June Swoon: Stocks Tank on Bank Boos

June began about as badly as any month could with the markets battered on all sides, but mostly in the finance/banking areas, as Standard & Poors downgraded the credit ratings of three giant brokerages - Lehman Brothers (LEH), Merrill Lynch (MER) and Morgan Stanley (MS).

Along the way, the ratings agency made sure to revise its ratings on Bank Of America (BAC) and JP Morgan Chase (JPM) to negative, thereby branding the two banks as damaged goods.

Additionally Washington Mutual (WM) and Wachovia (WB) each had their issues, resulting in changes of top management.

It was not a good day to be in the business of banking. Nor was it one to be holding stocks of almost any kind (something I've been repeating often since October of last year). Only frantic buying in the last half hour of trading saved the markets from a complete meltdown.

Dow 12,503.82 -134.50; NASDAQ 2,491.53 -31.13; S&P 500 1,385.67 -14.71; NYSE Composite 9,316.52 -84.56

The Dow, in particular, tested the lows of May 23 (12,479.63), but essentially put in what can only be seen as a double bottom on an intraday basis, at today's low of 12,427. Since the Dow is still below both its 50 and 200-day moving averages, all that can be said of last week's 4-day rally is that it was mostly a mirage. There's little upside to the market considering all the turbulence in the credit markets.

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On the day, declining issues hammered advancers by a margin of more than 5-2. 4366 stocks were down, while only 1919 ended with gains. New lows finished ahead of new highs, 221-132, but the spread expanded significantly, signaling more losses for the markets ahead.

For a change, the commodities markets didn't have much of an impact on equity trading. Oil gained a marginal 41 cents, to 127.76, while gold added $5.50, to $897.00. Silver ended up 5 cents, to $16.91.

The highlight of economic releases was this morning's reading on April construction spending, which was down only 0.4% due to growth of commercial building and multi-housing units, which offset another horrid month in home building. The residential real estate market is still searching for a bottom which is likely to not be reached until sometime during the winter of '08-'09 - and that is still a long way off.

High gas and food prices, a seized-up credit market and continuing foreclosures and bank writedowns, there's really no catalyst for any upside market moves. Any rallies will be met with suspicion and pessimism as the US economy suffers through a deep and long recession, which, according to official figures, hasn't even begun.

The balance of this week is a little light on the economic news front until Friday's Non-Farm Payrolls data for May. Auto and truck sales for May roll out on Tuesday, as do April Factory Orders. After that, just a revision to first quarter productivity on Wednesday and the usual Thursday Unemployment Claims.

The Non-Farms Payroll figure for May should be interesting following the very suspect -20,000 reported for April. The expectations are for a loss of another 50,000 to 60,000 jobs - not what the market needs at this juncture. Even if the report is highly fudged, any rally caused by it will be short-lived as stocks are sure to retest the January and March bottoms.

Best advice is to take some profits here if you have any, and stay out of the markets this week. On Saturday, place a sizable bet on Big Brown to win the Belmont Stakes and complete racing's Triple Crown. He may be close to even money or even 4-5 by post time, but that's a much better return - with a lot less risk - than anything you'll find in US equity markets for now.

NYSE Volume 1,073,309,000
NASDAQ Volume 1,950,997,000

Stocks Finish Week Mostly Higher

The Dow flirted with the flat line all day and finally succumbed to selling pressure in the final half hour of the session to post its first loss - though marginal - in the past four days. All other major indices finished the week on a positive note, though gains were well-confined..

Volume was pedestrian, as it had been all week, giving rise to concerns that the markets once again are poised to fall.

Dow 12,638.32 -7.90; NASDAQ 2,522.66 +14.34; S&P 500 1,400.38 +2.12; NYSE Composite 9,401.08 +29.21

Advancing issues finished ahead of decliners once more, 3425-2850. There were more new lows than new highs (155-145). As has been the case all week, the indicators gave few clues to market direction, and with little impetus from economic news or government data, the markets continue to drift.

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As this week was mostly the result of a small snap-back rally following last week's 600+ point decline (Dow Jones Industrials), the see-saw should shift back to the bears in the first week of June.

Oil rebounded slightly, gaining 73 cents to settle at $127.35. Precious metals also recovered from yesterday's bloodbath, with gold gaining $9.80 to $891.50 and silver up 35 cents to $16.87. Both are well off their recent highs.

As noted above, volume is telling. Friday's volume was in line with the limited trade of the entire week.

NYSE Volume 1,327,792,000
NASDAQ Volume 2,135,954,000

Three In a Row for US Stocks

Investors received a rare double dose of good news today as the government announced a revision of first quarter GDP - from +0.6% to +0.9% - and oil prices skidded on supply-demand issues and the report of a wide=ranging investigation by the Commodity Futures Trading Commission.

While the Energy Department explained that the drop in oil supply was due merely to delays in unloading tankers in the Gulf of Mexico, the CFTC revealed that an investigation into trading practices had been underway since December. The Commission also announced some initiatives which would make commodity trading more transparent.

All of that contributed to a better-than $4 decline in the price of light, sweet crude on the NY Merc. It was the largest one-day drop in more than a month.

Responding to the positive news, Wall Street extended its rally into a third straight day, though once again, gains were not impressive.

Dow 12,646.22 +52.19; NASDAQ 2,508.32 +21.62; S&P 500 1,398.26 +7.42; NYSE Composite 9,371.87 +7.53

Advancing issues overwhelmed decliners for the third straight session, 3791-2414, though new lows narrowly edged new highs, 159-157.

As mentioned above, oil slipped $4.41 to $126.62. The metals were decimated, owing to new-found stability in the dollar. Gold lost $23.30, to $881.70, while silver fell 90 cents to $16.52.

Even with the good news, trading was still rather light, probably a semi-permanent feature now that warmer weather has found its way to the Northeast.

Despite the three straight days of rising prices, the Dow has only regained 166 points of the more than 500 it lost in the previous week and is dangerously close to a key resistance level at 12,700.

While the ebullience could easily spill over into tomorrow's session, it's by no means certain that this current rally has any legs whatsoever. Expect more drifting and dodging over the near term, until there is a final washout, which could occur any time between next week and the first part of July.

NYSE Volume 1,229,452,000
NASDAQ Volume 1,948,316,000

Stocks Drift, End Higher

The trading today was akin to watching paint dry. All of the indices traded in a narrow range, hovering above and below the flat line. Volume, as it has the last three days, remained on the low side.

Dow 12,594.03 +45.68; NASDAQ 2,486.70 +5.46; S&P 500 1,390.84 +5.49; NYSE Composite 9,364.34 +50.32

The advances of the past two days are highly illusory. In the absence of any concrete economic news, traders are forced into a condition of buying despite their best instincts. It's really a herd mentality at work. Once the market is up for a while, investors get the idea that everything is OK and it's safe to buy stocks.

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And they're buying up anything that has been beaten down over the past 9 months, which is just about everything. Stocks are still risky, despite what any analyst or market wonk may tell you, me, their neighbors or friends. The government continues to sound the "all clear" horns, though behind the scenes, inflation, foreclosures, tight credit and the employment condition have them scared to death.

So, the indices will gain smallish amounts for days, but then, just like last week, there will be a sudden realization that the market stinks and the US economic ship is still sinking. Low volume tells us that the smart money is still sitting on the deck, sipping mai tais, waiting for the eventual storm to capsize the whole ship, crew and all. The correction in stocks may not be swift, but slow and deadly, but one thing is certain, it will be deep, just like the recession the government seeks to avoid/obfuscate/ignore.

On the day, advancers beat decliners, 3481-2811. New lows continue to hold sway over new highs, 196-112. The highs-lows metric continues to suggest lower days ahead, in the near term.

Oil rebounded again, gaining $2.18 to $131.03. Gold dipped, losing $7.80, to $905.00. Silver also lost ground, declining 5 cents to $17.42.

With two days past and two to go in the short week, expect a little bit of turnaround on either Thursday or Friday. Of course, whatever happens will not be extraordinary, unless some outside force is felt on Wall Street, or unless the smart money goes completely to the sidelines, which would likely result in a 3-400 point drop on the Dow.

The more probable condition is the slow-drip torture method we've witnessed over the past months. A few days up, then down. Rinse, repeat. Lose.

NYSE Volume 1,205,546,000
NASDAQ Volume 1,862,700,000

Week Begins with Low-level Markup

There was nothing startling about today's market gains. One can read absolutely nothing into the low volume rally following a three-day weekend except that it is unlikely to last through tomorrow's midday trading.

In fact, today's trade was more evidence of the PPT (Plunge Protection Team a/k/a the President's Working Group on Financial Markets) remaining active in the markets as the upward trajectory was largely the result of two separate, abrupt 50-point moves on the Dow - both between 12,500 and 12,550 - which occurred at 10:00 am and again at 2:30 pm.

The sad part of the manipulation plan for the markets is that both moves failed to create or sustain momentum.

Following the 10:00 am move, the Dow backed off 100 points by noon. The 2:30 pump resulted in the highs of the day an hour later, though by the close, the 12,550 target was not realized.

Dow 12,548.35 +68.72; NASDAQ 2,481.24 +36.57; S&P 500 1,385.35 +9.42; NYSE Composite 9,314.02 -1.76

News was largely inconsequential, as the Conference Board reported that their Consumer Confidence Index dropped to 57.2, from a revised 62.8 in April, it's lowest level since 1992.

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And while new home sales increased 3.3% in April, home prices fell by 14.1% in the first quarter of 2008.

Oil fell on the NY Mercantile Exchange, losing $3.34 on new concerns over - get this - demand - to 128.85. This is not unexpected and it would be no surprise if oil prices stabilized over the summer and subsequently fell in autumn, just in time for energy prices not to be an issue in the November elections.

Since Republicans have been so accommodating to Big Oil, a concerted trading and talking effort will coordinate to keep gas prices below $4.00 in the fall of 2008, and likely under $3.50. Republicans don't want to give Democrats an issue, and this is surely one over which they have control. It's a scandal, a sham and a shame. If a new administration is brought to bear in November, investigations should begin early in 2009.

The average price of a gallon of gas hit an all-time high of $3.93 over the just-concluded Memorial Day weekend. The price is as artificial as an office-lobby fern and should vacillate between $3.60 and $4.00 for the balance of summer, or, as oil execs and politicians on their payroll are fond of calling it, the peak driving season.

Gold lost $19.20 to $906.60. Silver finished 83 cents lower at $17.47.

Market internals were on opposite axes, as advancing issues outpaced decliners, 3976-2289, but new lows continued to dominate new highs, 182-103.

With little corporate news and a dearth of economic releases this week, expect stocks to vacillate with a slim bias to the upside. Investors are still very much in the dark as to the true strength or weakness of the economy and are desperate for gains. Anyone on the buy side over the next few weeks is likely to find eventual disappointment as the indices will retest March lows at some point in the near term.

NYSE Volume 1,129,459,000
NASDAQ Volume 1,720,927,000