Markets Up Sharply As Financials Power Ahead

Investors were treated to a rare turnaround Tuesday as stocks shot up, erasing the declines from Monday in suspicious trade.

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While oil dropped once more, financial stocks were the main focus, racking up outsize gains, despite continuing economic woes. Volume was incredibly light, suggesting organized pumping by the Fed and their Wall Street proxies to keep the indices from falling back to mid-July levels.

Dow 11,397.56 +266.48; NASDAQ 2,319.62 +55.40: S&P 500 1,263.19 +28.82; NYSE Composite 8,419.20 +159.01

Think the market isn't subject to special situations and insider trading? Think again. Here's what briefing.com had to say about the past two days of trading in Merrill Lynch (MER) and the financial sector:

In an effort to reduce its risk exposure and shore up its balance sheet, Merrill Lynch (MER 26.32, +1.99) is selling $30.6 billion worth of U.S. ABS CDOs for only $0.22 on the dollar, or $6.7 billion. The assets were valued at $11.1 billion at the end of the second quarter, meaning the sale will result in a $4.4 billion pretax write-down. Merrill has taken $51.8 billion in write-downs and credit losses since the credit market turmoil began last year -- second only to Citigroup's (C 18.46, +1.03) $54.6 billion.

Merrill also raised $8.55 billion in a common stock offering at $22.50 per share, making the sale dilutive to existing shareholders. Merrill's stock fell 9.5% to a 10-year low shortly after the open, only to rebound and finish the day 8.2% higher. Merrill's stock dropped nearly 12% during the previous session on no specific news item, so the market may have already been pricing in some of the latest write-down and capital raising news.

The financial sector ended the session with a massive 7.5% gain, as traders speculated that the Merrill news indicated better times are ahead for financial firms.

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That final paragraph is nothing more than a guess about how Wall Street reversed Monday's losses. The truth more likely is that of a combined effort by Wall Street's favored banks and brokerages to save their souls.

The US economy remains in tatters. Tuesday's gains were made mostly by the bankers and brokers themselves.

Advancers led decliners, 4660-1651. New lows remained ahead of new highs, 233-80.

Gold 926.40 -11.40
Silver 17.38 -0.09
Light Sweet Crude Oil 122.19 -2.54


NYSE Volume 1,405,967,000
NASDAQ Volume 2,318,781,000

Bank Failures Spook Wall Street

Monday was another in a series of bad days for investors as a pair of bank failures over the weekend rocked the stock market once again, sending the major indices down 2% on average.

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Amidst one of the most serious economic crises in US history, investors of all stripes are losing faith in not only the financial sector, but government leaders and institutions that were supposed to be a safeguard against the kind of wholesale collapse which seems to have overtaken the US economy.

Over the weekend, the FDIC closed two undercapitalized regional banks - First National Bank of Nevada and First Heritage Bank - the sixth and seventh bank failures of 2008. The news was not widely spread until Monday's market open and it hit investors like a ton of bricks.

While the Dow was up briefly in early morning trading, the other indices fell quickly into the red and spent the rest of the day under the flat line and losing ground. Stocks ended at their lows of the day.

Dow 11,131.08 -239.61; NASDAQ 2,264.22 -46.31; S&P 500 1,234.37 -23.39; NYSE Composite 8,260.19 -135.39

Selling was broad-based, with all 10 sectors posting losses. Decliners buried advancing issues by a nearly 3-1 margin, 4611-1660. New lows continued to dominate new highs, 240-71.

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Today's close on the Dow was just 168 points above the recent mid-July bottom of 10,962.54. The other averages are also nearing their recent lows. Volume was very light, but the selling pressure was relentless.

Oil rose $1.47, to $124.73. The metals continued to demonstrate weakness, with gold up a mere 90 cents, to $937.80 and silver off 9 cents, to $17.47 the ounce.

As second quarter earnings continue to roll out, investors are not pleased nor in a mood for any kind of speculation going forward until there is some cataclysmic event or resolution to the housing/credit mess.

NYSE Volume 1,173,196,000
NASDAQ Volume 1,967,769,000

Durable Goods Bump Helps Stocks

Of late, economic news has been more or less discouraging to investors, but the week ended with some upbeat data on durable goods orders, which increased by 0.8% when analysts were expecting a downturn of -0.3.

That bit of positive news was enough to boost the averages into a higher close at week's end.

Dow 11,370.69 +21.41; NASDAQ 2,310.53 +30.42; S&P 500 1,257.76 +5.22; NYSE Composite 8,395.58 +25.67

Volume on the exchanges was typically light for a mid-summer session and somewhat of a relief after Thursday's deep drubbing.

Advancing issues finished ahead of decliners, 3654-2561, though new lows retained their edge over new highs, 236-99.

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The price of crude oil continued its descent, dropping another $2.23, to $123.26. The metals rebounded slightly after days of losses. Gold was up $4.60, to $936.90; silver gained 8 cents to close at $17.38.

Corporate earnings were also generally pleasing, with no downward surprises or 3rd quarter warnings from companies reporting, but, despite the spate of good news, the markets were choppy and directionless.

Investors are still uneasy and uncertain. Housing, banking and credit continue to be the main sources of concern and those are simply not going to improve readily. Additionally, layoffs and unemployment are seen as rising over the next few months. A weak labor market may emerge as the greatest threat to economic expansion. These conditions will likely continue until at least the November elections.

NYSE Volume 1,287,772,000
NASDAQ Volume 2,016,542,000

Stocks Routed on Housing, Labor Fears

If the stock market and economy wasn't so dreadful, one might say it's a "funny" market, though there doesn't seem to be much news lately that would engender smiles or even a modicum of happiness or contentment.

On Thursday, the National Association of Realtors (NAR) announced that existing home sales in June fell by 2.6% from the prior month and were off 15.5% from a year ago.

The market had already been spooked prior to the open by unemployment data, which showed initial claims rising to 406,000 in the most recent week. When the NAR release hit the streets, the rout was on, as investors began unwinding positions, many of which were just begun a week earlier.

So much for the 650 point rally the Dow staged over the prior six sessions. In one day, nearly half of the gains were eviscerated.

Once again, the troublesome part of all this is that Wall Street - the geniuses who got us all into this mess to begin with - should have been anticipating more bad news and failed to do so. There has been absolutely no talk of a bottom being put in and investors who thought it was safe to venture into the market again were handed their hats and walking papers.

Dow 11,349.28 -283.10; NASDAQ 2,280.11 -45.77; S&P 500 1,252.54 -29.65; NYSE Composite 8,369.91 -210.66

The declines were broad-based, as decliners led advancers by a wide margin - more than 3-1 - 4739-1559. The moderation in new highs-lows was evident once more, however. There were 239 new lows to just 86 new highs, not a very large spread.

Crude oil gained $1.05, to $125.49. Gold lost another 50 cents, to $922.30, while silver gave back 16 cents, at $17.30.

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Corporate earnings continue to come in as a mixed bag, though firms showing exceptional second quarter results are few and far between.

This is a very dangerous market, one that is best avoided by buy-and-hold types at the present time. Wild swings have become the norm, a wonderland for astute and wily day-traders.

The bias is still to the downside long-term, while predicting short-term trends has become a task not even psychics wish to undertake. It's like trying to figure out when a manic depressive's mood will change.

Keeping in touch with trends is more important than ever. These are both exciting and depressing times for traders.

What fun!

NYSE Volume 1,534,348,000
NASDAQ Volume 2,545,402,000

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