Rally Fades in Final Hour

Maybe investors got a little ahead of themselves on Wednesday, or the realities of gas at $4.00 per gallon began to take hold, but whatever it was, the powerful day-long rally ended abruptly at 3:00 pm ET.

The major indices hit their highs somewhere between 2 and 3 o'clock, but once the selling started in the final hour, it accelerated on higher volume into the close.

The Dow, which was up more than 160 points, ended with a gain of just 61, but the most unkind cut was on the NASDAQ, as the tech-heavy index closed up only 1 1/2 points after trading 33 points higher earlier in the day.

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Shares of Apple were a major drag on the index, though it alone could not account for the spate of late selling. The NASDAQ crossed the key 2500 threshold early in the day, but could not sustain it, as it had reached that level previously and failed. Likewise, the Dow Jones Industrials peeked at 13,000 and fell back.

Dow 12,898.38 +66.20; NASDAQ 2,496.70 +1.58; S&P 500 1,408.66 +5.62; NYSE Volume 3,946,686,250 NASDAQ Volume 2,084,606,500 NYSE Composite 9,437.45 +26.99

As expected, advancing issues finished ahead of decliners, 3386-2852. New highs posted their second straight day of outdoing new lows, 225-159.

Crude oil ended the session lower by $1.56 to $124.24 Gold also closed down $3.50, to $866.10, silver ended down 21 cents to $16.61 per ounce.

Consumer prices continued to increase, though only by 0.2% in April after the government statisticians "seasonally adjusted" gasoline prices from a gain of 5.6% to a figure of -2.0% in the April CPI. This "adjustment" was widely reported by major financial news providers, and may have had an effect on stock trading later in the day.

After witnessing the suspect first quarter GDP and April non-farms payroll reports, this latest CPI reading is likely to be seen as statistically flawed. Seasonal adjustments aside, the average US consumer is being squeezed by high gas prices and just about everything else that needs to be purchased has an alignment to fuel prices.

Word from the hosing market was equally discouraging. Foreclosures advanced again - up 65% year over year - in April according to RealtyTrac, the leading authority on real estate activity in the USA.

One has to wonder how long the market and its various participants can remain in denial about rising prices and the lower value of home ownership. Between these two forces, the American middle class is being squeezed without mercy while our leadership in Washington is focusing only on the November elections.

Supposedly, Americans are to muddle through somehow through the Summer and Fall before gleefully going to the polls to re-elect the same players in congress and elect a fresh, new president who will magically relieve us from the morass created largely by government mismanagement.

Don't count on it. The mood on the street is growing increasingly annoyed though the pinstripers on Wall Street seem not to notice. Profits are still healthy for most companies, but people are beginning to change their ways, economizing and looking for real change.

NYSE Volume 1,188,539,000
NASDAQ Volume 2,117,316,000

Stocks Mostly Down, But Internals Point Positive

While the Dow shaved a little off yesterday's gains, the NASDAQ gained again while the S&P was virtually unchanged.

With the indices hanging in limbo, somewhere short of their recent highs, but far from the lows of January and March, investors are searching once again for direction.

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Some of that came from Fed Chairman Ben Bernanke, who said that recent turmoil in credit and financial markets has subsided of late. However, beyond that and Hewlett-Packard's planned acquisition of EDS for $12.6 billion, there was little in the way of positive news.

First quarter home sales, according to the National Association of Realtors (NAR), fell by the steepest percentage (-7.7%) since such figures began to be recorded... in 1982.

April retail sales fell 0.2% - the second straight monthly decline - though most of the loss was attributed to weakness in auto sales. Of course, the price of crude oil and gas contributed to the distress, with oil hitting another new high on the NY Mercantile Exchange, ending up $1.57 at $125.80. Gas hit another record as well, with the average US price at the pump rising to $3.73 per gallon.

Dow 12,832.18 -44.13; NASDAQ 2,495.12 +6.63; S&P 500 1,403.04 -0.54; NYSE Composite 9,410.46 -7.51

The metals lost ground, with gold off $15.30, to $869.60, while silver shed 40 cents to close at $16.83 per ounce.

Advancing issues squeaked out a win over decliners, 3166-2819. New highs took the lead over new lows, by a surprisingly healthy amount, 200-170. Once again, these indicators are signaling little more than a market in distress about which way to go next. There is some overhead resistance, though it could hardly be called strong. On the downside, there is little support in the indices immediate trading ranges.

NYSE Volume 1,207,764,00
NASDAQ Volume 1,878,101,000

Following Last Week's Losses, Stocks Rise

Last week, the indices took their worst hits in the past two months, so gains, in the absence of any meaningful resistance, were in the cards today on Wall Street.

Despite a profit warning from FedEx (FDX), based on costs related to (what else?) high fuel prices and a major meltdown in earnings reported by bond insurer MBIA (MBI), which reported a first quarter loss of $2.4 billion (-14.03 per share), investors took it upon themselves to get out and buy stocks, based largely on false hopes that the US economy is rebounding and inflation will be tame heading into the summer.

Nothing could be further from the truth. Oil and gas will both continue to march higher without concerted efforts from the US government and/or conservation measures by the average American driver. That's the main catalyst for inflation. Further, some analysts are suggesting that the recession may be just beginning, citing the government's own figures which showed identical 0.6% GDP growth for the 4th quarter of 2007 and the 1st of 2008.

If that's the case, the economy is only now beginning to compress. That scenario, though difficult to believe, may be spot on, meaning that conditions will worsen through the summer and into the fall. Actions by the Fed, including seven consecutive cuts in the federal funds rate and various other machinations designed to keep the economy from imploding, should have had some effect on keeping the GDP in positive territory these past six months, and maybe they did.

However, nothing is going to keep the US economy from falling into recession, though it's hoped that it will be short and shallow rather than long and deep. As it stands, our growth rate is ludicrously low, and changes in budgeting and spending patterns by the biggest spender of all, the federal government, are needed more than ever.

Once again, investors are still in some vague state of denial about the overall need for a strong US economy and the real impact of the subprime debt blow-up.

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Dow 12,876.31 +130.43; NASDAQ 2,488.49 +42.97; S&P 500 1,403.58 +15.30; NYSE Volume 3,326,991,250 NASDAQ Volume 1,731,311,000 NYSE Composite 9,417.97 +90.00

Advancing issues soared ahead of decliners, 4381-1839. New lows, however, were once again ahead of new highs, 167-134.

Oil rose to new highs in early trading, but backed down, to close off $1.90, at $124.10. Gold closed at $884.90, down 90 cents. Silver finished the session at 17.23, a gain of 32 cents.

NYSE Volume 1,050,167,000
NASDAQ Volume 1,758,287,000

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.

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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