One for the Bulls

Thursday will look like a fairly positive day on paper, but without the assistance of a daily chart, one would never know what really happened. The markets generally behaved just as the Dow did, gapping higher at the open then settling into a narrow 30-40 point range before selling off on heavy volume in the last 1 1/2 hours.

It appeared to be organized buying by the brokerages without much outside interest.

The upside trade was more pronounced on the NYSE than on the NASDAQ, where advancers beat decliners by a 3-1 margin. On the NASDAQ it was only 3-2. Still, the numbers look fairly solid all around. New highs outnumbered new lows 177-104.

Any hesitancy was likely attributable to tomorrow's much-anticipated monthly non-farm employment data for February. Investors stood pat rather than placing serious bets. With tomorrow being the end of the week, traders may not be ready to jump into what's still a troubled scenario. The wounds from last Tuesday's near-meltdown are still fresh.

Dow 12,260.70 +68.25; NASDAQ 2,387.73 +13.09; S&P 500 1,401.89 +9.92; NYSE Composite 9078.65 +79.45

It's worth remembering that today's higher close was only the third in the last 12 sessions. That little nugget is still firmly planted in the back of many a trader's brain. The markets will need a number of consecutive trading days or a test of resistance around the 12,350 range or both before confidence is restored.

With no support in this range, the next congestion point is likely to be around 11,450-11,500, which is why anyone with an eye for charts is a little worried. There's no support between here and there.

The good news for US equities is that foreign markets were also higher on the day. The bad news is that everybody would like to play follow the leader, but haven't yet determined who's leading.

Oil, gold and silver barely budged, though oil was slightly lower while the metals were up, an encouraging sign.

Tomorrow will be important not only for the labor news but whether the markets can string two winning days together.

Blind Men Leading the Clueless: Late Day Selling Sinks US Equities

Yes, indeed, the dead cat bounced yesterday, but it lost its legs in the process. The follow-up to Tuesday's one-sided trade up was a complete dud. While the Dow briefly traded nearly 50 points higher, at the end of the day the sellers took all US equity indices back into red territory.

Dow 12,192.45 -15.14; NASDAQ 2,374.64 -10.50; S&P 500 1,391.97 -3.44; NYSE Composite 8,999.20 -6.81

The short leg today signify little buying interest. Any other explanation should be viewed with appropriate skepticism. Following the meltdown of Feb. 27, yesterday's rally was simply relief, as I said clearly and emphatically yesterday.

But here's a direct quote from (I believe) briefing.com, which posts directly to the market overview page on Yahoo! Finance, a site that is probably the most frequented of any in the financial world.

Since yesterday's huge rally was based as little on fundamentals as was last week's meltdown, and indicative of short covering activity amid an increasingly pessimistic mindset, today's breather wasn't overly disconcerting. In fact, some semblance of stabilization provides some hope that a bottom may have been put in place.

Now, I have a couple of problems with this. First, it's sugarcoating the past two weeks+ of trading in which the Dow has fallen in 9 of the last 11 sessions. The other indices have generally followed suit. February 27 was not an isolated event, even if it was somewhat contrived. Second, I don't know exactly how the author squares "short covering activity amid an increasingly pessimistic mindset" with "based as little on fundamentals as was last week's meltdown..." because if there is an increasingly pessimistic mindset, shorts wouldn't bother to cover and last Tuesday's meltdown was based on fundamentals - a fundamentally overbought market.

Third, that last line is a true gem and should end up in the annals of other official-sounding gibberish. "Some hope that a bottom may have been put in place" is like saying, "we're happy none of the survivors were killed," or "sure Kennedy was killed but Connally was only injured." Serious damage was done last week and it wasn't exactly unforeseen. Anyone hoping that a bottom is now in place is really pushing the envelope of stupidity right into the face of investors they hope are clueless.

There's more evidence that corporate media thinks the American public is stupid. As if we needed any more proof, writers Robin Farzad and David Henry penned the cover story for this week's edition (dated March 12, 2007) of BusinessWeek. In it they and their editors actually have the raw nerve to use this as a sub-head: "Volatility is back. Ominous signs loom. But the outlook for U.S. markets is surprisingly upbeat."

For them, maybe, but there are thousands of people with money in 401k's and other investments who aren't exactly rejoicing over a 400-point one-day drop on the Dow. The trading sessions which preceded and followed that ugly Tuesday aren't exactly joy-inspiring either.

The authors cite a glut of private equity money and other cash sitting on the sidelines and the fact that overseas markets still seem riskier than US stocks as examples for the "upbeat" feel. They also cite that the market was up on Feb. 28, as another reason not to worry, which certainly is reassuring, especially when it was down the following day, the day after that and so on...

These authors have an amazing nerve to think they can accurately read the market's signals and then tell us everything is OK. It truly is the blind leading the clueless.

Meanwhile, reports that the housing bubble has burst into full-blown collapse are beginning to emerge. It's not just sub-prime loans that are going bust, but buyers who purchased homes via adjustable rate vehicles at grossly inflated prices with little or no equity are being dragged into foreclosure as well. It's simple math. If you bought a home in 2003, 2004, 2005 or 2006 for $500,000 and today it's only going to fetch $400,000, you lose. And it's happening all over the country, but especially in Florida and California, which just happen to be two of the largest real estate markets in the USA.

The real culprits are interest-only adjustable-rate mortgages, which spread like wildfire through the mortgage industry as housing prices ramped beyond the reach of most Americans. Insidious lending practices let the buying boom continue, until every last loser with a job had his or her own home, affordable or not (most times, not).

Well, if our homes don't kill us, we can count on our cars taking every last nickel. Oil was up another $1.13 today to close at $61.82. The beneficent big oil companies just can't get enough, can they?

Gold gained 6.70 to 652.90; silver followed dutifully along, rising 12 cents to $13.11 per Troy ounce.

Did That Dead Cat Bounce? Yes, Indeed!

Is this how downtrends end? With a one-day wonder resurgence that erases any doubt that the US economy, American resolve and corporate equities are safe investments, the markets have made a bold statement.

Too bad it's impossible to believe.

The Dow added 157 points, the NASDAQ was up 44.46, the S&P gained 21.29 and the NYSE Composite index grew by 168. These were solid gains all around, led by the NYSE Composite and the NASDAQ's 1.9% improvement, but one good day, after a series of bad ones, does not a bull market make. The trend is still to the downside. The Dow, for example, is still nearly 600 points below it's high of 12,795.93, achieved less then a month ago. It's broken through the 50 day moving average and today's gain - albeit impressive - leaves it more than 300 points below that mark.

Further, the big 416-point drop last Tuesday was preceded by four consecutive down sessions. Today's winner was only the 2nd positive close of the last 10 sessions. Bulls, hard-headed as they are, usually need to be hit over the head with a mallet before they stop charging ahead, so maybe more evidence is needed. Give them a couple more weeks.

The advance-decline and volume numbers for today were real shockers. This was no ordinary buying spree. Every sucker in the universe was taking the plunge, a sign that cooler heads (Bears, shorts and put options players) are about to take more of their money.

Gainers outnumbered losers by a 4-1 margin, but the volume figures were extraordinary. Dow volume checked in at only 5-6% on the combined averages. Up volume of 94% signals just one thing - this is nothing more than a dead cat bounce on a temporarily oversold condition. Everybody moving at once is never a good sign because the chances of everybody being right are slim to none.

This market will likely give today's gains back by the end of the week. If this mini-rally gets legs and moves another step forward, it may take until the end of next week to unwind, but unwind it will. The market is not in any condition to regroup and head for higher ground. This correction is still in its earliest stage. We can call today the beginning of stage two, in which those who did not lose enough to be wary in phase one will be eaten alive.

New highs reversed the recent trend, though not by much, winning the day by a slim margin of 123-108. That's encouraging for the Bulls, but nothing to write home about.

Oil, gold and silver were up marginally. Commodities are still stuck in somewhat overbought ranges and cannot move higher when the global economy is in a cooling period or slowing down, which it is. For bulls of all persuasions, however, today was needed relief. But, like all relief rallies, they are usually dramatic and short-lived. This was no exception.