Futures Point Lower On Disappointing Economic Data

The market has had a very nice 2-day rally. After Monday's session, I think few investors were prepared for that type of turnaround. More likely, the bears pressed their short positions, and when the rally started on Tuesday, many were caught leaning the wrong way.

Today there was a batch of economic news before the bell that was pretty weak, although I would argue that GDP figures are backward looking and thus it should not be surprising that they were weak.

The preliminary reading for second quarter GDP showed the economy grew at an annualized rate of 1.9%, which is below the widely expected second quarter growth rate of 2.3%, but up from the downwardly revised 0.9% growth rate registered in the first quarter.

The GDP Price Index climbed 1.1%, although economists projected a 2.4% advance. Separately, initial jobless claims for the week ending July 26 totaled 448,000, which is above the 393,000 that was widely expected. The prior week's claims were revised slighly downward to 404,000.

The dollar has also enjoyed a nice 2-day bounce, but is lower on this economic data. The weak dollar today will likely help gold and oil bounce, but it doesn't look like those commodities are ready to challenge their old highs yet.

Let's see if this market can shake off the early weakness as the session unfolds today. That would be a clear sign of strength for this market, and portend more upside, imo.

On Vacation

I have not taken a week's vacation in about 18 months, so I packed up the family and flew all the way across the country to meet the rest of the extended Kahn clan in Bethany Beach.

The kids are having the time of their life, and don't seem too worried about the market. Maybe it will rub off on me.

I didn't see anything yesterday that would account for all the weakness, but the market should did look 'heavy'. My posts will be sporadic at best this week, so let's hope for some rallies.

A Look At The Housing Bill

Briefing.com broke down the details of the upcoming housing bill. Here are their comments:

Looking at the upcoming Housing Bill, which is due to be debated in the Senate today before a formal vote expected sometime around Saturday, subsequently to be presented to President Bush, we looked at its strongest measures.

The Bill seeks to backstop the GSEs with unlimited financing, create and give considerable strength to an oversight office of the GSEs, provide quasi recoupable homeowner assistance via a $300 bln in mortgage refinancing plan and federal tax credits, both largely aimed at reducing foreclosures.

This bill has large implications on the GSEs (FRE and FNM). Specifically, the bill will un-cap the current line of credit to allow virtually unlimited short term borrowing from the current $2.25 bln. The removal of the cap would expire on 1/09. The bill also will allow the Treasury to take an equity stake in either co if their financial conditions become critical.

Additionally, caps on mortgages available for purchase will be lifted to $625.5K, and restrictions on the size of loans will be modified. Specifically, the size of loans available for purchase by the GSEs will be adjustable according to the asset's location, or bigger loans in areas with higher housing costs. Explicitly they will be able to buy loans up to 115% of the local median house price.

On homeowner assistance: The bill will allow some homeowners to cancel their old mortgage obligations in exchange for a 30yr fixed, with the amount of the new loans no more than 90% of current property value. Cut-off for inclusion is for loan generation on or before 1/08 on primary residences, and current payments must be deemed less-than-affordable (> 31% of current monthly income). This is mainly designed to assist distressed sellers (on the cusp of foreclosure).

However, this will create a payable to the US government, because once homes are sold, owners that had received the revised mortgages will have to pay back anywhere from 50-100% of the price appreciation above the new principal. The FHA is provided a $300 bln limit on these restructured loans. However, the option to offer the refinancing is still up to lenders, who will have to subsequently write down the value of their loans by the principal and foregone interest rate difference.

On tax credits, first time home buyers are eligible for a maximum of a $7,500 federal tax credit, net of any income taxes that the owner may owe the IRS. Phase out of this credit starts to phase out at +$75,000 annual income ($150,000 if file jointly with a spouse). The credit is then paid back interest free over 15 years. Annual payments are to be netted against income tax filings. There are also benefits when it comes time to pay for taxes. The bill offers an additional deduction for homeowners who only take the standard deduction (do not itemize) in the amount of $500 (single); $1,000 (jointly).

Economic Data Better Than Expected

No one wants to pay attention to positive news right now, after all that doesn't sell newspapers or boost TV ratings, right? But today, the University of Michigan consumer confidence survey came in above expectations at 61.2, up nicely from last month's 56.6 reading.

Moreover, durable goods for June rose +0.8%, also above consensus. And ex-transportation orders, durable goods rose +2.0%. June new home sales totaled 530,000, again above views. So the data was not bad, and certainly not deteriorating. But don't expect CNCB to give it much attention, it doesn't sell like headlines that read 'The Oil Crisis'.

There were also more earnings reports that were solid from Wynn Resorts (WYNN), YRC Worldwide (YRCW), and Fortune Brands (FO).

Oil was up early this morning, but has again reversed lower. Crude prices are now trading below $124. The energy stocks are mixed, while the ag and steel stocks are all higher (after yesterday's drubbing).

Asian markets were lower across the board overnight, and the dollar is up this morning vs. the Yen and Euro. The 10-year yield is higher at 4.06%.

Many were out saying yesterday's drop in the market was a signal that the relief rally was over and new lows were imminent. I think this call is premature, as sentiment remains overly negative and is likely to unwind a bit further before this rally is done.

Tech Companies Surprise With Strong Earnings

The market is pulling back this morning, after a nice 2-day bounce. Existing home sales came in below consensus estimates, which isn't helping things. June home sales slipped -2.6%.

There were more good earnings reports last night and this morning. MMM topped analyst expectations, and in the tech space Qualcomm (QCOM), Amazon (AMZN), and Baidu (BIDU) all reported strong results and their stocks are all up in excess of +15% this morning.

Asian markets were higher overnight, following the drop in oil prices yesterday. Today, oil is up slightly, but the huge plunge in natural gas is weighing on oil and the energy complex as a whole. The drop in natural gas over the last two weeks has been extreme, to say the least. I am adding to my long exposure to some of these stocks as they are very oversold.

The dollar is mixed, after a strong 2-day bounce. The 10-year yield is lower at 4.06%. The ARMS Index is high at 1.83, signifying heavy selling pressure. And the put/call ratio is at 0.95.

Earnings Reports Continue to Buoy The Market

We got some additional good news this morning, and the market is picking up right where it left off last night, and rallying.

Lawmakers agreed on a bill to aid Fannie and Freddie, and those stocks are nicely higher. This is also helping to boost the housing index, which is up +3.66% currently.

Energy stocks are under pressure again, as crude oil prices are down further to the $127 level. Oil prices have now pulled back nearly -17% from their July 11th highs. On a technical basis, crude has also broken its 50-day support, while natural gas is testing support at its 200-day average.

Costco (COST) warned that its earnings would be "well below" consensus estimates, owing to high energy costs as well as some accounting charges. The stocks was down as much as -10%, although most other retailers are higher.

Other solid earnings reports came from Pfizer (PFE), McDonalds (MCD), Pepsi (PEP), General Dynamics (GD), and WellPoint (WLP). Wamu (WM) missed its estimates by a wide margin, but the stock is still up a bit, reflecting the change in sentiment regarding financials. A week ago, Wamu's report would have probably sank the whole market.

Asian markets were up across the board overnight, led by a +6% surge in India. The dollar is higher this morning vs. the Yen and Euro, and gold is lower. The 10-year yield is higher at 4.16%. And the put/call ratio opened at a very low level of 0.64. This could signal that bullishness is too high in the near-term, and the market might be susceptible to a pullback.

Weak Earnings Reports Pressure Stocks At The Open

The market opened under selling pressure, but has since bounced with the Dow moving back into positive territory.

Amex (AXP), Texas Instruments (TXN), SanDisk (SNDK), and Wachovia (WB) all reported weak earnings that weighed on the market. Wachovia also cut its dividend, while UPS called the economy "bleak".

But there were some strong earnings reports as well. Catepillar (CAT) beat estimates, and the bounce in that stock is helping the Dow outperform today. Surprisingly, a handful of airlines (UAL, US Airways, Supervalu) also topped earnings expectations. Go figure.

Oil is under pressure again this morning, trading down to the $127 mark. This is weighing on the whole energy complex, including natural gas stocks, steel, coal, gold/copper, etc.

Short likely pressed their bets after last night's round of weak earnings, but the early bounce in the market from its lows this morning should keep them on their toes.

Asian markets closed mixed overnight, with Japan bouncing +3%. The 10-year yield is up to 4.09%. The put/call ratio opened at 0.91.

long CAT

Investor Angst Still High

The market closed fairly flat, but tomorrow morning's outlook doesn't look so good after a disappointing round of earnings reports tonight. AAPL beat estimates, but offered conservative guidance. And there is the issue of Steve Jobs' health and why he wasn't on the call?

Amex (AXP) reported terrible numbers, which will spark renewed worries about the consumer. And Texas Instruments (TXN) and SanDisk (SNDK) both reported weak results which will weigh on semis tomorrow.

Taking a look at the investor sentiment indicators, I think this rally still has some room on the upside, as the indicators still could use a bit of unwinding from highly pessimistic levels. Here is a quick rundown:

• The Investor's Intelligence bears have outnumbered bulls for 5 straight weeks; moreover, the % of bears hit their highest level since 1995 (pretty amazing)
• Bears on the AAII survey have outnumbered bulls for 6 straight weeks
• Bears on the Ticker Sense blogger survey outnumbered bulls for 10 straight weeks; this is the longest such streak since this poll's inception (roughly 2 years ago)
• The bulls on Market Vane are down to 33%; this is the lowest level since the last bear market
• The 10-day CBOE put/call ratio hit 1.10, a high level
• The 10-day ISE call/put is also low at 103
• These put/call ratios are not as extreme as they were in March, but they are back to levels from last November that led to a lukewarm rally

Tomorrow you will likely hear a lot of folks talking about the recent lows being retested in short order, but I maintain that I think there is still a little room left on the upside before such talk is worth heeding.

long AAPL

Another Big Bank Reports Earnings, Stocks Rally

After Citi (C) reported better than feared results, and its stock gapped higher, many wondered whether BofA (BAC) could possibly duplicate that feat. Investors breathed a sigh of relief this morning, when BAC reported results above expectations, and the stock rallied sharply +11%. This boosted the financials as a group, and the market in general.

Biotechs are also getting another boost, after a solid week last week, on news that Roche has made an offer to acquire the remainder of Genentech (DNA) that it does not already own. The stock is spiking +14% on the news, and the biotech index (BTK) is up +2.1% so far.

In other pharma news, Merck (MRK) and Schering-Plough (SGP) are delaying their earnings reports until after the close today, to allow them to provide an update regarding a new study on Vytorin.

Asian markets were higher across the board overnight, as financials strengthened; oil is trading higher this morning, back near $130; the 10-year yield is up again, to 4.10%; and the VIX is down further to 23.71 (-1.4%).

I'll be back with an investor sentiment roundup a little later.

long XBI

My iPhone Saga

I didn't buy the first version of the iPhone, as I am one who usually likes to wait for companies to work the kinks out of their first iteration of a new product. So I was eagerly awaiting the release of the new iPhone last week.

I drove by my local AT&T store early Friday morning, and saw a line starting to form. I can't be away from my trading screens sitting in line all morning, so I went to my office. I walked over there mid-morning, but the line was about 1-2 hours long, and an employee told me there were only 4 phones left.

The next morning, Saturday, I went back to that store and the line didn't look that bad, so I got in it. After nearly an hour, I had barely moved, and had to get on with my day (my kids were anxiously anticipating my return). Someone in line told me the lines at the Apple store were even longer.

I have called and stopped by 3 different AT&T stores this week, and they have been sold out of iPhones each time. The Apple store has them, but there is always an hour line, and they don't give out numbers, etc. Who has that kind of time?

I have to assume that Apple was production constrained, because they must realize they are missing out on tons of sales. The whole process is ridiculous, frustrating, and frankly annoying. To the notion that they do this on purpose, maybe they do. But the disarray of lines at the store are also taking away from Mac sales, etc, which are much more profitable for the company. So they should get a clue.

That said, I might bite the bullet after work today and actually wait in line at the Apple store near my house. We'll see.

long AAPL; short the iPhone rollout

Good Earnings For NYSE Stocks, Not So Much For The Nazz

There were some solid earnings reports last night and this morning, but mostly from companies listed on the NYSE. The companies in the Nazz mostly disappointed, and as such the Nasdaq is really lagging this morning.

Citi (C) reported better than expected results, and the stock is +8% higher as many feared a really bad report after Merrill (MER). Schlumberger (SLB) also reported very solid earnings, and that stock is nicely higher as well. Ditto for IBM.

Google (GOOG) reported earnings that were a little shy of consensus estimates, and the stock is taking it on the chin, -9% currently. Microsoft (MSFT) also reported less than stellar results, and its stocks is off -8%. Those are really weighing on the Nasdaq.

Energy stocks are enjoying a nice bounce on the heels of SLB's earnings and a bounce in oil, after a 3-day drubbing, taking crude prices back above $130. Natural gas is getting a small bounce too, and NG has been hit harder than oil recently.

Asian markets were higher during their sessions, but finished mostly lower by the close of trading. The 10-year yield is roughly flat at 4.03%, after moving back above the 4.0% level in yesterday's session.

Yesterday, I said I would be happy with a flat day, but instead we got a big rally. So a pullback today would not be surprising. But again, we do not want it to get out of hand. I would like to see GOOG moderate its losses into the close, and the same for the overall Nazz.

long GOOG

More Strong Bank Earnings Boost Market

The market got another boost from a large financial firm, this time JP Morgan (JPM). The company reported better-than-expected earnings, and it stock gapped +10% higher. This helped boost the financials and the broader market as well. Fannie and Freddie are also higher, on a confirmed credit rating.

There were other solid earnings reports from Nokia (NOK), Yum Brands (YUM), and Nucor (NUE). While the overall market was higher in early trading, it is fading as of this post. Given how every big rally seems to be completely reversed the next day, I think bulls will be happy if we can finish anywhere near flat today.

In economic news, housing starts for June were better than expected, and weekly jobless claims were below consensus estimates. Those two positive datapoints were offset a little by a weaker than expected Philly Fed report, but this index has been weak for a while.

Asian markets were higher overnight, and the dollar is mixed today. Oil and gold are both higher, with the former moving back above $136 after a sharp 2-day drop. The 10-year yield is higher at 3.96%.

The bull/bear spread in today's AAII survey was -33%, the 6th consecutive week that bears have outnumber bulls. Additionally, in yesterday's Investor's Intelligence report, bears came in at 49%, their highest showing since January 1995. The negativity bubble is alive and well.

Financials Enjoy Huge Countertrend Rally

The financials soared today, no doubt about it. WFC spiked +32%, LEH gained +26%, Citi and MER +13%, and GS +9%. I don't think that this reverses the downtrend in financials, but you always see the biggest rally in a bear market, and that's where the financials are.

The bank index as a whole soared +17.3% today, and the homebuilders rose +8.4%. If the homies continue to rise, I would entertain shorting some of them.

Energy stocks sank as oil prices declined for a 2nd straight day. The oil ETF tested its 50-day average, and bounced off of it. I took some profits on my oil services ETF yesterday, even as I still like it longer term. I just feel there is more profit taking to come in this group before they resume their leadership.

The VIX fell another -12% today. And volume was very solid. Everyone will want to know if this is the bottom? But that is too hard to call right now. We need to see if there is any follow-thru to this rally, and then whether or not the market breaks to new lows on any retest.

Tough game.

Wells Fargo Shows Not All Banks STruggling

Some strong earnings reports are helping the market get a small boost in early trading, but we need to see a much bigger rally to even make a dent in the recent declines.

Wells Fargo (WFC) topped earnings expectations, and also raised its dividend, the ultimate statement that your capital position is strong. The 5th largest bank in the U.S. raised its dividend 10%, the 21st consecutive year it has raised its payout ratio. WFC showed that not all banks made so many silly loans as to wreck their entire franchise. The stock is spiking +23% on the news, a huge move.

Other solid earnings reports included Abbot Labs (ABT), Intel (INTC), and Schwab (SCHW).

Oil had a big move lower yesterday, falling more than $6, its biggest move in years. Today, higher inventory data is further pressuring crude prices, which are now down another $5 to around $133.50. Lower oil prices should help improve sentiment in the broader market, and ease inflation concerns.

It is no secret that food and energy prices have risen a lot recently, and that data flowed through to today's CPI report. June CPI rose+1.1% (vs. +0.7% consensus), which pushed the year/year figure to +5.0%. That marks the largest jump in inflation since 1991.

Asian markets were mixed overnight, and the dollar is mixed this morning. Gold is trading lower, likely in sympathy with oil. The 10-year yield is higher at 3.91%. And the VIX is falling another -5.3% to 27.03.

long WFC in some client accounts

Heading Into The Close

The market has staged a dramatic intraday reversal (if it holds). After making a climatic low this morning, and the VIX spiking to 30.81, the market bottomed and has been working higher the rest of the session.

All of the indexes are currently in positive territory, led by the Nasdaq. The VIX plunged -10% from its highs, and is currently at 27.06.

Biotechs and semis are leading the way today, both indexes up over +3.1%. Energy and materials stocks are the weakest today.

Financials are also enjoying a nice bounce. Lehman (LEH) is up +13.7%, and Goldman (GS) rebounded $10 from its lows. Citi is up also.

We still have almost an hour to go, so I don't want to jinx it. But hopefully we will see more short-covering into the close to add to these nice gains.

Here is a list of some stocks moving higher on above-average volume:

• ISYS, MMSI, ECOL, DNB, CSGP, AMED, TAP, NDSN, BIIB

long GS

Bernanke Speaks On The Economy

The market is lower in early trading, led down once again by the financials. After their biggest one-day drop in 8 years, the bank index is lower by another -5% this morning amid continuing concerns about banks' capital positions.

GM announced that it is taking steps to bolster its liquidiy position as well, and is cutting its dividend to start, as well as other cost cutting initiatives.

June PPI came in higher than expected at +1.8% (vs. +1.4% consensus), due to the spike in food and energy prices. But inflation concerns don't seem to be hitting bonds today, as prices on the 10-year are higher and the yield is down 10 bps to 3.77%.

Biotechs are one of the few sectors bucking the early weakness, with the biotech index up +1.24%.

Asian markets were down across the board overnight, on banking concerns. The dollar is also lower this morning, pushing gold higher. But oil is also lower, trading near $144. And the VIX has now spiked +8% above the 30 level that many were looking for to signal that capitulation had finally reached investors.

Last, Bernanke is speaking this morning before Congress. His comments have not done much to assuage investors. Here are the highlights of his comments:

• Economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated
• However, as events in recent weeks have demonstrated, many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain
• Helping the financial markets to return to more normal functioning will continue to be a top priority of the Federal Reserve
• The fiscal stimulus package is providing some timely support to household incomes.
• Over the remainder of this year, output would expand at a pace appreciably below its trend rate, primarily because of continued weakness in housing markets, elevated energy prices, and tight credit conditions.
• Growth is projected to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery and as credit conditions gradually improve.
• However, FOMC participants indicated that considerable uncertainty surrounded their outlook for economic growth and viewed the risks to their forecasts as skewed to the downside... inflation seems likely to move temporarily higher in the near term
• Our best judgment is that this surge in prices has been driven predominantly by strong growth in underlying demand and tight supply conditions in global oil markets; decline in the foreign exchange value of the dollar has also contributed somewhat to the increase in oil prices; concern that has been raised is that financial speculation has added markedly to upward pressures on oil prices
• Moreover, the currently high level of inflation, if sustained, might lead the public to revise up its expectations for longer-term inflation. If that were to occur, and those revised expectations were to become embedded in the domestic wage- and price-setting process, we could see an unwelcome rise in actual inflation over the longer term.

Was Today Capitulation In The Financials?

At the open, it looked like the Treasury announcement regarding Fannie and Freddie might be enough to spark a rally. But soon the concern regarding the financials resurfaced, and the regional bank stocks began falling precipitously.

After IndyMac (IMB) was taken over by the FDIC, investors became concerned that there could be a large number of other banks to fail as well. I am sure the number of bank failures will rise during this period, but I'm not sure it will be the larger, well known names that seem to be trading like death.

Looking at the chart above, I find the action in the bank index (BKX) interesting. The BKX fell an additional -8.5% today alone, a huge move, but even more so in the context of the prolonged downturn in the financials.

If we turned this chart upside down, we would probably be highlighting it today as a blowoff top, and recommending to take profits in the stocks. So one could make the same argument in reverse. Could today's action have been the capitulation that might finally mark at least a near-term bottom in the financials?

The market remains oversold, as it has been for what seems like weeks now. My colleague on TheStreet.com noted that the 30-day advance/decline line is as oversold as it has been since September 1998. But in bear markets, sometimes oversold markets merely get more oversold.

That said, I am still looking for an oversold rally at some point, and will look to use any near-term strength in the market to reassess my overall stance.

Can The Market Hang On To Early Bounce?

The market got a nice bounce after the open on the heels of some positive news for Fannie and Freddie. Treasury Secretary Paulson announced a plan to temporarily increase their line of credit with the Treasury, and also give the Treasury temporary authority to purchase equity in the companies.

The Plan needs to be approved by Congress. In the meantime, both companies will be able to access the Fed's discount window, something that was in question on Friday and led to the late day selloff.

Apple (AAPL) is getting a little boost after it reported that it sold over 1 million new iPhones in the first weekend. I can tell you that I stopped by AT&T stores each of the last 3 days here in L.A., but the lines were 1-2 hours long and I certainly didn't wait in them.

Anheuser-Busch (BUD) accepted a buyout offer from InBev, after the Belgian company upped its offer from $65 to $70, or $52 billion.

And IndyMac (IMB) collapsed over the weekend after a run on the bank. This is the largest bank collapse since Continental Illinois in 1984. The FDIC will now take over the institution, which got in trouble by making too many stupid, subprime loans.

Asian markets were lower overnight. The dollar is mixed today, and gold is trading higher. Oil is also up today, trading near $146. And the 10-year yield is slightly lower at 3.90%, after a big spike higher on Friday.

long AAPL

Happy Birthday, Chase

Happy 2nd Birthday, Chase!!

Love, Dad

More on Fannie and Freddie

Here is a nice summary someone sent me on FRE/FNM:

FNM and FRE are taking center stage again today, with both stocks down sharply (FRE dropped as much as 54% and FNM dropped as much as 49%) at the lowest levels since the early 90's after a damaging week (FNM -47% on the week, FRE -60% on the week).

The market has been intensely focused on FNM and FRE this week, with the financials and broader market largely taking their cues from the stock movement of the GSEs. The problems for the GSEs began on Monday with capital concerns related to a potential FASB rule change. The GSEs' regulator, OFHEO, then came out and said the accounting rule change likely won't require cap increases at FNM & FRE, and that the two are adequately capitalized.

Then on Wed, the two stocks weakened after Fannie Mae paid record spreads on a two-year note sale. Then yesterday the stocks got hit after former Federal Reserve President Poole said FNM and FRE could be 'insolvent' after losses and the WSJ reported the Bush administration has held talks about what to do in the event FNM and FRE falter.

Concerns reached a new high today as reports out this morning said senior Bush administration officials are considering a plan to have the govt take over one or both of Fannie Mae (FNM) and Freddie Mac (FRE) and place them in a conservatorship -- a situation that would leave the equities of FNM and FRE "worth little or nothing". Paulson came out with a statement saying the focus is on backing FNM, FRE in their current form, suggesting any sort of bailout is not imminent.

A number of analysts have weighed in this morning as well, most notably Citigroup, who said they believe the recent sell-offs FRE and FNM is overdone. The firm spoke with FRE mgmt this morning and they indicated that there has been no significant change in their financial condition during 2Q beyond prior guidance. The firm believes that no one in Washington desires for a nationalization of the GSEs, which would bring the burden of providing mortgage access and liquidity on to the shoulders of taxpayers. Piper noted there has not been one significant piece of macroeconomic or co specific news on either co to drive the decline.

Fannie and Freddie Concerns Overwhelm Any Positives

The day is starting off the same way yesterday finished. Fannie and Freddie are under extreme pressure, and are trading as if the equity value of these franchises will go to zero. There were rumors this morning that a govt. bailout was in the works, but Treasury Sec. Paulson said no bailout was imminent, and that the govt. wants to support them in their "current form".

Oil is also getting another huge spike, hitting $147, after rumors that Israeli warplanes were supposedly conducting tests in an effort to do more sabre-rattling with Iran. The oil ETF (USO) gapped to a new high at the open.

GE reported solid earnings results, helping that stock buck the early weakness. But other than that it is not really helping the broad market. Financials are under heavy selling pressure again, while energy and materials stocks are bouncing.

Asian markets were mostly higher overnight, except for Japan and China. The dollar is weaker again this morning, helping push gold higher. The 10-year yield is higher at 3.85%. And the volatility index (VIX) is spiking +10% higher to the 28 level, indicating rising fear in the marketplace.

Tech Tries To Bounce, Financials Still Weak

(I typed this whole post earlier, but Blogger lost it. So frustrating)

Tech stocks are bouncing this morning, led by the big-cap leaders. Financials are weak again, amid lingering concerns about the capital positions and solvency of Fannie and Freddie. Paulson and Bernanke have been dragged before Congress to testify on the matter.

Retail sales were mixed, with some strong reports from the likes of Wal-Mart (WMT). It seems the rebate checks are helping, and WMT actually raised its earnings guidance as well. I still think a lot of those rebate checks will be spent on the new iPhone!

In corporate news, Dow Chemical (DOW) is buying Rohm & Haas (ROH) for a 78% premium to yesterday's close. If you own ROH this morning, you are one happy camper. Also, GE said it is looking into selling off its consumer and industrial unit, which helped the stock bounce early, but the effect is fading.

Asian markets were mixed overnight, and the dollar is mixed this morning. Oil is back up today, trading near $138. The 10-year yield is down to 3.80%. And the put/call is high again at 1.22 on the CBOE and 1.54 on the ISEE.

long AAPL

Capital Concerns at Freddie Crush Financials

The financials had one of their worst days in years after fresh concerns about the capital positions at Fannie and Freddie weighed on the sector. These stocks enjoyed a nice bounce yesterday, but FRE got slammed today, down -25%.

The market held in pretty well up until the final 2 hours of trading, at which point the sellers overwhelmed buyers and the selloff accelerated into the close. Volume looks to have run a tad below yesterday's levels, which while positive is small comfort.

The volatility index (VIX) rose +9% today, which is a big one-day move. The ARMS Index closed at 2.22, an extreme reading. The put/call ratios were elevated as well.

The chart above shows the S&P 500 Index, and the big reversal of yesterday's rally. The four red arrows point to the big upside reversals we had back in March, but how it took several of them before the market finally bottomed.

The blue arrow highlights that amid those big upside reversals, the market did break down to new lows one last time as well. That move proved to be the low for the first half of the year, and the market rallied nicely into mid-May.

I think we are setting up for a similar kind of move. Bearish sentiment is rampant, the market is oversold, and selling pressure looks like it is peaking. If this movie were playing in reverse, we would be talking about a blowoff top, and running to take profits.

The Negativity Bubble Is Alive And Well

The market is mixed this morning, with the S&P a bit higher and the Nasdaq a touch lower. Cisco (CSCO) is weighing on the Nazz after UBS said that the company is facing challenges due to the slowdown in the U.S. and Europe.

Alcoa (AA) kicked off earnings season last night with a solid report, and the stock is higher. And after a multi-day selloff, materials stocks (steel, coal, ag, etc) are bouncing back sharply. Some steel stocks are up as much as +10% today.

Oil is getting a bounce after a big drop yesterday. Inventories showed a bigger than expected drawdown today, and crude prices are hovering above $136. The dollar is slightly weaker today vs. the Yen and Euro.

Asian markets were higher across the board overnight, led by India and China. European bourses are also higher so far. The 10-year yield is down a tick to 3.87%.

Financials are under a little pressure so far, after a nice bounce yesterday. Biotechs are again leading the way, which bodes well for growth stocks. AAPL and GOOG are also slightly in positive territory.

The weekly Investor's Intelligence survey came out today, and showed a surprising drop in the number of bulls. The number of bulls responding fell to 27%, while the bears moved higher to 47%. This is the highest number of bears since September 1998.

Additionally, this is the lowest number of bulls since July 1994. That is remarkable. This means that there are fewer bulls currently that after LTCM in 1998, after the 9/11 attacks, and at any time during the 2000-02 bear market.

Who says there is no negativity bubble?

long AAPL, GOOG

Oil Breaks Below $140: Time To Get Excited?

Oil is breaking below $140 this morning, trading as low as $136. We have seen many of what looked like sharp price breaks in crude over the last several weeks, but each time oil has come bouncing back by day's end. So let's see if this decline holds.

While lower energy prices are certainly a positive for most of the market, in the short-term, energy and materials stocks are taking it on the chin, and this is likely weighing on the gains in the indexes.

Financials are lower after May pending home sales came in weaker than expected (-4.7%), and regulators told IndyMac (IMB) that they are no longer well capitalized. Seperately, Bernanke said that the Fed may extend its lending to Wall Street firms into 2009, but this is not helping the brokers so far.

VMWare (VMW) is down -25% today after announcing revenue growth will be below prior guidance. It also said its CEO is leaving. Office Depot (ODP) is also lower after reporting a -10% drop in same-store sales.

Asian markets were lower across the board overnight; the dollar is firm this morning, and the 10-year yield is a bit lower again to 3.89%. The indexes are all in negative territory as of now. Turnaround Tuesday?

The Market That Couldn't Bounce

The early gains from this morning were wiped away and the market went down to new lows. The weakness in the financials has been amazing. I can't even remember the last time they bounced. Today, rumors about Fannie and Freddie weighed on the group from the get go.

Interestingly, several Nasdaq stocks have been in the green all day, including Apple (AAPL) and Google (GOOG). But little else is working.

I have mentioned over and over how oversold the market is, and today I have even more data to support this notion. But we need a catalyst to get things going on the upside. When this occurs, I expect a meaningful countertrend rally to unfold.

Here are some anecdotal datapoints on breadth and sentiment:

• Bears on the Investor's Intelligence survey have tied their higest level since Sept. 1998
• The bull/bear spread on the AAII survey (-28%) is back at levels from the March lows
• The bears on Ticker Sense's blogger survey have exceeded bulls for 8 straight weeks
• The Rydex Nova/Ursa ratio is back down to levles from August 2007 (0.61)
• The Public Short ratio has hit a new record high, at 71.8% (according to my data)
• The 10-day CBOE put/call ratio is back up to 1.07, a high level
• The Merrill Lynch "Net Tabs" indicator, which takes into account breadth and sentiment factors, is back to +5 (a level that usually signals a good buying opportunity)
• The VIX has surged +69% since the May lows; more than the spike in March
• The Lowry's buying power index vs. its selling pressure index has widened out to it biggest gap in its 75-year history!

The S&P has taken out its March lows, so I am not trying to call THE bottom here. But I am growing far more bullish for a short-term trade.

long AAPL, GOOG

Option Traders Wary of Early Bounce For Stocks

There is not a lot of news this morning following the holiday weekend. The market is getting a nice bounce, although I doubt many people trust it right now.

This bounce is coming off a very oversold reading. I have had some people call me out for highlighting the oversold market, saying I was early to call a bounce. This is true, I have been early. But such is the case with oversold markets, as there is nothing that says that an oversold market can't become more oversold before it bounces.

That said, the market has been down for 5 consecutive weeks, and I think this bounce should be fairly sharp. I also think few are positioned for it, as most probably have gotten more defensive recently. Not to mention the energy leadership trend might be waning.

Asian markets were mostly higher overnight, some bouncing meaningfully. The dollar is higher again vs. the Yen and the Euro, which is helping take some wind out of the sail of both gold and oil. Oil was down as much as $5, but is now trading near $141.

Option traders were trying to fade this bounce right from the open. The CBOE put/call ratio is at 1.11, and the ISEE opened at an extremely low level of 55. Not many believers out there. I will be looking for places to put some cash to work today in anticipation of a bounce.

I am also getting ready to start my 21-day "body cleanse"-- only raw fruits, veggies, and nuts for 3 weeks. Ugh. Not going to be easy, but people I know who have done it said they felt fantastic. Giddy up.

ECB Hikes As Expected, But Dollar Rallies

The ECB increased its key lending rate by 25 basis points, as was widely expected. But the dollar has had a strong reaction, and is up sharply vs. the Euro (and the Yen). This is helping take some of the steam out gold's recent advance.

Oil is still higher on the day, just under $144, although it is off its earlier highs. But the energy complex is selling off hard for the 2nd day. All materials stocks remain under pressure, with ag, steel, and coal stocks weak for a 3rd day.

The big question is if the sharp selloff in the materials stocks is a signal that the commodity-stock bull market is over, or has at least topped for the time being. The other school of thought is that when you get into a viscious selloff, no stocks are spared. And when they finally get around to selling the year's big winners and leaders, then you are getting closer to a tradable bottom.

I am not sure where I fall in this argument, probably somewhere in between. I think that profit taking did have a lot to do with how sharp the selloff in these materials stocks was. I don't necessarily think that the bull market in these stocks is over, but I would not be surprised to see them hand off leadership to another group for a bit.

The nonfarm payrolls report showed the economy lost 62,000 jobs in June, slighly above expectations. The unemployment rate came in at 5.5%. While the media paints the picture of a deep and dire recession, let's rememeber that 10-20 years ago, an unemployment rate of 5.5% was unimaginable.

The market moved even deeper into oversold territory yesterday, and bearish sentiment is rising. The VIX hit 26 this morning, up +62% from its May lows. And the AAII investor survey today showed only 23.9% bulls, and 52.1% bears. This is the 4th consecutive week of more bears than bulls.

Now all we need is a catalyst for a rally. And I mean a real catalyst, not some weak GM sales report.

Early Look: Financials Bounce. Coal Stocks Tank

The market is up slightly in early trading, but nothing to write home about. Coal stocks are gettign whacked, which isn't suprising given their parabolic run lately. Steel stocks are under pressure as well.

This looks like profit taking of some of the year's biggest winners. The question is if there will be some rotation out of commodity stocks and into more traditional growth stocks. The rise in the biotech index yesterday would support this notion.

Retail stocks are trading better today. Walgreens (WAG) reported that June sales rose +10% yr/yr; Starbucks (SBUX) said it plans to increase store closures to improve its cost structure.

Asian markets were down across the board overnight. The dollar is weak this morning. And oil is up a bit again, trading near $142. The 10-year yield is down slightly to 3.97%, after a big turnaround yesterday.

How Oversold Are We?

Once in a while you get shown the light

in the strangest of places if you look at it right.

--Jerry Garcia

I mentioned for the market to rally, we needed some sort of catalyst. But who would have thought that the catalyst would come from GM. GM! Go figure. They announced that their sales were better than expected, and the stock rallied 10% and jumpstarted the market.

That led to a wave of short covering, and the major indexes rallied and all finished in positive territory. Volume rose on the day, making for a solid reversal. Now all we need is some solid follow-through for the oversold rally to continue.

So how oversold are we? Here are some anecdotal datapoints:

• The advance/decline line has been negative in 10 of the last 11 sessions.
• The S&P oscillator hit -9.4, the most oversold reading since July 2002, which was a major low in the mkt (even as it was undercut in October 2002)
• Jeff Saut tracks what he calls "selling stampedes", and said that this stampede has gone on for 30 days, an extremely rare occurrence
• The % of stocks on the NYSE trading above their 50-day averages is back at levels seen at the March '08 lows (see graph below)

Also, the chart below is a volume-based oscillator that Helene Meisler at TheStreet.com publishes daily. You can see that it is now more oversold than it has been at both the Jan and Mar '08 lows, as well as the Nov. '07 lows.

So the conditions are setup for a nice oversold rally. To my critics, I never said I would be able to perfectly call the exact day the market would bottom. What I did say was that I wanted to use further upcoming weakness to add long exposure to the market, since historically these oversold readings have proven to be good trading opportunities.

Have a good night--

Thoughts on the Volatility Index (VIX)

My colleague Helene Meisler at TheStreet.com has correctly mentioned how everyone seems microfocused on the VIX right now. The Heisenberg principle would tell us that when everyone is looking in the same place, the expected outcome is less likely to materialize (like a watched pot).

But seriously, everyone keeps saying that the VIX has to get back into the mid-30s for a good bottom. I am not so sure. Merrill's technical analyst said that many times during a market retest of a bottom, the VIX will make a lower high, and that this is positive.

Also, if you look at the recent move in the VIX in percentage terms, it is on par with the March move. From its 2/26 low of 21.9, the VIX surged +47% to 32.2 on 3/17 (closing).

This time around, the VIX made its low on 5/15 at 16.3, and has surged +56% at today's high. So maybe the VIX has had more of a move than people are giving it credit for.

Turnaround Tuesday?

Had I written this post a bit earlier, I would have started by saying how amazing it was that this market was so weak again, and unable to bounce. But since that early dip, things have turned around such that the major indexes are now all in positive territory. Maybe we can get another 'turnaround tuesday'.

Oil is back up again today, topping the $142 level again. Energy stocks are mixed, while most other materials stocks (steel, ag, copper, etc) are selling off hard. It looks like many of last quarter's biggest winners are the ones being sold today.

And the financials, which have been hit the hardest, are enjoying a small bounce. Morgan Stanley (MS) initated coverage of both Lehman (LEH) and Goldman (GS) at Overweight. Also, Bank of America (BAC) completed its purchase of Countrywide.

Fortune Brands (FO) is trading sharply lower after announcing it expect lower earnings. But for the most part, we have had very few earnings warnings. I'm not sure what that means for Q2 earnings season which starts next week. A lot will depend on the outlook of corp managements, who will likely be cautious given the environment.

The ISM Index for June came in at 50.2, higher than the 48.5 consensus estimate. The dollar is mixed today, with gold trading up a bit. The 10-year yield is lower at 3.97%. And the VIX topped 25 earlier today.

I have some graphs to post later about how oversold this market is.

long GS