U.S. Stock Market - Bernanke Bounce

Most major U.S. stock market averages rebounded today following yesterday’s thrashing, but despite bullish rhetoric from Fed Chairman Bernanke and several better than expected economic reports, today’s rebound failed to recoup even half of yesterday’s losses (on balance). For comparison purposes, Monday’s changes are included immediately below today’s changes as listed in this column.

In testimony before the Senate Banking Committee, Chairman Bernanke defended the Fed’s current accommodative monetary policy stance by saying that “In the current economic environment, the benefits of asset purchases are clear”. However, Mr. Bernanke also warned that the Fed’s stimulus actions could not completely offset the potential drag to the economy this year from current fiscal policy. Bernanke urged lawmakers to defuse the sharp automatic (sequester) spending cuts scheduled to kick in March 1^st.

In addition, Mr. Bernanke said that Fed policy was not fostering a bubble in the stock market. Despite 5-year recovery highs on most major market averages and several all-time record highs, the Chairman said “I don’t see much evidence of an equity bubble.”

Economic reports released today showed the value of U.S. homes rising in the final month of last year. The Federal Housing Finance Agency reported home prices rose 0.6% and the S&P/Case-Shiller home-price index climbed 0.2% in December. Commerce Department figures showed new-home sales rising 15.6% last month to an annual rate of 437,000, the highest mark since July 2008. And, the Conference Board said its index of consumer confidence climbed to 69.6 this month, which exceeded Wall Street analyst estimates centering on 62.3.

Here are today’s closing marks, with changes from Monday’s close:

Tuesday’s Changes                  

Dow Jones Industrial Average                      13,900.13          +115.96           +0.84%           

S&P 500 Index                                                1,496.94          +    9.09           +0.61%

NASDAQ Composite Index                             3,129.65          +  13.40           +0.43%           

Russell 2000 Index                                            900.05          +    4.21           +0.47%                       

And here are Monday’s losses (again) for comparison purposes:

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                     13,784.17         - 216.40           -1.55%           

S&P 500 Index                                                1,487.85          - 27.57             -1.85%           

NASDAQ Composite Index                             3,116.25          - 45.57             -1.44%           

Russell 2000 Index                                             895.84          - 20.32             -2.22%                       

For your review, the daily bar chart for the Silver ETF contract (symbol SLV) is attached below. As can be seen from this chart, a buy signal was triggered here today within my computer-based trading system. Gold and Silver prices were stand-out winners again today. Gold futures jumped by about $28/oz (+1.75%) and Silver futures advanced about $0.37/oz (+1.28%) as oversold technicals continued to support prices for the 3^rd straight day. Short-covering and improving sentiment also boosted prices today in this market.

Bottom Line: While modestly higher U.S. share prices are certainly possible again early tomorrow, I think sellers will soon dominate once again. Most major stock market averages are expected to soon violate Monday’s intra-day lows as the correction which began last week resumes on the downside. If we are to believe that the stock market is a “discounting mechanism”, then traders and investors should not be surprised to see positive Government economic reports even as the stock market slides south. Except to reiterate my forecast calling for at least a 10% correction on this leg, it makes little sense at this time to attempt to predict the date of the next major buying opportunity. I continue to believe that Gold/Silver mining shares will outperform the general market over the next several weeks (at least).

Silver ETF (symbol SLV) Daily Bar Chart with Computer-based Buy & Sell Signals

U.S. Stock Market - Biggest Down Day of the New Year !

The S&P 500 Index was down 1.83% today, which was fairly representative of the entire U.S. equity market. The financial press is buzzing now about potential stalemate with respect to the upcoming “sequester” spending cuts issue and the likely failure of Congress to compromise with the Obama Administration on ways to ameliorate any potential negative consequences here.

And Former Italian Prime Minister Silvio Berlusconi's strong showing in the latest Italian general elections supposedly has many pundits now thinking that much-needed financial reforms in Italy may now be on hold.

While Italy’s problems and the potential negative consequences of the sequester spending cuts are clearly important, today’s thrashing of U.S. stocks was probably already set in stone before traders and investors even walked in the doors to their offices this morning. The tide had already turned and a major stock market correction is now underway. The peaks in most major indices were posted last week, but the top in the Dow Jones Industrial Average was actually posted intra-day today. Early this morning, the DJIA traded as high as 14,082 (+82) before reversing to the downside. This closely watch barometer of the U.S. market fell 297 points from its intra-day high and finished today at its lowest level, -216 points (-1.55%) on the day.

Here are today’s closing marks, with changes from last Friday’s close:

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                      13,784.17        - 216.40             -1.55%           

S&P 500 Index                                                1,487.85          - 27.57             -1.85%           

NASDAQ Composite Index                             3,116.25          - 45.57             -1.44%           

Russell 2000 Index                                             895.84          - 20.32             -2.22%                       

For your review, the daily bar chart for the S&P 500 Index is attached below, with all buy & sell signals from my computer-based trading system reflected on this key chart (i.e. yellow dots represent buy signals and red dots represent sell signals).

Gold, Silver, and related precious metals mining stocks were standout winners today. And so were longer-term Treasury notes and bonds as “flight to quality” forces buoyed both of these asset classes. Despite recent proclamations to the contrary by legendary investors like George Soros and Jimmy Rogers, T-bonds aren’t ready to die just yet. And sentiment among traders and investors in the Gold and Silver markets was so bearish by late last week that today’s “oversold” bounce was inevitable in this beaten down asset class.

Bottom Line: A major correction is now underway in U.S. stock prices. With the exception of Gold/Silver mining shares, I don’t see any place to hide for equity investors. The Federal Reserve’s “trial balloon” from last week, where possible exit strategies from its current accommodative monetary policies were discussed, was clearly the catalyst for this latest downturn in U.S. stock prices, but the negative news for shareholders is just beginning. The first significant warning sign was probably the massive selling that was recorded by corporate insiders in January, and now we can probably expect disappointing earnings relative to analyst forecasts ahead. Ongoing dysfunction in Washington will top the list of negative factors for stocks over the next month or two at least. Only the Federal Reserve can stop the current stock market slide, but Chairman Bernanke and Company probably won’t ride to the rescue for many months or until most major market averages really get busted on the downside (-20% or so!).



S&P 500 Index Daily Bar Chart with Computer-based Buy & Sell Signals