A Day of Giving Back

Stocks snapped back into negative territory following more mixed messages on the economy.

At the open, investors were encouraged by data from the S&P/Case-Shiller home-price index, which showed a 1.2% gain in July over the prior month, the best month-over-month showing in 4 years. Though house prices nationally were in a decline of 13.1% year-over-year according to the survey, it was a better number than expected.

"Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over."

Following the housing data, the Conference Board reported that consumer confidence fell to 53.1 in September from 54.5. This report contradicted last week's positive report on consumer confidence issued by the University of Michigan sentiment survey.

Nonetheless, investors were taking profits in front of tomorrow's ADP Employment Survey, which has served as a proxy for the monthly Non-farm payroll data released by the government the first Friday of each month. Stocks finished at or near their lowest levels of the day, which usually indicates a good deal of unease, though these indicators have been less-than-reliable on a day-to-day basis recently.

Dow 9,742.20, -47.16 (0.48%)
NASDAQ 2,124.04, -6.70 (0.31%)
S&P 500 1,060.61, -2.37 (0.22%)
NYSE Composite 6,926.82, -12.94 (0.19%)

Market simple indicators were mixed on the day, with declining issues beating out advancing ones, 3517-2919. New highs improved, to 323, while new lows continued to contract, to 45. Volume was light to moderate, with many market participants taking a wait-and-see attitude in advance of the employment figures which will take center stage Wednesday through Friday.

NYSE Volume 5,592,967,000
NASDAQ Volume 2,094,364,375

Commodity traders took the same laid-back approach on the session. Oil slipped 16 cents, to $66.71; gold gained 30 cents, to finish at $994.40. Silver shed 2 cents to end at $16.18.

There was scant data with which to move the markets on Tuesday, though tomorrow will be another story altogether. Analysts are seeking job losses in the ADP report of about 200,000 for the month of September, and Non-farm payrolls of about the same level, though a figure of -180,000 would certainly be a tonic for the markets.

As mixed as economic data has been over the past two weeks, it's difficult to portend a particular outcome, and the markets surely aren't offering any clues.

Plenty of Momentum for Gains

A week ago, two weeks ago, four weeks ago, every mouth with an opinion on the stock market was calling for a correction of 5-10%, except, possibly, Laszlo Berinyi of Berinyi Associates, who said that a correction was not necessarily in the cards, and pointed out, on CNBC (sorry, I do not have the actual clip or reference), that analysts had not done their homework and that he expected the Dow Jones Industrials to reach 10,000 this month.

Well, even though this month, September, is nearly over, Mr. Berinyi may have been on to something. After last week's three-day decline, in which the major averages dropped between 2 and 4%, the last few days of the month have - all of a sudden - taken on a new, bullish tone. There are reasons aplenty for the abrupt upward keel that we witnessed on Monday, not the least of which having much to do with world politics. The far East stock indices such as the Shanghai, Nikkei and Hang Seng were all off sharply Monday morning, boding ill for their Western counterparts, but, miraculously, as Easterners awoke to a fresh week of market action, Europe's bourses were up sharply, and index futures were singing the praises of free market capitalism.

Merger deals were in the works with Xerox and Abbot Labs leading the charge, so when the US markets opened, traders wre buying fistfuls of stocks, from energy to industrials, to consumer cyclicals to health care. The Dow was up 100 points in the first fifteen minutes, and churned from there in a tight range.

While the rally will be pooh-poohed by the bears who will point out that volume was significantly lower due to observance of Yom Kippur, those holding their Torahs today were not missing from the rally. Surely they had issued instructions that were carried out with haste in the early going.

Dow 9,789.36, +124.17 (1.28%)
NASDAQ 2,130.74, +39.82 (1.90%)
S&P 500 1,062.98, +18.60 (1.78%)
NYSE Composite 6,939.76, +116.25 (1.70%)

On the day, advancers put decliners on notice of direction, beating them, 4972-1462, a 3-1 margin. New highs beat new lows, 318-55, expanding the gap and reducing the gross number of stocks hitting fresh lows. As mentioned above, volume was low, due to a Jewish holiday, but that fact is insignificant.

There is still untapped value in many stocks, earnings season is less than a week away, the economy is expanding once again, and sentiment is high. There is every reason to believe that stocks will continue their bull run in the near term.

NYSE Volume 4,399,573,500
NASDAQ Volume 1,931,896,625

Geo-politics dictates that the United States show strength following the G-20, especially in the face of new threats emerging from Iran. Those threats are nothing more than banter, rather than actual posturing for nuclear armageddon, meaning that industry must, and will, carry onward without interruption.

Commodities got the Monday-morning memo as well. with oil rebounding 82 cents, to $66.84, gold higher by $2.50, to $994.10, and silver up 14 cents, to $16.20. The commodity gains were modest as compared to those in equities, and for good reason: we are still struggling through a corrective, deflationary environment. Commodity and labor prices will continue to remain under pressure until companies can build up profits, inventory and a path to sustained growth. The economic recovery will be neither quick nor shallow. It will be as it should be, coming out of a severe crisis: long and vibrant. Company earnings are on track for their third consecutive quarter to the upside.

Investors were warned by the mass media to beware of the month of September. With just two days remaining, it appears that the worst fears have failed to materialize. One can only hope that more pundits and analysts warn about October.

Skidding Stocks Test Rally Resilience

Crosscurrents in the market continue to blow negative economic data into the mix. Today's rash of non-encouraging news came from two sources: the Commerce Department, which reported that durable goods orders fell 2.4%, when analysts were looking for a 0.4% gain; and the National Association of Realtors, in their monthly report on new home sales, which showed a gain, from a seasonally-adjusted 446K to 449K, smaller than expectations.

These minor gyrations in key economic data have been in the mix for two days and the markets have responded with something along the lines of a 2-3% decline in the value of stocks. Of course, not all stocks - nor indices - are created equal, and Friday's close demonstrated that the trade on the day was into defensive stocks and widely held issues, as the Dow outperformed the other majors on a relative basis. The losses on the Dow, as compared to yesterday, were almost exactly the same, but the NYSE Composite fared much better. On Thursday, the Comp was down 1.47%, as compared to -0.57% today.

There was a smattering of good news, as the Michigan Consumer Sentiment Survey moved higher in September, to 73.5, from 70.2 in July. People had a right to feel better this month. Until just this week, the weather was nice (except in Georgia) and the stock market was up. Kids being back in school must have added at least half a point to the adult happiness index.

Dow 9,665.19, -42.25 (0.44%)
NASDAQ 2,090.92, -16.69 (0.79%)
S&P 500 1,044.38, -6.40 (0.61%)
NYSE Composite 6,823.51, -38.80 (0.57%)

Our simple indicators are suggesting that whatever decline is currently built into the markets, it's not going to be a large one, or, at worst, it's not going to damage all stocks and all sectors. After the big hits on Wednesday and Thursday, today's drop was moderate and much less broadly-based. Advancers were once more beaten back by decliners, 3640-2727, which was a vast improvement from Thursday's 3-1 ratio. New highs topped new lows, 213-42, roughly in line with yesterday's numbers. Volume was off significantly from the prior two days, suggesting that whatever downside risk is prevailing, it isn't much. There was no panic selling at all, though stocks did finish much closer to their lows than their highs, so until that trend reverses course, there's likely to be choppiness in the near term.

NYSE Volume 5,279,540,000
NASDAQ Volume 2,336,395,000

Commodities were muted once more, with oil up a mere 13 cents, to $66.02, close to yesterday's two-month low. Gold fell $7.30, to $991.60, while silver slipped 24 cents, to $16.06.

In total, the week was not that bad, considering the recent run in stocks, which happen to be the only place to make money these days. The 10-year Treasury was a strong performer, with yields down from 4.48% earlier in the week to 4.33 on Friday.

With September coming to an end next week, the outlook will be focused on employment - or the lack thereof - as September non-farms payroll data is likely to have a huge impact. The market will be looking for job losses of under 200,000, after the August numbers came in at -216,000. That may be somewhat of a reach and could harm stocks short term.

One caveat to all of this is that expectations for a smooth recovery from the very sharp recession may be a bit too optimistic. While the data on existing home sales and durable goods this week took a step backwards, understanding that nothing moves in exactly a straight line could prove to be a valuable piece to the economic puzzle. Like the stock market, the economy runs into bumps and grinds as well. It's a huge country, and the data may not be perfectly reliable as well, so it's a good idea to keep a broad perspective and an open mind.

Improvement will happen, but not all at once and certainly not in measured doses.

Drop in Existing Home Sales Drops Stocks

The pins and needles upon which traders have been treading these last six months finally began to prick and tingle at the soles of their feet and the soul of investing. With stocks recovering mildly from Wednesday's selloff on news that unemployment claims had dipped - for the third straight week - the 10:00 am announcement from the National Association of Realtors that existing home sales for August had fallen 2.7% in August sent shivers through the markets, turning early gains into day-long markets.

The damage done by the one small piece of news demonstrated just how fragile this rally has become. Adding to the pressure was a stronger dollar, which helped keep stocks down, but did more damage to commodities. Overall, the damage was limited though broad, the Dow Jones Industrials outperforming the rest of the market, a sign that investors may have made a run to more quality names.

Dow 9,707.44, -41.11 (0.42%)
Nasdaq 2,107.61, -23.81 (1.12%)
S&P 500 1,050.78, -10.09 (0.95%)
NYSE Composite 6,862.31, -102.38 (1.47%)

Stocks closed lower for the second straight session, with declining issues leading advancers by a wide margin, 4899-1554, or, better than 3-1. New highs and lows both retreated, though highs remained the leader, 229-38. Volume was strong.

NYSE Volume 6,546,583,500
Nasdaq Volume 2,646,965,000

Commodity prices were affected negatively by the strengthening dollar, which, to many ordinary folks, is just fine, as the price of oil for November delivery dropped significantly, down $3.08, to $65.89, a 2-month low. Gold dipped below the magic $1000 mark, losing $15.50, to $998.90. Silver didn't do any better, dropping 62 cents to $16.30.

What's interesting to note is the interplay between the dollar, commodities and stocks, as they have been coupled together for quite some time. As the dollar has weakened, both stocks and commodities have risen, but, especially in the oil trade, some decoupling of stocks from commodities may be beginning to take place.

In reality, the two should have little to do with each other, since they are both asset classes. Wall Street may be outsmarting itself at the moment, as the long-term rally still remains in place for stocks, while commodities are arguably overpriced in this somewhat deflationary environment.

Tomorrow, traders will seek insight from durable goods orders at 8:30 am, followed by the Michigan Consumer Sentiment survey at 9:55 and new home sales at 10:00 am.

There are significant cross-currents at work, though the markets maintained their upside bias with the Dow finishing just above 4700 and the S&P finding support at 1048.

End of Rally or Start of Something Even Better?

Stocks took a 180 degree turn after the highly-anticipated announcement by the FOMC of the Federal Reserve, first blasting higher (the Dow pushing beyond 9900), but just as suddenly reversing course, heading straight down into the close to finish with the largest losses in nearly a month.

Alarmists will say that this is the beginning of a correction, which they said in May, June and July and again at the end of August, but they will still be wrong. The reasons are simple. First, the Fed announcement was probably their rosiest and most bullish since the financial crisis of a year ago. Second, they - the Fed - hasn't stopped pumping money into markets and reiterated that they would continue that posture. Third, the Fed kept interest rates essentially at zero, right where it's been for a year, and they're surely not backing off from that. Fourth, the timing of the sell-out (as opposed to a sell-off, I'll explain below) was extremely suspect and more than likely engineered by some very large players. Those would be the usual suspects from the failed banks and brokerages at Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America.

This kind of unexpected turn has gotten to be expected by market pros, and they're not going to be swayed into selling, though those who bought in anticipation of the market going higher on the Fed announcement (which it did, initially), may have a while before they get back to even. This was mostly planned, well-organized selling, something like the reverse of a short squeeze, with the big money taking theirs off the top. The rally, which is now more than six months old, remains intact and stocks will recover, probably in a very short time. There simply isn't any better place to put money to work. There's also plenty of support in the Dow 9400-9600 range. This was simply profit-taking and nothing more than that since the fundamentals of the market did not change.

Dow 9,748.55, -81.32 (0.83%)
NASDAQ 2,131.42, -14.88 (0.69%)
S&P 500 1,060.87, -10.79 (1.01%)
NYSE Composite 6,964.69, -82.44 (1.17%)

Declining issues beat advancers, 4080-2388, but evidence of the rally remained in the new highs vs. new lows metric. There were 507 new highs on top of 68 new lows, a very wide margin in a trend that continues to suggest higher stock prices. Volume was solid, though much of that volume had to do with the upside achieved earlier in the day. All told, the sell-out was not impressive and unlikely to encourage those of a bearish inclination very much.

NYSE Volume 6,319,143,500
NASDAQ Volume 2,699,233,750

What may have been more significant was action in commodities and in the dollar index. Right after the Fed announcement, the dollar fell abruptly, but soon after reversed course and finished higher, just the opposite of what stocks did.

Oil was absolutely shattered on the day, finishing down $2.79, to $68.97. The metals did not align, though they were lower. Gold sold off by only $1.10, finishing at $1,014.40. Silver fell 21 cents, to $16.91.

What happens next depends completely upon market sentiment, which has been somewhat positive and isn't likely to change soon, unless Thursday's unemployment claims data - both initial and continuing - come in below expectations. The time has come for employment, even though it is a lagging indicator, to start doing something other than tread water. Ditto the real estate market. Existing home sales data is on tap for Thursday at 10:00 am.

If these numbers are poor or show only incremental improvement, stocks could take an even worse beating, though judging by the exquisite timing by the big money players, there's probably going to be a return to the rally in short order. Obviously, one day does not make a trend, and as unexpected and swift was this decline, coming out of nowhere and running a full 150+ points on the Dow in the final 90 minutes of trading, qualifies as a one off event, completely orchestrated by the crooks and swindlers who brought you 9/11, the financial collapse, the TARP and every other suspect financial event of the past 20 years.

Don't be swayed. Their own greed tells us that stocks will have to go much higher short term.