Bottom, What Bottom? Not Yet, Say Investors

Watching the Dow drop more than 150 points shortly after noon today, one had to wonder where the bottom feeders, bargain hunters and especially, the short-covering traders had gone.

The answer came as swiftly as a falcon swooping in upon some unsuspecting prey, and with equal ferocity. Just before 2:00, the market made a sudden about-face, and by 2:45, the Dow was sporting a 50-point gain. Market participants had not gone away, they were just awaiting the proper catalyst.

What moved the market - first lower, then higher - were auto sales, which were dismal with the notable exception of General Motors (GM, 11.75, +0.25). The top US auto maker reported a sales decline of 18%, not a stellar number, but still better than expected.

Add to that the Institute of Supply Management's (ISM) June reading of 50.2, following a string of sub-50 readings (which indicate contraction), and the markets were off to the races.

Stocks finished marginally higher, as investors, still weighing inflation, high oil prices, the financial market's generally dour condition and continuing housing woes, are not about ready to spark off a full-blown rally. That could happen as soon as tomorrow, considering that the Dow has fallen nearly 2000 points since mid-May, and is in a technically oversold condition.

Dow 11,382.26 +32.25; NASDAQ 2,304.97 +11.99; S&P 500 1,284.91 +4.91; NYSE Composite 8,641.28 -19.20

On the day, decliners still overwhelmed advancers, 3709-2634. New lows expanded to their largest margin over new highs in some time, 1154-77. A new high-low reading such as today's shows an incredible weakness in sentiment, though it is very possibly a peak for that reading. As markets go, this one is definitely in line for a bounce upward, and it's likely to be soon and even more likely to be strong.

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On the other hand, the window for such a move upward is closing fast. There are only seven trading days before earnings season kicks into full swing on the 14th of July. If the market is going higher, it will be within the next two weeks, but it is very probably going to be short-lived, as second quarter earnings are generally expected to be below expectations.

Oil finished 97 cents higher at $140.97, while gold gained $16.20, to $944.50 and silver ended 78 cents higher at $18.29. Both gold and silver are closing in on near-term highs, but may not be able to sustain that momentum, depending on market conditions and sentiment going forward.

Look for a generally positive mood to overtake Wall Street as we approach the July 4 holiday. Nonfarm payrolls for June are announced prior to the open on Thursday, July 3, with analysts expecting another payroll loss of 50-60,000 jobs. While the figures are generally not reliable and often subject to wild revisions, the market pays rapt attention to them, so anything under a 50,000-job loss is going to be viewed very positively. Anything over 60,000 will not get much attention, as it's already expected, unless the job loss is spectacular, like over 100,000 - not likely.

NYSE Volume 1,642,701,000
NASDAQ Volume 2,643,266,000

Stocks Silent on Last Day of Quarter

Last week's major sell-off could have, and likely should have, been forecast by most intelligent financial pundits, however, we could find nary a one. It seems the only formula for success in the financial media is to be forever bullish, in spite of facts, sentiment, charts, history and anecdotal wisdom to the contrary.

After watching the markets dwindle away the hours today, the idea that many investors - and many of them large ones - were getting out from in front of the oncoming rush of second quarter earnings reports, makes perfect sense, so anyone with any interest in the market or money or the future should pay attention to what happens in July.

Unlike Las Vegas, what happens on Wall Street does not stay on Wall Street. Profits and losses have a remarkable way of entering the mainstream in manifest ways. The abundance, or lack of, jobs, credit, affordable housing and stability in prices will be largely a result of the perceptions from the market in July.

While most Americans will be blissfully off on vacations or completely out of the market, the time will be ripe for plucking new investment ideas and direction for future trades.

The second quarter is expected to be one of the worst, cumulatively, in the past five or six years, and may actually be worse than the depths of the last mini-recession in 2000-2001. A fair share of companies will post underperforming quarters and even more will issue negative guidance. We are at the crossroads of inflation and recession, and something's got to give.

While the quarter ended with a whimper today, it should serve as notice that many quarterly reports will turn out to be wimpy in themselves, resulting in even further declines in the indices, on the order of another 15-25%.

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While the world is not about to end and the financial system will not entirely implode, there certainly will be more than enough financial pain to spread around. Everyone from from the wealthy billionaire to the hourly worker is going to feel a pinch, at the least, over the next 12 months. It's a question of how long the pain will persist that's not known, though another year seems to be a reasonable time frame.

That's because, until now, corporate profits have been generally unaffected, so comparisons to the third and fourth quarter of '07 and the 1st quarter of '08 are going to be tough to match this go 'round. There has to be a trough in corporate profits, and we're not quite there yet, though this quarter should be the beginning of a new trend of companies missing estimates.

Dow 11,350.01 +3.50; NASDAQ 2,292.98 -22.65; S&P 500 1,280.00 +1.62: NYSE Composite 8,660.48 +36.97

Despite the split decision on the majors today, the internals told the same sad story. Losers beat gainers, 3940-2926. New lows are nearing a peak, at 894, as compared to just 133 new highs. These numbers continue to indicate general weakness in the markets and until there is a complete flushing out, there's no chance at reversal, except in very short term, oversold conditions.

Actually, there could be a little buying before earnings begin to flow around the 14th of July, so some sideways to slightly higher trade is expected.

Commodities continue to show the inability to sustain rallies. Oil fell off 21 cents today, closing at an even $140.00. That should be close to the absolute top. Gold dipped $3.00 to $928.30, while silver lost 20 cents, closing at $17.51.

There is likely to be some degree of buying activity the rest of the week as funds reposition themselves for the second half of the year. Some of their picks will be good ones, most will be lemons and losers. It's too bad for them that their charters only allow them to buy stocks and not hedge or go short.

They'd be better off.

NYSE Volume 1,609,389,000
NASDAQ Volume 2,101,667,000

Dow Takes Another Tumble

In the aftermath of Thursday's meltdown, traders were likely happy to see the week come to an end. However, instead of a "dead cat bounce" or bottom fishing, which would likely occur in a normally-healthy market, stocks took another hit on Friday. In the absence of a late-day short-covering rally, the damage would have been far more severe.

Dow 11,346.51 -106.91; NASDAQ 2,315.63 -5.74; S&P 500 1,278.38 -4.77; NYSE Composite 8,623.51 -17.23

As it was, though the NASDAQ, S&P and NYSE Composite took only minor losses, the Dow was battered once again, led lower by a variety of consumer and banking stocks, including JP Morgan Chase (JPM, -1.27, 35.05), Home Depot (HD, -0.64, 24.02), Proctor Gamble (PG, -1.76, 60.49) Citigroup (C, -0.42, 17.25) and Coca-Cola (KO, -1.38, 51.84).

In general terms, the pillars of American consumerism are crumbling.

What's disturbing is that prices are at record highs for just about anything and everything, be it edible, reusable, financial or energy-related. The only thing not going higher in price, it seems, is real estate. The good news is that high prices are unsustainable without a solid consumer paying good money.

This is all the likely end of globalization. Wages and prices for Americans had to come down, while those of other less-developed nations had to rise. The final piece of the puzzle is a recession in the United States which drops prices to a level commensurate with already-lowered wages.

And it will happen. It has to. Average working people in America cannot continue to exist without savings, spending every last dollar on just food and energy, living paycheck to paycheck without any hope for the future. A seismic shift in the world economic system is about to take place. Many corporations, many of them standards in the worldwide consumer market, are going to stumble. Some will actually crumble and be pushed out of existence within the next two to five years. Profit will be squeezed for the simple reason that there simply is not as much money around to spend on various goods. Necessities come first. Then there are video games, vacations and the comforts of life.

Declining issues once again led advancers, 3862-2455. New lows soared over new highs, 895-89. There is every indication that the bear market is only now picking up steam and another 15-25% will be shaved from prices over the coming 6-18 months.

The recession, which many are denying out of warped statistical data, is inescapable and now upon us. All that's left to complete the cycle is a full shakeout in equity markets and a decline in commodity prices due to slack demand. Only then will economies and investments make sense.

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While all of this makes perfect economic sense, those trading oil and precious metals are not currently on the same page, but they are due for a very rude awakening as those asset bubbles collapse in coming months.

Crude oil was up another 57 cents to a new record of $140.21 a barrel. Gold tacked on $16.20, to $931.30. Silver gained 49 cents to $17.71. Like everything else that's traded on this planet. These prices have gone up and they will come down.

Volume the past two days was very heavy, reflecting a general exodus out of stocks of all kinds.

All in all, this was probably the best week the market has had in many years. Investors finally are being forced to face reality, and while it is harsh, it does have a certain cleansing effect.

NYSE Volume 2,204,843,000
NASDAQ Volume 3,167,387,000

Wall Street's Grand Collapse

All of the factors that have been beating down the US economy finally came into full focus on Thursday.

From another huge spike in the price of oil, to continuing credit market woes, all the bad news has finally begun to become expressed in terms of market losses.

The Dow crashed below the closing lows of March (12,750) by a wide margin. The S&P 500 closed just 10 points ahead of the March bottom, while the NASDAQ, despite a gargantuan loss, still is well ahead of the March 10 closing low of 1169.

What's driving down stocks today are all the things that drove them to staggering heights from 2003-2007. Massive government budget deficits and a lopsided foreign trade balance have contributed to a weakened US dollar. Easy credit turned the housing and credit markets on their ears. Political waste and corporate corruption that led the way up are now killing the US equity market.

As I have been saying for many months, and especially since August of last year, the profligate spending of the Bush administration coupled with an all-too-compliant congress have led the United States to the brink of economic catastrophe.

We may have reached a point at which there is no bottom to the market. People rich and poor, pension funds, investment trusts and mutual funds have all been battered and the worst may yet be to come.

Dow 11,453.42 -358.41; NASDAQ 2,321.37 -79.89; S&P 500 1,283.15 -38.82; NYSE Composite 8,640.74 -225.06

No sector was safe from the onslaught of selling. Declining issues outnumbered advancers by nearly a 5-1 margin, 5232-1134. There were 756 new lows to just 63 new highs.

Oil reached another record high of $139.64, up $5.09. Gold shot up $22.80 to $915.10. Silver gained 61 cents to $17.22. Despite the outsize gains, the metals are still well off their 52-week highs.

With earnings season just 2 1/2 weeks ahead, markets will not be able to shore themselves up before exceeding even lower lows.

The US economy is dead on its feet and our leaders in government sit idly in stunned silence. It is indeed time for major changes, and nothing could be better for this country than a complete investigation into all of the abuses of the Bush administration, with impeachment as an ultimate goal.

This is what happens when government runs out of control. First, financial markets are shattered. Next, the social fabric will begin to be shredded.

NYSE Volume 1,535,342,000
NASDAQ Volume 2,278,595,000

The Folly of Fed Policy

Today, the Federal Open Market Committee (FOMC) of the Federal Reserve determined to leave federal funds rates without change, at 2%.

If the previous statement sounds like a lot of words to say essentially nothing, then count yourself among the lucky few who have learned not to pay too much attention to the moves, machinations and pronouncements of the Federal Reserve.

Essentially, the Fed took two days this week to decide to do... nothing. It's nice work if you can get it, but some of us who have to endure the anticipation of and reporting upon the 8 scheduled meetings a year wish they would do nothing more often, because nothing is usually what they - in the long run - accomplish.

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Consider today's decision to be the end of a sometimes dramatic cascade of interest rate reductions, which took the federal funds rate from 5.25 to the current 2.00% from September, 2007 through the present in a series of 10 statements, four of which were unscheduled.

Since September, 2007, the stock markets have done nothing more than deteriorate, prices have gone up (oil and gas have doubled in price) and the US economy is in no better shape than 9 months ago. By many accounts, we are worse off, and the value of the US dollar, measured against almost any other currency, has weakened.

So, excuse me for thinking that the Fed is full of nothing more than a lot of hot air.

Still, they have many followers and believers that they can accomplish much, when, in fact, the complexity and nuances of the global economy are far beyond their control.

They really ought to just set a rate and leave it relatively unchanged for long, long periods of time. 5% ought to be about right for what member banks charge other institutions. It shouldn't waver too far from that point, providing stability and security to markets. A policy along those lines would be far more improved and safer than the up-and-down we've come to know and loathe since the Volker years.

Dow 11,811.83 +4.40; NASDAQ 2,401.26 +32.98; S&P 500 1,321.98 +7.69; NYSE Composite 8,865.80 +62.46

Stocks were mostly higher prior to the announcement at 2:15 pm, and lost ground thereafter, which was somewhat expected, considering that the Fed is essentially saying, "We're done cutting rates for now, as that didn't work, so we're going to sit back and wait and watch." Actually, the markets should have exploded upward as the Fed admits powerlessness. It was, after all, pretty good news.

Markets responded in a fairly positive manner overall, or maybe they were just in a technically oversold condition, short term. Advancing issues finally took command over decliners, 4225-2059, while new lows continued to track ahead of new highs, but not by as large a margin, 376-69.

Commodities were lower, with oil down $2.45, at $134.55. Gold fell $9.30, to $882.30, while silver lost 13 cents, at $16.61 the ounce.

The decline in commodities continues unabated, with the notable exception of oil, but even that may have topped out already. A further slowdown in commodities markets may be signs that the recession is real and growing globally.

CNBC analyst Jim Goldman opined today about the Yahoo-Microsoft merger rumors which resurfaced, rather suspiciously, yesterday. Yahoo finished at 22.00 today, but it should be noted, especially by federal investigators and regulators, that it was trading at 20.70 before the latest rumor surfaced. Neither Yahoo nor Microsoft has confirmed that talks are back on, making this episode mighty questionable.

The markets are still highly unstable. The Dow lost 112 points in just the final hour, once all the gyrations following the Fed decision had played out.

NYSE Volume 1,261,685,000
NASDAQ Volume 2,135,660,000