Thursday: Daily US Stock Market Report

Trading in NY continues to be nervous as everyone is waiting for the next shoe to drop among the banks, but, otherwise, the Bulls were not disappointed. The Financials-heavy DJIA index dropped almost -1.0%, whereas the Tech-heavy NASDAQ 100 had gained +1.0%.

By the end of Wednesday’s session, the DJIA (^DJI), S&P 500 (^GSPC), and NASDAQ Composite (^IXIC) were not as weak as appeared on the surface.

One of the reasons for the stand-off is that traders were expecting Wal-Mart (WMT) to report today, knowing that the US government tax rebate checks would have some positive effect on certain retailers. The Retailers (^RLX) did sell off along with the Banks (^BKX) and Airlines (^XAL) because Crude Oil (^WTIC) was strong on the day, and because bank lending is tightening, which impacts both the Retailers and Airlines.

The sectors that lost the most were the Financial (^XLF) and Consumer Discretionary (^XLY), while Energy (XLE) and Basic Materials (XLB) were strongest, aided by Goldminers (^XAU)  [that’s +9.0% in two days), Oil Services (^OSX) and NatGas (^XNG).

In Cara 100 extreme trading, the winners were commodity related stocks, mostly due to short-covering plus the recovery in Oil (^WTIC to 115.99/bbl) and Precious Metals (+$16.90/oz to 831.50): SLW +8.0%, TCK +7.5%, CEO +7.2% and POT +6.6%. The volatility in these issues is driving the non day-traders nuts. Leading the losers were OXPS -6.7%, SNDK -5.9% and GOL -5.0%.

As the ‘hot money’ capital didn’t know where to flee, and the US consumer inflation data is out today, the bond market was quiet. The 30-year US Treasury Bond lost -0.36% to 116.08. The T-Bill yield is now at 1.815.

Prices on the Toronto markets improved with the higher oil and gold prices: the Composite index gained +1.60% to 13377, and the Venture board gained +1.03% to 1997, which is not much considering the action in the commodity markets.

Earlier today, the Asia-Pacific equity markets were mostly quiet except for India: Australia’s All Ords index (+0.86% to 5039.0); Shanghai (-0.38% to 2437.08); Hong Kong (+0.47% to 21392.7); India’s Sensex (-2.44% to 14724.18); and Japan’s Nikkei (-0.51% to 12956.80). Japan has had a couple bad days because of the bad economic data that is coming out there. Yesterday the Yen dropped -1.39% to the USD as the data had a negative impact. The other currencies were really quiet.

At about 8:35am ET in Europe, markets are up: the French CAC was up +0.30% to 4413; the German DAX up +0.56% to 6458; and the UK FTSE up +1.05% to 5506.

The DJIA futures are now at 11565 +43, which has gained a bit in the past hour. Crude Oil is up only +0.17/bbl to 116.16. The $USD contract is now 76.34, a bit softer in the past hour against the Yen, with the Euro staying at 1.4891.

Spot gold, palladium, platinum and silver at 8:34am ET was: 828.90, 317, 1522, and 14.75, respectively, which are stronger than yesterday morning (reflecting the mid-day recovery rally), but a bit softer and more volatile in the past hour. Traders are nervous regarding the US inflation data.

Comments & Outlook

A couple days ago, I commented that after the dramatic decline in commodity prices and rally in the $USD, there would be a brief reversal that would suck in the gold bulls, and that has happened. But, the precious metals are still linked to the $USD at this point, and oil prices are falling. The fact there was a “surprising” lower weekly gasoline inventory number in the US yesterday is a non-starter for me. The fact is that US drivers drove -4.7% fewer miles in June (ie, 12 billion fewer miles). They abandoned their vehicles whenever they had the opportunity. A single estimate of the inventory has no impact on my thinking. Crude Oil prices will continue to fall, taking gold and silver with it.

The technical damage is severe, and not going to reverse in a single day on a single estimate (of gasoline inventory in the US). The commodity markets are global in scope and the global economy is shrinking. If you disagree then you are not looking at England, Ireland, Portugal, Spain, Italy, Australia, Japan, and so on.

The Gold Bulls don’t want to think about that. Traders do.

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