Rally Petering Out?

For the week, stocks staged a fairly healthy rally, with Wednesday and Thursday each producing 200+ point gains on the Dow as positive earnings - especially from companies in the finance sector - and a big drop in the price of oil helped stocks regain some of their lost ground.

Friday was more of an up-and-down affair. While techs slumped, a late-day mini-rally pushed the Dow, S&P and NYSE Composite into positive territory for good.

Dow 11,496.57 +49.91; NASDAQ 2,282.78 -29.52; S&P 500 1,260.68 +0.36; NYSE Composite 8,453.85 Up 38.80

Volume on the exchanges was light compared to the last two days, a sure sign that investors have established their positions and will wait for cues from the market. Next week is the height of earnings season, with much of the S&P 500 and many Dow stocks reporting.

For the week, the Dow ended 396 points higher, the S&P tacked on gains of 21 points, the NYSE added 106 and the NASDAQ pushed ahead 43.

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Internals were a close call on the advance-decline line, with losers narrowly beating gainers, 3193-3072. New lows continued to outpace new highs, 235-90, a reading nearly identical to yesterday's.

Oil dipped 71 cents, to close at $129.47, the lowest close in months. The metals confirmed once again, with gold down $12.70, to $958.00, and silver off 54 cents to $18.20.

The continued sluggishness in the commodities suggest the coming of a new threat, that of slack demand, which can only push prices lower. Considering the heights that prices have reached in recent months, this should come as no surprise. In the case of oil, especially, the need to purchase fuel of all kinds has caused a backlash in the markets, and they are rapidly unwinding.

A sharp decline in commodity prices is going to cause assorted problems across the supply spectrum. No sooner have companies adjusted upwards, prices will have to reverse course. Naturally, some will respond sooner than others, but the entire world's commercial system is now in a state of flux and expectation. Without price stability - a stated goal of the Federal Reserve and other central banks - markets will gyrate wildly, with no established reference points.

All of this is troublesome, and a precursor to global recession. The handwriting is clearly on the commodity exchange wall. The coming storm is likely to be neither short in duration nor easily constrained. The best one can hope for is a modicum of sanity in markets, though even that may be a stretch.

As the continued credit crisis unfolds, it gets more and more interesting, but also vexing and potentially deadly to commerce everywhere.

As a medium to long-term strategy, keep focused on prices for all goods, materials and services to decline, including stocks, but especially commodities. It will take time and a healthy dose of skill for companies to adjust to rapid price changes in the marketplace. Some will crack under the burden, while a select few will benefit handsomely.

NYSE Volume 1,587,686,000
NASDAQ Volume 2,259,207,000

Earnings, Oil Boost Stocks Second Straight Day

Folks, we have a serious sucker's rally going. Or, more to the point. We had a sucker's rally going. Two day's of jubilation ended with a thud after the bell.

Some of the more unusual moves noted are:

eBay, which posted a 22% better profit than a year ago and beat analyst expectations by 0.02 cents, was slammed by investors, down 3.90, to 24.20, a nearly 14% haircut, when the company forecast was lower than expectations for the 3rd quarter.

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JP Morgan Chase (JPM) beat lowered street estimates by 0.10, but posted earnings 53% lower than a year ago. The stock soared 4.86, to 40.80, a gain of 13.5%.

After the bell, Google's (GOOG) profit rose 35% from the same period a year ago, but missed analyst expectations of $4.74 per share by 11 cents, returning $4.63 after one-time items. Shares ended down 40 points in after-hours trading, a drop of 7.63%.

Merrill Lynch, which was up 2.73 during the ordinary session, fell by 2.08, to 28.65, in after-hours trading when the company reported its 4th consecutive quarterly loss after the bell. The company lost a blistering $4.89 billion in the second quarter and is selling its equity stake in Bloomberg and its Financial Data Services subsidiary for a combined $7.9 billion.

The brokerage wrote down another $9.8 billion. The loss per share was a whopper: $4.97.

Expect the markets to get back to selling on Friday as the late-day news was none-too-encouraging.

Still, stocks soared again on Thursday as investor sought out bargains across the spectrum and boosted shares of beaten down companies. The Dow gained nearly 500 points over the past two session, but the good times seem to be a fleeting memory.

Dow 11,446.66 +207.38; Nasdaq 2,312.30 +27.45; S&P 500 1,260.32 +14.96; NYSE Composite 8,415.05 +82.23

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On the day, advancers pushed by decliners, 4503-1851. The gap between new lows and new highs was narrowed again, with new lows ahead, 272-90. Trading voluem was brisk.

Oil sold off for the third straight day, down $5.14 to $130.18. Gold gained $8.00, to $970.70, but silver lost 7 cents per ounce, to $18.74.

Should be an interesting get-away day on Friday.

NYSE Volume 1,970,761,000
Nasdaq Volume 2,707,973,000

Big Sucker Rally on Oil Price Drop, Wells Fargo Earnings

Well, since Fannie Mae and Freddie Mac didn't fall over and die - though they will need much help from the Federal Reserve and the US Treasury to stay afloat - and the price of oil dropped for the second straight day, US equity investors got the relief rally many of us were looking for last week.

Also contributing to the general euphoria was second quarter earnings from Wells Fargo bank, which actually beat estimates and was rewarded with a 32% gain. The rest of the financial sector followed the lead and the market followed and piled on the gains.

Naturally, while stocks were soaring from legitimate investment purchases, there had to be more than a fair share of short covering which boosted stocks even more. Sentiment, which has been decidedly negative in recent days and weeks, does not change overnight.

There are still many unanswered questions and hurdles for the US economy to clear.

The horrific credit conditions in the USA have not simply vanished because the Fed and Treasury averted a collapse of two major institutions. In case anyone cares, interest rates - especially those covering residential mortgages - have been rising and banks are still loathe to lend to anyone but the most stable, less risky companies and buyers.

Meanwhile, home prices are still falling, and, as the CPI figures released prior to the market's opening this morning showed, inflation is still raging right along. CPI for June jumped 1.1%, with core CPI up 0.3%. Those are hardly encouraging figures, though they mask the real problem, which is, oddly enough, deflation.

If the US economy continues to sputter and stall and credit conditions do not improve, very simply, there is going to be less spending, and according to the most rudimentary economics rules, less money chasing the same amount of goods equals lower prices.

Now, the rest of the world may not be in the same dire straits as the USA, but they certainly are feeling a bit pinched in most parts of the planet. Since lower prices usually result in companies' turning lower profits, this scenario is not at all good for stocks.

That's the next position we'll be in. First, housing falls, then stocks fall (where we are now), then, as the fundamental security of and confidence in the currency and the financial institutions begins to erode (also current), consumers pull back. What's prevented this from happening were those billions of dollars in checks sent to millions of Americans. They've been sent, and spent, and now comes the real test, as the US economy tries to muddle through without artificial stimulus.

I'm betting that conditions will worsen before they improve, regardless of what will likely be a follow-through rally the remainder of this week on any positive earnings news.

Dow 11,239.28 +276.74; NASDAQ 2,284.85 +69.14; S&P 500 1,245.36 +30.45; NYSE Composite 8,332.82 +175.02

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Don't get me wrong. It's nice to see plus signs in front of numbers for a change. I just don't think we're anywhere close to being out of the woods. We are getting closer to a bottom, however, and while I may not paint the rosiest of pictures, mine is at least realistic and based upon some experience from the past 30+ years.

I do believe that the final capitulative move to the bottom will occur this year, and that the US will be in recovery while other nations will be just beginning their downturns.

On the day, internals were a far cry from the dismal figures of the past month. Advancing issues outperformed decliners handily, 4877-1529, though new lows were still well ahead of new highs, 615-73. It's important to note that there were about 1000 fewer new lows today than yesterday. Bottom fishing, anyone?

Oil played a pivotal role in the market's one-day success, pricing lower by $4.05, closing at $135.32. As expected, the metals confirmed, with gold losing $16.00, to $962.70, and silver falling 21 cents to $18.81.

The good news is that everything, stocks, gold, gas, food, clothes, video games, rents and homes is going to be less expensive. The bad news is that it will be that way because there are so many people unemployed with no money to buy anything.

The fallout from the recession we're in (and we are in a recession, despite all the "official" measurements out there) haven't been fully manifested throughout the economy. Those include lowered corporate earnings and layoffs, which are certain to follow.

So, the lesson for today is simple: Chew before you swallow.

NYSE Volume 1,731,048,000
NASDAQ Volume 2,466,144,000

Market Turmoil Abounds

With Fed Chairman Ben Bernanke pleading with Congress for unlimited powers to fund failing mortgage lenders/underwriters Fannie Mae and Freddie Mac, US equity markets are nearly in panic mode.

After early steep declines on Tuesday, markets advanced in unison until the final hour of trade, then sold off rapidly.

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Bernanke, testifying before the Senate Banking Committee along with Treasury Secretary Henry Paulson, disclosed and discussed a plan that would allow the United States Treasury to purchase an equity stake in both Fannie and Freddie and give the Fed wide-ranging ability to make loans to the troubled GSEs (Government Sponsored Enterprises).

Prior to the Senate dog-and-pony show, the market was treated to another in a series of troubling PPI reports, this one showing PPI up by a staggering 1.8% and core PPI (which excluded energy and food) up by 0.2% in June.

That sent the indices reeling into the red, as more and more bad news comes over the wires in a seemingly-unending stream. And second quarter earnings are just beginning to hit the Street.

Dow 10,962.54 -92.65; NASDAQ 2,215.71 +2.84; S&P 500 1,214.91 -13.39; NYSE Composite 8,157.80 -129.96

Market internals were severely tilted to the negative. Losers crunched gainers by 4330-2091. New lows hit an extreme high of 1720, to just 68 new lows. Once again, the persistence of a high level of new lows (now nearly 1 of every 4 stocks) is indicating the possibility of a cataclysmic event at any time and the news continues to confirm that the US economy is in its worst state since the Great Depression of the 1930s.

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Oil fell $6.31, to $137.39, while the metals were mixed. Gold gained $5.00 to $978.70, while silver fell 24 cents to $19.01. Sooner or later, these prices are all going to plummet. The US - and to a large extent the world - economy is in dire straits.

A massive one-day decline in now in the cards, probably within the next two weeks.

Warning! The US is a Falling Stock Zone.

NYSE Volume 1,747,139,000
NASDAQ Volume 2,774,362,000

United States: Too Big to Fail?

We are a nation of inattentive spendthrifts, overseen by morons, liars and crooks, all driven by greed, envy and fear.

There is little doubt that today's action to salvage what little credibility is left of Fannie Mae and Freddie Mac, spelled out in some detail by Treasury Secretary Henry Paulson, are nothing more than parlor games designed to dupe the masses into the false belief that our nation's financial condition is not imperiled.

We're screwed, we're heavily in debt and our future prospects are about as bright as a high school dropout's chances of getting hired to an executive position.

Both Freddie and Fannie were fractionally lower on the day.

The simple formula is that both entities, which package and resell mortgages as bonds to investors, will now be able to borrow at the Federal Reserve's discount window at the low, low rate of 2.25%.

Isn't that lovely? Shouldn't we all simply spend at will, run up debts larger than we can repay and then allow the federal government (in other words, taxpayers) to bail us out? Is this the new path to the American dream?

Dow 11,055.19 -45.35; NASDAQ 2,212.87 -26.21; S&P 500 1,228.30 -11.19; NYSE Composite 8,287.76 -59.48

As for the markets themselves, investors were hardly amused. Stocks took their usual path to a lower close: higher at the open, then much lower, with the usual post-3:00 pm short-covering bounce back to break even, before ending down a bit.

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This sluggish behavior in the markets will persist until the manipulating brokerages and government interlopers feel they have squandered more than enough paper money than they can reasonably afford, and then stocks will really sink, like back to 1998 levels, or lower.

The plain truth is that, as a nation, we have gone from being the world's greatest creditor - replete with industrial, financial and military might - to being the world's largest debtor. Sadly, all we have left in the might department is the military, and we use that to bully and bludgeon lesser nations for their resources.

We are a deteriorating nation, and it is happening much faster than anyone ever assumed it would.

On the day, declining issues outpaced advancers by a wide margin, 4623-1769. There were 1053 new lows to just 77 new highs. Volume was on a scale of 4-1, favoring the down side.

Oil was up 12 cents to finish at $145.78, while the metals made a strong showing. Gold gained $13.10 to $973.70 and silver added 43 cents to $19.25. Both are approaching recent highs.

Buying stocks now, as it has been most of the last 12 months, is a fool's game. If you're not out of the market completely, the only place to be is on the short side.

NYSE Volume 1,419,180,000
NASDAQ Volume 2,037,816,000