Up, Down and Mostly Nowhere

If today's trading was to be compared to a roller coaster ride, that analogy would be most appropriate. Stocks took a wild ride on Monday, up, then down, then back up and eventually down again.

Dow 11,231.96 -56.58; NASDAQ 2,243.32 -2.06; S&P 500 1,252.31 -10.59; NYSE Composite 8,400.21 -81.33

To the untrained eye, today's charts would seem to show that investors didn't know what they were doing, but, in fact, they did, and they did it quite well. First, they cheered the drop in the price of oil, then the realization that even at $140 per barrel, it still was expensive, and the selling ensued. In the afternoon, an oversold condition brought out bargain hunters and short-covering traders. Late in the day, market realities took hold and all indices ended lower.

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Traders should become accustomed to this kind of market. There's no direction except down, but various false bottoms could be put in place, sparking rallies which could turn on a dime, such as today's.

With the market in such a fragile condition, earnings reports are likely to engender moves in both directions.

The internals, however, are still quite negative. On Monday, losers beat gainers, 4326-2028. New lows overwhelmed new highs by an incredible 1137-43. That is the largest margin since March, when the markets were carving out new lows, as they did today.

As mentioned earlier, oil tumbled $3.92, closing at $141.37. Gold fell $4.80 to $928.80 and silver lost 45 cents to $17.92.

All told, everyone had a grand time, despite the unstable conditions. Most of the bullish crowd is waiting for the inevitable bounce, though they know in their hearts that even a 500-point move on the Dow could be very short-lived.

NYSE Volume 1,522,468,000
NASDAQ Volume 2,351,769,000

Market Looking Past Independence Day

Considering the conditions in the market on July 3 - shortened trading session, busiest driving weekend upcoming - the key impression from today's tone of trade was one of looking ahead. Some brave souls staked out new positions after a couple of key economic reports, but from 10:30 until the market's early close at 1:00 pm, the indices drifted in a narrow range, closing positively, with the exception of the NASDAQ, while the Dow displayed leadership.

Dow 11,288.54 +73.03; NASDAQ 2,245.38 -6.08; S&P 500 1,262.90 +1.38; NYSE Composite 8,481.54 +16.03

It's somewhat fitting that the Dow would show strength the day before we commemorate our independence from England's tyranny. The Dow Jones Industrials are - as a group - representative of American financial might. Closing higher prior to the holiday leaves a pleasant aura over the markets.

The two economic reports were the Labor Dept.'s June Non Farm Payroll data, which showed a loss of 62,000 jobs for the month, and the ISM Services Index, which fell to 48.2 from a May reading of 51.7.

As for the prospects for next week and the rest of the month, first good, then bad. With almost two full weeks of trading available before corporate reports for the second quarter begin to clog the market, there's ample opportunity for a bounce back to 11,700 on the Dow. Excluding today, the Dow has dropped a rock-like 1813 points since May 19 (13,028-11,215), and is in a technically oversold position.

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While future prospects range from dim to dull to bleak, the opportunity for a 300-500 point bounce within the coming two weeks is paramount. After that, all bets are off, because, as I have been saying, and according to no less an ardent voice than Standard & Poor's themselves, second quarter corporate profits are expected to be weak. There's no secret here. The economy is figuratively in the crapper and stocks have not reflected the fact yet.

That said, oil prices should ease (where have we heard that before?), following the peak demand holiday weekend. I should include this caveat: that my judgment of the price of oil is based upon a theory that it largely anticipates demand and after July 6, when folks return from weekend trips, there's likely to be a sag. Consumer's pockets will be generally emptied at the filling stations across the nation as prices peak.

So, with oil going lower and the market in a temporarily oversold condition, the timing and rationale for a slight bump upwards is logical.

On the day, internals were the same as always. Declining issues beat advancers by an unhealthy margin, 3886-2217. New lows overwhelmed new highs by an amazing 898-44.

At last glance, oil was already easing, up just 19 cents, at $143.76. The metals, in their continuing gyrations between peak and interim support, were lower. Gold dropped $11.70, to $934.80, while silver shed 15 cents to $18.28. Please note that the commodity markets were still open and trading as of this writing.

Enjoy the 4th, and remember, our freedom is guaranteed by the constitution, not our leaders.

NASDAQ Volume 1,427,788,000

High Oil Killing Economy

Well, hating to sound like a broken record, I'll just toot my own horn instead.

Here's what I said on April 23, 2007, in a post titled, "We Will Drown in Barrels of Oil":

"If anything can derail the economy all by itself, it's high energy costs, which have been a noticeable drag for the past two years at least."

Both before and after that comment, I made the case for why it was such, why it should be avoided and how well-manipulated and controlled the oil markets are.

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After today's completely uncontrolled trade on the NYMEX and elsewhere, there's little doubt about it. High fuel prices are killing the global economy. Oil closed at $143.58, up $2.61 on the day, a new record.

Stocks, which were higher until 11:00 am, fell precipitously as afternoon oil trading pushed higher and killed any buying interest in stocks.

Generally speaking, the price of oil, diesel, gasoline, home heating oil, natural gas (which has doubled in price since last year), propane, jet fuel or anything even remotely related to petroleum is depressing everybody and every thing.

It's a simple matter of economics. As the price of crude rises, everything else becomes less affordable. From food to computer chips, nothing is spared. So, investors are not very much amused and sell their stocks in disgust.

Dow 11,215.51 -166.75; NASDAQ 2,251.46 -53.51; S&P 500 1,261.52 -23.39; NYSE Composite 8,465.51 -175.77

The bad news is that the oil producers and big oil companies are happy, and Congress and/or the President has neither the will nor the desire to do anything about the big squeeze oil is putting on the public. The good news is that the price of oil - at these levels - is unsustainable. If people can't afford to drive to work or heat their homes, people will lose jobs, get sick, die, cause riots and disrupt the normal flow of commerce, which, truth be known, won't be flowing all that well in the first place.

Businesses fail, people stop driving, oil prices will either go down or stay at the same level without as much demand. Eventually, supplies will be available everywhere and the bubble that is the oil futures market will pop like an overinflated helium balloon.

The other good news is that this is the busiest driving weekend of the year, so the price of gas is likely at a peak. Well, at least it may be good news next week, next month, next year.

Market internals were absolutely in tatters. Decliners overwhelmed advancers by a nearly 3-1 margin, 4651-1686. New lows outpaced new highs, 817-108.

By contrast, the metals did not gain as much as cousin oil. Gold advanced $2.00 to $946.50; silver was up just 14 cents to $18.43.

In case anyone thinks we're close to a market bottom, be reminded that tomorrow, prior to the opening of the exchanges, the Labor Dept. will release June Non farms Payroll data. Analysts are looking for losses of 50-60,000 jobs in the month, which, in itself is reason to sell. Job losses beyond those numbers will send markets reeling once again.

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