The market continued to slide despite positive earning news from IBM and GE.So far this year, the S&P 500 has dropped 9.8%, marking it the worst-ever start for any given year. Dow Jones Industrial Average doesn't fare much better either and it has dropped 8.8% so far. Nasdaq, which performed best among three major indices last year, posted a loss of 11.5% year-to-date. On a broader measure, the Wilshire 5000 Index was down 10.2%. It looks more and more like a bear market now rather than a correction in a bull market for several reasons. First, the market cannot hold onto good news. There is an old saying on Wall Street that in bull market, good news is good news and bad news is good news while in bear market, bad news is bad news and good news is bad news. Apparently we have this latter issue now. Second, the market has broken through many technical support levels without any meaningful rebounds and many market sentiment indicators were worsened, and worsened rather quickly. Third, unlike early 2007, when the market mainly saw declines concentrated on home building and financial sectors, currently we have almost every industry in S&P that has experienced at least a 10% correction. Only consumer staples and several defensive sectors are relatively doing ok but those are industries typically outperforming the broad market during the bear market. This broad decline is a typical sign of a bear market.  
Although it sounds quite pessimistic, we do have several positive factors in place. First, the market multiple is quite reasonable, especially compared with other asset groups such as treasuries. Second, monetary stimulus and fiscal stimulus are on their way. The Fed is widely expected to aggressively cut interest rates and bring the Fed fund rate from its current 4.25% to 3% level during the next few months. On the fiscal side, Bush administration has proposed a $150 Billion growth package aimed to boost consumer spending. Third, there is simply too much money sitting on the sideline. A record level of more than $3.2 trillion dollars is currently invested in money market funds. In addition, we have a new army called sovereign wealth funds that is equipped with more than $2.5 trillion dollars actively seeking better investment opportunities. Unless the dollar is in free fall, those funds may well grab more shares of US assets at current prices.  
Sounds conflicting? It is. Market always contains conflicting information no matter it's a bull market or bear market. But given the near term uncertainty ahead, it's probably not a bad idea to scale back and wait for more clear signals. With Dow quickly approaching 12K level, a break of that level may trigger a retaliation rebound. But how long the rebound can hold will depend on the market sentiment at that time. As for next week, which is a shortened one due to Martin Luther King Day on Monday, we have little economic news but we do have several high profile earning reports including Apple and Bank of America on Tuesday, EBay and Motorola on Wednesday, and Microsoft on Thursday. Stay tuned!

Bears are in full control of this market. For the second time this week, all three major indices dropped more than 2%. The news this morning was simply horrible: Merrill posted larger than expected loss although its write downs were pretty much in line with Wall Street expectation; Moody's reported that it had put bond insurer Ambac's credit rating under review, renewing concerns of possible bankruptcy and credit market turmoil that may follow; both Housing starts and building permits came lower than expected - actually the permits number was the worst in more than 16 years; Philly Fed Index came at -20.9, a level not seen since Oct 2001, one month after 911. The only positive news was the initial jobless claims unexpected dropped 20K vs. a small increase expected. But despite all the negative news, the market actually opened higher and stayed in the positive territory until the Fed Chairman Bernanke started his testimony in front of House Budget Committee. Bernanke basically repeated his view from the previous week when he was speaking about economic outlook in Washington but he did mention that a quick fiscal stimulus package would be beneficial for the economy to recover from its recent weakness. When asked about his opinion about apparently different monetary policy paths between Europe and US for the near term, Bernanke replied that EU doesn't have the same housing problem as US has right now, indicating the Fed is ready to take its own action of fighting economic weakness despite lacking similar actions in their European counterparties. But all in all, traders cannot find the urgency of the current economic situation they are looking for from the Fed chief so a wave of selling quickly followed.  
The selling activity got worsened in the afternoon and finally we started to see some panic selling as evidenced by more than 16% jump in the VIX. However, even after today's jump, the current VIX level is still not extreme enough to trigger a capitulation rally. The US dollar was mixed against major currencies and treasury bonds rallied sharply, pushing 5-year note yield below 2.9%. At the current inflation rate level, this means bond investors are willing to get no real returns on their money for 5 years. Truly amazing! We are going to get the OE day tomorrow so some extra volatility during the early trading should be expected. In addition, the Richmond Fed President Lacker is scheduled to discuss economic outlook before the market open. 

The market gave back early gains during the final 20 minutes and the trading activity remained choppy. Both Dow and Nasdaq were closed below key levels at 12,500 and 2,400.  Dow is now 1700 points below the record close of 14,164 on Oct 9th while Nasdaq is 16% off from its multi-year high of 2,859. News on the economic front was more or less in-line today. Following yesterday’s benign PPI numbers, today’s CPI number removed some fears of higher inflation that may prevent the Fed from taking aggressive actions. Both Industrial Production and Capacity Utilization data were lower than the previous month but were better than expectation. The demand for US securities was also quite healthy as evidenced by more than $90 billion net inflow in November. On the earning’s side, investors seemed to be relieved following reports by JP Morgan and Wells Fargo as some had feared more damages could be announced. The financial sector provided supports to the market throughout today’s trading. Intel’s revenue warning for the current quarter that came after the market close yesterday, however, put pressure to the tech sector and essentially accounted for the whole loss in Dow.
Stocks were sold off earlier in the day but then a wave of buying activities pushed all three major indices significantly off their lows towards the lunch time. Some attributed the early reversal to rumour that fiscal stimulus package that had long been speculated would be announced soon while others pointed to possible intra-day rate cut before the Fed Chairman Bernanke’s testimony in front of Congress tomorrow. Nonetheless, the rally seemed to have more to do with short-covering rather than real buying. Many emerging market stocks were hammered as investors fear that slowdown in global economy would reduce demands for many commodities. Gold price dropped by more than 2% while oil lost another 1%. Many base metals were also being sold off. The BDI index that tracks bulk-shipping rates continued to slump and now is below 7,000, off almost 40% from its historical high reached in November. Although BDI usually shows some weakness in the first quarter, 40% drop is anything but normal. If recent trend continues, it may really mean some trouble for global economy ahead. Tomorrow we are going to get earning reports from Merrill and WaMu, two key players in recent sub-prime meltdown. In addition, both the Fed Chairman Bernanke and Atlanta Fed President Lockhart are scheduled to speak about economic outlook.  

All three major indices dropped more than 2% for the day. The market opened sharply lower following disappointing results from Citi and December Retail Sales. Citi’s sub-prime writedowns were within the range of Wall Street expectation but its loan loss provision was much larger than investors had expected. The possibility of sub-prime loss spreading into other areas is clearly increasing and this can be the biggest fear on Wall Street. The retail report didn’t provide much support either. Both headline numbers and core numbers came lower than expectation. Moreover, the December number essentially brought the yearly retail increase to the lowest since 2002 and added fears of an imminent recession. The only positive news this morning is the PPI not exceeding expectation, but we have to wait to see the more relevant CPI report tomorrow. The US dollar got weakened against major currencies following weak economic reports. Gold price retreated from its record high and now is under $900 per ounce. Oil price continued to slide amid concerns of weak global economic growth ahead. Although many sub-indices were near or at their 52-week lows, the VIX index barely moved today. This looks quite puzzling to me as investors seemed not to be nervous at all even though the market continued to hit new lows. Another key technical indicator – volume – doesn’t hold well either. With down days like today, volume is heavier than up days such as yesterday. After the bell, Intel’s earning results and outlook for next quarter were quite disappointing. And this will add to the negative tone to the market tomorrow.

It has been really a while that we have a trading day opening higher and closing even higher. Today’s market performance may really mean something. I remember that back in Oct 2002, the darkest time during the previous bear market, it was a surprisingly positive earning report from IBM that essentially reversed the market. Today, it was IBM again but we need more time to tell whether the general market will follow suit just as they did more than 5 years ago. IBM’s surprising earning pre-announcement along with a positive report from SAP AG gave tech stocks a big boost today, but several other important sectors including commodity and financial were also doing well. The US dollar was weak against most major currencies as the Fed is widely expected to aggressively cut interest rates further (currently the market has priced in more than 30% chance of 75 bps cut before the end of January with the balance pointing to a 50 bps cut) while European central banks may hold their interest rates steady amid concerns of higher inflation (UK’s manufacturing cost last month increased most in more than 16 years showing more inflation pressure caused by higher commodity prices). Not surprisingly, weak dollar led to strong prices in many commodities. The CRB Commodity Index hit a new record high as a wide range of commodities from corn to wheat to gold hitting fresh new highs. Gold price is now sitting above $900 after rising more than $100 in one month. Clearly, the economy is going to face more inflation pressure in the near term and this could complicate Fed’s current stance of aggressively cutting interest rates. We are going to get some inflation reports both Tuesday (PPI) and Wednesday (CPI) and if any number comes significantly higher than consensus, it can mean problem for the market to move much higher from the current level. One positive note: the 3-month US LIBOR rate has the biggest drop in more than four months today and the current level of 4.06% is well below the Fed fund rate, indicating liquidity is coming back in the credit market. Fed also sets to auction another $30 billion 28-day loan today and it could lower the LIBOR rate even further in coming weeks.