Another Pleasant Valley Friday

All's well on Wall Street... or so it would seem from the euphoric kind of trading we've witnessed in recent weeks. Since March 12 - a span of 32 sessions - the Dow has tacked on 1250 points and is looking for a blow-off top, once it breaks through a double-barrel of resistance at 12,900 and the psychological level at 13,000.

There's little doubt that investors will continue to spend on equities despite cloudy economic circumstances, determined, as they are, to prove that the economy isn't as bad as the endless stream of headlines and economic reports seem to suggest.

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On the bright side, higher energy and food prices, stagnant labor costs (non-rising wages), a dead housing market and soaring raw material costs seem not to have fazed the titan of Wall Street one whit. Earnings continue to come out from corporate America in good fashion, with more than 2/3rds of the companies reporting having met or exceeded expectations.

That those expectations have been lowered for some doesn't matter either, as long as companies remain profitable. By and large, most companies are surviving quite well. The average middle-and-lower-class American, however, is spending every last weaker dollar on groceries and gas, and little else, though the stories of real suffering have been few and far between. We're getting along, or, as the erudite John Maudlin might say, muddling through.

Dow 12,891.86 +42.91; NASDAQ 2,422.93 -5.99; S&P 500 1,397.84 +9.02; NYSE Composite 9,344.31 +94.09

The University of Michigan reported on Friday that consumer sentiment has fallen to its lowest level in more than two decades with a reading of 62.6, just a touch lower than last month's 63.2.

Advancing issues overcame decliners on the last day of the week, 3693-2489, but new lows maintained their edge over new highs, 164-127. For all the gains over the past six weeks, there are still some real dogs out there and they are still getting beaten down.

The coming week should prove fascinating and provide the impetus for the blow off top for which this market so sorely is wishing. On Wednesday, the FOMC will likely cut the federal funds rate another 1/4 point, keeping traders and Keynesians happy, but by Friday, the Labor Department will once again spoil the party with its Non-farm payroll report and the unemployment rate, expected to remain at 5.1% or maybe tick up to 5.2%, still historically low.

Oil perked up another $2.46 to $118.52. This just a day after Wall Street was cheering a temporary pullback in price. Temporary was true. It lasted less than one day. Gold gained just 30 cents, closing at 889.70, while silver added 19 cents to $16.96.

High prices don't matter. The world is adjusting to the global economy. Besides, President Bush assures us that tax rebate checks (Isn't the government lovely, giving back our own money? Bread and circuses, people.) will be in the mail on Monday.

Truth of the matter is that the world is awash in currency. Most central banks have added to their money supplies by 10% or more in the last year. While credit may not be so easy on the surface, the reality is that the best way to garner additional funding is to be large and claim near-insolvency, a la Bear Stearns, Citigroup, home mortgage defaulters, Freddie Mac, Fannie Mae, et. al.

The government (uh, huh, taxpayer dollars financed by more debt) will bail out anyone. There's no pain, no risk, no responsibility. It's a wonderful, faultless fiat system. Look for a blow-off top on Wednesday, followed by a retracement following Friday's Labor Dept. report.

NYSE Volume 3,831,665,000
NASDAQ Volume 1,988,770,250

Stocks Gain on Uneven News

Foreclosures are up 57%. In March, new home sales fell to their lowest levels in 16 1/2 years. Durable goods orders were off 0.3% in March. Stocks were up, though the gains were not spread equally across the indices. While the Dow, NASDAQ and S&P were up healthy percentages, the NYSE Composite, the broadest of the indices, was up a mere 0.14%.

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The main drivers for the hefty gains on the Dow came from sizable gains in five stocks - American International Group (AIG), Merck (MRK), Citigroup (C), JP Morgan Chase (JPM) and General Motors (GM) - all up by more 3.5% or more. Much of the rise was attributed to a stronger dollar and also to incidental news from rivals. Such was the case with GM, which benefited from Ford (F) posting a profit of $100 million for the quarter ended March 31.

The financials - JPM and Citigroup - were boosted on a combination of bottom-fishing, short covering and an odd sensation that the worst of the mortgage and credit crisis is behind these firms. The betting is for improved earnings in the financial sector, though there have been no definitive statements from the companies themselves.

Dow 12,848.95 +85.73; NASDAQ 2,428.92 +23.71; S&P 500 1,388.82 +8.89; NYSE Composite 9,250.22 +12.93

Advancing issues finished well ahead of decliners, by a 3953-2284 margin. New lows, however, retained their edge over new highs, 217-99. The inescapable fact is that recent rallies have not been all-inclusive, though sufficient enough to push the major indices to levels not seen since January.

The price of crude added to the rally in equities, falling $2.24 to $116.06, a sizable drop, but by no means indicative of anything other than orderly trading. The price could easily be up $2.00 or more in upcoming days. Somehow, investors believe a one-day drop, following an unprecedented rise to new highs, is a positive sign.

Gold dropped again by a large number, losing $19.60 to $889.40 and silver fell 51 cents to $16.77. Most of the movement in the metals and some of the stock gains can be attributed to strength in the dollar, which is generally accepted as overdue good news. Whether it will last is another question, though equity investors seem to have taken the approach lately of cherry-picking their news. While they may ignore the dollar (and they have) while it's going down, new that it's gaining is good. The same logic applies to oil, housing, inflation, the economy, etc.

As far as the charts are concerned, the indices are still rangebound, though they've managed to pull within shouting distance of last Friday's highs. In fact, the Dow's close today was just 0.41 short of the close on the 18th.

NYSE Volume 4,462,621,500
NASDAQ Volume 2,351,706,000

Earnings OK, But Troubles Persist

As traders make their ways through the morass of earnings reports now crowding the markets, the general trend is that companies, for the most part, are beating or equaling estimates, with about 30% failing to make the grade.

With each passing day, more and more companies are releasing earnings, and by Friday, we'll have pretty much reached the midpoint of earnings season.

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There were some prominent companies reporting on Tuesday, with Yahoo (YHOO), Yum Brands (YUM) and Boeing (BA) exceeding estimates, while Ambac (ABK), the monoline insurer of municipal bonds and much of the subprime debt shocked traders with an enormous $5.42 per share loss on $1.7 billion in write-downs, while analysts were seeking a loss of only $1.51 per share.

Shares of the troubled bond insurer traded 42% lower on the news, down 2.57 to 3.46 per share. Ambac had traded as high as 96.10 just last summer but has lost nearly all of its value due to the overwhelming number of defaults and writedowns in mortgage-backed securities and the general overhang from the credit crunch.

With one eye on Ambac and the faltering credit structure and the other on relatively strong reports from mainline stocks, investors were vexed over which direction they should turn, thus, the somewhat uninspired trade on the session.

Dow 12,763.22 +42.99; NASDAQ 2,405.21 +28.27; S&P 500 1,379.93 +3.99; NYSE Composite 9,237.29 +9.32

Declining issues edged out advancers once again, 3499-2765. New lows took the prize from new highs, 264-90.

Trading was led by some big name companies on heavy volume while many smaller stocks - especially on the NASDAQ - were selling off. Since the massive gains this past Friday the markets have been unable to confirm the highs and have since wallowed in a range, seeking direction.

It's difficult to grasp market movements, especially at the height of an earnings season, but this market continues to exhibit signs of weakness rather than strength, but only marginally. Sideways would be the most likely direction for the near term, though a major event or spate of either positive or negative earnings could turn the tide in one direction or the other.

The market's indecision actually may be a boon for traders looking to lock in or get out of positions as we're in a somewhat stable environment for the time being. Of course, that's likely not to last long.

Oil made another new high on the day, gaining 23 cents to $118.30. Gold was slashed $16.20 to $909.00, while silver also lost ground, off 55 cents to $17.28.

There is a good deal of gyration in all markets presently, though the overall movement is a bit like riding around in circles. If anything, the equity and commodity markets are both overbought and a correction to the downside may be in the cards.

NYSE Volume 4,017,958,250
NASDAQ Volume 2,145,000,000

Stocks Give Back On Oil, Outlooks

With a slew of companies reporting earnings on Tuesday, investors took a look at some of the more recognizable names, noted last week's outsize gains as well as another record high for oil and took the cautionary route, selling throughout the session.

The big movers were Texas Instruments, which reported solid earnings gains, but issued guidance that was skeptical about the near term. Airline stocks took another beating as UAL Corp., the operator of United Airlines (UAUA 13.55, -7.88) reported a quarterly loss of $4.45 per share, which was worse than the loss analysts were expecting.

Dow 12,720.23 -104.79; NASDAQ 2,376.94 -31.10; S&P 500 1,375.94 -12.23; NYSE Composite 9,227.97 -84.32

The earnings news was far from all bad. While most companies were in line with expectations or close, Dow components McDonald's (MCD 58.35, -0.32) and DuPont (DD 50.16, -2.09) bested their earnings estimates yet still faced selling pressure.

Internals showed the real story, with declining issues dealing defeat to gainers by a wide margin, 4605-1666. New lows took back the lead from new highs, 269-151.

As noted above, oil made another new top at $119.50, gaining $1.89 on the day. Oil futures are completely out of control and would be subject to a significant fall-off were it not for the inelasticity of the commodity. The inescapable need for oil and gas by business and consumers alike are making conditions for reasonable, sustainable prices impossible.

Likewise, the futures are being led by a devious group of speculators intent on driving prices as far as they can. It should be noted that the speculation in oil fuels rampant profits for the big suppliers who are not buying on spot markets. Their gains will continue to be enormous until some regulation of the futures markets rein in the runaway speculation.

Another part of the equation is the weakening dollar, but it alone cannot account for the spectacular rise in oil prices. As mentioned in yesterday's post (an a good number of posts over the past 12 months), the higher prices of oil and gas are economy killers and they're doing a bang-up job at the present time.

Gold priced higher by $7.60, to $925.20 and silver rose 35 cents to $17.71.

Overall, the markets seem to be distracted daily by the price of oil even in the face of consistently good earnings reports. Unless and until oil finds a top, the markets will find it difficult to post further gains.

NYSE Volume 3,893,264,250
NASDAQ Volume 1,991,252,375

Oil and Gas Killing Economy

Regardless of the causes, the recent spike in the prices of crude oil and gasoline are killing the US and other economies. Middle and lower class consumers are the hardest hit and also the least likely to continue spending on other goods and services, since the cost of transportation has risen more than 35% over the past year and has also caused the price of another basic element of life - food - to skyrocket in the past 3 months.

Higher energy prices overall are great for oil and utility companies, but they come at the expense of curtailed retail spending in nearly all other areas and also contribute to a vicious price spiral since almost all goods are transported. Similarly, most services have energy expenses they cannot absorb, and these are passed along to the consumer in the guide of higher prices.

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The entire world is feeling the pain from the seemingly unending rise in the price of basic fuel, and with gas nationwide at $3.50 per gallon in the US, average people and businesses are having a hard time keeping pace, much less enjoying the fruits of their labors.

Thus far, the stock markets and big business have been able to maintain profitability in the face of spiraling fuel costs, but a significant pullback by consumers will damage (and already have) some segments of the business community. It's difficult to cut back on fuel expenses for most individuals, so in this case, the Exxons and Chevrons of the world win, at the expense of everything else.

Dow 12,825.02 -24.34; NASDAQ 2,408.04 +5.07 (0.21%) S&P 500 1,388.17 -2.16; NYSE Composite 9,312.29 +2.05

The major indices finished mixed, with the Dow and S&P lower, while the NASDAQ and NYSE Composite posted marginal gains. Actually, all of the indices were lower for the better part of the day, but regained much of what they lost thanks to a late-day surge.

After all was said and done, declining issues outpaced advancers, 3521-2749. New highs outdid new lows for the second straight session, though only marginally, 183-177. All indications are that the market is searching for direction in the aftermath of 4-5% gains last week.

Oil closed at a new record of $117.48, up 79 cents on the day. Gold gained $2.40 to $917.60, while silver lost 46 cents to close at $17.36.

Companies reporting earnings were mostly in line with expectations, though Bank of America (BAC) experienced a 77% decline in earnings for the first quarter on a year-over-year basis.

Bank of America's shares dropped 95 cents, to $37.61.

NYSE Volume 3,379,862,250
NASDAQ Volume 1,636,458,250