Bull market hesitates

Dow rose 30, decliners ahead of advancers by 15% & NAZ was up 5. Volume was light (only 1B shares were traded on the NYSE floor) in this indecisive day. Along with the markets, banks were essentially flat. They were down until the last ½ hour when buying gave the Financial Index a tiny gain. However the sideways trading pattern in the last 3 months is still in place.


S&P 500 FINANCIALS INDEX

Value 199.62

Change 0.14

% Change 0.1%

The Alerian MLP Index was up .80, still in the 264s & within a point of its recent yearly high. The yearly high of 271 represents bad data from when Enterprises Products (EPD) took over TEPPCO last month. The Dow Jones REIT Index fell 3 (much of that in the last hour) in an unexciting day, it needs 8 points to reach the 2009 high set 2 months ago. Junk bond funds were firmer. The yield on the 10-year Treasury bond slipped 1 basis point to 3.32%.


Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months





Commodities also had a flat day with gold managing to eke out a tiny gain.

CLZ09.NYM

..Crude Oil Dec 09

..79.10

.. 0.20 ......(0.2%)

GCX09.CMX

..Gold Nov 09

..1,138.80

.. 0.20 ......(0.0%)

Smith Intl (SII), an oilfield services company, sold 28M shares in a secondary & it did not go well. The stock fell 3.90 to 26.86 (13%). This is not supposed to happen in a bull market.

• UPDATE - Smith Int'l raising $800 mln in equity, shares dropat Reuters(Mon 4:39pm)

Smith International --- 1 day




Smith International --- 1 year






The President is in Asia holding meetings on important problems (export-import issues, value of Chinese currency, etc.) & very little was decided. Humdrum days are part of the markets' stories. This was one of them. Dow & Nasdaq had to struggle to crawl up to record highs for 2009. Even red hot gold could only inch up. SII picked a bad day for their stock offering. Hopefully the difficulty SII had with its big offering was only a one day event & will not be repeated.

Dow Jones Industrials --- 3 months

Impressive rally

Just after my last post, stocks took off gaining 200 & extending their recovery to 2 days led by a major rebound in beaten up financials & sharply lower oil prices. Dow was up 207 extending the 2 day gain to almost 500, advancers ahead of decliners 5-2 & NAZ was up a more modest 27. Volume was much higher at 1.97B, noticeably high. The VIX (volatility index) was essentially even at 25.01, still at a very high level. There is thinking that the (pretty much) record rebound in financials is related to tightening on shorts. With naked shorts for financials not allowed, there may have been a rush by those affected, among others, to buy back. Plus there was a sigh of relief for the financial community. Even heavily hammered FNM, FRE & LEH came roaring back. The market rebound was also encouraged by what they call fairly "good" earnings reports by Dow Stocks: JPM, KO & UTX, although I view them as not so great.

With all the excitement in recovery for financials, the sharp fall in oil prices has been less noticed than otherwise would have been the case. Oil fell from 145s to under 130 in just 3 days.

CLQ08.NYM" CLQ08.NYM Crude Oil Aug 08 129.84 3:56pm ET
down 4.76 (3.54%)

With the decline in oil prices, not to mention oil & related stocks, MLPs have pulled back to a new 52 week low.

Alerian MLP index:






The close today was 262.01, a new low by pennies. This weak performance does not bode well for the short term.

There were a number of of biggies reporting after hours. Google (GOOG), I love them, now down 40 (8%) on slowing "click" growth. IBM (IBM), a big Dow stock, reported favorable earnings, down 84¢ after hours. Merrill Lynch (MER) report a 4.97 EPS loss (worse than imaginable), down 3 or 10% after hours. They have a lot to explain in the conference call. Microsoft (MSFT), another Dow stock, reported favorable sales but earnings 1¢ shy of forecasts, down 1½ after hours. The general tone of these biggies seems negative, let's see how it plays tomorrow.

Wells Fargo leads overdo rally

Wells Fargo (WFC) led an overdo rally & BIG TIME! Dow was up 276, NAZ roared ahead 69, but advancers over decliners were a little under 3-1 (that ratio has been bigger on other rally days). Volume was 1.7B on the NYSE, good but not exceptional.

S&P Financials were up a whopping 12%,
the biggest daily gain since record keeping began. Now they are back to the levels of last Wed, yes we have been thru a lot. Adding fuel to the rally was a $4 decline in oil to the 134s, bringing the 2 day decline to almost 11. Most stocks joined in the gains including financial related (i.e. REITs). However, there were losers, generally oil related. Oils, stocks associated with oil & MLPs fell. The Alerian MLP index dropped 2 to 263, up a little from the 262s (its former 52 week low). Junk bond funds were down a little, not helped by the favorable thoughts for financial stocks.

An overdo rally was coming, just a matter of when & what would trigger it. Bargain hunting may have been what was demonstrated. The fundamentals remain gloomy. Inflation numbers (including today's) remain gloomy, retail sales are slow at best, oil is still very high priced not to mention the banking mess which has gotten worse in the last week. Initial reaction from Congress is they are not gong-ho behind the changes proposed by the FED. FNM has largely run by Democrats, their initial reaction is cautious to say the least. Asian markets open shortly & should follow thru with nice gains. But a continuation of the rally tomorrow is not clear.

Regional banks sink markets!!

Regional banks sank markets!! The negative news & thoughts on regional banks swamped markets today. Dow was down (only) 45, decliners ahead of advancers 3-1 (could have been worse!) & NAZ fell 26. S&P 500 is down to 1228, considered to be a ugly number by many. There were 500 new lows on NYSE, that was to be expected. NYSE volume was 1.4B, pretty much a routine kind of number.

Regional banks probably had their worst day in history, very tough to keep track of all their problems. Washington Mutual (WM & the biggest S&L in the US), along with National City Corp (NCC), First Horizon (FHN & former member of the S&P Aristocrat Dividend list), to mention just a few, were clobbered. Many of these stocks are selling at 20 years. These stocks was sold on fears following the failure of IndyMac on Fri which the FDIC has had to take over. Can you remember the last time the FDIC had to take over a failed bank? All this was in the middle of Fannie Mae (FNM) & Freddie Mac (FRE) getting help from the FED/gov leading to a very confusing mess, something not liked by markets. Oil remained near 145, but today it's like nobody cares. For what it's worth, Pres Bush lifted an executive ban on offshore drilling, putting that ball back in congress's court.

In the midst of all this confusion, junk bond funds & REITs pulled back as they're associated with financial products. The junk bond funds in particular should be getting some respect. They invest in junk bonds, not mortgages & with the latest sell-off have yields typically over 11%. For the very brave, a nice place with yields 700+ basis points over Treasuries.

Asian markets open in a few hours, they should give an early clue of how they're taking the financial news in the US. Earnings are coming in the next few days, bank reports will get the most attention. Stay tuned!!

Troubled Times

These are very troubled times. For those who had doubts, Fri was a very grim reminder. That message was spelled out clearly by the long list of new 52 week lows on NYSE. Below is a listing of JUST the first 20 stocks as determined by volume:

Record Price Low : NYSE (1-20 of 554) sorted by Volume in descending order

Symbol	Last	Change	%Change	High	Low	Volume	Vol %Change	Year Low	Year High	%Off High
FNM	10.25	-2.95	-22.35%	11.89	6.68	409,334,831	8,591.79%	6.68	70.57	85.48	Trade
FRE	7.75	-0.25	-3.12%	8.63	3.89	397,295,436	11,534.04%	3.89	67.20	88.47	Trade
LEH	14.43	-2.87	-16.59%	16.06	13.29	174,338,284	2,454.28%	13.29	74.09	80.52	Trade
C	16.19	-0.09	-0.55%	16.89	15.75	136,243,781	419.59%	15.75	52.97	69.44	Trade
BAC	21.67	-0.69	-3.09%	22.47	20.84	133,737,424	702.50%	20.84	52.96	59.08	Trade
WB	11.54	-1.59	-12.11%	12.80	11.15	112,041,246	1,434.26%	11.15	53.10	78.27	Trade
WFC	23.00	-0.61	-2.58%	23.78	22.11	82,338,754	815.13%	22.11	37.99	39.46	Trade
JPM	33.16	-1.35	-3.91%	34.45	32.09	71,316,650	409.97%	32.09	50.48	34.31	Trade
AIG	23.08	-0.91	-3.79%	23.90	21.75	60,884,161	584.25%	21.75	70.13	67.09	Trade
MER	27.61	-1.10	-3.83%	28.69	26.50	52,351,277	822.44%	26.50	89.23	69.06	Trade
MOT	6.99	0.04	0.58%	7.14	6.77	32,972,638	79.97%	6.77	19.68	64.48	Trade
USB	25.74	-0.48	-1.83%	27.19	25.00	32,564,063	432.92%	25.00	35.25	26.98	Trade
MS	33.44	-0.07	-0.21%	34.40	32.38	31,936,396	368.19%	32.38	73.64	54.59	Trade
AMD	4.84	-0.12	-2.42%	4.93	4.60	29,953,570	143.46%	4.60	16.19	70.11	Trade
SOV	7.14	-0.08	-1.11%	7.29	5.64	29,644,704	1,354.36%	5.64	22.35	68.05	Trade
RAD	1.03	-0.17	-14.17%	1.23	0.980	29,264,660	461.80%	0.980	6.25	83.52	Trade
NCC	4.42	-0.13	-2.86%	4.45	4.24	28,513,360	581.26%	4.24	33.54	86.82	Trade
HD	21.58	-0.29	-1.33%	22.13	21.00	27,126,682	133.59%	21.00	41.01	47.38	Trade
GM	9.92	0.23	2.37%	10.44	9.14	26,264,692	155.53%	9.14	43.20	77.04	Trade
RF	8.54	-0.94	-9.92%	9.07	8.39	24,725,007	1,131.94%	8.39	34.44	75.20	Trade

Source: www.allstocks.com/nyselows52.html

This is basically a list of the largest investment firms in the world, no wimps here! For many it's not just a 52 week low, but may represent the lowest levels in 5, 10, or even more years. Leading this group are Fannie Mae (FNM) & Freddie Mac (FRE) which have not seen these stock prices for 17 years.

FNM & FRE as GSEs have been considered elite investments because of implied gov backing. The track record for their stocks since early 1970s has been superb. In this decade their stocks prices flattened out with a bumpy ride followed by an enormous sell-off in the last year as their businesses have been caught up in the mortgage mess. Panic took over on Fri, the stocks made an attempt to fall to zero.

Their business continues. They own a few trillion (that's T as in trillions) in mortgages financed by their own debt. Underneath their debt (or bonds) is a very small amount of equity capital. There were worries that if their assets were written down to market value (from face value), that could easily wipe out all equity on the balance sheet & probably more. Being a gov related business, there was realization that big daddy gov has to keep their mortgage businesses going no matter what. But there was also a realization that any help would not be for stockholders (can you spell “Bear Stearns?”). Other major financials may need gov/FED help to keep going in these troubled times. All financial houses on the above list are in various degrees of shakiness & that ain't good!

Fraidy cat!!

This is a picture of the fraidy, cat resting comfortably, taken last night. Her son, even more of a fraidy cat, was not available for a picture, just poked his head out once from behind the futon. It may seem difficult, during these times it is best to be like mother cat - remain resting & at ease.

High yields will help investors weather this financial storm of difficult times. Junk bond funds sold off along with financial stocks, but aren't badly affected by the mortgage mess. They've generally stayed away from mortgages, a business they don't understand. For the brave, their yields around 11% are tempting. REITs have been selling off along with financials, but many should weather this storm in good shape. At the start of this decade, 10-12% yields were common for REITs & most of those investments worked out well. Currently, yields of 7%+ are available in REITs. MLPs are businesses owning pipelines that move oil & gas around the country, a national priority. Their Alerian MLP index last week bounced up 10 off the 262 low (also reached in Mar). It's been in a sideways trading range, this year mostly in the 280s - 290s. Some have sold off more than others, but again yields of 7%+ are common (a few even in double digits). These will do well because pipeline expansion is needed. The S&P Dividend Aristocrat list is taking lumps. The group of premier companies in the S&P 500 has diminished recently. Of the 7 banks included a few years ago, 2 are off, 2 are about to go & Bank of America (BAC) may not remain with a yield of 12%. Masco (MAS) should be having the 50^th consecutive year of higher divs but may not remain as forecasted earnings are not expected to cover the div. But other members should keep their track records going forward such as: MMM, KO, JNJ, KMB, PG & WMT.

I have a feeling that the FED is meeting this PM (like they did in the Bear Stearns mess) trying to figure out how to help troubled financial markets, i.e. FNM & FRE. They can come up with measures to help fix companies in the mortgage mess & anything done will give confidence to markets, bringing out buyers. With markets so oversold, the rebound bounce could be very big (several hundred Dow points). But fundamental problems will remain (as with the failure of IndyMac on Fri) with bad mortgages not to mention regular bad loans out there. If nothing is announced, markets will continue to bleed with interruptions of buying based on temporary optimism.

Asian & Australian markets open in a few hours will give a first glimpse of trading for next week. Special announcements from the FED/gov aside, news this week will be highlighted by early Q2 earnings reports. They can be expected to repeat prior themes: declines in EPS but beating LOWERED estimates, domestic business off while foreign business is strong & cautious guidance for the balance of the year. Meanwhile the fraidy cat is still resting comfortably. We have to keep calm to tough out these times & do well when markets recover.

Troubled day brings wild price swings!

Markets were down but pared losses in the rally after 3PM followed by a slight down-tick in the closing minutes. Dow ended down 128, decliners over advancers 7-3 (not as bad as might be expected under the circumstances) & NAZ pulled back 18. NYSE had 773 new lows with volume at a medium 1.5B. Here are the leading new lows in volume:

FRE
FNM
LEH
BAC
C
WB
WFC
JPM
AIG
MER
RAD
NCC
MS
SOV
M
USB

This is petty much a Who's Who for the financials. Oil also contributed to the extremely volatile day. Oil reached 127 before pulling back to "only" 144.42. The VIX, measuring volatility, closed at 27.59 (i.e. VERY high). In the last 6 weeks it's been above 20 indicating volatile markets.

Fannie Mae & Freddie Mac recovered after calmer heads prevailed. Henry Paulson, Treasury Sec, said regulators want to keep Fannie Mae and Freddie Mac in their present form. A congressman on Bloomberg TV, who's on the committee regulating FNM & FRE, just said their mortgage continues & is healthy, i.e. there is no need the panic about their existence. He basically said relax & have a good weekend. Since then, the 2 stocks rallied from their depressed states (FNM was down 3 & FRE down .72), bringing on a recovery in the Dow from about -250 to near break even followed by the sell-off in closing mins. Lehman (LEH) which is viewed as shaky by the many shorts, rebounded more than a point from its low today.

When about all leading financials reach new lows & market indices reach new lows, short term direction is easy to forecast.

Markets gain even with increased worries

After meandering up & down, the markets ended up thanx to a rally in the last hour. Dow gained 81, but advancers were only slightly ahead of decliners & NAZ was up a solid 23. The S&P 500 index gained 8 to 1253, still in gloomy territory. Volume on the NYSE was 1.4B, in line with recent figures but there were 456 new lows. Good vibrations from the Dow purchase, I think, helped bring back buyers in the PM. The late day rally was also helped by oil up 5.60 to 141.65. Tensions in the Mideast were heightened with Iran firing another missile. The Fannie Mae (FNM) & Freddie Mac (FRE) saga is dragging thru congress. Among solutions they're tossing around is nationalizing the companies, sort of taking them private. Everybody understands that these GSEs can not fail, but they also realize that the mortgage mess is clobbering them. Political considerations in an election year also have to be factored into any outcome.

The president of Bank of America (BAC), a Dow stock & member of the S&P 500 Dividend Aristocrat list, said their div was fine & they would not need outside financing. For the brave, they have an 11½% yield, but they have to buy from a seller who says, "I'm out of here!" Everybody is anxious for GE's Q2 report tomorrow, which will undoubtedly be a big influence on trading.

Dow plunges 236

After a nice rally late yesterday, Dow plunged 236 today (mostly in the PM). Advancers were ahead of decliners 2-1 & NAZ pulled back 59. S&P 500 dropped 29 to 1244, by all kinds of measures this index is bleeding badly! Volume on NYSE was 1.4B, below recent 1.6B on select days, but not exceptional. Even with the rally yesterday, NYSE had 215 new lows. Oil was about even after evaluating the weekly inventory report versus Iran flexing its military muscles (firing long range rockets!). Inventories fell almost 6MM barrels, better than forecasts, but that did not carry the day. The Alerian MLP index rose 4 to 269, but off its best levels. First Industrial Realty (FR), an REIT highlighted in my right column, rose 2.90 yesterday (1 point at the close). That gain was pretty much wiped out today.

Alcoa (AA), the first Dow stock to report earnings, reported down earnings yesterday but they beat forecasts. 24 hours later the realization that their news was not that great may have brought on PM selling.

These are getting to be brutal times with no end in sight. General Electric (GE), reports on Fri. Keep in mind, they have a lot of exposure to finance issues. Their earnings & guidance may signal more bleeding is ahead!