Wall Street Getting, Sending Mixed Signals

In yet another volatile session for stocks, the major indices ended slightly higher, amid worries over the solvency of mortgage underwriters Fannie Mae and Freddie Mac, and continuing focus on the price of oil.

While Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson spent the better part of the day testifying to Congress on the state of the economy, equity, bond and currency markets gyrated wildly, seemingly hanging on every word and nuance from the pair.

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In the end, the dollar was higher, then lower, against the Euro and Pound, but higher against the Yen and Swiss Franc. Dow stocks took an up-and-down round trip of 180 points, eventually ending higher by less then 1%.

Bonds rallied then sold off, as the final word from Bernanke was that the credit crisis - which has gripped financial markets since last August - appeared to be easing, with banks borrowing less and investment firms not borrowing at all in the most recent week.

That news came to the markets at the very end of the day, but managed to move the equity indices off break-even or negative to reasonably solid gains.

Dow 11,229.02 +81.58; NASDAQ 2,257.85 +22.96; S&P 500 1,253.39 +8.71; NYSE Composite 8,435.94 +64.31

Signals being sent by the Fed and Treasury were mixed, as were movements on the stock markets. On the one hand, Bernanke wanted broader powers with which to handle financial crises, like the Bear Stearns blow-up in March, while his counterpart at Treasury, Paulson, urged a plan that gave the Fed less control.

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Stocks, difficult to read even in the best of times, were simply impossible today, spending equal parts of the day both over and under the flatline.

Looking at the internals, gainers outnumbered losers by a small margin, 3387-2885. The spread between new lows and new highs, however, was still startlingly high, with 811 new lows to just 55 new highs. This elevated spread between the new low and new highs has been a persistent factor for more than a week now, though it should be pointed out that, with the exception of a handful of days, there have been more new lows than new highs every day since October 31 of last year.

In the way of good news, there simply wasn't much today. Warnings that the nation's mortgage underwriters - Freddie and Fannie - were in danger of default acted as an anchor on the financial sector and the entire market, as did concern over the continued viability of investment banking house, Lehman Brothers.

Fannie Mae (FNM) finished the session down 2.11 at 13.20, while Freddie Mac (FRE) closed 2.26 lower, at 8.00. Stock prices for both firms were at their lowest levels in 17 years.

Recession fears resurfaced in a number of widely circulated opinion pieces and most notably in Great Britain, where expectations of an economic downturn are beginning to look a lot like those in the US, where we are already in a recession, even though official government statistics belie the fact.

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Meanwhile, commodity markets marched higher. Oil reversed the losses of the past few days by adding another $5.61 to the price of a barrel of crude, closing at $142.33. Gold shot up $13.40 to $942.00, while silver gained 15 cents to finish at $18.32.

Finally, RealtyTrac, Inc. reported that foreclosure filings skyrocketed 53% in June while bank seizures were up a whopping 171%.

For what was supposed to be a slow news day prior to the start of earnings season next week, there certainly was a load of data and information for the markets to absorb.

If the United States is going to avoid a complete financial collapse, it won't be by much, and there seems to be more evidence that the rest of the world will suffer a slowdown as well. Some Far East nations may escape the clutches of full-blown recession, but they are few and far between.

NYSE Volume 1,534,140,000
NASDAQ Volume 2,300,481,000

Bears Exact Their Revenge

Following Tuesday's suspicious late-day, short-covering rally (yes, now we know for sure, that it was more short-covering than actual buying interest), bears mauled the market in a merciless attack at stocks of all kinds.

Regardless of the cause - be it the price of crude, fires in California, rotten tomatoes or worsening credit conditions worldwide - nobody was very interested in buying stocks, nor will they be for some time. Today's close on the Dow was a 23-month low, the lowest point since August of 2006.

Dow 11,147.44 -236.77; NASDAQ 2,234.89 -59.55; S&P 500 1,244.68 -29.02; NYSE Composite 8,371.63 -144.16

With second quarter earnings due out over the next three weeks, July promises to be as ugly, or even moreso, than June, a month in which the blue chip index lost nearly 1300 points. Thus far - over the span of just 6 trading days, the Dow has given back more than 200 points. The other major indices fared equally as poorly, though, somewhat amazingly, the NASDAQ still has not fallen below its March 10 closing low, of 2169.

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The S&P 500, however, today closed well below the March 10 close of 1273. The NYSE Composite is well beyond the March 10 close of 8534. These are historic bear market finishes and it's obviously far from over.

Declining issues roared past advancers, 4266-2035, while the gap between new lows and new highs was somewhat muted, with 440 new lows to just 60 new highs. Volume was moderate, though most of it (over 80%) was to the downside.

Oil finished higher by a mere one penny, at $136.05 on the NYMERC. Gold gained $5.30 to $928.60, while silver added 22 cents to $18.18.

NYSE Volume 1,488,884,000
NASDAQ Volume 2,259,971,000

Short Squeeze Bounce

We all knew it was coming, didn't we?

Surely stocks could not continue to fall precipitously into the financial abyss as they have over the past month. Sooner or later there would be a Bear Trap, and that trap was sprung at 2:25 pm today.

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The Dow was sitting at break-even at that moment. From there to the close, it gained 152 points, as all indices finished solidly in the green.

There was ample reasoning for both the bullish and bearish case, though in the end, the plummeting price of crude oil took the market along for a merry ride upwards.

Dow 11,384.21 +152.25; NASDAQ 2,294.44 +51.12; S&P 500 1,273.69 +21.38; NYSE Composite 8,515.79 +115.58

Earlier in the day, the National Association of Realtors (NAR) produced another horrific report on the housing collapse, showing pending home sales for May down 4.7%, nearly 2% worse than expectations. The news was enough to send all the indices briefly into negative ground before noon.

Wholesale inventories were slightly improved, at 0.8%, better than last month's reading of 1.4%. When inventories are high, which they are now, it is a sure sign of sluggish business conditions. No surprise there or to any investors paying attention.

On the day, the internal numbers were a bit brighter than has been the norm. Advancing issues outperformed decliners, 4336-1995, a ratio of better than 2-1. New lows continued to dominate new highs, 806-52, and though that number is highly out of balance, it is better than yesterday's dismal reading.

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All of that makes sense in light of today's gains. The market had hit a temporary bottom, with new lows burying new highs. It was high time for a relief rally. The Dow actually put in a quadruple bottom in the 11,160-11,200 range. The key question is whether today's rally was more short-covering or speculation and whether it has legs to continue tomorrow. Judging by the strong close, the next few days could be troubling for short-sellers.

By the end of the week, however, the market could easily revert to protracted losses as earnings season gets into full swing. There have been warnings sounded and the high price of crude is likely to drag down profits all around.

Speaking of earnings, what had the market spooked was the traditional first company to report - Alcoa - which did so after the close. Skeptics were disappointed as the company said profits slid 24%, but still met expectations. Alcoa (AA) earned 66 cents as compared with the second quarter of '07, in which it earned 81 cents. The stock, battered during the regular session, beat expectations by .02.

As for commodities, crude oil took a major spill on Tuesday, losing $5.33, to close at $136.04. Oil is off nearly $10 since the high last Thursday, which coincided neatly with the busiest driving weekend of the year in the USA. Gold lost $5.50, to $923.30, while silver added 4 cents to $17.96. More evidence that the commodity boom is coming to a hasty conclusion.

As the balance of the week offers little in the way of either economic reports or corporate earnings releases, there may be some bottom fishing before the weekend. All bets are off after that, however.

NYSE Volume 1,728,487,000
NASDAQ Volume 2,499,119,000

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