Small Change Day Yields Interesting Outlook

Stocks saw both sides of the ledger on Wednesday, with the Dow Jones Industrials leading a morning rally and then an afternoon sell-off which left stocks near where they started.

The big differences were in the two composites, with the NASDAQ up nicely and the NYSE markedly lower bringing into play the new-old economy paradigm.

Techs on the NASDAQ fared far better than old-line companies held within the NYSE, suggesting that there's neither clarity of direction or quality when it comes to US equities.

Dow 12,390.48 -12.37; NASDAQ 2,503.14 +22.66; S&P 500 1,377.20 -0.45; NYSE Composite 9,212.76 -49.24

While economic reports were somewhat benign, significant trading patterns emerged from within the indices.

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Advancing and declining issues were nearly even, with winners edging losers, 3149-3039, though most of the winners were on the NASDAQ and the bulk of the losers came from the NYSE. New lows slammed new highs, 224-109, and that's a repeating theme. Since October 31 of 2007, there have been less than 10 days in which more new highs were reported than new lows. It's an inherent factor of the calamitous underpinning of the US economy and hasn't changed one whit over the last 7 months.

Volume was at about the same level as yesterday - a little bit perkier, though still what one would expect from mid-summer. It seems as though the summer doldrums have hit stocks a bit early this year, no doubt having much to do with tight credit and a general consensus to not throw money around willy-nilly.

Commodities continue to sing an unfamiliar tune, heading South, as it were. Oil was down again by $2.01, settling at $122.30, a relief many hope to see continued. Gold dropped $1.70, to $883.80, while silver strengthened by 11 cents, finishing at $16.94. A few more days like this, for oil, in particular, and you're looking at a sharp correction in commodities on a lack of demand basis, spurred by overpricing.

The simultaneous slippage in stocks and commodities does not bode well for economies overall. What once looked like an inflationary spiral might end up - in a few month's time - looking more like a deflationary end-game.

It's not something for which economists nor governments are well-prepared. While the benefits to consumers is obvious - lower prices - it also stalls job creation, an article that has not, until now, rear it's unusually ugly head.

NYSE Volume 1,326,811,000
NASDAQ Volume 2,206,862,000

Wall Street Suffers Through Another Rough Day

There was little news to fuel the fire today, but stocks sank even further in a carry-on to yesterday's steep declines.

The Dow Jones Industrials cracked through an intraday double bottom at 12,427 and closed off more than 100 points for the second straight session.

It was the lowest close on the Dow since April 15, another indication that the indices will soon test the March lows of 11,740 (3/10/08) on the Dow.

Dow 12,402.85 -100.97; NASDAQ 2,480.48 -11.05; S&P 500 1,377.65 -8.02; NYSE Composite 9,262.00 -54.61

Here's a big surprise: US auto and truck sales fell in May with the biggest losses coming in trucks and SUVs. With gas at $4.00 per gallon, is anyone surprised? Ford's sales were off 16%, Chrysler, 25%, GM, 30%. Toyota was even down 7.9%, while Honda and Nissan, manufacturers of smaller, more fuel efficient vehicles saw sales rise in the month.

More than anything else, those auto and truck sales figures were the big story on Wall Street today, though one has to wonder why anyone would think they would be anything other than ugly.

On April 9, I commented about Richard Russell of the Dow Theory Letter opining that we were not in a bear market. Russell had reversed his earlier call from September of '07, when he said we had turned. That was not surprising, but his about-face on the matter in April was an eye-opener.

I disagreed with him then and reiterate my call that we are facing one of the most pressing and desperate recessions of all time. While most of us (self included) do not recall the Great Depression, some of us are quite convinced that we are rushing head-long into one crushing economic downturn.

The factors driving the demise of the US economy are diverse and not well understood by the majority of Americans, nor has our federal government or Wall Street given ample caution to what lies ahead.

The housing crisis is only getting worse. Subprime loan resets are now peaking, but they will soon be followed by option ARMs and Alt-A loans which will see peak resets from 2008-2012 and 2009-2012, respectively. The option ARMs are the larger of the two groups, and both are as large as the subprime slime. The US housing market will not recover until at least 2012, if at all.

Add to that the high price of not just oil and gasoline, but heating fuel, which will be the real killer this winter. Prices for natural gas haven't exactly set idle while oil soared over $130 per barrel. Many Americans - those with roofs over their heads - will face the quandary of whether to heat their home or fuel their car.

Credit markets have seized up. Some large retailers, which have been squeezed by lower sales and lower margins, will go belly up when they are unable to obtain enough financing to see their way through this summer and fall. By Christmas, a good number of malls will resemble ghost towns.

Hardest hit will be the rural and suburban South and Midwest, where jobs are already scarce and not being replaced. With the number of foreclosures and business failures skyrocketing this fall, municipalities will be laying off and looking for more state aid as they will be unable to maintain services with declining tax roles.

One will be able to see the entire cataclysm reaching a peak when food shortages appear or lower prices for everything becomes the standard. Companies, forced to compete or close up, will have to decrease prices just to stay alive. A recent report noted that 99% of free food kitchens and pantries have seen more activity in the past six months. What's worse is that 72% expect to not be able to meet demand in the next six months.

We are in the thick of it and the news media and our leaders in Washington have been shading the truth for months. Not only will the rest of 2008 be extremely difficult, but 2009, 2010 and 2011 don't look to be picnics either. By official accounts, the recession hasn't even begun, yet people are worried and concerned.

On the day, declining issues outnumbered advancers, 3651-2557, while new lows outnumbered new highs, 204-145.

Oil slipped another $1.06 today, settling at $126.70. Gold fell $11.50, to $885.50, and silver dropped 8 cents to $16.84. With the continued weakness in the metals, it may be time to go short all commodities. We may have reached the maximums on commodities of all kinds as people, businesses and governments are simply out of cash after being squeezed so violently and for so long by rising prices. We are at the tipping point in the world economy and everything could implode at any given time.

The situation is as dire as I've seen it in my 35+ adult years. There is likely no escape from a severe recession and a major downturn in the markets.

You have been warned.

NYSE Volume 1,317,698,000
NASDAQ Volume 2,233,256,000

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