A Day (and Week) to Forget

Trading volume this week has been so dreadfully slow that many on Wall Street have already made their way towards the Hamptons or other relaxing locales. If you're searching for value in this dreadful environment, maybe you should do the same because whatever transpires on the markets this week will be of little importance a month down the road.

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On Thursday, volume hit a low for the year with far less than 1 billion shares changing hands on the NYSE. A normally "slow" day is 1.2 billion shares. The reasons for the slowdown are pretty obvious. Being the second last week of unofficial summer, there are fewer people trading stocks. Add to that the current conditions which lend themselves to taking profit and running away and you have the general idea.

If this kind of non-trading persists after Labor Day, it might actually be the beginning of a horrible trend, though it's probably more the good weather than the bad economic conditions at this point.

Nevertheless, there were a few relatively ugly economic reports on the day, not the least of which was the Commerce Board's Index of Leading Economic Indicators, which fell by 0.7% in July. It was the second decrease in the past three months and worse than expected.

What's worse than the US decline is news from the same organization that similar indices have fallen in Spain, Germany, France, the UK, South Korea, Japan, Mexico and Australia as well. Remember that global recession I've been warning about for the past few months, the one in which all asset classes fall? Well, there's some proof that it's already here.

Dow 11,430.21 +12.78; NASDAQ 2,380.38 -8.70; S&P 500 1,277.72 +3.18; NYSE Composite 8,314.14 +37.23

Amazingly, three of the four major stock indices we track were up, with the NASDAQ the notable exception.

The internals shed more light on the situation, as declining issues outnumbered advancers, 3603-2573, and new lows held sway over new highs, 242-49.

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Commodities made the most of it, with oil pumping up $5.62, to 121.18, gold gaining $22.70, to $839.00 and silver rising 69 cents, to $13.84.

Somebody please inform these speculators in the commodity pits about this global recession thing. Obviously, they did not receive the memo. Oddly enough, the fat rise in the price of oil is being attributed to tensions between the US and Russia over the Georgian conflict. That's entirely laughable, since there are no real tensions of which to speak. Considering the morally bankrupt and militarily-overstretched position of the United States, Russia can and will do as it pleases in its former colony. The posturing by the US, and, to some lesser extent, various European nations, is just for show. All parties know there's no possibility of anyone threatening the Russians with any kind of force.

Politics and media manipulation aside, this is a week better spent working on a tan rather than your portfolio.

NYSE Volume 912,306,000
NASDAQ Volume 1,558,441,000

Sellers Take a Breather on Slow News Day

One of the slowest news days of recent memory may have helped investors on Wednesday, halting a two-day slide that threatened to expand into a truly grotesque selling spree. Possibly the best news were two little items: the largest increase in US oil stockpiles since 2001 (9.3 million barrels), and Hewlett-Packard's (HPQ 46.16, +2.47) solid quarter, posting 80 cents a share profit on sales of $28 billion.

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Any news on surplus oil is welcome, as are stellar quarters by sound companies, especially those whose membership includes the Dow Jones Industrials. Hewlett-Packard easily led the 16 other gainers in the blue chip index and itself accounted for much of the gain on the day.

While the US oil stockpile news was significant, it didn't stop traders from upping the price of crude for October delivery in a volatile session. The rise in oil was probably due to a technical situation, one in which the slippery stuff has sold off so much in recent days, that traders are looking for a bounce. Hopefully, for those of us who have felt the pain from higher gas prices, today's gains will be soon forgotten.

Dow 11,417.43 +68.88; NASDAQ 2,389.08 +4.72; S&P 500 1,274.54 +7.85; NYSE Composite 8,276.91 +64.44

Market breadth was nearly non-existent, with gainers outpacing losers, 3181-3020, indicating that today's rise was nothing more than some short covering and minor speculation, rather than the beginning of something more exciting. As further proof, new lows were once well ahead of new highs, 220-43. The most alarming number there is that only 43 stocks (out of a pool of more than 6000) recorded a 52-week high. That's a very, very low number and implying that the general market is going nowhere but down.

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Overall volume continues to be slack and it appears that this week will be the lowest volume stretch of the year, unless, of course, next week is even worse.

Putting today's up-and-down trading into perspective, oil gained $1.02, to $115.56, while gold slipped 50 cents to $816.30 and silver lost 7 cents, closing in New York at $13.15. That the metals did not follow oil's advance may be noteworthy, if only to presage another round of losses for commodities. It will be worth watching commodities closely over the next few weeks, though the most optimistic outlook would be for a small bounce upwards before continuing the trend lower.

With conditions in credit markets still unstable and the general economy looking a little bit putrid, Thursday's unemployment report (new claims) may be more significant than usual. There are few, if any, catalysts for upside momentum, and the bias, despite today's rather unportentious finish, is still rather negative.

NYSE Volume 1,068,481,000
NASDAQ Volume 1,782,049,000

Prices Peaking? Stocks Shrivel

The week has not begun well for investors, with the Dow Jones Industrials having shed over 300 points in the first two days and the other major indices following that lead.

On Monday, it was fear of financial firms which led the way, but on Tuesday, prices grabbed the headlines as wholesale prices jumped by 1.2% in July, marking the fastest annual inflation rate in 27 years. The core rate, excluding food and energy, were up a whopping 0.7%, indicating that inflated pricing was seeping into all parts of the economy.

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If rising prices weren't enough to worry about, the Commerce Department obliged by releasing a report on new home construction, noting that builders were breaking ground at the lowest rate in 17 years.

Confused? So are investors.

Home prices are falling, all other prices are rising, but wages are stagnant at best. Meanwhile, the prices of commodities - oil, gold, corn, wheat, etc. - have been going down for weeks.

Dow 11,348.55 -130.84; NASDAQ 2,384.36 -32.62; S&P 500 1,266.68 -11.92; NYSE Composite 8,212.47 -69.39

Here's an explanation, though I offer it only as one of possibly many: prices have peaked. We're likely to see a slowdown in August, if not an outright decrease (a very rare occurrence). In a cooling worldwide economy, prices are not going to rise, and if they do, they won't rise quickly. The years of overexpansion of money supply to accommodate the needs of greedy bankers and corporations are over. We're about to backslide into a general slowdown. If your wages don't go down, or you're able to keep your job, you'll survive nicely.

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The crash in commodities has been telegraphing this all along, so, get over the inflation fear and start dreading deflation, because it's a thornier economic condition. Besides, those inflation figures are compiled by economists and statisticians, who aren't really well known as bargain hunters. They're looking at wholesale prices, which nobody - outside of manufacturers - actually pays.

As with Monday, declining issues overwhelmed advancers on Tuesday, 4494-1724. New lows expanded their edge over new highs, 286-43. The abnormally low number of new highs belies the real weakness in stocks. The number of companies actually thriving in this environment is becoming more minute by the day. The stresses of a long-overdue recession, held in abeyance by politicians with tax rebates and regulators such as Federal Reserve Chairman Ben Bernanke's emergency interest rates and borrowing rules.

Following the briefest of bumps in late July and early August, stocks are now poised to retest those mid-July lows. Get ready for serious drops in the indices over the next 3-6 weeks, during which the president (and the Republican candidate for that office) will assure us that the economy is still basically sound.

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Commodities continued to rebound, though it's hardly a trend. Crude oil for October delivery added $1.65, to $114.54. Gold leapt another $11.10, to $816.80, though silver was unchanged at $13.22 per ounce. The recent run-up in commodities is largely an effect of falling stocks. With nowhere else to turn for profits, speculators are moving into the market of last resort. When the commodities market finally fails, along with the rest of the asset classes, the perfect storm for global recession will be in place.

The news for the past few weeks has been one of a strengthening dollar. What's generally been untold is the story of how the dollar has been beaten down below fair value in relation to other currencies and consequently propped up by foreign governments in a vain effort to avoid a complete economic collapse. The truth is that the economies of other countries - particularly those in Europe - are not all that sound either. Far Eastern economies - China and Japan - are going to fare much better than the West in the coming downturn, which is expected to bottom sometime in late 2009.

With those concepts in hand, investors should be aware that gains in stocks are going to be difficult, if not impossible, to attain.

Once again, volume was on the very low end of the scale, indicating an aversion to US equities - one which has been growing over the past year and is now reaching fruition. Stocks have much further to fall, but much of the big money is already on the sidelines and into fixed investments or other equity markets.

NYSE Volume 1,012,756,000
NASDAQ Volume 1,748,704,000

Truth Hurts: Financials Slammed Again

Sometimes the media actually gets it right.

Unfortunately for investors, Jonathan R. Laing's feature story in Barron's The Endgame Nears For Fannie and Freddie was a truth many did not want to hear, much less see published in one of America's premier business weeklies.

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Laing makes the case for the "inevitable" recapitalization of the two mortgage underwriting giants as they have continued to flounder during the ongoing US mortgage mess.

The article was enough to send financials and the rest of the stock market into a funk on Monday. The selling began early in the financials, but by afternoon had spread to the broader market, resulting in another bloody Monday on Wall Street, wiping out last week's tiny gain in the S&P and a more substantial one in the NASDAQ.

Dow 11,479.39 -180.51; NASDAQ 2,416.98 -35.54; S&P 500 1,278.60 -19.60; NYSE Composite 8,281.86 Down 101.81

With the markets already in a state of suspended animation, volume virtually dried up. Monday's losses would probably have been deeper had more traders not been on vacation or otherwise away from their desks.

If last week's volume data was to be considered anemic, today's was downright desolate and pallid.

Advancing issues were overwhelmed by the number of decliners, with losers ahead, 4375-1845. New lows were also boosted to a larger margin than in recent days, beating new highs 194-84.

If there was any good news, it was the rebound in the metals. Gold shot up $13.60, to $805.70. Silver gained 29 cents, closing at $13.22. Alternately, oil slipped $1.05, to $112.85, which is $35 below its all-time high, set just this past July.

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Any moves in commodities are likely to be short-term and reactionary for the time being. Until the general understanding becomes one in which a global slowdown is accepted, the metals should bounce around, though trend lower. Oil, and, by proxy, gas and petrol, should continue to weaken over the short term on slack demand.

And what about stocks? Well, if all assets classes are going to take a hit, another 15% decline on the indices is not out of the question. The Dow could easily break below 10,000 within the next six months as the presidential race takes center stage and the rhetoric from the left (Barack Obama) becomes more pronounced and understood as the honest reality.

The Republicans - but mostly the Bush administration - has made a shambles of the US economy and increasingly, it looks as though the next president is going to have to clean up the mess. Usually, that's a sure sign that a sea change in Washington politics is coming.

...and not a moment too soon.

NYSE Volume 985,302,000
NASDAQ Volume 1,665,853,000

The Numbers Say No

The Dow gained on Friday. So did the S&P 500. But, the Dow was down for the week and the venerable S&P index was up less than two points. The week's big winner was the NASDAQ, which added 38 points to the upside.

What does this all mean?

Probably not much, except that investors are tired of trading the same stocks and hoping for better results in a quarter, a year, five years. It's just not adding up.

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It was just about a year ago (July 19, actually) that the Dow closed above the 14,000 mark for the first time. In the 13 months since, the blue chip average has fallen by 17%, briefly falling into what is known as "bear territory", glibly described as a 20% loss.

Fools without a great deal of market understanding would say that we've touched a bottom and the markets are beginning to recover. Those more wizened and mature would point out that once stocks break below that 20% threshold, they usually spend more than a few days there, which is all this market has spent in the bear's lair.

Those few days were between July 9 and 15, so we've clearly encountered a bounce of sorts. The price of crude oil has moderated considerably since then, helping stocks, as has the value of the US dollar versus other currencies. These have been positive for stocks.

On the other side of the ledger are some undeniably negative economic readings, most of them being recorded this very week. The consumer price index (CPI) registered its largest gain in 17 years, leaping up 0.8% in July. even the core CPI - which excludes food and energy components - was up 0.3%. But all of this was prior to oil's descent, or just at the beginning of it, so the CPI is now a lagging indicator.

Thursday's initial unemployment claims came in at an astronomical 450,000. There are no good jobs out there. Along those lines, capacity utilization - a broad measure of manufacturing efficiency, fell slightly, to 79.8%, which is well below what would be considered healthy - above 93%.

People aren't working, or buying, much these days. Sooner or later, Wall Street will get a whiff of this and realize that there isn't much demand for the stocks they're pedaling either. Volume has been dead over the past two weeks.

Dow 11,659.90 +3.97; NASDAQ 2,452.52 -1.15; S&P 500 1,298.19 +5.26; NYSE Composite 8,383.67 -2.30

For the day, losers outdid gainers by a small margin, 3122-3092. New lows retained their long-standing edge over new highs, though by a very slight margin, 169-144. We are clearly witnessing a market void of momentum in either direction.

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Commodities, however, are pointing the way, and that way is lower. Oil continued to unwind, losing $1.09, to $113.94. Gold finally crumbled, dropping $22.40, to $792.10. Silver was absolutely crushed, dropping $1.43, to $12.93.

The rout in the metals has been absolutely stunning. Gold was in the high $980s a few weeks ago. Silver was above $18.00. The ramifications of such a rapid unraveling of these commodities is mind-boggling. It is portentous of nothing less than a massive global recession. There is an absolute need for cash if such large amounts of gold and silver are being liquidated.

Were the metals a bubble, and has it popped? Sure, they were overinflated to a degree, and now the froth has been blown away. It will be interesting to see where they bottom out and whether they recover. Best estimates are for gold to retest the $650 level and silver to settle around $11.25, though after today's grinding, nothing's really for sure.

It was an interesting week. Even with commodities unwinding in a big way, stocks failed to gain. That's not a good sign going forward, especially with that ridiculously low volume.

NYSE Volume 1,175,771,000
NASDAQ Volume 1,776,362,000