Lack of Catalyst Encourages Buyers; Rally Fizzles at Close

Mark Haines

This post is dedicated to Mark Haines, CNBC Anchor, who died unexpectedly last night at his home. Mark, 65, was one of the pioneers of televised financial news reporting, a stalwart with CNC from the beginning. Godspeed, Mark, may your surviving assets be spent in splendor by your rightful heirs.

As far as bounce-back rallies are concerned, this one rates at best a D-minus, for any number of reasons. First, there could not have been a more friendly environment to buy into; second, volume was so light a junior trader could have engineered a better bounce; third, the rally fizzled into the close, just like yesterday's 3:30 and beyond slip-slide.

Today's action was more a re-positioning of assets rather than a rally. For perspective, consider that the Dow dropped 250 points in the prior three sessions. Today's gain of less than 40 points was not even a quarter of that. The NASDAQ was down 77 points over the prior three sessions. The gains today were not meaningful.

Besides the untimely death of CNBC's Mark Haines, there was little to trade off of today, and most of it was bad news. Greece continues to twist in the wind of proposed EU austerity packages, all unacceptable and leading eventually to Greek default on their debt. Durable goods orders for April nose-dived, down 3.6% for the month, after a 4.4% gain in March. Estimates were for a 2% decline, so that was a pretty substantial miss. Investors seemed not to notice that all economic data has been either bad or horrifying the past two weeks.

Dow 12,394.66, +38.45 (0.31%)
NASDAQ 2,761.38, +15.22 (0.55%)
S&P 500 1,320.47, +4.19 (0.32%)
NYSE Composite 8,295.34, +42.88 (0.52%)

Winners took the measure of losing issues, 4336-2215. On the NASDAQ, 46 new highs, but 73 new lows. The NYSE showed 61 new highs and 35 new lows, making the combined total (the one that matters most) 106 new highs and 108 new lows, the second in the past three sessions that there have been more cumulative new lows than new highs. We are plumb out of adjectives to describe the ridiculously low volume on the markets. Sorry.

NASDAQ Volume 1,845,890,875
NYSE Volume 4,024,320,500

A weaker US dollar boosted commodities. Crude oil was up $1.55, to $101.32. AAA reports the average price of a gallon of unleaded regular gas in the US at $3.81, about 14 cents lower than two weeks ago, offering a little bit of relief for over-burdened drivers.

Gold found some life, but was eventually blunted late in the day, losing 90 cents, to $1525.20. Silver had another good day, gaining $1.20, to $37.83 the ounce.

Thursday brings the usual scariness of initial and continuing unemployment claims, plus the added bonus of the second estimate on 1st quarter GDP. The initial estimate had the US economy growing at 1.8% and the consensus is for little change to that number.

And so we bump along, grinding lower in due time.

Unemployment Up, Durable Orders Slip, But Markets Stable

Just in case anybody thinks that Bernanke's QE2 program isn't working perfectly (in other words, shoveling billions of dollars to the nation's largest banks), a quick recap of today's headlines and the resultant market moves should suffice to argue that US stock markets have permanently divorced themselves from reality.

Initial jobless claims came in at 454,000 in the most recent week. The market was looking for 400,000. Oops! The official reason for the rise from last week's reported 403,000, and the highest number since October was snow. OK, we're officially not buying that.

Durable orders for December declined by 2.5%. Analysts were expecting a gain of 1.5%. After all, Christmas falls in December, and everybody got a Lexus, right?

As tensions mount in Egypt in advance of tomorrow's largest protest to date - led by former IAEA chief Mohamed ElBaradei - the US State Department has advised president Hosni Mubarak to remain calm, though the days of the strongman leader seem to be numbered. In the aftermath of the Tunesian revolution, Algeria and Yemen, along with Egypt, appear to be on the brink of revolt.

Apparently, this spate of less-than-encouraging news was insufficient for equity investors to seek investments with less risk. Maybe they - or the computers controlling the trading - are standing pat, awaiting the first announcement of 4th quarter GDP tomorrow at 8:30 am. The official estimate is that the US economy grew at a 3.8% annualized rate, after the third quarter came in at 2.6%. Those hoping for a strong GDP number may wish to recall that residential real estate nearly ground to a halt in the 4th quarter, due to the fruadclosure scandal and that's not a big positive. The number ought to be interesting, just to see how far the government will go to convince everyone that the recovery is real and continuing, when the facts say the recession never actually ended and the only place in the country feeling particularly good about things in in lower Manhattan.

Dow 11,989.83, +4.39 (0.04%)
NASDAQ 2,755.28, +15.78 (0.58%)
S&P 500 1,299.54, +2.91 (0.22%)
NYSE Composite 8,207.06, +13.42 (0.16%)

Major indices were all marginally higher on the day, though the psychological barriers at Dow 12,000 and S&P 1300 remained difficult to breach. Both indices briefly advanced into the beyond, but generally flatlined below those levels for the bulk of the session. Internals suggest an unconvinced market sentiment, with 3454 stocks advancing and 2964 declining.

There were 159 new highs and 14 new lows on the NASDAQ, while on the NYSE new highs led new lows, 252-9. Volume was slight, as usual.

NASDAQ Volume 2,033,972,000
NYSE Volume 4,773,436,000

Commodities were mostly beaten down, as NYMEX crude dipped another $1.69, continuing the recent trend, to $85.64. Gold also remained under pressure, dropping another $14.60, to $1,318.40, back to October, 2010 levels. Silver dropped 10 cents, to $27.03, well off the December highs of $31.

The disconnect between the markets and reality is palpable. The wheels came off a long time ago, but the sputtering US economy has yet to be reflected by the Fed-fueled stock markets. Something's got to give, and when it does, it should be big.

After hours, Amazon (AMZN) released 4th quarter earnings and investors were not amused, sending the stock down to 166.74 a loss of 17.71 (-9.60%) at 5:00 pm EDT.

Markets End Losing Streak, but Are Up Only Slightly

Stocks started out in ugly fashion and got even uglier at 10:00 am when the Commerce Department announced that new home sales in July slipped to their lowest-ever level, selling at an annual rate of 276,000, down 12.4% from June and down 32.4% from July of last year. The number was the lowest ever recorded since the department began tabulating the data in the 1960s.

The media trotted out the usual commentary - just as it did trying to justify the horrific numbers in existing home sales - saying that the decline was tied to the April expiration of the government's $8,000 buyer home credit. The argument is weak, since the credit expired three months prior to the most recent recording period. May sales were awful, June's only slightly better, so the evidence seems to be pointing to widespread weakness in demand, like everything else in our stressed-out economic environment.

With prices falling as well, potential home buyers - the few that are out there - are either waiting for prices to drop further, which they most surely will, or waiting until there are some positive signs in the US economy. Either way, fewer and fewer people are diving into new or existing homes, and one can hardly blame them. Younger couples in particular may be concerned about their employment situation and don't feel an urgent need to take on massive new debt even though mortgage rates are at historic lows.

While the financial press continues to call the data "surprising," American households seem to have a better grip on what's really happening in the overall economy. At the best, it's stagnating, at the worst, we've never actually emerged from recession and are about to take another leg down.

The market's reaction to the report, along with a weak 0.3% reading on durable goods, was more salt into the wounds of already-battered bulls. The usual suspect experts were expecting durables to come in with an increase of 2.5-3.0%. As usual, they were sorely disappointed, especially since durable goods orders had fallen in the previous two months, and stripping out transportation, the numbers fell to -3.8%.

Some time around noon traders managed to piece together a soft rally which extended into the close, though there was little commitment among buyers. The gains looked more like dabbling in technology and heath care and consumer cyclical stocks, but didn't amount to much.

Dow 10,060.06, +19.61 (0.20%)
NASDAQ 2,141.54, +17.78 (0.84%)
S&P 500 1,055.33, +3.46 (0.33%)
NYSE Composite 6,696.12, +15.09 (0.23%)

Advancers galloped past declining issues, 3577-2177, though new lows exceeded new highs for the second consecutive session, 344-188. Volume was about the same as yesterday's, still in a very depressed state.

NASDAQ Volume 1,859,870,000
NYSE Volume 4,530,124,500

Oil traded lower on initial reports of US inventory builds, but managed to close the day higher, up 89 cents, to $72.52 a barrel. Gold continued its march toward new highs, gaining $7.70, to $1,239.50. Silver made its second strong advance in as many days, rocketing 65 cents to close the day at $19.02.

Today's smallish rally off nothing but bad news was probably more wishful thinking than rational investing by fund managers whose mandate requires stock purchases. It's a kind of forced buying which can turn markets around on individual days, even when the overall trend is very negative. The little bit of optimism provided probably won't last into the next session, with initial jobless claims due out at 8:30 am on Thursday. The much-anticipated revision to second quarter GDP caps off a week dominated by economic reports on Friday prior to the opening bell.

Trend is Lower for US Equities

Stocks gave back some of the outsize gains of the past two weeks in another sign that the summer rally is at an end. Earnings reports are dwindling down, though a few key companies are still releasing figures. For the most part, however, investors are looking beyond the earnings numbers and taking closer inspection of overall economic data, like this morning's June Durable Goods report showing a 1.0% decline after a downwardly-revised 0.8% drop in May.

That report put a pall over the markets and stocks struggled throughout the session. Most of the losses came after the release of the Fed's beige book at 2:00 pm, which confirmed what many already knew: the US economy is slowing down, though not yet experiencing negative growth. With this weighing on the minds of investors, some were quick to take profits, though there still seem to be plenty of buyers keeping stocks at elevated levels.

Dow 10,497.88, -39.81 (0.38%)
NASDAQ 2,264.56, -23.69 (1.04%)
S&P 500 1,106.13, -7.71 (0.69%)
NYSE Composite 6,999.18, -45.81 (0.65%)

Declining issues held their edge over advancers for the second straight session, 4357-2048 (2:1), though new highs continued their advantage over new lows, 203-68. The divergence, not only in the high-lows vs. the A-D line, but also in the relative out-performance of the Dow over the NASDAQ, signals a good deal of confusion in the markets, and the markets generally don't appreciate confusion. Tops on the list of confusing issues is the decoupling of listed companies from the US economy. Companies have shown strong performance in their most recent earnings reports, but all of the US economic news has been on the sorry side. This is emblematic of US-based companies actually deriving major portions of their revenue offshore, particularly in Asia and Latin America, two areas which are on the opposite side of the Euro-Us debt collapse.

NASDAQ Volume 1,865,542,625
NYSE Volume 4,554,030,500

Adding to market woes was the announcement - late in the day - by California Governor Arnold Schwarzenegger that the the Golden State was now in an official "state of emergency" triggering an executive order which calls for state employees to begin mandatory 3 day per month furloughs without pay starting in August.

The issue is the state's $19 billion budget shortfall, and the legislature's unwillingness to bring spending and revenue into equilibrium. With states across the country gearing up for fall semesters of schooling and teacher unions refusing to budge on key wage and benefit issues, California has effectively fired a warning shot across the collective bows of state capitols, many of which are facing serious budget shortfalls and intransigent government worker unions.

The commodity space was unsettled as well, with oil down again, by 51 cents, to $76.99. Gold gained a paltry $2.40, to $1,160.40, while silver declined 20 cents, to $17.42.

Market inconsistency should come to a head by Friday, when the government releases its first estimate of second quarter GDP prior to the opening bell. Thursday's initial unemployment claims will also be closely watched.

One More Ugly Day for Stocks Following Fed Statement

On the heels of the FOMC rate policy announcement - one which possibly reached new levels of double-talk and misleading innuendo - stocks sold off rapidly at the open and again into the close.

The simple fact of the matter is that heavy trading is normally done in two specific time periods - in the first half hour and in the final hour of trading. On Thursday, the Dow lost roughly 100 points by 10:00 am, and another 45 from 3:00 to 4:00 pm. That pretty much summed up how investors were feeling a day after the Fed threw itself on it own sword of interest rate policy and effectively left US markets to fend for themselves.

While the losses today were substantial, it is worth noting that volume wasn't particularly strong; however, that should be put into the perspective of an overall weak market - the case since the financial implosion of 2008. Trading volume may never recover to the glory days of the great bull run from 2003-2007 as many individuals and a spate of investment firms have permanently soured on US stocks.

Wild gyrations, uncertain times and volatile conditions do not a stable market make, and these times could hardly be described as stable. Government intervention into all areas of public and private finances also have made many shy away from investing in equities. Nonetheless, there are still those who will try to quantify risk - such as the friend who told me that he made a considerable investment in BP on Tuesday (I do not know what he deems "considerable," but in any case I felt impelled to tell him I thought it was a mistake, and he is already on the wrong side of the trade.) - in search of ever-elusive gains.

There are also pension funds, mutual funds, hedge funds and any manner of investment vehicles which are chartered to invest in stocks, like it or not, so there will likely always be ample supply of buyers and sellers no matter the level of greed, fear and risk tolerance.

Considering the current climate, stocks are not favorable investments for anybody except those with excess cash on hand (wealthy), and even then, investing today may be more akin to gambling or just plain flushing money down the nearest toilet.

Let's take a look:

Dow 10,152.80, -145.64 (1.41%)
NASDAQ 2,217.42, -36.81 (1.63%)
S&P 500 1,073.69, -18.35 (1.68%)
NYSE Composite 6,730.24, -119.81 (1.75%)

Not a very pretty picture, there. Declining issues beat down advancers once more, today by a wide margin, 4914-1535 (3:1). New lows screamed past new highs, 159-92. Volume was light, but not exceedingly so. There was some serious dumping of losers going on and the number of bulls in attendance were not nearly sufficient to scare off the short-siders.

NYSE Volume 5,595,221,000
NASDAQ Volume 2,049,015,500

About the only place to make money was in the precious metals, though it wasn't much. Gold finished at $1,245.50, a gain of $11.40. Silver pushed ahead 28 cents, to $18.73. Crude oil fared less well, with futures for August delivery up a scrawny 16 cents, to $76.51.

The only economic news of any importance was prior to the open. Durable goods orders for May declined 1.1%. The weekly initial jobless claims stayed at about the same level they've been at for months, with 457,000 new unemployment applications.

With poor data setting the tone, stocks slumped. On Friday, the government releases its third and final estimate of 1st quarter GDP, expected to remain stable at 3%. With the release at 8:30 am, that should have little impact on the week's last day of trading.

Fed Comments Don't Help

As expected, the FOMC of the Federal Reserve left interest rates alone, but, in the press release accompanying the non-event said that economic conditions had improved slightly since April, though the Fed's policy statement was peppered with pejoratives and qualifiers, lending to an overall uneasy feeling on Wall Street.

Possibly the most annoying part of the release was the comment on commodities and inflation: "The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time."

At least the Fed is being honest about future prospects, but, on Wall Street as well as on Main Street, no inflation means no or a slow recovery. Collapsing pricing power means that business will have to deal with margins as they are, or lower, and sales volume also at or close to current levels. Overall, it's a picture of stagnation, though not as bad as conditions might have been six months ago.

After the 2:15 announcement, stocks gyrated in both directions briefly before taking a slight nose-dive. Especially hard hit was the Dow, which had been sporting solid gains, but ended up as the only major index in the red. All of the other indices finished the session off their highs, though only marginally.

What did boost the market was the positive reading on durable goods orders, which spiked to a gain of 1.8% in May, the second straight gain of that size, lending some credence to the bottom of the recession having already passed. Naturally, there are skeptics still, and even more who wonder whether the gains of recent months hadn't already priced in such positive developments. After watching the economy write while the market soared, investors may be facing a complete reversal of fortune: watching stocks slip as the economy actually improves.

Dow 8,299.86, -23.05 (0.28%)
NASDAQ 1,792.34. +27.42 (1.55%)
S&P 500 900.94, +5.84 (0.65%)
NYSE Composite 5,795.72, +36.23 (0.63%)

Advancing issues far outpaced decliners, 4251-2184, but new lows finished ahead of new highs for the ninth straight session, 67-50. Volume was roughly the same as yesterday, due primarily to the Fed announcement. Without that catalyst, it would have been one of the slowest sessions of the year.

NYSE Volume 1,101,553,000
NASDAQ Volume 2,171,782,000

Crude oil slipped on gasoline supply data, down 57 cents, to $68.67, a positive sign for motorists, as gas prices are almost certain to decline after the July 4 weekend. Gold posted a gain of $10.10, to $934.40. Silver added 7 cents, closing at $13.94 the ounce. The metals remain in no-man's land, stuck between interim lows and all-time highs reached last year. There's some doubt about gold and silver entering the picture of late. Failing to retest the highs may signal a breakdown and turn from the 7-year bull market. If that's the case, it presents an incredible buying opportunity, as the price of both gold and silver should rise significantly once the world economies are back on track.

When that is going to happen, however, is anybody's guess. Even the Fed is now couching its comments, and if they don't know, who does? Best guess at this point is that recovery occurs some time next year, but is relatively weak. GDP growth may not exceed 3% until late 2011 or later.

Week Ends Slightly Weaker on Mixed Bag

A late-day rally restored some respectability on the Dow and the S&P 500, but both indices fell back to break-even or worse for 2007.

In particular, the Dow briefly dropped into red for the year and ended the day - and week - just 23-and-change from the 2006 finish. The S&P fared a bit better, losing less than 2 points during the session, but it is perilously close to the 1418.30 close of December 29, 2006 - less than 4 points - at 1422.18.

The last day of what turned out to be a tumultuous week left the major indices split from where they began. The Dow and NASDAQ lost ground while the S&P gained a bit, and that seems to be par for the course. The much-anticipated January Barometer reading may turn out to be inconsequential as there are currently too many unresolved issues - bonds, Fed action, earnings, oil, conflicting economic readings - to place much emphasis on any kind of reading it may produce.

At best or worst, depending on your outlook, outside of a huge 3-day rally or sell-off, January is going to finish close to where it started. That gives traders essentially no guidance, just what we're getting used to from the markets, the military, the government and even a host of football prognosticators.

Friday's 15.54 loss on the Dow was driven by a confluence of diversity. Dow component Caterpillar (CAT) missed earnings forecasts but issued encouraging 2007 guidance. After the close last night, Microsoft (MSFT) beat estimates and this morning, fellow component Honeywell (HON) merely matched expectations.

Other market-moving news included Durable Orders rising 3.1% in December, the Commerce Dept. said new home sales rose at a 4.8% rate in December to 1.12 million, marking the highest level since April, but as the day wore on oil continued to price higher, closing above $55/bbl. once again.

It really is a mixed bag out there. Caveat Emptor Sellers too.