Oil, Gold Signaling Recession

While the stock exchanges all recorded another positive session, the sudden, explosive price drops in oil, fold and silver are sending unmistakable signals of an upcoming recession.

High prices for food and energy may have been the tipping point for the US economy and certainly, those prices have already led to riots and disturbances in a handful of emerging nations.

When oil hit $145 per barrel and gas prices spiked above $4.00 per gallon in the US, even the ordinary citizen knew that level of gouging was unsustainable and the inevitable occurred - people began changing habits, buying less, conserving more and generally putting the brakes on the demand side. American consumers were already exceptionally strapped as it was, high prices just exacerbated the pain and suffering.

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What we're currently witnessing is one of the marvels of the modern free market system. Prices are coming down post haste. The market is making the adjustment without intervention.

The problem is that the forces which pushed prices higher - mostly speculation and fear - are now out of the picture, having been replaced by conservation and prudence and that's really being manifested in the metals and oil markets.

Oil dropped another $3.98, ending the day at $124.44. Gold fell by a stunning $25.70, to $922.80, and silver lost 55 cents to $17.46. The systematic unwinding of futures and hard positions has been underway for the better part of three weeks and is accelerating.

Recessions are widely defined as negative growth, but two elements that are usually in play are job losses and negative pricing pressure. In the absence of a stable, growing labor force, companies have trouble raising prices, which, in turn, puts pressure on profits and cyclically engenders even more layoffs. The cycle is beginning to churn more swiftly of late, and there's little the Fed or any governmental agency can do to slow it or stop it.

Dow 11,632.38 +29.88; NASDAQ 2,325.88 +21.92; S&P 500 1,282.18 +5.18; NYSE Composite 8,580.57 +13.92

As for stocks, advancers beat decliners, 3791-2515. New lows remained ahead of new highs, 187-133, much closer to parity than at any time over the past 2+ months. Once this reading breaks in favor of the new highs, expect it to last for some time - maybe two to three weeks - before markets begin heading lower again.

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That particular metric is going to become a more difficult read in coming weeks. Remember that the first wave of the bear market began in August of 2007, so it has been nearly a year of declining fortunes on Wall Street. Making more new lows is going to be difficult and we may see some days when the markets are sharply lower but there are more new highs than new lows.

With over 100 companies reporting earnings on the day, the major news was that $25 decline in gold. If gold price cracks, expect everything else to come tumbling down as well. All goods and services will be less expensive, but, how many people will have jobs - and money - to buy the newly-lower-priced items?

Something to ponder over the next 6-9 months.

NYSE Volume 1,725,843,000
NASDAQ Volume 2,726,705,000

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