All About Today's Reversal, And Why It Matters

The downturn in equity markets today should not have come as a surprise to anybody who understands charts and amrket dynamics.

A nice chart of the Dow covering the past six months reveals the condition. The market is sitting right on its 50-day moving average with no clear direction, though lower seems to be the most likely move as days progress.

Recall the events of the past 5 trading days: After the "flash crash" (thanks to the geniuses at CNBC for giving it a nickname) of last Thursday, the Dow sank on Friday, had a sharp opening gap up and maintained that stature on Monday, dipped a bit on Tuesday, rallied above the 50-day moving average on Wednesday, and today closed below that important measuring stick.

Now, there's an easier way to look at these events, especially if you're a cynical observer such as I. After scooping up shares at the bottom on Thursday and Friday, the power players behind the scenes made fast cash on Monday, sold a little more on Tuesday, sucked in more late-comers on Wednesday and now are selling in earnest. The moves are being made in conjunction with various and many stock option plays, the May variety which expire on Friday, the 21st, being the most active.

Depending on how badly these power players - the same group likely behind the flash crash and other recent organized selling - want to hit the little guys on the other end of trades - and how soon - this little episode could take on some very interesting dimensions. They might be over-weighted on the long end, or they could be itching for another downdraft. The latter would make more sense from a chartist's perspective. Once a market breaks through a key level - like the 50-day MA - the corresponding next moves are usually more of the same, and this move was one of significantly violent quality, so the downside appears to be the more obvious choice.

Of course, these insiders are a savvy bunch and they've likely already discounted the idea that the market should behave in patterned ways, so they just might keep stocks chugging along, mirroring the 50-day until options expire. The cynical view is that they bought close to the bottom and are slowly selling at fat profits presently, though, and that patten should continue.

At the end of today's trading, there was a rush for the exits. Stocks closed at their lows of the session, which is one of the more profound daily indicators one can find. It indicates a real reluctance to maintain positions and even less commitment to any new purchases.

Dow 10,782.95, -113.96 (1.05%)
NASDAQ 2,394.36, -30.66 (1.26%)
S&P 500 1,157.43, -14.24 (1.22%)
NYSE Composite 7,234.37, -81.99 (1.12%)

On the day, decliners took the advantage over advancing issues, 4193-2349. There were 192 new highs to a paltry 53 new lows. This is an interesting development. The market is holding judgement in abeyance, perhaps awaiting some catalyst, or just marking time until the next move lower. Volume was down for the third consecutive day, another indication that the markets are poised to head even lower, likely back to test the Friday intra-day low of 10,221.50.

NYSE Volume 5,477,719,500.00
NASDAQ Volume 2,321,865,500.00

Commodity prices continued to cool. Crude oil maintained its relentless slide, losing another $1.25 per barrel, to $74.40. Even gold bugs were either spooked or taking profits, sending the price down by $13.90 per ounce, to $1,228.80. Silver also ran down 16 cents, to $19.48.

Much of today's selling was blamed on some interesting and disturbing comments from mainstream retailer Kohl's, which issued 2nd quarter fiscal 2010 guidance that fell short of expectations and noted that the average amount per transaction was down in the most recent quarter. Macy's also cited the same metric, days ago. With retailers cautious about consumer spending, they are acting as the canaries in the coal mine, warning that the current recovery - if one exists at all - may not be sustained. If they're right, stocks will find no bottom in the near term and the remainder of the year may be a wipeout for many corporations.

It's interesting to note that the January indicator predicted that 2010 would be a down year for stocks and maintains a solid record of correctly predicting the future economy, somewhere in the range of 85% accurate. Since the major indices are right about where they began the year, that long-ago (4 months) indicator overhangs the market like the sword of Damocles.

While Wall Street pondered its own fate, oil continues to surge from beneath the ocean into the Gulf of Mexico. With the disaster now entering its 4th week without resolution, the slick continues to grow and the oil continues to flow. That oil will go somewhere, eventually, but the drama is playing out in what appears to be a slow-motion nightmare on Bourbon Street.

At the end of it all, expect to see the end of the rig company, Transocean, drowned in a sea of lawsuits. The CEO of BP, Tony Hayward, almost certainly will be sacked, if the company even survives. As for Halliburton, the love-child of former US VP, that company seems to be born under a lucky star. The damage to the Gulf waters, the shorelands and the wetlands may be unbearable and unresolved for years to come.

Bump and Grind and All is Golden

Monday was the bump higher, Tuesday and Wednesday turned out to be significant grinders as investors regained confidence and continued to scoop up stocks since there's nothing else to buy besides maybe gold and treasuries, and the latter isn't granting much of a return these days.

Speculation is back in vogue, now that the latest crisis has passed from public view, though there will certainly be issues going forward, as always.

Dow 10,896.91, +148.65 (1.38%)
NASDAQ 2,425.02, +49.71 (2.09%)
S&P 500 1,171.67, +15.88 (1.37%)
NYSE Composite 7,316.36, +94.70 (1.31%)

Once again, advancing issues finished far ahead of decliners, 5470-1122; 195 new highs outpaced just 58 new lows. As much as the rally seemed vibrant and flourishing, volume declined for the third straight day, reinforcing the notion that while all the attention was focused on stocks going higher, there were wise guys taking some slivers of profit while the herd pushed to the extremes.

NYSE Volume 5,929,432,500.00
NASDAQ Volume 2,308,404,000.00

Gold continued to dominate the commodity space, breaking through to fresh all-time highs, another sign that global economies aren't quite as fit as their leaders would have you believe. The shiny stuff was up another $22.80, to $1,242.70 on the day. Silver gained 37 cents, to finish at $19.64. The metals have parted ways with oil significantly this week, as crude fell 72 cents to $75.65, while motorists are still anxiously awaiting a similar price reduction at the pump.

Despite the coming arrival of summer, oil, if the price were not so ham-handedly manipulated, could reach even lower levels around the $60/barrel mark by mid-July, though the sheiks and barons probably won't allow that to occur, instead focusing on limiting supply and choking consumers. Gold will continue to rocket higher in coming months unless sovereign economies actually discover fiscal integrity - an unlikely occurrence.

Hot Flashes and Mood Swings; Gold Shines

Financial markets continued to behave in disorganized, semi-rational manners.

Prior to the opening bell, stock futures were pointing toward a heavy downdraft, with Dow futures predicting close to a 100-point gap lower at the open and that is roughly where it stood, making what would turn out to be the low point of the day just five minutes into the trading day.

Stocks gained steadily until reaching a peak just before 2:00 pm and then relented, sliding steadily downward into the close. This is the second day in a row which has witnessed large opening gaps - Monday's to the upside and of greater magnitude, today's lower - which benefit only the most adroit professionals and are a bane to the small investor.

Volatility, though subdued when compared to the final two days of the prior week, remains at elevated levels and volume dropped off for the second straight session.

What the markets are attempting to digest is a spate of conflicting events concerning Europe and the bailout of Greece, changing politics in Great Britain, the continuing unnatural disaster from the oil spill in the Gulf of Mexico and a reft of economic data and information that is not easily deciphered.

Housing and unemployment remain as the great contradictory indicators to a general recovery. Without a meaningful rebound in home-buying and employment, any hope for sustained prosperity seem overblown. The nearly $1 trillion thrown at the monetary crisis in Europe is being regarded widely as nothing more than a temporary fix with structural problems as yet not addressed.

The huge bulk of unfunded future liabilities mostly in the form of pensions and health services are keeping a lid on the economies of European nations as well as the United States. Massive government current deficits are already strangling state budgets. In New York, efforts are underway to overturn portions of the state budget which calls for one-day-a-week furloughs for state employees. The budget and the measure was passed on Monday night by the state legislature, at the urging of lame-duck governor David Patterson.

Meanwhile, hearigs were underway in washington, D.C. and New Orleans, concerning Thursday's stock market "flash crash" and the events leading up to an immediately following the oil rig explosion which caused the continuing oil spill of the Louisiana coastline (see video at end of this post).

Dow 10,748.26, -36.88 (0.34%)
NASDAQ 2,375.31, +0.64 (0.03%)
S&P 500 1,155.79, -3.94 (0.34%)
NYSE Composite 7,221.66, -35.96 (0.50%)

Advancing issues outpaced declines on the day, 3719-2812; new highs surpassed new lows, 166-62. Volume was lower for the second straight session.

NYSE Volume 6,583,789,500.00
NASDAQ Volume 2,484,207,000.00

The big winner on the day was gold, which shot up $19.50, to $1,219.90, closing at an all-time high. Silver tagged along, rising 74 cents, to $19.27. Crude oil futures finished the day 43 cents to the downside, at $76.37.

What's moving markets, now that second quarter earnings releases have been pretty much digested, are the markets themselves. Momentum trading is in vogue as equities seek direction. It's a turbulent time not only for stocks, but for stock-watchers as well.

Oil spill video: Times-Picayune Tuesday update

Euro Bailout Revives Markets... and How!

If anyone was thinking the markets couldn't get any more extreme than they did last week, Monday morning's festival of funding, courtesy of the European Union and the IMF, to the tune of nearly $1 Trillion.

According the the Wall Street Journal:

The U.S. market's surging open followed strong gains in the Asian and European markets after the European Union agreed to a EUR750 billion ($955 billion) bailout, including EUR440 billion of loans from euro-zone governments, EUR60 billion from a European Union emergency fund and EUR250 billion from the International Monetary Fund.

Most of the gains came right at the open, which kept individual investors shut out for the most part. The major indices gapped up within 5 minutes of the open by roughly 4%.

Following Thursday's "magic moments," which witnessed a drop and subsequent rebound on the Dow in a matter of less than 15 minutes, market observers have plenty reason for skepticism. After Bob Brinker called the Thursday move, "manipulation," veteran trader Art Cashin, head of floor operations at UBS, said live on CNBC, referring to Friday's non-farm payroll report, "188,000 was a guess by the Bureau of Labor Statistics." Further, he said, "keep your eye on the referee. This game isn't on the up and up," referring to possibly the entire market.

All of this market volatility should come as no surprise to anybody who's been following the financial crisis over the past 2 1/2 - 3 years. Nations, and their political leaders, have a vested interest in keeping their worthless currencies in play, regardless the consequences down the road. Mountains of debt have been piled upon other mountains of debt around the world. The EU bailout was a long time in coming and a hard morsel to chew on for beleaguered leaders. Essentially, they had no choice, though the future seems as uncertain as ever, if not more so.

Stocks bounded higher in Europe and the US, with the average index gaining somewhere between 3 and 5 percent. Asian markets were more subdued, excepting Indonesia and India, which were both highr by 3 1/2 to 4%.

As usual, bank stocks - both in the US and in Europe - led the advance.

Dow 10,785.14, + 404.71 (3.90%)
NASDAQ 2,374.67, +109.03 (4.81%)
S&P 500 1,159.73, +48.85 (4.40%)
NYSE Composite 7,257.62, +341.44 (4.94%)

Advancing issues led decliners by an enormous margin, 6036-696. New highs regained their edge over new lows, though not my a meaningful margin, considering the momentous advance. There were 143 new highs to just 37 new lows. The idea that there were any new lows at all was remarkable, and also notable was the volume, at lower levels than on most of last week's down days.

NYSE Volume 7,876,002,500.00
NASDAQ Volume 2,858,059,750.00

Chances are good that throwing a trillion dollars at Europe's problems will stabilize markets for a while, but, like their TARP counterpart in the fall of 2008, the effects could be very short-lived. As with the TARP in the US, the average European citizen will not likely embrace the bailout of banks and government while the populace goes hungry.

Commodities were mixed on the news. Oil regained some of what it lost over the past week, gaining $1.69, to $76.80, but gold was down $9.60, to $1,200.40. Silver slit the difference, gaining 10 cents, to $18.53.

Largely ignored were two items: Ratings agency, Moody's, received a Wells Notice from the SEC, signaling that enforcement action was forthcoming; Fannie Mae posted a $13 billion loss for the first quarter and asked for another $8.4 billion in federal assistance.

One thing that seems certain: The comparisons of Wall Street to Las Vegas are unfair. Las Vegas is a much more friendly place for individuals. The odds stay the same and the rules don't change over the weekend. These comparisons are only giving Las Vegas - a place where anyone and everyone gets a fair shake - a bad name and should cease. We'd like to call Wall Street a den of wolves, but we actually like wolves.

Bob Brinker Calls Market Turmoil "Manipulation"

Over the weekend, Bob Brinker, host of the nationally-syndicated financial talk show, Money Talk, characterized the market turmoil of this past Thursday, May 6, 2010, as "manipulation," which has been the stance of this blog since the event occurred.

This may be a notable development, though likely it is not, in that whereas, I, a blogger without an enormous following, have mentioned the manipulation of the stock market numerous times over the past few years without fanfare, but when a national radio host with the reputation and longevity of a Bob Brinker says the very same thing about a specific situation, there may be something to it.

Brinker did not elaborate on who might be doing the manipulation, but the mere fact that he used the word, was something of a shock. My gut feeling is that if Bob Brinker thinks the market was manipulated this past Thursday, then there are surely others who believe the same or at least are thinking along the same lines.

Is Brinker spreading fear uncertainty and doubt (FUD) recklessly, or issuing a heartfelt, albeit shrouded, warning to his loyal listeners? Really makes one wonder about what's really going on with the barons of finance and the Wall Street crowd.