather", "already baked in" and other such explanatory nonsense.

These markets are cooked, fried, flambed and roasted to a crisp. It's a waiting game, and there's plenty to be lost or gained. The general consensus by the major holders - mutual funds, brokerages and institutions - is that it's better to hold on than make any panicky moves. So it goes.

Internally, the markets look less than robust. Advancing issues regained a clear lead over decliners, 3793-2410. New lows overwhelmed new highs, 174-75, and my point is that if you're not making new highs, you'll test those lows eventually, and the majority of stocks are in that lower-end range, approaching their bottoms or just off them. Another bout of profit-taking or fear will send the new lows up over 500 within the next 10 trading days.

Corporate earnings are not going to be healthy. The economy continues to flounder, but the fascist news media continues to ignore most of the salient facts about the credit crunch and its implications. If banks aren't lending money, the economy is going to rot.

Oil actually trended a little lower, but not by any significant amount. Crude fell 76 cents to $110.11. Gold's short-term rally stalled, losing $5.70, to $931.80. Silver dropped 16 cents to $18.04.

The retail sales figures came in as ugly as expected and went, with the market closing higher. Eventually, all of the data gets evaluated and stocks respond with reasonable valuations. Today's traders are not interested in actual, true valuation, just how much they can squirrel away in a given day.

NYSE Volume 3,642,058,750
NASDAQ Volume 2,206,656,750

What Are They Thinking: Mark Hulbert & Richard Russell Call Bull

Generally speaking I have great respect for Richard Russell, author of the Dow Theory Letters and a little less respect for analyst and financial newsletter critic Mark Hulbert. Both are probably right more than they are wrong, but I'm wondering what they're thinking after reading Hulbert's recent commentary on MarketWatch in which he spells out Russell's case that despite the recent downturn from August of last year to the present, we are still in a primary bull market.

Let's not forget that Russell called the turn from Primary Bull to Bear back in 2007, judging by the various slips and falls of the Dow from August through December, and he certainly looked correct when stocks slumped badly in January.

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But, in his most recent note, he repudiates that call and says that stocks have been in a primary bull market since the early '80s and that this recent pullback and the dotcom fade of 2000-2002 were "important corrections."

Hulbert, who apparently keeps a bull as a pet, seems to agree with him, though he's shady on the subject, which is why I have less respect for him - he seldom takes positions.

Of course, Russell's been wrong before, and he could be now, but betting against a recovery and new record highs on the Dow and other indices between now and 2010 smacks of good, old-fashioned American optimism. I side more with the Elliott Wave theorists, who keep reminding us of 17-year cycles. If we take the early 80s as the starting point of the bullish cycle, 17 years gets us to roughly 2000, the date of the dotcom implosion, and would put us presently near the middle of a bearish cycle.

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Evidence points in that direction, as even the gains from March 2003 to August 2007 can be viewed as merely an upturned pennant movement when measured in Euros rather than US Dollars. In other words, the Bear remained in place all through the last four years of bullishness.

The dueling theories are enough to make one want to give up trading altogether and take on some action at the race track. It's over quickly and the returns (and losses) are immediate and large.

Richard Russell and my respect for him aside, I still believe he was right on his initial call last November when he said a primary bear market had presented itself. The transports confirmed the fact and the January selloff bolstered the opinion. Recent movement suggests we're in a bit of a fix and resolution will not be quick nor complete.

Stocks remain at relatively high values, the dollar at the opposite, and gold's rise gives credence to the bear case. My own primary indicators tell me that the markets are about to roll over again, and, despite late-day tape-painting by the usual suspects (the Fed, PPT, Goldman Sachs, et. al.), they are rolling over to the negative, today marking the second consecutive down day for all four major indices.

Dow 12,527.26 -49.18; NASDAQ 2,322.12 -26.64; S&P 500 1,354.49 -11.05; NYSE Composite 9,074.82 -75.81

Declining issues took the prize over gainers by a much wider margin than the headline numbers indicate, 4497-1709, and the new highs-new lows indicator has rolled right over, as predicted, after just two days of more new highs than lows. On Wednesday, the new lows came out on top, 140-101. Volume was the best it has been in a week.

The Dow was hard hit on the day. Only 9 of the 30 components registered gains.

Two particular stocks grabbed attention on the day. Boeing (BA) announced further delays in the production of their 787 Dreamliner, though the company said it would not negatively affect 2008 earnings. Investors apparently threw caution to the wind, boosting the stock nearly 5%, up 3.58 to 78.60 at the close. A shorting opportunity if I ever saw one.

United Parcel Service (UPS), the world's largest shipping company, took a 3.74% hit after trimming its first quarter outlook, citing higher fuel costs and slack demand as the major culprits. Shares lost 2.74 to close at 70.57 on nearly triple the average volume.

Oil rose to a new all-time high of $112.20 before pulling back a bit, closing at $110.87, up $2.37. The metals continued their strong rebound, with gold up $20.00 to $938.00 and silver adding 48 cents to close at $18.20. Volatility, it appears, is not confined to just stocks. Prices are jumping around in commodities, bonds, and currencies as well. Nobody seems to have a grip on any market currently.

Once again, we're looking at tomorrow's same-store sales figures for insight into the plight of the consumer. The numbers should be telling and a couple of retailers could warn, possibly one highlighted in my Fearless Stocks and Options Advisory Newsletter.

NYSE Volume 3,475,696,500
NASDAQ Volume 1,922,355,500

Dull and Duller

The markets spent another day rolling over and hitting the snooze button in advance of the deluge of 1st quarter earnings reports due out beginning next week.

Adding to the market's slumbering condition is the general observation that it's currently overbought and hovering near recent highs though news flows continue to accentuate the negative.

Dow 12,576.44 -35.99; NASDAQ -16.07; S&P 500 1,365.54 -7.00; NYSE Composite 9,150.63 -4.09

Today's trading was somewhat of a turn, however, as all the major indices ended in the red for the first time since last Tuesday's general punch up. Declining issues held sway for a change over advancers, 3604-2613, and new lows regained the advantage over new highs, 112-75.

As noted here earlier this week, it was expected that new highs would not long outstrip new lows, and today the results point toward further deterioration. Any upward momentum is being met with massive resistance at various levels, and capitulation could occur at any moment, depending upon the severity of the news cycle. With earnings reports on the horizon, investors are showing extreme trepidation.

Alcoa (AA) officially kicked off earnings season, checking in with a quarter of .44 per share, four cents below expectations. The stock was left unpunished, losing only 0.26 to 37.18. More selling is likely as the week progresses and investors decide that there is no safe sector, not even in the relative stability of materials.

Thursday is likely the day of reckoning for the markets as retailers report March same-store sales. Until then, the paucity of news or economic reports is keeping traders on the sidelines and out of harm's way.

NYSE Volume 3,606,652,000
NASDAQ Volume 1,681,638,750

Consumer Credit Reading Stalls Market

Wall Street was giddy this morning after hearing the Washington Mutual, another beleaguered big-name bank, was about to receive a fresh $5 billion in equity funding from outside investors. The greed patrol on the street absolutely loves fresh cash. They seethe over it like wolves drooling over the blood of an exquisite kill.

With that, the Dow was quickly in the green and up by over 100 points before 1:00, taking the rest of the indices along for the ride. Hitting a wall of resistance in the 12,700-12,750 range, the markets cooled in the afternoon and really took a hit around 3:00 when news crossed the wires that February consumer credit fell to $5.2 billion from a prior reading of $10.3 billion. Expert economists expected a reading of $6.0 billion.

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Not only was consumer credit off dramatically, it was lower than even the more bearish forecasts, giving more credence to the argument that tight credit conditions are spilling over from banking and big business, all the way down to the basic consumer level. Banks aren't loaning money and consumers are loathe to borrow. Caught in the middle are businesses which need financing in order to expand, launch new products, and, in the worst of cases, meet payroll.

That last item - borrowing to meet payroll demands - is going to become a major worry over the next few months should the general credit conditions persist. Companies short on cash are going to be hard-pressed to find funding sufficient to meet current obligations. It's barely on the radar now, but watch for small firms laying off employees and some even shutting down, citing lack of capital or access to it as the main cause for failure.

In other business news, Yahoo head Jerry Yang and Microsoft CEO Steve Balmer spent the weekend tossing barbs back and forth about Microsoft's $31/share buyout offer. Yang insists he's open to negotiation, but at a higher price. Balmer believes Yahoo's value continues to deteriorate and says that if their original offer isn't met within three weeks, the company will embark upon a hostile takeover which would last months and could wreck Yahoo whether successful or not.

The general thinking among investors is that Yang is holding out against the odds, calling Balmer's bluff, and seeking somewhere in the range of $38-40 per share. Wishful thinking on Yang's part, likely, as Balmer and Microsoft have a cash hoard that's the envy of the world and with it could swallow Yahoo whole.

Time seems to be running out on Yang and Yahoo's Board of Directors along with Balmer's patience. A hostile bid would sink the stock into the low 20s and possibly lower. Yahoo ended the day down 66 cents at 27.70.

Dow 12,612.43 +3.01; NASDAQ 2,364.83 -6.15; S&P 500 1,372.54 +2.14; NYSE Composite 9,184.72 +27.19

Getting back to macroeconomic issues, volume on the major exchanges was dull for the third straight session due to a number of factors. First, the market has been witness to a remarkable gain of late and is technically overbought. Second and third, there are few economic reports on which to trade and corporate earnings are just around the corner. Investors are taking a wait-and-see approach as first quarter results dribble out this week and then explode over the next two.

Gainers showed a slight edge over losers on the day, with 3306 stocks advancing and 2986 losing value. New highs bettered new lows for the second straight session, 138-95, a two-day trend that's not likely to last through the week.

Oil gained again, adding $2.86 to close at $109.09. (Keep driving, Americans!) The metals seem to have caught lightning in a bottle again, as gold rose $13.60 to $926.80 and silver pushed ahead 37 cents to $18.12 the ounce.

It's been a very sluggish time over the past three sessions and a pervasive sense of foreboding is enveloping parts of the street. While few still doubt that the US is headed for recession if not already in one, investors are still wary of capital and credit markets which have completely seized up over the past six months.

With home equity largely tapped out, consumers turning to credit cards to meet general obligations is not a healthy sign. Slowing demand will kill corporate profits and stop the wheels of industry (what's left of them in the USA) from turning altogether.

The economy is still in a vulnerable position and signs of recovery remain an illusion. Sooner or later, investors will begin tapping out and the great deluge of selling which began last August and gained tempo in January will resume, resulting in a large thud as traders' jaws hit the floor simultaneously. Forewarned is forearmed.


NYSE Volume 3,700,481,750
NASDAQ Volume 1,778,706,250