Market Talk

Stocks see selling with some conviction (NYSE listed volume more than 5.7 billion shares)  for the second day in a row, spurred on by fear that soaring oil prices will derail the fragile economic recovery.

Nymex crude briefly hit $100/barrel for first time in more than two years, sending shivers through industrial stocks, and stocks of companies most sensitive to discretionary consumer spending, like Tiffany and Coach.

H-P shares tumble almost 10% after disappointing earnings and outlook, and drop accounts for roughly 35 points of Dow Industrials’ decline.

First back-to-back triple-digit drop for DJIA since early June, average falls 107.01 to 12105.78, and Nasdaq Comp slides 33.43 to 2722.99. S&P 500 ends 8.04 lower at 1307.40.

No real sign that the source of the market’s current angst — unrest in North Africa and Middle East — is about to abate, so oil prices (instead of the Fed) may be calling the shots here for a bit.

Weekly jobless claims, January durable goods orders and new home sales will be tomorrow’s economic reports of interest. On the earnings calendar, GM, Target, Sears and Kohl’s all report before the open; AIG reports after the close.

The major indexes, the Dow and S&P 500, have been dancing near some big, round numbers lately: 12000 for the former and 1300 for the latter. Seems they’re dancing away from them now, and everybody’s dog-piling on the idea that a sell-off is here.

First, you’ll get the “healthy” sell-off crowd opining. This crew says, rightly, that stocks can’t go up in a straight line, and at some point they need to pull back. They’re right, to a point. The market doesn’t ever go up in a straight line. It does always “pause.” Those pauses, though, always lead to the question is it more than a quote-unquote pause.

A correction of 10% shouldn’t be unthinkable, given that the S&P 500 rose about 22% from the August lows to 1296 a few days ago. A correction of 20% will start to make people sweat. I have some trouble imagining a big, big sell-off, given that the Fed is still pumping $80 billion or so into the marketplace every month. But, you know, interest rates were supposed to fall, too.

Dennis Gartman, who writes the popular Gartman Letter, doesn’t mince words in his commentary today: a sell-off’s coming:

A correction…perhaps a rather serious one…has begun. It shall not require much to take the S&P, for example, down from just under 1300 to just over 1200 over the course of the next several weeks, but that is very likely what we shall see happen.

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US stocks last week suffered their worst weekly performance since Aug 13. But the poor showing doesn’t necessarily mean the rally’s over. My “Technically Speaking” column (subscription required) today looks at how stocks have historically performed following double-digit percentage pullbacks:

If history is any indication, last week’s declines shouldn’t prompt investors to kiss this rally goodbye.

The Standard & Poor’s 500-stock index shed 2.2% last week, ending a string of five consecutive weekly gains. Yet the weekly drop came after a four-month rally for the broad index in which it completely retraced its 16% price correction from late April to early July.

That may seem like a quick run-up, especially since the bulk of those gains occurred in September and October. But historically it’s right on par with other recoveries following double-digit percentage pullbacks.

Sam Stovall, chief investment strategist at S&P, said the S&P 500 has experienced 18 corrections — considered declines of 10% to 20% — since 1946. On average, those corrections required only four months before the index was able to return to break even, meaning the current rally is on target with previous recovery rallies.

Once those corrections returned to break-even levels, the index went on to average an additional 10% gain in the following four months before encountering at least a 5% pullback, according to Stovall.

“Obviously, some recoveries made it no further than breakeven, such as in 1955 and 1997,” he wrote in a note to clients. “Still others just kept going, and going, and going, such as in 1954, 1961, 1976 and 2003, when all lasted more than 250 additional calendar days.”

The S&P 500 topped at 1227 on Nov. 5 before retreating last week. But the declines shouldn’t shock anyone, especially considering the precipitous rally stocks have endured throughout the last few months.

“You could say that the market [was] just catching its breath after eclipsing its April high, like a marathon runner who slumps in exhaustion after crossing the finish line,” Stovall said. “Yet if history is any guide, for it’s never gospel, this market advance has further to run before succumbing to another meaningful decline.”…

Check the rest of the column here.

- “The arguments for a slowdown and double-dip recession are basically the same: less stimulus spending, state and local government cutbacks, more household saving impacting consumption, another downturn in housing, and a slowdown in Europe and in China,” Calculated Risk blogger Bill McBride notes. “It is only a question of magnitude of the impact.”

- “Of course, you never know until after the fact whether a correction is just the first leg down in a new bear market,” Tom Petruno says. “That, once again, is the agonizing question for investors.”

- Financial regulatory reform legislation, in its present form, has several positive aspects, writes Mark Thoma. Still, it fails to eliminate the too-big-to-fail problem and, as a whole, leaves him wanting more. “As with health care reform, the legislation is unsatisfactory in many ways — it leaves much of the job yet to be done — and it’s not clear that Congress will have the will to follow through,” Thoma says.

- YouTube is the latest to weigh in on the Great Flash War of 2010, siding with Adobe (ADBE), which makes Flash video technology that Apple (AAPL) has banned from its devices. “Today, Adobe Flash provides the best platform for YouTube’s video distribution requirements,” writes John Harding, a YouTube software engineer. That’s why “our primary video player is built with it,” he adds.

- “Restaurants are a discretionary expense, and they tend to be ‘first in, last out’ of a recession for consumer spending,” Calculated Risk says, as opposed to the housing market, which is considered a first in and first out sector in the recession-dating cycle. “Since restaurants both lead and lag recessions, this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.”

- Verizon (VZ) will reportedly begin launching its LTE network in 25 markets starting November 15, according to gadget blog Boy Genius Report.

- “The inventory boost has accounted for over 50% of GDP growth so far during the recovery, so a substantial pickup in final demand growth will be necessary to keep gains in employment and output from slowing  economists from the Dallas Fed write. “That the required pickup will occur is far from obvious.”

- There’s increasing evidence the economy’s poised for another rough patch in 2H and beyond,” Pete Davis writes. “What more can Washington do? We’ve already done about everything anyone can think of to stimulate the economy. It’s had some beneficial effect, but it may not be enough.”

- Just as the S&P 500 keeps making lower lows, the VIX run-ups can’t quite reach their previous highs. “The increasing sluggishness in the VIX reflects what I call a progressive desensitization to fundamental factors…and technical factors that investors experience after the novelty of various threats — including very serious ones — begins to wear off,” VIX and More blogger Bill Luby says.

- He’s human? Six-time Wimbledon champ Roger Federer ousted in quarterfinals.

It’s going to take a lot more than one measly 10% stock-market correction to upset the apple cart.

Sure, current events in Europe have “unnerved” investors, and US economic data “has been somewhat less positive” lately, but the broader economic recovery remains intact, BlackRock investment chief Bob Doll writes in his weekly commentary. “The cyclical recovery in most countries (including the United States) remains intact, as interest rates remain low and leading economic indicators continue to have a positive tone,” he says. “It is important to remember that corrections during times of economic recovery are normal, but are often intense and quick,” Doll adds.

Baird strategist Bruce Bittles says in his weekly missive that “the burden of proof now falls squarely on the bulls,” but he sounds pretty confident they’ll make their case as “the U.S. economy continues to expand and corporate earnings are rising.” On top of that, stocks are “oversold to the extreme,” he says, and “investors are becoming increasingly pessimistic, suggesting liquidity is building on the sidelines.”

Bittles says stocks “will likely need two sessions of upside volume exceeding downside volume by a ratio of 10 to 1 to conclude the damaging momentum of the past three weeks has been broken.” If that happens, “we would anticipate the equity markets would move into a trading range over the summer months with the risk to 1050 on the S&P 500 and the reward to 1175.”

He also notes economic data this week “is anticipated to be non-threatening to the financial markets.”

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US stocks under renewed selling pressure again as the latest worries across the pond center around Spain’s move to rescue a troubled lender.

The most recent concerns surrounding Europe come after the Bank of Spain rescued regional savings bank CajaSur over the weekend, suggesting sovereign debt woes could travel further. The move prompts Miller Tabak equity strategist Peter Boockvar to wonder what’s next for stocks.

“It will be the near term reaction to European budget cuts,” he says. “And whether bond investors are encouraged enough by them to buy sovereign new issues over the next few months to allow these countries to continue to finance themselves (and thus avoid tapping the bailout money).”

Concerns surrounding Greece and the broader European economy have weighed heavily on US stocks throughout the last few weeks as the market has entered into its first official correction in 15 months.

But the difference between a typical correction and something that spirals into something much worse is “faith that the bullish story hasn’t changed all that much,” writes LA Times’ Tom Petruno.

All that should matter near-term is whether new economic data and corporate profits continue to support the recovery thesis. This morning, the National Association of Realtors reported existing-home sales climbed 7.6%, to a 5.77 million annual rate in April, well above economists’ expectations as buyers took advantage of the first-time home-buyer tax credit. Prices and inventories also rose.

But stocks aren’t reacting positively to the good news and trade lower as European jitters continue to overshadow positive news on the domestic front.

“If recovery hopes fade amid (or because of) May’s barrage of depressing news, the bulls know they don’t have much else on which to build a case for stocks at these prices,” Petruno says

Dow down 47, but was off as much as 111 in earlier trading.

It’s getting ugly out there.

U.S. stocks are falling through support levels, and that’s driving wider losses. S&P 500 now down 18 at 1118, after falling through the 1122-1125 range, an area of support noted by UBS’ Art Cashin.

Fresh weakness in euro and pound appear to spark latest slide. Euro’s fallen through the $1.23 level again, this morning it struck a four-year low at $1.2233, and the pound is below $1.44. Crude is also getting nailed, slipping below the $70/barrel mark. Of course, that’s good news for consumers.

Stocks held up relatively well through the morning until about 11 a.m., coincidentally or not when markets in Europe – which had a relatively strong session, fading toward the end – closed for the day.

The selloff here looks like a correction of the bull market, DJN’s Cox wrote on Friday, which could take Dow below 10000 and S&P below 1000. Before you flip out and call your broker, that would still be only about an 11% selloff for the Dow, which given the year-long, massive run-up would be really a pretty mild correction.

DJIA down 163, Nasdaq Comp down 40.

If Faisal Shahzad had blown up his Pathfinder on Saturday night in Times Square, do you think it would have affected the stock market on Monday morning? I ask that not because I’m some heartless markets guy who sees the world only as it affects equities; I walk right past where Shahzad dumped his SUV twice a day, every day. Our office is two blocks away.

I ask because pondering it is like one of those Zen koans the monks meditate on, in this case a koan that illuminates where the market’s head is these days.

Let’s assume Shahzad did his job well. He killed, say, a dozen people coming out of the theater and wounded two dozen more, on a Saturday night in Times Square, one of the most famous, recognizable places in America. In the initial panic, he gets away. Sunday morning, blood-splattered images fill TVs across the country, across the world. How did this happen? Who did it? Will they do it again? Remember, a terrorist’s main goal is to instill terror. In our scenario, Shahzad did his job well.

How does the market react? Monday morning, the papers are starting to wonder, are we losing the war on terrorism? Homegrown or foreign, does it matter? Does the Obama administration have the gumption to really take on the terrorists, wherever and whoever they are? What are we really doing in Iraq and Afghanistan? Think the market is shocked by all this? Think that V-shaped confidence cracks a bit?

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- Stocks may be poised for something deeper than a “run of the mill 5% to 9% correction” seen since the rally began in March 2009, especially as the market tone seems to be shifting, writes FusionIQ CEO Barry Ritholtz.

- “Just as stocks had their worst one-day decline [yesterday] in three months, bullish sentiment among newsletter writers reached its highest levels since December 2007,” Bespoke says.

- Prescient outlook from Minyanville’s Todd Harrison, who wrote back on Jan 6 the following about Europe in his “Ten Themes for 2010″: “Look for the Union to adopt more stringent guidelines in the coming year, including but not limited to distancing itself from the weaker links such as Greece and Ireland. Sovereign defaults, as a whole, should jockey for mind-share. This could conceivably spark a rally in the US dollar, which could have ominous implications for the crowded carry trade.”

- The labor market still hasn’t RSVP’d to the recovery party.

- Seems like European policy leaders are finally acknowledging eurozone’s problems are serious. “But the prevailing definition of the problem is still too narrow — the consensus in France and, even more, in Germany is that ‘this is a Greek problem,’” says former IMF chief economist Simon Johnson. “Even the most negative still think that Portugal and Spain can easily escape serious damage. This is a major misconception.”

- Felix Salmon lists some reasons to buy Newsweek.

- “There are only two solutions to the sovereign debt crisis — raise taxes or cut spending — but the political gridlock may prevent either from happening,” Nouriel Roubini says.

- Google’s taking its TV bet seriously

- “The eurozone’s fracture lines were bound to be tested in a crisis, but this one has the potential to kick off a new phase of the global financial meltdown (hopefully a mere August-September 2007 version rather than a September-October 2008 variant),” Yves Smith writes at naked capitalism.

- Catherine Rampell checks in on last year’s unemployed.

We've got a long way to go.

US stocks riding a sinking ship without an end in sight, as a tepid jobs report combined with the soaring dollar and European debt concerns weighing on the market.

Stocks, as they have been the past three sessions, are tumbling through some support levels, and just crossed under another one. S&P 500 down 16 at 1047, having dropped through the 1050-1053, which UBS’ Art Cashin says represents another leg down in an Elliott Wave-type selloff.

“Violating that level could heighten probability that wave C has, in fact, begun,” he wrote in this morning’s daily commentary. On the one hand, wave C is the end of the progression; on the other hand, it’s an ugly and long end.

Dow Jones Industrial Average recently off 150 at 9851, hoovering near session lows and creeping closer to a 10% correction from the mid-January highs.

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