Roller Coaster Won't Stop

Just when I think there's some direction to this market (in the last two weeks I've been of both opinions, bullish and bearish), the following day obliges a reconsideration of my position. So, I, like the market, am still in flux, with my year-end prediction of a lackluster 2007 in equities still very much intact.

Today's disaster was presumably precipitated by poor participation in the government's bond auction, sending yields on the 10-year to highs not seen since last August. A poor reading on existing home sales - an 8.4% drop for 2006, the biggest decline in 17 years - added to money flow woes and sent investors fleeing for safer bets.

Treasuries are unwaveringly an ambiguous condition, with the yield curve nearly flat and partially inverted. 2-year notes are yielding 4.97%, while at the other end, 30-year bonds are at 4.96% That's about as flat as it gets and one should assume that bond traders are just as confused as their stock-trading brethren.

The problem, from a stock trading perspective, is that yields are rising, signifying a tightening economy and that's bad for stocks. That's almost believable, today. Tomorrow will surely be another story.

The whole cycle is pointing in a negative direction depending on which measures you watch. If profits are being squeezed, price pressure will ensue, and that's unmistakably inflationary. Bond yields will rise as a coolant, and stocks will fall. Rinse, repeat, ad nauseum.

I'm not about to buy into the argument that the economy is on the verge of recession or collapse. There are certainly issues to be resolved, not the least of which happen to be political (fiscal policy and Iraq), but they seem to be churning slower than grandma making the butter.

Resolution to the nation's political and economic malaise would supply some impetus for extension of the rally, though we could be on the edge, with a major correction just weeks or even days ahead.

A 1500-2000 point decline on the Dow would probably shake out weak hands and do more good than evil. Today's 119-point shave nearly wiped out the gains of the previous two sessions (145 points). I'd expect more of the same tomorrow, but, as previously expressed, the opposite has usually occurred thus far in 2007.

We're all still on pins and needles on the January Barometer watch. The S&P 500 lost almost all advantage, losing 16.23 today and leaving it just 5 points into the green for 2007.

It looks as though we won't know much of anything until the very last day of the month, this coming Wednesday. Even then, if it's close on either side of break-even, it may be meaningless and the confusion will continue. As we dip and dive, shuck and jive though the first month of the year, the one thing for certain is that nothing's for certain.

Dow Powers to New Record, eBay Piles On

Thanks to oodles of cash and some better-than-expected earnings reports from a handful of companies, the Dow Jones Industrial Average cruised to a new closing high today of 12,621.77, putting the fears that January would be a downer of a month pretty much to rest.

By adding nearly 88 points today on top of Tuesday's 56-point gain, the Dow is a cool 148 points on the plus side for 2007. While that's only a 1.2% bump, it's likely to be enough to keep January positive, which is a huge emotional buffer for the markets. So long as companies keep reporting earnings close to in line or better than expectations, the month will end on a high note, portending good things for the rest of the year.

The so-called January barometer actually tracks the S&P 500, and, according to the highly-regarded Stock Trader's Almanac the adage, "As goes January, so goes the year," is usually on-the-money. According to a February 1, 2006 report by U.S. News and World Report's Paul J. Lim,

85 percent of the cases since 1970, a positive gain in the S&P 500 in January has led to a positive year for stocks

With the S&P up 22 points or roughly 1.5%, we seem to be in safe territory, bearing in mind that there are only 5 trading days left in the month.

If one was to take out the days of the January Effect - the last trading day of the year and the first week of trading in the new year - a period notorious for dumping stocks - we're in very, very good territory. That's because the S&P bottomed at 1409.71, roughly 8 1/2 points below last year's close. But, that's enough of beating a worn and nearly dead horse. Suffice it to say we're setting up for another solid year of gains on the markets.

After the close, auction behemoth eBay released 1st quarter results and stunned investors with a dazzling report. Profits were 24% higher than last year's same period. Net income rose to $346.5 million, a healthy gain from the $279.2 million in Q4 2006. The 25 cents per share was well above analyst estimates of 19 cents.

Shares were bid up 1.38 prior to the release and added another 3.93 in after-hours trading. That's almost an 18% gain in one day. Not bad. The beat goes on...

Yahoo! We Have a Winner.... Well, Maybe

It didn't take long for investors to sniff out a buying opportunity. Just one day after shedding 88 points, the Dow tacked on 56.64, putting the Dow almost 70 full points into the green for 2007. Reverse logic prevailed upon traders once again, as rising oil prices (+2.46, 55.04) were attributed for much of the gain. Exxon-Mobil (XOM), the one oil stock on the Dow, busted out for a 1.59 gain. The oil biggie, along with Boeing (BA +1.76), Caterpillar (CAT +1.76) and United Technologies (UTX+2.05) were the only Dow components to record gains of more than a point, but it was more than enough to offset fractional losses in 12 of the 30 Dow stocks. UTX surged on their earnings announcement, reporting profits up 38% from a year ago.

Over on the tech-heavy NASDAQ - which gained less than a single point - a mid-day sell-off accounted for the tepid closing value. The index was up nearly 19 points, but gave almost all of it back as fidgety traders awaited earnings news from Yahoo.

The news from Yahoo was not surprising nor was it encouraging. The search-and-portal company reported earnings of .19, down from .46 a year ago. Excluding certain one-time charges, they came in at .16, ahead of analysts' putrid expectations of .13.

The big shave from last year's numbers were rather expected, though it didn't stop the sellers who knocked .46 off the share price during regular market hours prior to the announcement and had nipped another .74 in after-hours trade shortly after 5:00 Eastern. However, by 5:30, trading reversed course and the stock added 1.44 on news of encouraging reports from the rollout of its new ad platform, code-named Project Panama.

With the stock trading at 26-29 and change, and earnings for the full year 2006 of a mere 49 cents, Yahoo will be hoisting around a trailing p/e of 45-50, should the stock remain at or near current levels, and that looks dubious at best. Additionally, analysts were not impressed with Yahoo's outlook for the current quarter or all of 2007, both below expectations.

Noting these minimalist readings, CEO Terry Semel's head could (and should) be on the chopping block. His tenure has been marred by the emergence of Google taking over the top spot in search and a 30% drop in share price over the last 12 months. The company also has significant image problems, not the least of which being its age. As one of the internet pioneers, the company, as a public entity, recently turned 10, regarded as ancient among internet users.

Without a little more pep in its step, regardless of how the after-hours trade shakes out, Yahoo may continue to be among the net stocks' laggards for the near term.

Next up: eBay

Suddenly, January's No Sure Thing

There was not much in the way of jubilation on Wall today. Rather, like the weather, investors have tuned cold on stocks they seemingly could not get enough of just a few sessions ago. The buoyant feelings that usually complement a new year have given way to doubt and indecision. Stocks soured. The Dow lost 88 points, closing a scant 14 points above the 2006 finale.

The tech side didn't fare any better, dropping 20 points on the day. The hangover from last week's deflating comments from analysts covering the likes of Apple, Intel, Cisco, Motorola and others had a continuing effect on the day's trade.

But the real news was in the Dow components. Pfizer, while beating earnings expectations, announced a restructuring, calling for a 10% workforce reduction and the closing of some plants. Boeing was downgraded and both stocks took a hit. Pfizer lost only about 1%, but investors bailed on Boeing, dropping the aircraft manufacturer by 3 points (3.42%). With the Dow leading the way, the rest of the market marched to the sour notes. Declining stocks led advancers by a nearly 2-1 margin on both the NYSE and NASDAQ.

One could say that this kind of dip was overdue, but whether its a one-off or indicative of a longer term trend is not readily apparent. The markets - despite fairly benign economic data - are in a trendless phase, though if a consensus were to be had, it would likely point lower. Right now, earnings are the horse pulling the cart, or rather, the cart pushing the horses... and they're currently heading for a nearby ditch.

Some optimism may come from Yahoo, which reports on Tuesday, and eBay, on Wednesday, though savvy investors aren't likely to pin much hope on either. Yahoo has been a consistent underperformer and eBay is besieged by doubt over the wisdom of upcoming fee increases, their shuttering of operations in China and the effectiveness of new initiatives such as eBay Express.

Shares of eBay have been under some pressure of late, down more than 10% since mid-November. Analysts are seeking an attainable .28 per share for the just-completed 4th quarter, though the future for the company seems very much up in the air. If the company doesn't begin producing better margins and profits, management may take aim on some top executives, notably Bill Cobb, President of eBay North America and quite possibly CEO Meg Whitman, one of tech's most vilified personalities.

Markets End Week Meekly

As the short week drew to a close, the markets exhibited signs of life, but barely. Mixed signals from corporate earnings, economic reports and political tensions kept movement to a minimum. The Dow dropped a scant 2.40 points, while the Nasdaq ended its recent losing streak by adding 8.10.

The upside in tech was despite Motorola's (MOT) dismal earnings - 25 cents per share vs. 47 cents a year ago - as deals on popular cell phones continued to whittle away at margins. Gross income was 17% above last year's figures.

The company announced shortly after its earnings release that it would cut 5% of its workforce - about 3500 jobs - and investors cheered, boosting the stock by half a point.

General Electric (GE), a Dow component, also reported 4th quarter results prior to the market open, and delivered a healthy 64 cents per share, more than double last year's 30 cents. The bad news, which sent GE's shares down nearly a point, was that it was restating earnings from 2001 though the 3rd quarter of 2006, due to interest rate swaps in its commercial paper operations.

With just 8 trading days remaining in January, the Dow is 102 points to the positive for 2007, keeping alive hopes for a winning January and setting the tone for the year. It's amazing how many analysts and brokers are guided by the January effect and will follow their nose dependent solely on how the markets perform in just the first month of the year.

The Nasdaq may be a closer call, though today's close puts it 36 points over last year's finish. Further weakness from the likes of Yahoo or eBay, both of which announce results next week, could spawn more selling in tech.

Google announces on January 31, after the close. Amazon reports on February 1.