If you thought the 2 1/2-week-long rally had run out of gas - like yours truly - you were proven wrong on Thursday. The Masters of the Universe were at their level best once again, goosing stock positions throughout the day, but particularly in the final hour (just like yesterday, and many days before), when stocks added mightily to their already solid gains.
The Dow jumped nearly 100 points in the last hour, while the NASDAQ, which outperformed all other indices by a huge margin, added 28 additional points as the session drew to a close. It is apparent to any outside observer that greed has trumped fear over the short term. The Dow Jones Industrials have now climbed 1377 points since March 9, a span of 13 sessions.
The economic news of the day was pretty much in line with expectations. Unemployment roles hit a new record high, with another 652,000 Americans adding their names to the roles of the jobless. Final GDP figures for the 4th quarter of 2008 came in at -6.3%, better than the -6.6% some had expected. A number of companies reported better-than-expected earnings, Best Buy and Texas Instruments among them, though investors were snatching up shares of just abut anything that had a price attached to it, in a mad scramble to jump on the equity bandwagon.
If ever there was a textbook case for an overbought bear market rally, this surely is it, and while there may be no perceptible end in sight, the 8000 level, at which there is substantial resistance, is already within shouting distance. It should be pointed out, however, that this market knows nothing of support and resistance, commonly disregarding any resistance on the way up. The path back down ought to be particularly brutal, now that 90% of the public is convinced the worst is behind us, since there are there have been numerous gap-ups at various opens, and, as any chartist well knows, gaps always get filled.
But that's a lesson for another day. For now, any hint of the financial crisis, liquidity squeeze, deflationary spiral or housing crunch has given way to chants of "go, baby, go."
Dow 7,924.56, +174.75 (2.25%)
NASDAQ 1,587.00, +58.05 (3.80%)
S&P 500 832.86, +18.98 (2.33%)
NYSE Composite 5,230.53, +103.53 (2.02%)
Market internals were as unsurprising as the headline numbers. Advancing issues outnumbered decliners, 5180-1675, though new lows continued ahead of new highs, 117-36, though the numbers are closing ranks. Volume was very high once more, especially on the NASDAQ, which recorded one of the highest volume days of the year.
NYSE Volume 1,792,579,000
NASDAQ Volume 2,594,485,000
Crude oil continued to rise, up $1.57, to $54.34. Gold gained $4.20, to $942.20, while silver tagged along with a gain of 18 cents, to $13.62.
Noting the gains in stocks, as well as most commodities, it seems that throwing trillions of dollars at the markets in all manner of bailout, breakout, cram-down and stimuli, seems to be working. The economy is reflating at an incredible rate, so much so that the Fed should consider raising interest rates off their absurdly low emergency levels. Of course, they won't, until the American landscape is littered with currency.
The precious metals now appear to be even better investments than ever. With all asset classes rising in price, rather than an orderly deflation which would have occurred naturally, we will now have even more mal-valued investments in equities especially, backed by a currency that is losing value faster than a prostitute sheds her chastity.
People's 401k's ought to look much better by the end of the month. The S&P 500 has gained nearly 25% in the past 2 1/2 weeks, though all that extra loot in one's pension is surely going to be eaten up by the ravishes of taxation and inflation. Welcome to the new normal. You earn, you pay, you remain under the thumb. Enjoy it while you can.
Thursday, March 26, 2009
Wednesday, March 25, 2009
Market Searches for Direction, Extends Gains
The major indices all finished the day on a positive note, but that was only half the story. Up by 2% (the Dow up 200 points) in early trading on unexpected gains in durable goods orders and new home sales.
But the real story was in the Treasury auction, which reportedly drew less demand than expected and induced the Federal Reserve to snatch up $7.5 billion in Treasuries maturing in the next seven to 10 years. That triggered a severe response on Wall Street, which commenced on a downward trajectory, with the Dow dropping from 7800 at 1:00 pm to the day's low at 7550 at 3:00 pm.
Concerned that the market would continue to sell-off and wipe out gains from Monday's historic 497-point rise, traders got busy in the final hour, boosting stocks back into positive territory. From 3:00 to 4:00 pm the Dow tacked on nearly 200 points, with some serious tape-painting in the final seven minutes, in which the Dow went from unchanged to the final close, up 89.84 points.
Dow 7,749.81, +89.84 (1.17%)
NASDAQ 1,528.95, +12.43 (0.82%)
S&P 500 813.88, +7.63 (0.95%)
NYSE Composite 5,127.00, +62.67 (1.24%)
The level of participation is particularly worrisome to the Treasury and the Obama administration, which is seeking to sell a record $94 billion in Treasuries this week. A similar auction in Great Britain received such poor participation that the auction was widely considered a failure. Nations worldwide need to finance large amounts of debt, but all are dwarfed by the quantity the US government plans to sell this year, roughly triple the amount auctioned in 2008.
Additionally, the figures for February new home sales (337,000) were tempered by lower prices and the fact that the number is still 41% below last year's already depressed levels. Ditto the durable goods report, which showed a gain of 3.9%, as more than half of the purchases were made by the Department of Defense. Thus, the markets were rather confused: at first euphoric, then sullen, and finally, covering short positions and reinforcing the bid in the final hour.
At the end of the day, only one thing was for sure: that the market is in serious need of new direction. An underlying element of fear is prevalent, even though stocks - from March 11 to March 24 - put on their best 10-day showing since 1938, according to Addison Wiggins at the dailyreckoning.com.
Advancing issues eventually held sway over decliners, 4417-2112. New lows beat out new highs once again, 123-30. Volume was spectacular, near the highest of this current three-week period.
NYSE Volume 1,773,648,000
NASDAQ Volume 2,494,052,000
Commodities were mixed. Crude oil futures for May delivery fell $1.21, to $52.77 on a report that US supplies were at 16-year highs. Gold gained $12.00, to $938.00. Silver added 8 cents to finish at $13.44.
With so much confusion, it seems difficult for stocks to continue their gains much longer. Today's initial thrust resulted in an evident topping pattern and the subsequent decline broke through various support levels before the manipulated rally nearing the close. Much of the late-day gains were led by JP Morgan Chase (JPM) and other financial stocks which have fueled the rally of late.
Prior to the opening bell tomorrow, traders will digest two important pieces of economic data, both releases scheduled for 8:30 am: initial unemployment claims and the final 4th quarter 2008 GDP, which is expected to be recorded as worse than previous estimates. The last GDP estimate was a decline of 6.5%. Tomorrow's number figures to be closer to 6.8%.
With that, my apologies for yesterday's truncated post, though the interface issues have now been resolved. Be on your toes early. This market could run either way, or, like today, cascade in both directions.
But the real story was in the Treasury auction, which reportedly drew less demand than expected and induced the Federal Reserve to snatch up $7.5 billion in Treasuries maturing in the next seven to 10 years. That triggered a severe response on Wall Street, which commenced on a downward trajectory, with the Dow dropping from 7800 at 1:00 pm to the day's low at 7550 at 3:00 pm.
Concerned that the market would continue to sell-off and wipe out gains from Monday's historic 497-point rise, traders got busy in the final hour, boosting stocks back into positive territory. From 3:00 to 4:00 pm the Dow tacked on nearly 200 points, with some serious tape-painting in the final seven minutes, in which the Dow went from unchanged to the final close, up 89.84 points.
Dow 7,749.81, +89.84 (1.17%)
NASDAQ 1,528.95, +12.43 (0.82%)
S&P 500 813.88, +7.63 (0.95%)
NYSE Composite 5,127.00, +62.67 (1.24%)
The level of participation is particularly worrisome to the Treasury and the Obama administration, which is seeking to sell a record $94 billion in Treasuries this week. A similar auction in Great Britain received such poor participation that the auction was widely considered a failure. Nations worldwide need to finance large amounts of debt, but all are dwarfed by the quantity the US government plans to sell this year, roughly triple the amount auctioned in 2008.
Additionally, the figures for February new home sales (337,000) were tempered by lower prices and the fact that the number is still 41% below last year's already depressed levels. Ditto the durable goods report, which showed a gain of 3.9%, as more than half of the purchases were made by the Department of Defense. Thus, the markets were rather confused: at first euphoric, then sullen, and finally, covering short positions and reinforcing the bid in the final hour.
At the end of the day, only one thing was for sure: that the market is in serious need of new direction. An underlying element of fear is prevalent, even though stocks - from March 11 to March 24 - put on their best 10-day showing since 1938, according to Addison Wiggins at the dailyreckoning.com.
Advancing issues eventually held sway over decliners, 4417-2112. New lows beat out new highs once again, 123-30. Volume was spectacular, near the highest of this current three-week period.
NYSE Volume 1,773,648,000
NASDAQ Volume 2,494,052,000
Commodities were mixed. Crude oil futures for May delivery fell $1.21, to $52.77 on a report that US supplies were at 16-year highs. Gold gained $12.00, to $938.00. Silver added 8 cents to finish at $13.44.
With so much confusion, it seems difficult for stocks to continue their gains much longer. Today's initial thrust resulted in an evident topping pattern and the subsequent decline broke through various support levels before the manipulated rally nearing the close. Much of the late-day gains were led by JP Morgan Chase (JPM) and other financial stocks which have fueled the rally of late.
Prior to the opening bell tomorrow, traders will digest two important pieces of economic data, both releases scheduled for 8:30 am: initial unemployment claims and the final 4th quarter 2008 GDP, which is expected to be recorded as worse than previous estimates. The last GDP estimate was a decline of 6.5%. Tomorrow's number figures to be closer to 6.8%.
With that, my apologies for yesterday's truncated post, though the interface issues have now been resolved. Be on your toes early. This market could run either way, or, like today, cascade in both directions.
Tuesday, March 24, 2009
Bears Aren't Finished Yet.. Neither Are Bulls
A fascinating day a trading, which began in the red, finished there, lending support to the idea that the market had become overbought in the near term. All of the major indices gave back, led by the broadest measures, the NASDAQ and NYSE Composite.
I am having trouble with the interface. I cannot format properly, so I am going to try to keep this brief.
Dow 7,660.37, -115.49 (1.49%)
Nasdaq 1,518.63, -37.14 (2.39%)
S&P 500 806.36, -16.56 (2.01%)
NYSE Composite 5,064.33, -121.53 (2.34%)
Nasdaq 1,518.63, -37.14 (2.39%)
S&P 500 806.36, -16.56 (2.01%)
NYSE Composite 5,064.33, -121.53 (2.34%)
Declining issues beat back advancers, 4466-2048. New lows continued their dominance over new highs, 122-30. Volume was lower than the past five to six sessions; not surprising considering the long run of gains over the past two weeks. While this rally may be essentially over for the time being, it could gain traction again at any time€.
NYSE Volume 1,645,186,000
Nasdaq Volume 2,033,304,000
Nasdaq Volume 2,033,304,000
Crude oil finished with a gain of 18 cents, at another high for the year of $53.98. Gold fell again, though it seems overdone, down $28.70, to $923.80. Silver slipped 50 cents, to $13.38.
There was little in the way of economic news, and all the indices finished near their session lows.
My apologies again for the brevity of today's post, but the interface has gone wacky. Hopefully, these matters will be cleared up before long and I'll be able to get back to more poignant posting.
Monday, March 23, 2009
Now THAT Was a Rally! Dow Up 497 Points
If there was any doubt that the biggest rallies occur during bear markets, today's stunning straight-up market move should certainly expunge those wayward thoughts.
The biggest problem (there are many) with this outsize Monday Melt-up is that it absolutely will not last. This was all about debasing the currency to pay off the criminals on Wall Street to keep the party going. If you were smart, you jumped in and grabbed your share of the loot. If you are dumb, like most investors, you sat back and watched. Maybe your 401k looks a little fatter today. Maybe you are thinking about investing a little more tomorrow, or next week, or next month. Maybe you've just given up and have doing the really smart thing and buying gold and silver, or just silver.
According to CNNMoney.com, whom I have no reason to doubt, today's gain on the Dow was the largest since November 21, 2008, meaning it was the best run of this year, and probably one of the top three or four days ever. Congratulations!
What CNNMoney is not reporting is that the November 21, 2008 move of 494.13 is that today's move was bigger (by 3 whole points) and certainly larger by percentage (the Dow was running between 7500 and 8000 then) and that November day followed two days in which the Dow dropped a cumulative 872 points. So, that was a snap-back rally (and a dumb one too), whereas today's was based on two specific news items: the administration's unveiling of their latest ploy to sop up bad bank assets - the Public Private Investment Partnership, or PPIP for short - and the number of existing home sales reported for February.
The new home sales showed a 5.1% increase over January sales, according to the National Association of Realtors (NAR), but noted that the figure (4.72 million units) is still 4.6% below February last year and that the median value of homes sold was 15.5% lower than last year. One actual bright sign was in California, of all places, where the median home price actually rose for the first time in three years.
As for the PPIP, I bow to Nobel Economist Paul Krugman, who sort of peed all over Geithner's plan in the New York Times Saturday morning, saying:
OUCH! I agree. Once one looks inside the details of the "partnership" one can only conclude that lending taxpayer money to investors (some of whom will probably be the original investors or toxic asset holders themselves) to buy up bad debt is not a productive idea. In fact, it's just a continuance of the same things that got us into this mess to begin with: paying too much for things nobody wants or understands.
The administration's answer to the banking crisis has always been short on substance and this is no different. It's a lot of smoke and mirrors, and won't do anything substantive to alleviate the financial conditions which prevail: high unemployment, lack of confidence, slack demand, deflation. It's just more taxpayer money down a rat hole, with Bank of America, JP Morgan Chase, Citigroup and AIG at the bottom, glomming up all the free money they can.
Somebody asked me today why the Dow was up almost 500 points. My answer was the same one I have been using for just about every huge market move: "If somebody hands you a trillion dollars, you're probably going to have a party. Wall Street partied today like it was 1999, or 2003, 2005, 2006. The greedy bastards just can't get enough, and, even then, with the most accommodative policies ever in which to operate, they lose their shirts, our shirts and the shirts, shorts and pants of the next three generations. Screw them. Jump in and out of this stupid market, which is telegraphing moves like a punch drunk boxer on wobbly legs, and take some of the money yourself.
Making today's huge gains look somewhat more absurd, the World Trade Organization (WTO) reported - around 3:00 pm - that global trade would decline by 9% in 2009. That's just fine, as Wall Street was too busy to notice, as they tacked on the last 125 points leading up to the historic close.
Dow 7,775.86, +497.48 (6.84%)
NASDAQ 1,555.77, +98.50 (6.76%)
S&P 500 822.92, +54.38 (7.08%)
NYSE Composite 5,185.86, +353.73 (7.32%)
Market internals were strong, with advances favored over declines, 5747-896, a ratio of more than 8-1. There were gains in the number of new highs reported today, but they still did not eclipse the new lows, which remained higher, 102-26. Volume was as good as any day of the past two weeks, still on the high side.
NYSE Volume 1,916,566,000
NASDAQ Volume 2,255,664,000
With Wall Street going bonkers, commodity traders were less impressed. Crude oil gained $1.73, to $53.80. another new high for the year. Gold lost $3.70, to $952.50, but silver tacked on 4 cents, to close in New York at $13.88.
The Dow is now up 1230 points in just two weeks, a nearly 19% gain. With little - if any - resistance up to 8000, odds are good that this rally will have legs, though taking economic news seriously, something Wall Street seldom does, could produce different outcomes.
In any case, that was one hall of a rally.
The biggest problem (there are many) with this outsize Monday Melt-up is that it absolutely will not last. This was all about debasing the currency to pay off the criminals on Wall Street to keep the party going. If you were smart, you jumped in and grabbed your share of the loot. If you are dumb, like most investors, you sat back and watched. Maybe your 401k looks a little fatter today. Maybe you are thinking about investing a little more tomorrow, or next week, or next month. Maybe you've just given up and have doing the really smart thing and buying gold and silver, or just silver.
According to CNNMoney.com, whom I have no reason to doubt, today's gain on the Dow was the largest since November 21, 2008, meaning it was the best run of this year, and probably one of the top three or four days ever. Congratulations!
What CNNMoney is not reporting is that the November 21, 2008 move of 494.13 is that today's move was bigger (by 3 whole points) and certainly larger by percentage (the Dow was running between 7500 and 8000 then) and that November day followed two days in which the Dow dropped a cumulative 872 points. So, that was a snap-back rally (and a dumb one too), whereas today's was based on two specific news items: the administration's unveiling of their latest ploy to sop up bad bank assets - the Public Private Investment Partnership, or PPIP for short - and the number of existing home sales reported for February.
The new home sales showed a 5.1% increase over January sales, according to the National Association of Realtors (NAR), but noted that the figure (4.72 million units) is still 4.6% below February last year and that the median value of homes sold was 15.5% lower than last year. One actual bright sign was in California, of all places, where the median home price actually rose for the first time in three years.
As for the PPIP, I bow to Nobel Economist Paul Krugman, who sort of peed all over Geithner's plan in the New York Times Saturday morning, saying:
This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized.
OUCH! I agree. Once one looks inside the details of the "partnership" one can only conclude that lending taxpayer money to investors (some of whom will probably be the original investors or toxic asset holders themselves) to buy up bad debt is not a productive idea. In fact, it's just a continuance of the same things that got us into this mess to begin with: paying too much for things nobody wants or understands.
The administration's answer to the banking crisis has always been short on substance and this is no different. It's a lot of smoke and mirrors, and won't do anything substantive to alleviate the financial conditions which prevail: high unemployment, lack of confidence, slack demand, deflation. It's just more taxpayer money down a rat hole, with Bank of America, JP Morgan Chase, Citigroup and AIG at the bottom, glomming up all the free money they can.
Somebody asked me today why the Dow was up almost 500 points. My answer was the same one I have been using for just about every huge market move: "If somebody hands you a trillion dollars, you're probably going to have a party. Wall Street partied today like it was 1999, or 2003, 2005, 2006. The greedy bastards just can't get enough, and, even then, with the most accommodative policies ever in which to operate, they lose their shirts, our shirts and the shirts, shorts and pants of the next three generations. Screw them. Jump in and out of this stupid market, which is telegraphing moves like a punch drunk boxer on wobbly legs, and take some of the money yourself.
Making today's huge gains look somewhat more absurd, the World Trade Organization (WTO) reported - around 3:00 pm - that global trade would decline by 9% in 2009. That's just fine, as Wall Street was too busy to notice, as they tacked on the last 125 points leading up to the historic close.
Dow 7,775.86, +497.48 (6.84%)
NASDAQ 1,555.77, +98.50 (6.76%)
S&P 500 822.92, +54.38 (7.08%)
NYSE Composite 5,185.86, +353.73 (7.32%)
Market internals were strong, with advances favored over declines, 5747-896, a ratio of more than 8-1. There were gains in the number of new highs reported today, but they still did not eclipse the new lows, which remained higher, 102-26. Volume was as good as any day of the past two weeks, still on the high side.
NYSE Volume 1,916,566,000
NASDAQ Volume 2,255,664,000
With Wall Street going bonkers, commodity traders were less impressed. Crude oil gained $1.73, to $53.80. another new high for the year. Gold lost $3.70, to $952.50, but silver tacked on 4 cents, to close in New York at $13.88.
The Dow is now up 1230 points in just two weeks, a nearly 19% gain. With little - if any - resistance up to 8000, odds are good that this rally will have legs, though taking economic news seriously, something Wall Street seldom does, could produce different outcomes.
In any case, that was one hall of a rally.
Friday, March 20, 2009
An Object Lesson in Options
Today being a triple (or, by some standards, a quadruple) witching day, in which stock options, futures and index options all expire, it was amusing and insightful to watch the activity of the markets and the money flows as the week progressed. Triple witching happens every quarter, in the final month of the quarter on the third Friday of the month. Usually markets are quite volatile leading up to the date, and when the expiration of options occurs in the middle of a rally or sell-off, the action can be wicked.
This week had a couple of added bonuses in the form of the AIG flap amid the continuing economic crisis and the regular FOMC meeting and their release on Wednesday. The overhang of AIG bonuses and revelations of just how much money the Fed funneled through the conduit to counterparties was fodder for Monday and Tuesday, a little early for the options players to make serious moves. In fact, most were holding or still buying, staking out positions for the kill later in the week.
On Wednesday, at 2:15 in the afternoon, the Fed announced that they would be buying up to $300 billion in Treasury Bills, in essence creating money out of thin air to buy bonds. It's a desperate strategy which has never resulted in anything other than rampant inflation. But the Fed and the government isn't worried about that now, they just want to prevent complete collapse (they don't know that they, by their very actions, are going to cause it) of the financial system.
Mind you, the financial system in this country is so horribly broken by decades of intrusion, intervention and manipulation, one can scarcely believe stock prices at any point. As they are chimeras by nature, stock prices can be moved around by people with lots and lots of money. People like the Federal Reserve, the government and major banking and trading operations on Wall Street.
So, when the Fed made their dramatic announcement on Wednesday, the traders (crooks or thieves, if you like) were at the ready, pushing the Dow Jones Industrials up 150 points in just 5 minutes time, added more after that and then sold off a bit into the close. I said, in that day's entry, that the smart money was already out and the trading rhythm of Thursday and Friday bore me out (I also made a few bucks on the moves).
On Thursday, the Dow gapped up at the open near the previous day's high, but immediately retreated and soon was touching down in negative territory, repeatedly bouncing off 7400, which developed into a serious support level for the full afternoon and into the next day. That it was plucked out by traders as a line to defend was plausible, since the high on Monday was 7428 and the close on Tuesday was 7395.
Perfectly and somewhat hauntingly, the average bounced off this level repeatedly from around 11:30 am on Thursday to just before 1:00 pm on Friday. Every time the market began to pull below that level, there was a wall of support to push prices back up. That was until just before 1:00 pm Friday, when people holding options contracts began worrying, because holding until expiration either means you get nothing or you have to buy or sell a specific equity at your strike price, so the action was just about done unwinding.
It was at that point that 7400 was breached completely in one death-dive. The Dow fell over 100 point in the next hour and change, and, after 2:00 began heading for 7250, at which point bottom fishers came in and short covering began in earnest. Eventually, however, the die had been cast. The options traders had made their money, trapped their counterparties and escaped, apparently off to enjoy the first weekend of Spring out at the Hamptons or up in Connecticut. The Dow closed, as did the other indices, close to its low of the day.
Dow 7,278.38, -122.42 (1.65%)
NASDAQ 1,457.27, -26.21 (1.77%)
S&P 500 768.54, -15.50 (1.98%)
NYSE Composite 4,832.13, -105.09 (2.13%)
For the session, internals were indicative of the general direction. Declining issues outpaced advancers, 4582-1821. New lows opened a bit more space between themselves and the paltry number of new highs, 79-10. The highs-lows are still in a range from which they can roll over, but as has been the case in the previous six or seven times its happened since October 2007, it will only be for a day or two before the bull reverts to a scared calf as ravenous bears threaten its life.
One caveat is that some stocks are looking at 52-week highs that aren't that high. The decline had already begun by this time last year, though not in great earnest. The bear market rally (whether we are still having one is now very much in doubt) could run for months, though I personally doubt that it will last even a couple more days and definitely not past mid-April. In any case, the daily new highs and new lows is a metric which has provided incredibly strong insight into market movement, at times even predicting major moves and always true.
Volume on Friday was very high, higher than even Wednesday and Thursday. Expect the trading activity to fall off somewhat over the next two weeks as traders will be listening for early signs from companies considering 1st quarter results. Of course, the severe crisis of confidence, credit and money will continue to reverberate through the canyons of Wall Street and beyond.
One note on today's volume. There were more trades on the NYSE than the NASDAQ, the first time that's happened in a very long time (2002 to the best of my recollection).
NYSE Volume 2,465,968,000
NASDAQ Volume 2,421,536,000
Commodities were subdued, relative to equities. Crude oil lost 55 cents, closing at 51.06. Gold was off $2.60, to $956.20. Silver tacked on another 30 cents to finish the week at $13.82. Long term holders of precious metals are sitting pretty.
As for whether the rally will resume on Monday, there's quite a bit of evidence that it will not. Stocks were boosted largely for traders to rack up profits in options, as expressed above, and the last two days of trading have both ended up losers. Since the indices had been pumped quite a bit higher in a relatively short period of time, there may be a lull in the action for the next 2-3 weeks, but then earnings and guidance will begin to dictate the direction and it's not likely to be very good. Also, there's surely going to be more money being thrown around, scandal, and other disruptions, so the mini-bull we've experienced over the past two weeks may fade fast.
This week had a couple of added bonuses in the form of the AIG flap amid the continuing economic crisis and the regular FOMC meeting and their release on Wednesday. The overhang of AIG bonuses and revelations of just how much money the Fed funneled through the conduit to counterparties was fodder for Monday and Tuesday, a little early for the options players to make serious moves. In fact, most were holding or still buying, staking out positions for the kill later in the week.
On Wednesday, at 2:15 in the afternoon, the Fed announced that they would be buying up to $300 billion in Treasury Bills, in essence creating money out of thin air to buy bonds. It's a desperate strategy which has never resulted in anything other than rampant inflation. But the Fed and the government isn't worried about that now, they just want to prevent complete collapse (they don't know that they, by their very actions, are going to cause it) of the financial system.
Mind you, the financial system in this country is so horribly broken by decades of intrusion, intervention and manipulation, one can scarcely believe stock prices at any point. As they are chimeras by nature, stock prices can be moved around by people with lots and lots of money. People like the Federal Reserve, the government and major banking and trading operations on Wall Street.
So, when the Fed made their dramatic announcement on Wednesday, the traders (crooks or thieves, if you like) were at the ready, pushing the Dow Jones Industrials up 150 points in just 5 minutes time, added more after that and then sold off a bit into the close. I said, in that day's entry, that the smart money was already out and the trading rhythm of Thursday and Friday bore me out (I also made a few bucks on the moves).
On Thursday, the Dow gapped up at the open near the previous day's high, but immediately retreated and soon was touching down in negative territory, repeatedly bouncing off 7400, which developed into a serious support level for the full afternoon and into the next day. That it was plucked out by traders as a line to defend was plausible, since the high on Monday was 7428 and the close on Tuesday was 7395.
Perfectly and somewhat hauntingly, the average bounced off this level repeatedly from around 11:30 am on Thursday to just before 1:00 pm on Friday. Every time the market began to pull below that level, there was a wall of support to push prices back up. That was until just before 1:00 pm Friday, when people holding options contracts began worrying, because holding until expiration either means you get nothing or you have to buy or sell a specific equity at your strike price, so the action was just about done unwinding.
It was at that point that 7400 was breached completely in one death-dive. The Dow fell over 100 point in the next hour and change, and, after 2:00 began heading for 7250, at which point bottom fishers came in and short covering began in earnest. Eventually, however, the die had been cast. The options traders had made their money, trapped their counterparties and escaped, apparently off to enjoy the first weekend of Spring out at the Hamptons or up in Connecticut. The Dow closed, as did the other indices, close to its low of the day.
Dow 7,278.38, -122.42 (1.65%)
NASDAQ 1,457.27, -26.21 (1.77%)
S&P 500 768.54, -15.50 (1.98%)
NYSE Composite 4,832.13, -105.09 (2.13%)
For the session, internals were indicative of the general direction. Declining issues outpaced advancers, 4582-1821. New lows opened a bit more space between themselves and the paltry number of new highs, 79-10. The highs-lows are still in a range from which they can roll over, but as has been the case in the previous six or seven times its happened since October 2007, it will only be for a day or two before the bull reverts to a scared calf as ravenous bears threaten its life.
One caveat is that some stocks are looking at 52-week highs that aren't that high. The decline had already begun by this time last year, though not in great earnest. The bear market rally (whether we are still having one is now very much in doubt) could run for months, though I personally doubt that it will last even a couple more days and definitely not past mid-April. In any case, the daily new highs and new lows is a metric which has provided incredibly strong insight into market movement, at times even predicting major moves and always true.
Volume on Friday was very high, higher than even Wednesday and Thursday. Expect the trading activity to fall off somewhat over the next two weeks as traders will be listening for early signs from companies considering 1st quarter results. Of course, the severe crisis of confidence, credit and money will continue to reverberate through the canyons of Wall Street and beyond.
One note on today's volume. There were more trades on the NYSE than the NASDAQ, the first time that's happened in a very long time (2002 to the best of my recollection).
NYSE Volume 2,465,968,000
NASDAQ Volume 2,421,536,000
Commodities were subdued, relative to equities. Crude oil lost 55 cents, closing at 51.06. Gold was off $2.60, to $956.20. Silver tacked on another 30 cents to finish the week at $13.82. Long term holders of precious metals are sitting pretty.
As for whether the rally will resume on Monday, there's quite a bit of evidence that it will not. Stocks were boosted largely for traders to rack up profits in options, as expressed above, and the last two days of trading have both ended up losers. Since the indices had been pumped quite a bit higher in a relatively short period of time, there may be a lull in the action for the next 2-3 weeks, but then earnings and guidance will begin to dictate the direction and it's not likely to be very good. Also, there's surely going to be more money being thrown around, scandal, and other disruptions, so the mini-bull we've experienced over the past two weeks may fade fast.
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