The Stock Market Looks Sickly
Aug 23, 2011
Posted by Jody Eisenman | Filed under Uncategorized
Miracle of miracles, the stock managed to eke out a gain today. After a wild day when the DJIA was up almost 200 points early in the session, the inevitable selling began and sent stock prices lower. By the end of the day, the DJIA closed up 37 points, with the S&P managing a fractional gain of 0.29. Quite frankly, the technical action is awful, unless you’re a short seller. On Friday, it looked like stocks were decent shape, until a selling wave at the close left the DJIA down 170 points. There doesn’t seem to be a lot of buying conviction, and even those that do buy tend to use very tight stops in order not to get caught with a substantial loss. We have down been down for four straight weeks, with the declines last week alone totaling 5%. Although the economic problems here are mounting, I believe most investors are focusing on Europe, where several banks are rumored to have major problems. Pretty much all the European money center banks have been in a steep decline for months. The US banks have been following suit. As of the close today, C has lost about half its’ value from its high, GS about 40%, and BAC has lost almost 60%. Meanwhile, there is a fascinating article on Bloomberg, which states that the financial industry received a mind boggling $1.2 trillion dollars from the Federal Reserve during the financial crisis. Unfortunately, I believe the problems are still out there. There is still a huge inventory of homes in the market, and many banks have shown a reluctance to foreclose on delinquent borrowers as they cannot sell the homes except at huge losses. Therefore, most homes that are foreclosed merely remain on the banks’ books, hoping for better times. Very few people see a major recovery in housing prices anytime soon.
Meanwhile, the price of gold continues to skyrocket, settling today at just under $1900/ounce, up another $45 today. Gold has risen about $400 in less than two months. Just seven years ago, Gold itself was $400/ounce. I think it will be difficult for the market to rebound until we see a meaningful pullback in the metal. All eyes now turn to Bernanke and the Fed to see what they will announce later this week.
