by Sam Collins 06/30/08
Crude oil up, financials down, inflation up, stocks down: The unfortunately familiar routine continued to send stocks lower on Friday following a pounding on Thursday. All across the fruited plain the terms "recession" and "bear market' were shouted by the financial media -- and no wonder.
The last week in June alone saw the Dow Industrials (DJI) take a 4.2% loss, and the senior index is down 19.9% from its October 2007 high.
But the market has been making a habit of falling sharply just before the end of a quarter -- the result of institutions cleaning losers from their books. The last two quarters produced a negative 2.1% in the last five trading days of each quarter for the Dow (DJI).
On Friday, it was the financial group that again was the bearer of bad tidings.
American International Group (AIG) fell 1.2% after it said it will absorb $5 billion in losses from securities lending. And analysts at Fitch warned that credit-card issuers are likely to face more losses as consumer debt worsens. As a result, JPMorgan (JPM) fell 3.5%, Citigroup (C) was off 2.4% and Washington Mutual (WM) was down 4.8%.
At Friday's close, the Dow Jones Industrial Average (DJI) was down 107 points at 11,347, the S&P 500 (SPX) fell five points to 1,278 and the Nasdaq (NASD) was off six points at 2,315.
More than 2.2 billion shares traded on the New York Stock Exchange, with decliners ahead by almost 2-to-1. On the Nasdaq (NASD), 1.9 billion shares exchanged hands, with decliners ahead by 3-to-2.
For the week and year, here are the statistics for each of the averages: the Dow is down 4.2% for the week and down 14.5% for the year, the S&P 500 lost 3% for the week and has lost 12.9% for the year and the Nasdaq is down 3.8% for the week and down 12.7% for the year.
On Friday, the August crude oil contract finished at $140.21 a barrel, up 57 cents. The Amex Energy SPDR (XLE) rose 56 cents to $87.05. But the index is hovering under a big CBR triple-sell signal and unless it can vault to new highs quickly it could be the subject of strong selling.
Gold surged again, this time up $16.20 to close at $931.30 per troy ounce. The PHLX Gold/Silver Index (XAU) gained $6.30 at $194.38.
What the Markets Are Saying
The doom and gloom from the public and the press has caused stocks to be deeply oversold, according to most measures of sentiment -- but not yet the CBOE Volatility Index (VIX) or the CBOE Nasdaq Volatility Index (VXN). And with just one day (today) left in Q2, most of the selling may be behind us.According to Standard & Poor's, June was the worst one-month performance (off almost 9%) since September 2002, which was very close to the end of the bear market.
And in a weekend Wall Street Journal article, Greg Zuckerman pointed out that the S&P 500's P/E ratio of about 15 times this year's estimates is attractive compared with the 10-year average of 18.7. He also points out that the gap between stocks' earnings yield of about 3.36% is not only above the return of the 10-year Treasury, but the gap hasn't been this wide since 1981.
Now, does all of this mean that stocks can't go lower?
No, of course not, but it does mean that stocks are finally looking like a bargain. And the cry of the press this weekend that we are headed to a bear market because the Dow Industrials (DJI) are close to a 20%-decline is nonsense -- did anyone check with Charles Dow lately for his definition of a bear market?
The critical numbers to watch are the S&P 500's (SPX) Jan. 23 intraday low at 1,270 and the March 27 intraday low at 1,257.
If those lows are decisively penetrated, look out below, but for now hold what you still own and be prepared for several dramatic reversal days. Even if it doesn't produce a permanent bottom, a series of strong reversals could give investors an opportunity to lighten up on their losers and give traders some quick profits.
Today's Trading Landscape
Earnings to be reported include: Advanced Photonix (SPI), Castle Brands (ROX), GenCorp (GY), H&R Block (HRB), Hemispherx BioPharma (HEB), LCC International (LCC), LJ International (JADE), Mesa Air Group (MESA), Robbins & Myers (RBN) and US Dataworks (UDW).
The following economic reports are due today: the June Chicago Purchasing Managers' Index and the June Dallas Fed Manufacturing Production Index.
Crude oil prices are hitting new highs again this morning at more than $143 a barrel and gold is heading north, too.
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Sam Collins can be reached directly at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
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