Today marked a potentially critical turn for US equity markets, from a strict interpretation of a key indicator, that being the new highs - new lows measure.
On Monday and Tuesday, new highs surpassed new lows on the daily tally for the first time in six months. New lows have held the edge every day since September of 2007, save for five or six occasions. On those occasions in which new highs surpassed new lows during this period, once new lows took back the lead, stocks fell for a time until the new lows were 25-100 times the number of new highs, at which point a bottom was reached in the market.
Today, there were 50 new lows to 48 new highs, a technical win for the lows, indicating that a market turn is at hand. This is the strongest selling indicator that has been seen in the past three months. While it's obvious that stocks are severely overbought and have been for weeks, this sole indicator is all that's needed to predict the immediate future for stocks. They are ready to roll over and die. The extend of the carnage cannot be known, but within the next 3-6 trading days, there will be dramatic movement to the downside.
Market action today was somewhat hidden, though the real damage was done on the NYSE Composite, the largest index, and the one least prone to manipulation. While losses on the three majors were limited, the Composite was down 2.41%, nearly twice that of the S&P, three times the decline of the Dow and triple the NASDAQ on a percentage basis.
Dow 8,675.24, -65.63 (0.75%)
NASDAQ 1,825.92, -10.88 (0.59%)
S&P 500 931.76, -12.98 (1.37%)
NYSE Composite 6,033.90, -148.97 (2.41)
Declining issues far outpaced advancing ones, 4346-2059. That is a significant number, much moreso than the feeble tape-painting attempt on the Dow, which had been down as much as 140 points at 3:30 pm. Of course, the manipulators in the market made sure to limit the damage with a 75-point rally in the final half hour. It should be disregarded, as should every index, as they are absurdly valued at present. Consider that the Dow is still more than 2000 points higher than it was less than three months ago. The game is nearly up. Savvy investors will be locking in profits very soon as waves of selling are set to hit the market. Volume was on the low side, but still meaningless. The warmer weather and shakiness of the markets have removed many participants.
NYSE Volume 1,323,971,000
NASDAQ Volume 2,320,685,000
Commodities may have telegraphed the next move in stocks. After weeks of rallying, nearly all commodities sold off on the day, indicating that speculators are scurrying for safer havens in bonds and money markets. The catalyst may have been the ADP Employment Change report, which showed a loss of 532,000 private sector jobs lost in May, and also revised April from a loss of 491,000 to a 545,000 job loss. With the official Labor Department Non-Farms Payroll report for May due out prior to the market open on Friday, there is every possibility that the report will show further deterioration in the US employment market, not "incremental improvement" as the media and government officials have been touting.
Oil dropped $2.43, to settle at $66.12. Gold dipped $18.80, falling to $965.60. Even silver, the strongest commodity over the past three weeks, fell 65 cents, to $15.31 per ounce. Almost every commodity, from energy-related to foodstuffs, fell hard on the day. The grip of deflation is unmistakable.
There's another tsunami dead ahead. Government efforts to revive the economy have been minimal at best, and potentially harmful, at worst. Investors are nervous and big money is heading for the hills. Despite the positive spin which the government and media have tried to put on the economic picture, the reality is that the US economy is not gong to recover any time soon.
Look for sideways-down movement over the coming weeks, peppered with a couple of major downside days, with the Dow registering 200-400 point losses. Once the selling begins, it will not be easily stopped. The banks and their TARP money are pulling out - they have to - before they are stuck with losing positions. Before that happens they will unload on retail investors.
Happy days? Not for bulls.
Wednesday, June 03, 2009
Tuesday, June 02, 2009
The Incredible Levitation Stock Market Routine
Stocks managed another day slightly to the upside on Tuesday, the mood tempered somewhat as there wasn't another world-record bankruptcy to celebrate as on Monday. Without a General Motors going bust, the fat cats must have little to do, trying to keep the mood cheery and uplifting.
Despite the paucity of news - though pending home sales in April were up a reported 6.7% - investors still haven't gotten the idea to lock in profits, expecting the rebound and recovery to continue seemingly forever.
Dow 8,740.87, +19.43 (0.22%)
NASDAQ 1,836.80, +8.12 (0.44%)
S&P 500 944.74, +1.87 (0.20%)
NYSE Composite 6,182.87, +13.80 (0.22%)
Despite the smallish gains on the indices, the positive tone was notable, with advancing issues defeating decliners, 3764-2648. New highs recorded their second straight victory over new lows, 99-81, though it will take more than just a few instances for this to become a trend, and the betting - in this quarter at least - is against it. Volume was solid, roughly in Monday's range, and thus, unimportant.
NYSE Volume 6,945,081,000
NASDAQ Volume 2,406,962,750
Crude oil took a bit of a breather - or, rather, the pumping speculators did - losing 3 cents to $68.55. Gold gained, adding $4.40, to $984.40, in its inexorable push back above $1000. Silver continues to post impressive gains, adding another 22 cents per ounce, to $15.96. The silver rally is real, has legs and should continue unabated beyond $17 in short order.
As for stocks, well, they keep going up, too, but there are many reasons not to like them, the main one being that everyone has grown so complacent in recent weeks, setting up the potential for a swift and violent decline.
Despite the paucity of news - though pending home sales in April were up a reported 6.7% - investors still haven't gotten the idea to lock in profits, expecting the rebound and recovery to continue seemingly forever.
Dow 8,740.87, +19.43 (0.22%)
NASDAQ 1,836.80, +8.12 (0.44%)
S&P 500 944.74, +1.87 (0.20%)
NYSE Composite 6,182.87, +13.80 (0.22%)
Despite the smallish gains on the indices, the positive tone was notable, with advancing issues defeating decliners, 3764-2648. New highs recorded their second straight victory over new lows, 99-81, though it will take more than just a few instances for this to become a trend, and the betting - in this quarter at least - is against it. Volume was solid, roughly in Monday's range, and thus, unimportant.
NYSE Volume 6,945,081,000
NASDAQ Volume 2,406,962,750
Crude oil took a bit of a breather - or, rather, the pumping speculators did - losing 3 cents to $68.55. Gold gained, adding $4.40, to $984.40, in its inexorable push back above $1000. Silver continues to post impressive gains, adding another 22 cents per ounce, to $15.96. The silver rally is real, has legs and should continue unabated beyond $17 in short order.
As for stocks, well, they keep going up, too, but there are many reasons not to like them, the main one being that everyone has grown so complacent in recent weeks, setting up the potential for a swift and violent decline.
Label:
General Motors,
gold,
silver
Monday, June 01, 2009
The Strangest Rally of All Time
It would be difficult, if not impossible, to describe the absurdity of the current rally in equities in terms that would do it justice. Mere mortals stand in awe of the magnificence, the enormity, and the one-sidedness of the US stock markets since March 9, 2009, until today... and probably beyond.
To try to offer some perspective, the S&P 500 closed today at 94xx, from the March 9 low of 676.53. That is a gain of 39.6% over a span of 57 sessions - 33 up, 24 down. Obviously, the days in which the index recorded gains, those were far superior in size than the days with losses. How well this has been orchestrated would make celebrated composer Leonard Bernstein blush.
Today's gains marked the 12th time during this span that the S&P has been up more than 20 points. By contrast, the index declined by that amount or more only 4 times through the same period. There has been no pullback or correction, as is almost always the case in rallies, no matter what the conditions or the degree of positive sentiment. This rally, unlike all others, has been nearly straight up, without any hint of a respite.
The kicker is that the S&P 500 index, should one like to apply Dow theory to it, should now be considered a PRIMARY BULL market, having successfully reversed the primary trend by topping the previous interim high of 934.70, posted at the close on January 6 of this year. That was off the low of November 20, 2008, of 752.44, and prior to the subsequent low of 676.53 (March 9, 2009). If one follows only the S&P 500, chartists would have to agree that we are now - without a doubt - in a bull market.
As an offset to that queer finding, the actual Dow Jones Industrial Index, upon which Dow Theory is based, still has room to run before breaking the primary - bearish - trend. The Dow would have to reach 9034.69, which it did on January 2, 2009, before declaring a new primary Bull market. The transportation index would also have to confirm, and, since those two events have yet to occur, one can safely assume that the current rally is indeed of the bear market variety, albeit quickly closing ground on fully debunking that data set.
All of this has occurred in an environment of growing, near-record unemployment, continuing declines in the median price of housing, a handful of Fed and Treasury initiatives to stimulate the economy, and the bankruptcies of Chrysler and General Motors, the latter occurring today and being the largest bankruptcy in the history of the United States.
While the Fed floods the world with newly-printed currency, commodities have also gained - not unexpected - as the dollar has declined against other currencies. All of this adds up to a great deal of uncertainty, a condition usually associated with market declines, not rapid, non-stop gains.
I, among others, have called the "top" incorrectly more times than we'd like to admit. There seems to be no stopping the engine of Wall Street, despite stocks on the S&P 500 having cut dividend returns to record lows while price-earning ratios have soared to levels normally associated with the end of long bull markets. The only way this rally continues is if the market is being manipulated, and that is the only conclusion which I can make at this point. There simply is not enough evidence that the economy has returned to a growth posture, nor any indication that stocks are actually being valued correctly, that is, discounting future growth. Most of the large gainers are actually showing a negative trend of declining earnings, which, in more normal times, would spark selling, not buying.
Dow 8,721.44, +221.11 (2.60%)
NASDAQ 1,828.68, +54.35 (3.06%)
S&P 500 942.87, +23.73 (2.58%)
NYSE Composite 6,169.0698, +165.00 (2.75%)
Advancing issues crushed decliners, 5159-1405. The biggest story of the day has to be the rollover of new highs finally surpassing new lows, 130-105. This is a reversal of a trend that has held in place every day except five or six since September, 2007. This is either the starting point of another bull run, which could dwarf even the current run-up, or a signal to sell everything as quickly as possible. The rally has pulled even the worst companies up by the bootstraps.
Volume on the day was higher than levels experienced last week, for no known reason, though not significantly.
NYSE Volume 1,500,474,000
NASDAQ Volume 2,647,576,000
Commodities in the energy area went ballistic. Crude oil gained $2.27, to $68.58, the highest point since November 4, 2008, seven months ago. Unfortunately, for those of us who still have to use gasoline to power our personal transportation devices, back in November of last year, prices were declining. They are now galloping ahead. Natural gas gained a whopping 41 cents, to $4.25, odd, because natural gas is primarily used for heating homes, and we are heading into warm summer months. The rise in natural gas was more than 11% in just one day.
Just as oddly, the metals responded in less-than-enthusiastic fashion. Gold actually fell 30 cents, to settle at $980.00. Silver gained 13 cents to finish at $15.74 per ounce in New York.
There were more "green shoots" of economic data, such as a 0.5% rise in personal income, a smaller-than-expected decline in personal spending and an 0.8% increase in April construction spending. Of course, those minor positives should have been more than offset by the largest bankruptcy in US history, the coming shutdown of 12-15 plants, job losses between autoworkers and dealers of more than 100,000, and a general malaise in manufacturing.
It just doesn't seem right that on the death of General Motors, Wall Street would throw a party.
To try to offer some perspective, the S&P 500 closed today at 94xx, from the March 9 low of 676.53. That is a gain of 39.6% over a span of 57 sessions - 33 up, 24 down. Obviously, the days in which the index recorded gains, those were far superior in size than the days with losses. How well this has been orchestrated would make celebrated composer Leonard Bernstein blush.
Today's gains marked the 12th time during this span that the S&P has been up more than 20 points. By contrast, the index declined by that amount or more only 4 times through the same period. There has been no pullback or correction, as is almost always the case in rallies, no matter what the conditions or the degree of positive sentiment. This rally, unlike all others, has been nearly straight up, without any hint of a respite.
The kicker is that the S&P 500 index, should one like to apply Dow theory to it, should now be considered a PRIMARY BULL market, having successfully reversed the primary trend by topping the previous interim high of 934.70, posted at the close on January 6 of this year. That was off the low of November 20, 2008, of 752.44, and prior to the subsequent low of 676.53 (March 9, 2009). If one follows only the S&P 500, chartists would have to agree that we are now - without a doubt - in a bull market.
As an offset to that queer finding, the actual Dow Jones Industrial Index, upon which Dow Theory is based, still has room to run before breaking the primary - bearish - trend. The Dow would have to reach 9034.69, which it did on January 2, 2009, before declaring a new primary Bull market. The transportation index would also have to confirm, and, since those two events have yet to occur, one can safely assume that the current rally is indeed of the bear market variety, albeit quickly closing ground on fully debunking that data set.
All of this has occurred in an environment of growing, near-record unemployment, continuing declines in the median price of housing, a handful of Fed and Treasury initiatives to stimulate the economy, and the bankruptcies of Chrysler and General Motors, the latter occurring today and being the largest bankruptcy in the history of the United States.
While the Fed floods the world with newly-printed currency, commodities have also gained - not unexpected - as the dollar has declined against other currencies. All of this adds up to a great deal of uncertainty, a condition usually associated with market declines, not rapid, non-stop gains.
I, among others, have called the "top" incorrectly more times than we'd like to admit. There seems to be no stopping the engine of Wall Street, despite stocks on the S&P 500 having cut dividend returns to record lows while price-earning ratios have soared to levels normally associated with the end of long bull markets. The only way this rally continues is if the market is being manipulated, and that is the only conclusion which I can make at this point. There simply is not enough evidence that the economy has returned to a growth posture, nor any indication that stocks are actually being valued correctly, that is, discounting future growth. Most of the large gainers are actually showing a negative trend of declining earnings, which, in more normal times, would spark selling, not buying.
Dow 8,721.44, +221.11 (2.60%)
NASDAQ 1,828.68, +54.35 (3.06%)
S&P 500 942.87, +23.73 (2.58%)
NYSE Composite 6,169.0698, +165.00 (2.75%)
Advancing issues crushed decliners, 5159-1405. The biggest story of the day has to be the rollover of new highs finally surpassing new lows, 130-105. This is a reversal of a trend that has held in place every day except five or six since September, 2007. This is either the starting point of another bull run, which could dwarf even the current run-up, or a signal to sell everything as quickly as possible. The rally has pulled even the worst companies up by the bootstraps.
Volume on the day was higher than levels experienced last week, for no known reason, though not significantly.
NYSE Volume 1,500,474,000
NASDAQ Volume 2,647,576,000
Commodities in the energy area went ballistic. Crude oil gained $2.27, to $68.58, the highest point since November 4, 2008, seven months ago. Unfortunately, for those of us who still have to use gasoline to power our personal transportation devices, back in November of last year, prices were declining. They are now galloping ahead. Natural gas gained a whopping 41 cents, to $4.25, odd, because natural gas is primarily used for heating homes, and we are heading into warm summer months. The rise in natural gas was more than 11% in just one day.
Just as oddly, the metals responded in less-than-enthusiastic fashion. Gold actually fell 30 cents, to settle at $980.00. Silver gained 13 cents to finish at $15.74 per ounce in New York.
There were more "green shoots" of economic data, such as a 0.5% rise in personal income, a smaller-than-expected decline in personal spending and an 0.8% increase in April construction spending. Of course, those minor positives should have been more than offset by the largest bankruptcy in US history, the coming shutdown of 12-15 plants, job losses between autoworkers and dealers of more than 100,000, and a general malaise in manufacturing.
It just doesn't seem right that on the death of General Motors, Wall Street would throw a party.
Label:
Fed,
General Motors,
oil futures
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