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Market Matters A daily recap of all things financial Don Bravo Crash Averted in Final 30 Minutes - April 22, 2005
I'll not pull any punches here. When the Dow, Nasdaq and NYSE were sliding precipitously into the closing bell on Friday - at 3:30, the low for the day for all three indices - the sudden turnaround was nothing short of a huge rescue effort by big money players.
Within minutes of 3:30 pm Friday, the Dow was down 148 points, the Nasdaq down 41 points, the NYSE Composite down 78 points. Digest those numbers a moment and compare to the closing losses:
Dow: -60.89
Yes, that's right, in the final half hour of trading, the Dow recovered 59% of it's loss, the Nasdaq 26%, and the NYSE, 57%.
You can call it whatever you like: short covering, enthusiastic buying on oversold conditions, etc., etc., etc. I prefer the word RIGGED.
The last thing the corporate masterminds on Wall Street want is another 150+ point loss for investors to mull over the weekend. I suppose a mere 60-point loss is more palatable and less alarming. But the unsuspecting public needs to know that the markets are losing ground, and losing ground steadily.
So what if the market doesn't crash in a manner of days. Is dying a slow death preferable to one that's quick, yet equally painful? And would it surprise anybody if the same brokers and dealers who are encouraging buying stocks are shorting the very same stocks? After the raft of corporate crimes and malfeasances of the past five years - and the ones going on even today - and the lax attitude of regulators, it should surprise nobody.
Once again, the market, our glorious, overpriced, bloated US equity market, was spared the deserved indignity of a massive sell-off, an alarm, some might say. Investors, especially those without control of pension funds, mutual funds, retirement funds, 401Ks and the like, are being slowly crushed and ground up by the maw of the bear market. Yet, there are those who will "save" us from a one or two-day event, most likely because they don't have all their chips aligned properly. When they do, the chips - and stock prices - will fall. You can count on that.
Incredibly, the indices all closed the week positive. The Dow was ahead by 70 points from last Friday's close; the Nasdaq added 24 points, while the NYSE added 58 points.
Of course, the weekly numbers will soothe watchers of Wall Street Week with Fortune on PBS, or the various Fox Saturday morning shows, or even those who get their overview from the network nightly news. They won't tell you the Dow is 800 points lower than it was on March 7, or that the Nasdaq has lost 7.5% in the last seven weeks, or that both of those indices have fallen through their 200-day moving averages. That might cause you to worry, it might cause you to understand more of what's going on, it might cause you to - perish the thought! - pull your money out of your fund before the final collapse occurs. We wouldn't want that...
Despite the heroic efforts in the final half hour, the market internals were once again utterly depressing. Declining issues beat out advancers by 19-12 on the NYSE and 7-3 on the Nasdaq. Down volume more than doubled up volume on the NYSE, while the difference was nearly fivefold on the Nasdaq. The persistent and honest measure of new highs - new lows once more showed exactly where the market sentiment is sitting: on the NYSE, there were 113 new lows to a mere 24 new highs. On the Nasdaq, new lows totaled 140, new highs only 46.
Bonds rallied, but at today's yields, nobody really cares much. The flattening of the curve continued, with the spread between 2-year and 30-year yields now less than one percent, precisely 98 basis points. Inversion, the precursor to recession, is coming. The spread between the 2 and 3-year yields is once again a mere 10 basis points. That will almost certainly be the first inversion point.
Once again, the onus of the Middle East oil fields beset the market in an unseemly manner. A barrel of light sweet crude bounced upward another $1.19 on Friday, pushing the price to $55.39. Within weeks, this price will surpass $60 per barrel and gas in the US will cost closer to $3 a gallon than $2.
The glorious metals got a boost from Wall Street's dour mood. Gold priced at $434.40 and silver reached $7.28, while the US Greenback was dashed against every major currency save the Russian Ruble and Mexican Peso. We're keeping poor company with our dollar these days.
Corporate earnings continue to lay a pall over the market. Eastman Kodak (EK) and Maytag (MYO) missed their marks, while deep discounter Costco warned that they would not meet their earnings in each of the next two quarters. Almost thankfully, earnings season will be winding down by the end of next week. After that, the markets will only have sorry economic reports and pronouncements from the Fed (next FOMC meeting is Tuesday, May 3) to feed upon.
Be prepared for anything on Monday. It may be ugly. If not, then surely some time next week.
Keeping the Customer Satisfied - April 21, 2005
If today's monstrous rally isn't enough to convince those who need convincing that investing in US equities is a good thing and that the US economy is strong, secure and stable, then it simply must not be so. The Dow Jones Industrial Average posted a massive 206-point gain - easily its best this year - but it also posted a huge gain of 135 points on March 30, after which the average headed straight down, losing more than 500 in the subsequent three weeks.
The Nasdaq followed suit with a gain of 48.65, while the NYSE was ahead by a whopping 111.58. The gains effectively erased yesterday's monumental sell-off - and then some.
Despite the gains, the indices are still well below levels of just three weeks ago and well off their highs for the year and all are solidly in the negative column for 2005. The many stocks of which they are comprised have experienced similar fates as the new highs/new lows measure continues to show. On the Nasdaq, 105 new lows dwarfed the 28 new highs. There were 66 new lows and 23 new highs on the NYSE.
Volume was on the heavy side and up volume held a better than 5-1 advantage over down volume on both exchanges. Advancers beat decliners 11-4 on the Nasdaq and by nearly 3-1 on the NYSE.
Apparently, more than a few investors were bargain hunting today and they certainly liked what they saw. Of course, those buyers completely forgot or dismissed all of the weak indication and poor earnings results of the past six weeks. In fact, today's buyers totally ignored The Conference Board's Index of Leading Economic Indicators, which reportedly fell by 0.4% in March. The LEI, being a broad gauge of economic activity and business cycles, shows clearly that the economy is either stagnating or slowing, neither of which are good.
Investors also laughed off Fed Chairman Alan Greenspan's warning (which he has stated no less than 3 times in the last 2 months) that failure to address the federal government's ballooning deficit could pose serious consequences in the future. They paid more attention to the report from the Philadelphia Fed, which showed a sizable jump in business activity - from a reading of 11.4 in February to 25.3 in March.
So, for the time being at least, fears of a complete market meltdown are laid to rest for the masses. Of course, that raises the warning flag even higher in the minds of serious market watchers and participants alike.
With all the jubilation in the stock markets, bonds were pounded lower, with the yields on all maturities getting a needed boost. Once again, however, the short end of the curve moved faster than the long, continuing the flattening trend.
In the commodity markets, crude oil was higher by 17 cents to 54.03, but it was barely of notice. Gold and silver retreated and the dollar gained against foreign currencies.
SMASHING! Stocks Slammed Again - April 20, 2005
More of the same today for still massively overpriced US equities... and the sellers know it. The Dow dropped another 115.05 to close within a whisker of the fabled, emotional 10,000 level, to 10012.36. Any day now, that number too will be obliterated.
The Nasdaq followed suit, losing another 18.60 to end at 1913.76, and the NYSE Composite led the way in terms of percentage loss at 1.32, falling 93.14 points to end the day at 6937.60.
The severity of the declines cannot be overstated enough. US equity markets and individual stocks are in virtual free fall and there is nothing - short of divine (or possibly Federal Reserve) intervention - to stop it. The prospect for a catastrophic one or two-day event is now greater than ever and actually should be expected as the indices have broken through all support levels, moving averages and psychological barriers.
What could save this horrific market from an outright crash would be a healthy dose of truly strong economic reports and solid corporate earnings. Unfortunately for investors, this is wishful thinking at best. For the worst of it, stay tuned, because the train, as they say, has left the station and is heading straight to economic hell.
Market internals, as expected, were horrific.
Nasdaq: New Highs: 21; New Lows: 144
Declining issues held sway over advancing issues by a 3-1 margin on the NYSE, and by better than 2-1 on the Nasdaq. Down volume on the NYSE was nearly 5 times that of up volume, while the measure was only 2-1 on the Nasdaq.
The indications from the indices is that the mainstream stocks are finally beginning to catch up to the techs on the Nasdaq, which, up to this point, have taken most of the heat. Now, with all the jets burning, no stocks will be spared. Investors are not in a mood for questioning. Any doubt will spur immediate and extended selling in any equity.
Over at the bond bourses, news that the Consumer Price Index had risen by 0.6% in March, pushed prices higher, depressing yields across the board. The 30-year ended at 4.54%, which is where the 10-year was just three weeks ago. The 10-year closed at 4.18%; the 2-year at 3.47%, once again flattening the curve. The spread between the 2 and 10-year yield is now a mere 71 basis points, compared to 83 basis points just a month ago.
For more of a realistic perspective on the flattening and potential inversion, the 2-year and 3-year yields are only 12 basis points apart. A month ago, that separation was 20 BPs; a week ago, it was 15. This is the probable inflection point at which inversion will first occur, between 2 and 3-year rates.
Commodities, including gold, silver and oil, accordingly, priced higher, with June gold futures moving up 2.30 to 436.70 and May silver higher by .09 to 7.34. Light crude closed at 54.03, up 46 cents. The dollar dropped against all major currencies except the Yen and Canadian dollar.
The saga continues...
Short Memories - April 19, 2005
It was only last Friday - a scant four days ago - that the world of Wall Street seemed to be coming to an end. How short the memories of investors are! Naturally, there are still some hardy souls searching for bargains in the wake of the past six weeks of steady declines, and we witnessed their forays into speculation today.
By traditional standards, Tuesday's gains were neither powerful nor indicative of any kind of trend, but rather a knee-jerk reaction to the aforementioned powerful downward forces which have, at least for a few days, relented.
Rather surprising was the upswing in today's markets, considering the raft of economic news - none of it very encouraging - that greeted investors prior to the open.
While new home construction fell at a 17% rate from February to March - the biggest such decline in 14 years - and wholesale inflation, via the Labor Department's Producer Price Index, rose at an 0.7% rate in March, the speculators were undeterred, spiking the indices right out of the gate.
The Dow was very indicative of the overall tone. It rose 50 points - to an area around 10120 - in the first five minutes of trading and stayed within 30 points of that point for the remainder of the day. There was little commitment on either side to push the exchanges in one direction or the other. The move to the upside was established early on and so it remained in force. Most traders were probably content that the overall tone did not deteriorate noticeably through the session.
However, this kind of activity is not going to move the markets forward. There needs to be a powerful catalyst for any concerted upside move, and unless corporate earnings suddenly reverse their trend and begin to come in more positively in the next few days, this earnings season will simply slide into memory as one of the poorest in recent years. Very few companies have beaten estimates handily, while a raft of companies have disappointed, the most recent being General Motors, 3M and Pfizer, all Dow components.
3M, the multi-dimensional maker of many consumer and industrial products including Post-It Notes, reported on Monday and beat earnings expectations, but sales growth was well below the expected range and investors hammered it, though it bounced back somewhat today.
General Motors had already warned that the quarter would be well short of estimates, and it was, posting a $1.1 billion loss for the 1st quarter, it's worst in over a decade. That amounted to roughly -$1.95 per share and the news figures to get worse as the company grapples with rising health care costs, pension underfunding and a slowdown in auto sales. The automaker, once the pride of American companies, has fallen victim to poor fiscal and corporate management, bad forecasting and an unrelenting resistance to change. The fact that it produces mostly big cars, SUVs and trucks with poor fuel efficiency - in an environment in which drivers are in a state of shock and dismay every time they approach a gas station - is testament to the company's myopic vision.
Meanwhile, earnings at the world's largest pill manufacturer, Pfizer, eroded to $301 million, from $2.33 billion in the same quarter a year ago. The company has been wracked by drugs such as Bextra and Celebrex being pulled from the market and a general uneasiness surrounding the use of many of the company's drugs, which include Viagra, Lipitor and Zoloft. Essentially, the company supplies users drugs which promise a pain-free, sexually-potent, blissful existence well into their senior years. What the company has yet to produce is a drug that will produce never-ending profits for shareholders, which, at this point in time, would really qualify as a miracle cure.
For the day, the Dow added 56.16, the Nasdaq tacked on 19.44 and the NYSE gained 61.65. Advancers beat decliners by nearly 3-1 on the NYSE, and by better than 201 on the Nasdaq. The new lows over new highs metric was alleviated to a degree, with a mere 66 new lows - compared to 18 new highs - on the NYSE and 116 new lows to 29 new highs on the Nasdaq. Volume was moderate and heavily (by a 3-1 margin) weighted to the upside on both exchanges.
The bond market was the quietest in months, with most of the treasuries unchanged, while precious metals - gold and silver - posted impressive gains. Oil was back above $53/bbl. and the US Dollar sank once again, posting fresh lows against a host of foreign currencies.
In essence, the action in stocks today was indicative of mere speculative excess. There's still plenty of cash sloshing around and investors still don't want to realize that stocks are not the place to be. Another round of falling share prices is in the offing and it's almost certain to be right around the bend. Today was one of those rare days in which short sellers could actually sit back and survey the carnage and seek out the next victims.
The Bottom Fell Out - April 18, 2005
To the casual observer of the stock market, last week's deep declines came as somewhat of a surprise, though to those who have been watching and analyzing market events for many years, the depth and severity of the sell-off was anticipated, expected and duly noted.
To put last week in the parlance of 40's or 50's movie jargon, one could suggest that ":the bottom fell out," as the charts indicated a bottoming pattern in more than one of the major indices. For the Dow, that bottom was in the 10350-10370 range, the Nasdaq in the 1980-2000 level, and the NYSE Composite - though to a lesser degree as this particular index had previously been on the fast track to the stratosphere -7065.
In more technical terms, the indices reached points at which they showed previous relative strength and from which they had bounced higher in the past. But Thursday and Friday of last week were both demonstrably days in which the bottom could not hold, and thus, much like a weakened, overused paper cup, when filled with too much liquid, collapsed through the bottom.
What one usually has in these instances is a sloshy mess on the floor, and that is precisely where the markets found themselves on Monday morning. The analogy is apt and actions by market participants are similar to what others would do in real life after a spill. While some went about the business of mopping up, others sat in corners and complained. Others got back to work as though nothing at all had happened.
It is appropriate to note these actions and who's doing what, as they may provide insight into what lies ahead for the US economy and the equity markets. The mopper-uppers were dutiful in the morning as the averages deviated direction, and by mid-day, most of the mess had been wiped clean. There was not a good deal of additional spillage, as, in the case with our bottomed-out water cup, nobody in their right mind is going to spill more liquid on the floor. So it was today, in the orderly way Wall Street went about finding a new cup to fill and hope that it holds. Building back up from this mess, however, is not going to be easy.
We're likely to witness some firming up of prices over the next few days and weeks, though another breakdown could send the markets for a real tumble. Continued bad earnings reports and/or economic news could send the averages into a rapid descent, dissimilar to what's expected, a gradual unwinding to lower levels.
Thus, investors have a choice of how they'd like their poison - all at once or a slow dripping event. Like most, the average professional trader would rather take it slow and allow time for changing positions, reallocation of cash and a more objective view rather than an all-out panic. The fact is that they're likely to get a dose of both as the market grinds down those remaining bulls before finally devouring everything in a spectacular series of declines. The whole process will take many months, if not years, as we have almost certainly resumed the secular bear market that was interrupted by two years worth of intervening policies of war, tax cuts, loose credit and greedy speculation.
This is as good a time as any to reiterate what I've said for the past two months: You should not be speculating in this market unless it's on the short side of the trade. Furthermore, if you are holding, you should be selling, even at a loss, as the situation does not look to be improving for some time, possibly not until 2007, perhaps even beyond that.
One should not be worried about missed opportunities at this point either. While stocks may look cheap now, they will look cheaper in the future. One should be in a position to protect wealth rather than seeking income in US equities. Alternative investments, such as gold, silver, investment grade real estate, art, antiques, rare books, coins and selected collectibles are preferable to equities for the time being - the next eighteen months to two years. Though not all highly liquid nor uniformly appreciable, investors should take note of these markets as the residual effect of a loss in stocks may trigger bargains in other, non-aligned, areas. Some sellers may be distressed at the same time many buyers are tapped out or otherwise skeptical or fearful.
With that bee in your investment bonnet, today's activity:
Overall, nothing much happened. The Dow dropped 16.26, the NYSE was up 10.74, and the Nasdaq added 4.77. Nearly everyone is in a wait-and-see mode. Speculators, having been duly routed over the past six weeks, are sitting this one out.
The indication is that investors are continuing to dump those stocks they dislike, while sizing up others. Expect this number to vacillate over the next 2-3 weeks before expanding to even deeper levels. There is more pain on the horizon and quite a few stocks haven't felt the full extent of it yet.
Bonds were relatively quiet, as holders are more or less resigned to low yields. The bond market is only going to fluctuate in a tight range, as the Fed slowly will shift from raising rates to neutral over the next three to six months (4 meetings). Don't expect the Fed to raise the discount rate much more than 3.25-3.50 in this environment, though their hand is somewhat forced at this point. At 2.75, they probably think they need a little more room if another round of rate cutting is necessary further along. Thus, the bond market is likely to be relatively stagnant and underperform inflation for some time.
Gold for June delivery closed at $429 on the NY Merc, while silver hit $7.01 on the spot market. The US Dollar slumped to an all-time low against the Euro, as one dollar bought 0.7679 Euro. The dollar also fell against all other major currencies except the Australian and Canadian dollars, though the gains were slight.
In addition to watching for surprises in corporate earnings releases this week, the economic calendar includes readings on housing starts and the Producer Price Index tomorrow, the Consumer Price Index on Wednesday, and on Friday, the Conference Board's Index of Leading Economic Indicators and a monthly report on business activity by the Philadelphia Fed.
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