Sam Collins

Bear Market Still Reigns

by Sam Collins   03/26/08

The market barely budged yesterday, despite news that could hardly be considered anything but nasty.

The negative flow started before the opening bell with Merrill Lynch (MER) downgrading several bank stocks including PNC Financial (PNC), Capital One (COF), SunTrust (STI) and Bank of America (BAC). And then at 10 a.m., the Consumer Confidence Index for March hit a 5-year low at 64.5 vs. an expected reading of 73.5, and the market hit its low of the day.

And there was further bad news in the housing sector. The S&P/Case-Shiller Home Price Index showed a decline in prices of homes by 10.7% vs. one year ago.

But that was taken as old news and, instead, the market focused on an increase in the rating of Yahoo! (YHOO) by Citigroup (C) and brought buyers into the technology sector. The Dow Industrials (DJI) were floundering until Monsanto (MON) lifted its projected earnings for '08 and finished the day at $114.54, up $10.28.

At the close yesterday, the Dow (DJI) was off 16 points at 12,533, the S&P 500 (SPX) rose 3 to 1,353, and the Nasdaq (NASD) added 14 to close at 2,341. On the Big Board 1.5 billion shares traded with advancers ahead by 2-to-1, and just under 1 billion shares traded on the Nasdaq with advancers ahead of decliners by about 9-to-5.

Crude oil futures (May contract) closed higher by 36 cents at $101.22 a barrel, and on the Amex, the Energy SPDR (XLE) gained 72 cents to $72.77.

Gold futures (April contract) continued their rebound by closing at $935 an ounce, up $16.30, and the PHLX Gold/Silver Index (XAU) gained $8.28 to close at $179.47 -- just 3 cents off of the high of the day.

What the Markets are Saying

Even though the Dow Industrials (DJI) lost a tiny bit of ground yesterday, the S&P 500 (SPX) had a small gain, and others like the NYSE Composite (NYA) and the Nasdaq (NASD) appear to be breaking out of their channel downtrends.

The Nasdaq's (NASD) chart tends to support a more bullish view, since the index broke above the bearish resistance line of the channel downtrend and closed for the second day above its 50-day moving average.

But it had a bigger-percentage decline than the other indices, had been more volatile, and is farther from its 200-day moving average than the other indices.

Additionally, the Nasdaq (NASD) fell so fast after failing to find support at the 2,400-to-2,500 area that it is still almost 60 points from the 2,400-to-2,500 range, which becomes the new resistance zone, and it is a long way from its major bear-market resistance line.

Thus, there is no reason to change our overall view of the markets: The bear market still reigns.

Gold: After making a new high at $1,003 per troy ounce just over a week ago, the April futures fell to an intraday low of just under $905 on Thursday of last week. Even though the damage has been severe, the panic sell-off appears to have been just a heavy round of profit-taking.

Yesterday's recovery will probably continue to attract enough bargain-hunters to drive the metal to the $950-plus area, for a 50% retracement of the pullback. But after that, some longer-term repair work will have to occur in order to maintain the uptrend. Nevertheless, the bull market is intact and the long-term target is north of $1,400 an ounce.

Oil: After hitting just over $110 a barrel, crude has had a modest pullback and is still in a powerful bull market. Technically it has pulled back to the breakout point of a quadruple-top at $102. Support is at Thursday's low of $98.65, which on the Energy Select Sector SPDR (XLE) corresponds to the reversal low at $70.81.

Today's Trading Landscape

Earnings are to be reported by: Bluefly (BFLY), CKE Restaurants (CKE), Deutsche Bank (DB), Oracle (ORCL), Paychex (PAYX), Pep Boys (PBY) and Robbins & Myers (RBN).

Economic reports for today: February Durable Goods (consensus expects 0.8%, ex-Transportation -0.3%) and New Home Sales (consensus expects 578,000, -1.1% month-over-month).

The multibillion-dollar privatization of Clear Channel (CCU) is near a collapse, according The Wall Street Journal. Rumors abound of foreign bank problems and Deutsche Bank (DB) said that turmoil in global markets will result in write-downs of some of "our portfolio assets, including leveraged loans," etc.

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