The Problem With Stocks

You know the story today: light volume, lack of buyers.

Here's the consensus:

1) With the exception of brief breakouts, we have been scraping along the bottom for four months now

2) Current earnings projections are too murky for a clear bottom

3) More specific government proposals might provide some near-term help.

Stimulus: expectations adjusted downward. You knew it was going to happen, but the reduction of certain spending levels is causing traders to cast a cold eye on "what's real" in the stimulus package.

A good example is housing. Republicans had proposed a $15 billion tax credit. That has now been cut in half, and will only apply to first-time buyers. That is a disappointment, and home builders are down double digits today.

Meantime, the defensive play continues. Go long bonds, and stay short stocks as an asset class. Notice how most everything stock-related is down 5 percent or more this week:

Sectors This Week

Cyclical stocks down 9%

Oil stocks down 7%

Semiconductors down 7%

Consumer stocks down 6%

Industrials down 6%

Doesn't matter what it is; everything is down because stocks are again trading as a single asset class.

This is bad news for stock pickers, because no one cares about your picks. Hell, when Coca-Cola and Procter & Gamble hit a new low the same week as Zions Bank, the same week as MMM and Dow Chemical, the same week as Devon Energy , you know something is weird.

The exception is gold, which is emerging as one of the principal stories in the "defensive play." The big story next week will be to see if gold can once again trade in 4 digits, which would be the first time that has happened in almost a year. George Gero at RBC says it is "a possible media event if gold crosses 1,000."



Questions? Comments?