Stocks Continue Descent

No reason was really needed, but the high price of oil and disturbing news from two financial titans - AIG and Citigroup - sent investors scurrying out of positions on Friday and seeking safer havens for their money.

As I've been saying here for the past week, stocks were overbought, the markets had reached levels at which a change in direction was warranted and the bull market still is the prevailing sentiment on the street.

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Insurer and Dow component American International Group (AIG) reported a $7.81 billion loss for the first quarter - their second massive quarterly loss in a row - and was beaten down by investors as fears of another round of the continuing credit crunch appeared to spook traders. AIG lost 3.87, to close at 40.28 on nearly four times its usual volume.

Citigroup, another Dow component, announced plans to shed between $400 and $500 billion worth of assets, including mortgages and various real estate holdings, the company describes as "legacy assets."

The story behind the Citigroup move shed some light on just how close to insolvency the financial giant has come in recent months. The stock traded just 67 cents lower, to 23.63, just points above its 52-week and 10-year split-adjusted low of 17.99. The company has been forced to write down billions in worthless loans, scramble to raise cash from sovereign funds, and now reorganize and sell assets.

Dow 12,745.88 -120.90; NASDAQ 2,445.52 -5.72; S&P 500 1,388.28 -9.40; NYSE Composite 9,327.97 -60.57

Despite the size of the losses, advancing issues surrendered grudgingly to decliners, with 3306 stocks losing value and 2838 gaining. New lows beat back new highs, 236-130.

As mentioned, oil's relentless rise continued, adding $2.27, to close the week at another all-time high of $126.97. In just the past week, oil has shot up $10 per barrel. Gold gained $3.70, to $885.80, while silver added a mere 2 cents to $16.89.

For the week, the Dow lost 312 points, or just more than 2%. The other major indices suffered similarly. The week turned out to be the ultimate topping point for markets as earnings season fades to black and news of the financial condition of economies takes center stage.

The US economy in particular is not in a pretty state, though survivable. The tax rebate checks, while hardly a complete solution, will provide enough of a boost to the sputtering economy to avoid a very deep, very long recession. Watch for revisions of key economic data in coming weeks, especially 1st quarter GDP, which may end up showing the economy already in recession. If that's the case, or, rather, as some suggest, that we've been receding since September of '07, a bottom in the markets is dead ahead.

Be kind to mother. Buy some puts for her.

NYSE Volume 3,518,610,250
NASDAQ Volume 1,714,386,000

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