The Rally That Wasn't

Nothing like a three-day weekend to revitalize the spirits of bullish investors, thus, the markets opened in the US on a strongly positive note the day after Independence Day festivities expired.

The Dow rocketed ahead 172 points in early going, but the high of the day was reached just moments after ISM services were reported lower for June, down to 53.8, after a reading of 55.4 for May. The market's reaction to the economic data was the opposite of what one would have expected, but it was fleeting, with the markets beginning a serious day-long downturn less than an hour into the session.

By 2:00 pm all the of indices had given up their gains, with the NASDAQ trading in the red the rest of the way into the close. Stocks finished mixed, which, along with the strong open and sloppy finish, are tell-tale chart patterns of bear markets. Only a final push - likely the result of short-covering - kept the markets from ending the session fully in the red.

With nearly all of the economic data over the past three to four weeks being on the weak side, there's an abundance of anxiety over upcoming corporate earning reports, which are expected to be strong enough to pull stocks out of their prolonged slump, which has persisted since the start of May.

Alcoa (AA) will officially kick things off on Monday, July 12, but investors aren't currently inclined to play much of a waiting game. The consistent mood has been, "sell now, ask questions later," as stocks have been beset by doubt and uncertainty in global markets.

Dow 9,743.62, +57.14 (0.59%)
NASDAQ 2,093.88, +2.09 (0.10%)
S&P 500 1,028.06, +5.48 (0.54%)
NYSE Composite 6,486.12, +51.31 (0.80%)

While today's headline numbers look good on the surface, a peek beneath the hood reveals the extent of the damage. Declining issues outpaced advancers once again, 3626-2884. New lows continued to dominate new highs, 304-122. Volume was average.

NASDAQ Volume 2,170,274,250
NYSE Volume 5,480,022,000

Surely, some will take comfort in the fact that the string of seven consecutive days on the downside has been broken, though many more will point to the manner in which the streak was ended as being servile and cynical.

Commodities also evidenced signs of strain. Oil dipped to $71.98, down 16 cents, while gold fell another $12.60, at $1,194.80. Silver, perhaps as people appreciate how undervalued it has become in terms of gold, gained smartly, up 14 cents, to $17.83.

It's a short week for trading, but an important one, to see whether traders can hold it together until earnings reports come riding to the rescue. Even that's a dodgy proposition, with so much uncertainty in so many corners.

No Conviction After Jobs Report

Although highly-anticipated, the June non-farm payroll report landed upon Wall Street with less than a thud, but hardly more than a whimper.

The BLS reported a loss of 125,000 jobs across America during the month, though the overwhelming bulk of the losses were temporary Census jobs - 225,000 in all - while the private sector gained a reported 85,000 new hires. The remainder - 15,000 - were attributed to added temporary positions in the private economy.

While that number was not as bad as feared, it still was not good enough to lift Wall Street's dour spirits. A half-hour into the trading session, another dose of reality struck, sending stocks to their lows of the day by 1:00 pm. May factory orders declined by 1.4%, reversing 9 straight months of gains. Full Report [PDF]

Stocks quietly ended one of the worst weeks in a year which has seen stock prices and indices improve significantly off the bottoms reached in March, 2009, but worries persist that the recovery has lost its footing and the global economy is beginning to drift back towards a prolonged period of either slow growth or another recession.

The major indices recovered during the afternoon, briefly registering positive numbers for the day, but a bout of late selling sent the Dow and other indices to their seventh straight down day and fresh closing lows. Each of the major averages have settled well below their 200-day moving averages, a definitive signal of a turn in fortune for the economy.

Dow 9,686.48, -46.05 (0.47%)
NASDAQ 2,091.79, -9.57 (0.46%)
S&P 500 1,022.58, -4.79 (0.47%)
NYSE Composite 6,434.81, -27.22 (0.42%)

Decliners beat down advancers once again, 3909-2534. New lows exceeded new highs for the fourth straight session, 248-95. Volume was extremely light, owing not only to an unwillingness to institute new positions, but also to the upcoming Independence Day holiday.

NASDAQ Volume 1,647,075,750
NYSE Volume 4,676,019,500

Commodities didn't fare much better. Crude oil continued its descent, losing 81 cents, to $72.14. Just a week ago, oil was approaching $80 per barrel, but the supply-demand scenario has worsened considerably. Also, many hedge funds operating in the commodities space have unwound positions in order to raise cash. It's a fearful trade.

Gold was about the only gainer, rising $1.10, to $1,207.40, but it wasn't much of a bounce off the dramatic pull-back midweek. Silver lost another six cents, settling at $17.70.

The three-day Independence Day holiday could not have come at a better moment for stock traders, who need to clear their heads and develop strategies for dealing with a resumption of the financial crisis which - in reality - is now closing in on three years running.

While there are still bulls a-plenty, the argument between those who see another recession and more optimistic appraisals of just slow growth are more compelling. Hardly anyone can discern a silver lining within the seas of red data that was dumped upon the markets over the past three weeks.

The next major hurdle will be corporate second quarter earnings, which begin in earnest right after the break. It's almost certain that there will be an inordinate share of hits and misses and surprises on both sides of the ledger.

Until then, remember what the 4th of July is really all about: Independence. For a people and a nation.

ISM Data, Home Sales Rattle Markets: Deflation Clearly Evident

The relentless slide in the markets continued on Thursday as the series of data releases evidencing poor economic performance across the entire global swath of markets added even more dour numbers.

Prior to the opening bell, the government-affiliated PMI for China fell to 52.1 in June from 53.9 in May and 55.7 in April, and the HSBC China Manufacturing PMI fell to 50.4 in June from 52.7 in May. HSBC reports their figure the lowest in a year, even though readings over 50 do indicate expansion.

First time unemployment claims came in at 472,000, a rise above the prior week's revised reading of 459,000 new claimants.

Once markets were open for trading, matters turned even worse when the US ISM Index dropped to 52.6 in June from 59.7 in May and pending home sales registered a 30% decline month-over-month.

Revealing in the ISM data was the 20.5% decline in prices. Overall, production slipped 5.2% and new orders were off 7.2%.

Much of the decline in housing starts was credited to the end of the government's tax credit on home purchases in April, but the 30% decline was more than twice what was expected, sending the index to an all-time low of 77.6 from a reading of 110.9 in April. The index is also is 15.9% below the May 2009 figure.

Stocks plunged when that disastrous duo came off the news wires, with the Dow quickly plummeting to its intra-day low of 9,621.89, with other indices following the path lower.

Markets tore through all levels of support, but regained composure midday and closed with relatively minor losses.

But serious technical damage had been done this day, as in days past. Concern over the shaky health of the US economy continued to dog investors at every turn and tomorrow's release of non-farms payroll from June hasn't offered much hope, though many are wondering whether or not the market is seriously oversold and the impact of the employment data already factored into prices.

More than likely, that is not the case, but rather the market was guided by insiders on the short side of many trades, covering today and re-instituting positions in anticipation of a tepid report before the beginning of Friday's trade. while that may seem cynical to some, it's how the market has been running for some time. It's a big boy's game and small investors do not stand a chance.

Unless, by some miracle of accounting, the government shows 50,000 or more private sector jobs created over the month just past, the markets are on course for one of their worst weeks in quite some time.

Dow 9,732.53, -41.49 (0.42%)
NASDAQ 2,101.36, -7.88 (0.37%)
S&P 500 1,027.37, -3.34 (0.32%)
NYSE Composite 6,462.03, -7.62 (0.12%)

Giving more credence to the bearish camp, decliners outstripped advancers by an unhealthy margin, 4052-2496, and new lows ramped past new highs, 439-101, the third straight day in which the lows have buried the highs and the largest margin of the three. Volume was also very heavy, the best showing of the week.

NASDAQ Volume 2,678,066,750
NYSE Volume 7,533,900,500

Today's sudden decline caused liquidation and winding down of many trades, particularly in the highly-hedged commodity arena. Oil saw its worst price decline in at least three months, losing $2.68, to $72.95. Gold was completely devastated, dropping $39.00, to $1,206.30 and even further - below $1200 - after the NY close. Silver also disappointed, dropping 91 cents (4.88%), to $17.76. Prices for the precious metals fell to levels not seen in over a month.

Continued weakness in global markets continue to stir fears of widening deflationary trends, particularly worrisome to those who carry heavy debt burdens, such as almost all government entities, hedge funds, banks and other financial institutions.

Global deflation, begun in earnest in August 2007, continues to gain momentum and shake existing financial infrastruture.