Suspicious Surge Sends Stocks Soaring

Stocks on US indices dawdled along through most of the session, with the major indices just barely breaking into positive territory. That tepid mood was shattered in the final 45 minutes, as a trading frenzy sent the Dow - which was up only 30 points at 3:15 pm - up an additional 100 points. The other major indices responded in similar fashion.

Dow 11,602.50 +135.16; NASDAQ 2,303.96 +24.43; S&P 500 1,277.00 +17.00; NYSE Composite 8,566.65 +66.91

As these kinds of surprise surges have become more commonplace of late, this one was a bit more spectacular than most, whether it was the PPT plying their trade, or short sellers in a rush to cover, the result was a parabolic rise that sent waves of euphoria across the financial world.

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Much of those good feelings have been felt in the financial sector, which is up a stunning 25% over the past five sessions. Leading the way are the major commercial, regional and specialized banks.

The entire sector movement is curious... and probably overdone. These are the same characters that caused the current and ongoing crisis, and there's no good evidence that the danger has completely passed. This looks more like organized buying and some degree of speculation that the Fannie Mae and Freddie Mac episode marked the ultimate bottom of the market.

As much as anyone would like to call an end to our economic malaise, it's not like the Fed and Treasury waved a magic wand and made everything and everyone whole. Wachovia Bank (WB), which reported today, posted an $8.9 billion loss for the second quarter, cut its dividend 87% and announced layoffs affecting 10,750 people, mostly in the mortgage departments of their business.

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So, for people working and living in and around Charlotte, NC, where the bank is headquartered, the gains on Wall Street are a real slap in the face. Following those wretched results, Wachovia ended the day higher by 27% (16.79, +3.61). Of course, that's still a far cry from Wachovia's high of 53 last October, but there's little doubt the market today has divorced itself from reality.

Home foreclosures are still running at a record rate. The dollar's decline continues unabated. Oil, while down somewhat of late, is still pricey. Over 100 banks in this country are in danger of failing, and the kicker, layoffs, have just begun to stir. Two months from now, the upward moves of the past week will look silly in retrospect.

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This move is either technical - a condition of an oversold market - or pure fiction put out there by the slimy Wall Street and government manipulators who don't want the American people to know the truth. It's probably a bit of both.

On the day, gaining stocks rolled past losers, 4278-2009. New lows continued to beat down new highs, 211-105.

Oil finished lower by $3.40, to $128.42. Gold was slapped down $15.20, to $948.50 and silver lost 42 cents to $18.01 the ounce. As has been the case recently, commodities are being slammed back to earth by slack demand. Nobody wants to pay high prices and many have sought alternatives. It's the market, and it works.

Stocks are likely to continue on their merry way through next week as earnings pour in with sullen results, but brokers call it the end of the line and good times are just around the corner.

They're mostly liars and con men, people who think the economy is in good shape. It's about to fall over a cliff, and a steep one at that. The rallies of the past five sessions have the fingerprints of Ben Bernanke, Henry Paulson and their agents at Goldman Sachs, Lehman Bros. and Merrill all over them.

NYSE Volume 1,377,470,000
NASDAQ Volume 2,546,640,000

Oil Up, Stocks Retreat

A couple of pharmaceuticals, one a blue chip - Merck (MRK 35.33, -2.35) - and Schering-Plough (SGP 18.95, -2.49) helped drive down the Dow on unsatisfactory news concerning cholesterol drug Vytorin. Bank of America (BAC, 28.56, +1.07), another Dow component, helped stabilize the market by reporting earnings that were not as bleak as analysts had expected.

It was a pretty dull day considering the number of companies reporting earnings on the day (85+). Of course, heavyweights Apple (AAPL) and American Express (AXP) report after the closing bell.

Volume was dishearteningly light. We're still in a major bear trend, despite recent gains. Look for more sideways trading over the next few weeks and days. We're back to a directionless market for the time being.

Dow 11,467.34 -29.23; NASDAQ 2,279.53 -3.25; S&P 500 1,260.00 -0.68; NYSE Composite 8,499.74 +45.89

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Advancers: 3760
Decliners: 2509

New Highs: 68
New Lows: 187

Oil: 131.82, +2.35
Gold: 963.70, +5.70
Silver: 18.43, +0.23

NYSE Volume 1,037,603,000
NASDAQ Volume 1,760,719,000

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