No Biggie: Market Up, But Bearish Trend in Place

Thursday, the major indices regained some of the losses incurred on Wednesday, but not nearly enough to reverse the trend begun this final true week of earnings releases.

On Friday of last week, the Dow closed at 13,058.20. Believe it or not, that was the high point close of the year - all of 2008 - for that index. Still it was 206 points below the close on December 31, 2007. The Dow is down roughly 200 points this week and all of the indices are looking... well, dicey.

At the moment, there isn't enough good news to move forward and there's somewhat of a lull in the bad news cycle, so stocks are somewhat stuck in neutral on a bit of a downslope. Thus, it's beginning to roll backwards.

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Chartwise, the bearish turn which began in August of last year, but ultimately defined itself with October and December tops and November, January and March bottoms, is still intact.

Today was really a dead cat bounce off yesterday's collapse. The cat bounced, but not very high, and was quickly devoured by a large, hungry bear. The upside is limited, for now, while the downside appears to be the path of least resistance with plenty of reasonable support points, but nothing solid all the way back to 11,700.

The Dow, S&P, NASDAQ and NYSE Comp. all touched the top of their downside trendlines last week and have pulled back into the channel.

Dow 12,866.78 +52.43; NASDAQ 2,451.24 +12.75; S&P 500 1,397.68 +5.11; NYSE Composite 9,388.54 +49.07

Gainers eked out a minor victory over losing issues, 3428-2730. New lows expanded their advantage over new highs, 219-126. Once again, the new lows - new highs differential is emerging as a leading indicator, suggesting a new wave of selling.

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Oil cooled off just a bit, but not enough to make another record high. Crude closed up 16 cents, at $123.69 per barrel on the NY Mercantile Exchange. The metals gained, with gold up $10.90, to $882.10. Silver was up 18 cents to close at $16.87 per ounce.

Looking ahead to Friday, unless the Dow rallies 200 points, it will close the week lower, breaking a string of 3 straight gaining weeks, and gains in 6 of the last 8. Momentum has clearly swung to the bearish outlook.

NYSE Volume 3,769,296,750
NASDAQ Volume 2,092,502,125

Bears Bite Back

Wednesday was quite satisfying for those of the bearish - or, realistic - persuasion. Stocks have begun their summer swoon, as earnings season winds down and investors are forced to make guesses using government-supplied statistics as to the welfare of the general economy.

It's a discouraging time for the perma-bulls, who will buy, buy, buy, no matter the season or the sentiment. The tide truly turned today after seven weeks of a relentless march higher by the indices.

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As noted here a few days ago, the key levels - Dow 13,000, S&P 1400, NASDAQ 2500 and NYSE Comp. 9500 have all been approached and breached to the downside. While retesting the resistance may still occur, it should be noted that the Dow average crossed the 13,000 mark at least 24 times in the past five sessions. By any measure, that area has been tested, retested, probed, dissected, groped, molested and finally worn out.

The indices took one last hard charge to the upside this morning, didn't like what they saw and backed away like scared rodent. With the preponderance of negatives facing the market, a pull-back was not only necessary, but healthy. Investors need to be taking short-term profits, stocks need to be resettled, distributed and a base needs to be formed. If there is a bottom to the so-called "recession market" it will be during this summer. If there is no bottom, it will just continue to go lower until the proper adjustments are made.

Dow 12,814.35 -206.48; NASDAQ 2,438.49 -44.82; S&P 500 1,392.57 -25.69; NYSE Composite 9,339.47 -171.51

The internals tell the real story. Declining issues outpaced advancers, 4494-1757. New lows maintained their edge over new highs, 206-161.

Oil didn't help matters any, hitting another new high of $123.63, up $1.69. The price of a barrel of crude has doubled in just the last 12 months. Interestingly, other commodities did not hitch a ride. Gold slipped $6.50, to $871.20. Silver fell 17 cents, closing at $16.70 the ounce.

With two days remaining in what will be seen as a turning point week for Wall Street, stocks will need to rebound sharply to avoid what looks like the beginning of a long declining trend.

NYSE Volume 4,076,269,750
NASDAQ Volume 2,293,964,000

Broad-Based Buying in the Face of High Oil

The markets opened sharply lower Tuesday, then spent the day rallying, finally finishing in positive territory. There was no notable catalyst for the gains, but not much to derail confidence, unless you're one of those ancient thinkers believing that the core of the US economy - the American middle class - is being buffeted by all manner of downdrafts, from high food and fuel prices to tighter credit standards to a tenuous employment situation.

Whatever the US economy does, Wall Street continues to react as if nothing important is occurring. It could be election-year buying, confidence in multi-nationals or just plain old vanilla irrational exuberance. Whatever it is, it kept stocks in positive territory for another day.

Dow 13,020.83 +51.29; NASDAQ 2,483.31 +19.19; S&P 500 1,418.26 +10.77; NYSE Composite 9,510.98 +72.88

The price of oil continued to climb, to another record close of $121.84, up $1.87 on the day. Gold gained $3.60 to 877.70. Silver was higher by 3 cents, to $16.86.

Advancing issues beat back decliners, 3722-2554. There were 177 new lows to 174 new highs.

If it seems as though everybody is waiting for something to give the market direction, it is because everybody is. Either the Yahoo-Microsoft saga must be resolved, the mortgage mess should bring some more news - good or bad - or maybe everyone was watching Cisco (CSCO) and Disney (DIS) to report 1st quarter results after the close.

Cisco came through by beating analyst estimates with returns of 29 cents per share, though lower than last year's 30 cents per share for the comparable period.

Disney reported a 22% gain over the first quarter of 2007, at 58 cents per share.

Reasons to buy, perhaps, but how much?

NYSE Volume 3,844,561,000
NASDAQ Volume 2,097,138,375

Stocks at Important Levels

Sentiment is such a misunderstood factor in markets, but it is now a very large part of the psychology and direction of stocks. On Monday, the Dow quickly dropped below the 13,000 level and stayed there, after an early rise and subsequent fall on Friday.

This, with the other indices moving in in unison is a dead give-away for a significant shift in sentiment from bullish to bearish. It's not difficult to comprehend, as stocks have been on an upswing since March 10, and with earnings reports all but complete for the quarter, there's little on which to hang a resumption of the rally.

The levels important to investors over the near term are: Dow 13,000 (already breached to the downside); S&P 1400 (holding just single digits above); NASDAQ 2500 (failed at 2499 on May 2) and potentially the most overlooked, NYSE Composite 9500 (failed at 9496 on May 2).

Dow 12,969.54 -88.66; NASDAQ 2,464.12 -12.87; S&P 500 1,407.49 -6.41; NYSE Composite 9,438.10 -13.07

Once the S&P drops another 7-12 points, the index superfecta will be complete and investors will begin taking profits in larger quantities. With summer coming, the dominant sentiment will return to negative for four reasons: 1) the market is essentially overbought; 2) high gas and food prices are crimping spending and that is becoming a worldwide phenomenon; 3) the employment situation is, by any standard, deteriorated and possibly worsening; and, 4) housing and credit markets are still in crisis.

The balance of this week will likely determine market direction for the rest of May, June and probably well into July.

As noted, stocks were sent lower just about right out of the gate and stayed in negative territory all session long. Declining issues took command over gainers, 3512-2700. New lows outstripped new highs, 161-116, reversing Friday's decision, which was only the fifth time since October 31, 2007 that there were more new highs registered than new lows.

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After last week's respite, oil continued its relentless ascent, closing at another record, $119.97 per barrel, up $3.65 on the day. Gold caught onto the updraft, gaining $16.10 to $874.10, as did silver, up 37 cents to $16.83.

Tomorrow and Wednesday's should be critical. If the markets cannot move higher, the stage is set for a two-to-three-month low, testing the bottoms made in January and March. If the recession is really already here and the US economy is indeed in a trough, this could mark the bottom. However, there are still critical issues and hurdles to overcome - housing, interest rates, inflation, labor, gas, food, politics - which will all play a role in determining whether the economy can bounce back or continue slumping.

NYSE Volume 3,360,579,250
NASDAQ Volume 2,085,020,750

Why the Markets Lost Friday's Gains

The Commerce Department treated Wall Street to a rare glimpse into the arcane workings of politics and statistics. The Bush administration is hell-bent on preventing a recession and keeping the economic outlook somewhat rosy until November. To that end, it's a near certainty that today's release of April Non-Farm Payroll figures was at worst, manipulated, and at best, simply wrong.

Somehow, US employment was actually shown to be relatively stronger in April than in the previous three months in which more than 240,000 net job losses appeared. The headline number was a loss of only 20,000 jobs in April, but a peek inside the release uncovers some very troubling and difficult-to-rectify numbers.

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First, the report shows that between March and April, the civilian labor force grew by 173,000 and that the number of employed people grew by 362,000. These figures actually produced a drop in unemployment of 0.2%, or 189,000 people.

The report broke out some key areas of gains and losses. There were losses of 61,000 construction jobs, 46,000 manufacturing jobs and 27,000 retail jobs. Gains in health care (37,000), professional and technical services (27,000), and food service (18,000). Taking the gains against the losses (+82,000, -128,000) still leaves us with a net loss of not 20,000 jobs but 46,000.

Noting that small discrepancy, the report delivers two highly dubious statements:

"In April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million. This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-5.)

Persons Not in the Labor Force (Household Survey Data)

About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 412,000 discouraged workers in April, about the same as a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them. The other 1.0 million persons classified as marginally attached to the labor force in April cited reasons such as school attendance or family responsibilities."

Well, 306,000 new part-time workers begins to cloud the picture and is hardly believable. And of course, we won't count 1.4 million people "marginally attached" to the labor force in April.

Of these two statements, the addition of 306,000 part-time workers in one month is the most troubling and dubious. In a word, this report was a crock, and anyone who believes these numbers has lost his or her grip on reality.

And that's precisely what happened on Wall Street. The Dow shot up more than 120 points before the analysts began poring over the numbers and coming to their bosses shaking their heads. The numbers simply do not jibe and traders, once wind of the discrepancies hit the street, began unwinding positions, sending the markets back to unchanged and slightly into the negative by early afternoon. Only some spirited tape-painting prevented an all-out rout.

Dow 13,058.20 +48.20; NASDAQ 2,476.99 -3.72; S&P 500 1,413.90 +4.56; NYSE Composite 9,451.17 +56.13

Naturally, most of the civilized world will never take a second glance at the Non-Farms Employment data for April 2008 and simply take the government at its word. Some of us have to be doubters, however, and this writer has no doubt whatsoever that government figures are today more maligned, politicized and unreliable as to be nearly completely useless.

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What the loss of "only" 20,000 jobs in April does is set the stage for job gains in May, June and beyond and more bogus stories about the "recovering" economy. This, of course, will suit the current administration perfectly well, as they will be able to laud praise upon Fed Chairman Bernanke and Treasury Secretary Paulson for wise stewardship in averting recession.

The truth, on the street and in homes across America, will be in stark contrast to these lies, but the media will gobble up the phony story from the government like a pack of hungry guppies because they have just about the same capacity for critical analysis overall.

We're facing a serious dilemma in the country over the next six to eight months. We're not only going to have to elect a new president, but also return or replace hundreds of members of Congress, and do so armed with faulty data, concocted news and outright lies via the government and the media. It's time the American people take back their government or just quit the charade altogether and stop paying taxes, voting and participating in the demise of democracy.

That said, the market data on the day was as mixed as the indices. Advancing issues beat decliners, but it was nearly a deadlock, 3.143-3,035. New highs shot ahead - for only the fifth day in six months time - of new lows, 166-148.

Commodities didn't miss out on the opportunity to tack on gains. Oil rose $3.80, to $116.20. Gold was up $7.10, to $858.00 and silver added 26 cents to $16.47. The gains in basic materials and metals was largely technical, following days of steep declines, though one should assume that oil is poised to price quite a bit higher in coming days.

All told, the bogus labor figures, like the crooked GDP figures earlier in the week, allowed the rally in equities to continue uninterrupted. One might guess that a day of reckoning is coming for all the manipulations, malignancies and mistaken trust. That day may not come until some far off date, sometime in 2009 or beyond, but by then the damage done will have been so severe that fixing it will be neither painless nor quick.