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The Week Ahead: Heavy Turbulence

Posted by Charlie Kilo on July 13th, 2008

I predict that the Dow will hit 10.5 this week. I think we’ll look back on this week as the final economic act. The end game. The tipping point:

Expect heavy turbulence in the week ahead.

Analysts say hurdles for the stock market in the coming week include continued uncertainty about financial sector—specifically mortgage giants Fannie Mae and Freddie Mac —as well as the unrelenting pressure of rising oil prices.

There is also a heavy calendar of economic data, corporate earnings reports, plus two days of testimony on the economy from Fed Chairman Ben Bernanke.

“The financials are going to have a tough go of it next week,” said Jefferies and Co. Chief Strategist Art Hogan. In addition to the swirl of speculation that has driven Fannie and Freddie shares lower and lower, major banks are reporting results and are expected to unveil more write downs.

The announcement late Friday of the second biggest U.S. bank failure ever also adds to the gloom. After the bell, regulators reported that they seized IndyMac Bank, an aggressive mortgage lender with $32 billion in assets.

Also worrying Wall Street is Lehman Brothers stock, which has been spiraling downward on credit worries. “A resolution (for Fannie and Freddie) would help. Whether it’s a government take out or a back stop committing access to capital,” said Hogan.

James Paulsen, chief investment strategist at Wells Capital Management said oil will be a concern for stocks in the coming week but Freddie and Fannie could be more worrisome. “The meltdown of Freddie and Fannie (stocks) will not reduce the ability of what they can do,” but the market remains fearful, he said.

The Dow lost 1.7 percent, falling to 11,100 in the past week. For the first time in two years, it dipped below the key 11,000 level. The Nasdaq lost just 0.3 percent for the week and the S&P was down 1.9 percent, finishing at 1239. The financial sector declined 6.3 percent for the week, followed by consumer discretionary with a 4 percent loss. The winner was the S&P healthcare sector, up 1.3 percent.

“We’ll have a plethora of economic data but none of it will take away from the earnings data,” said Hogan.

Hogan said most earnings will be routine, like those from General Electric Friday which was in line with expectations. Yet, “I think we could get some upside surprises because we’ve priced in worst case scenario in a lot of areas,” he said.

End game: Dow dips below 11,000

Posted by Charlie Kilo on July 11th, 2008

Dow 9,500 and waiting for capitulation:

There’s a joke among news folks that two points make a trend. If it does, and of course it doesn’t, I heard an alarming one this morning: the Dow going down into the 9,500 zone.

It came from Ben Lichtenstein, president of TradersAudio.com, on “Squawk Box” this morning. I listen to it on my satellite radio as I drive in. He suggested if the Dow trips through 11,000 or lower, then 9,500 is a possibility too.

We’re All Homeowners: Nationalization of Fannie, Freddie Unavoidable

Posted by Charlie Kilo on July 9th, 2008

Unbelievable!

Fears about Fannie Mae and Freddie Mac retreated somewhat Tuesday after their federal regulator, OFHEO Director James Lockhart, said new accounting rule changes should make “no difference in the risks of the two firms.”

On Monday, Freddie and Fannie shares plummeted after a Lehman Brothers analyst said a new FASB rule could require the two firms to write-down as much as $75 billion.

Rather than the accounting rules, what’s really got investors spooked is a growing realization the government will have to nationalize Fannie and Freddie, says Kevin Depew, executive editor of Minyanville.com.

The two mortgage lenders are simply too big to fail and too critical to the housing market, Depew says. Given Fannie and Freddie own or guarantee 50% of all housing debt, according to the WSJ, continued stress on their balance sheets means higher borrowing costs for the firms, and ultimately higher mortgage rates for individuals. It also means another round of write-downs for the battered financial sector generally, which owns a lot of Fannie and Freddie-backed paper.

But nationalizing the firms, each created by an act of Congress, would mean a wipeout for equity holders, who have already seen their holdings decimated in the past year.

The nationalization of Fannie and Freddie and would put U.S. taxpayers on the hook for the socialization of the housing market, but Depew says we’re already there whether we know it or not.

Omen Predicts Stock-Market Crash

Posted by Charlie Kilo on July 9th, 2008

An ominous technical signal known as the Hindenburg Omen could be predicting the next stock market crash.

The Market Now: A ‘Violent’ Quest For Bottom

Posted by Charlie Kilo on July 8th, 2008

Remember what we said earlier about the Dow hitting 10,556? Time to run for the hills:

Unpredictable days like Monday, when the indexes moved from positive to negative at will and with little notice, are likely to become the norm as Wall Street searches for a market bottom and a recovery that could be months down the road.

“We’re getting news every 5 or 10 minutes that seems to change the psychological positions of the traders. That’s what’s really making this market turn,” says Michael Kresh, president of M.D. Kresh Financial Advisors in Islandia, N.Y. “Frightened money is jumping all over the place, and as long as that happens we’re going to get these whipsaw days.”

Why the Dow at 10,566 is the magic number

Posted by Charlie Kilo on July 8th, 2008

When the Dow hits 10,566 its game over

Dow nears 11,000 mark

Posted by Charlie Kilo on July 7th, 2008

If they think this summer is bad…wait until this fall:

Stocks turned sharply negative after a morning rally, as battered financials continued to weigh on Wall Street and the major indexes returned to bear territory.

The day also marked a remarkable reversal of a trend that has dominated the market the past four months, in which stocks consistently rallied on days when energy prices fell. But with oil down more than $4 a barrel, equities still tumbled as banks were the main market movers of the day.

The joint movement lower of stocks and oil was seen as ominous for the economy.

“I see this as an increased probability of recession occurring here in the US,” Ernie Ankrim, chief investment strategist at Russell Investment Group, said on CNBC. “The problem here is we saw oil come down and about the same time we saw a lot of other things go down.”

Cramer: Banking Doom Is Upon Us

Posted by Charlie Kilo on June 25th, 2008

Jim Cramer says the banks and the automakers are the stocks that could sink this market:

Dow Hits 3-Month Low, Sheds 4% for Week

Posted by Charlie Kilo on June 21st, 2008

Its going to be a rough summer for the stock market and for the sheep who depend on it:

Stocks closed sharply lower Friday as oil prices climbed about $3 and a concoction of rumors and bad news shook up the banking sector.

The Dow Jones Industrial Average broke through the key 12000 mark, tumbling 220.97, or 1.8 percent, to finish at 11842.12.

The Dow shed 4 percent for the week, finishing at its lowest point in three months and just 100 points above its March low.

Dow falls on poor jobs report, oil at $133 per barrel

Posted by Charlie Kilo on June 6th, 2008

The Dow is taking a hit today due to bad news on several fronts:

Stocks plunged after the sharpest jump in the unemployment rate in more than 20 years and news that wholesale inventories ballooned. Oil jumped more than $6 a barrel.

The employment report showed that U.S. employers cut jobs for a fifth straight month. Nonfarm payrolls shed 49,000 jobs in May, better than the 58,000-decline expected. April was revise to show 8,000 more job losses than previously expected. The unemployment rate shot up to 5.5 percent from 5 percent in April, the biggest monthly jump since 1986.

“I’ve been trading these markets for 25 years; to see a jump like this is a little scary,” Jack Bouroudjian of Brewer Investment Group told CNBC. “But, these markets have already factored in that weakness.”

The market’s initial knee-jerk was a sharp sell-off but economists pointed out that the historically high jump in the unemployment rate was likely a statistical fluke.

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