Stocks reversed early gains today as the second quarter comes to a close with more of a whimper than a bang. Jobless rates remain high in major metropolitan areas with the Labor Department reporting today that rates rose for this past May against the year ago same period in all 372 metropolitan areas that it tracks. Areas hit hardest include those with major manufacturing centers that feed into housing construction. While overall U.S. unemployment climbed to 9.4 percent in May, hardest hit is El Centro, California with a 26.8 percent rate. |

Consumer Confidence Report numbers, as reported by the Conference Board, further the fear on Wall Street as investors had expected the numbers to hold steady from April and May gains, however the index for June stands at just 49.3, down from 54.8 in May.

All of the major U.S. markets were down today with the Dow closing at 8,448, the Nasdaq trimmed by half a percent to 1,835, and the S&P 500 giving up 8 points to close at 919.

The Russell 2000, a composite index of the 2,000 largest small-cap stocks, closed down today at 501, for a loss of 1 percent.

Bright spots among small-cap stocks were lead by Annapolis Bancorp (Nasdaq:ANNB) up 38% to close the day at $3.80; Novavax (Nasdaq:NVAX) up 31% on news that Spanish pharmaceutical company Rovi will use Novavax's "Virus Like Particle" technology in the development of a vaccine for H1N1, also known as "swine flu"; LightPath Technologies (Nasdaq:LPTH) up 27%; Plumas Bancorp (Nasdaq:PLBC) up 25%; and Jacksonville Bancorp (Nasdaq:JXSB) up 23%.

While small-cap financial showed leadership today, large cap financial stocks like Bank of America (NYSE:BAC), Citigroup (NYSE:C), HSBC Holdings (NYSE:HBC), and Wells Fargo (NYSE:WFC) were down or up less than one-tenth of one percent.

The leader in small-cap price decliners was Cubic Energy (AMEX:QBC), down 30% on ongoing debt concerns with Wells Fargo Energy Capital. Cubic Energy was followed by Raser Technologies (NYSE:RZ), down 27%; Sunrise Senior Living (NYSE:SRZ), down 23%; and Northeast Bancorp (Nasdaq:NBN), down 21%.

*****If today had a lot going on then yesterday was downright boring. On Monday, around 10:30 AM, the S&P 500 rose above 924. By 12:30 PM, it rose to 927.99. Ignore the first hour of trading (when the S&P 500 made a comparatively wild 8-point swing), and the S&P 500 was confined to a 4-point range for 5 ½ hours.

Days like this make watching paint dry sound exciting. And as I'm typing this note, it's down about 1.3%.

And TradeMaster technical analyst Jason Cimpl tells me it could be like this all week as we head into a holiday weekend. If you want to catch a replay of his video that gives insights into this week's market direction just visit here. (or go to trademasterstocks.com/videoreport)

Great. But that's summer trading for you…

*****The Case-Shiller home price index, which measures home prices in 20 U.S. cities, showed that home prices fell 18.1% in April. And that was better than expected!

Of course, the index was only half a percentage point better, which most likely falls within the margin for error. Still, the results prompted the senior economist at Wachovia, Mark Vitner, to say "It is looking a bit better…[t]he largest declines are probably past."

And David Blitzer, chairman of the S&P index committee said, "While one month's data cannot determine if a turnaround has begun, it seems that some stabilization may be appearing in some of the regions…"

*****At first glance, these comments might seem a little, um, out of touch with reality. After all, how can anyone think that an 18% decline in home values is good?

The reason is that its foreclosure sales that are driving the Case-Shiller Index lower. Close to 5 million seized homes may be sold this year. To add some color, according to Bloomberg, 73% of all home and condo sales in Las Vegas in May were foreclosure re-sales.

73% -- that is an amazing number. And because these homes get sold at fire-sale prices, the affect on the overall housing market is dramatic.

*****That foreclosed homes are finding new owners is what's prompting economists to say prices may be stabilizing. And once prices stabilize, then the erosion of household wealth stops. And, then, maybe consumer spending picks up.

At least that's how the story goes...

There are some problems with this rosy scenario. Falling home and stock values claimed around $13.9 trillion in household wealth since 1997. That means there's a long way to go just to get back to break even. But with unemployment expected to persist above 7% for the next couple of years, where is the buying pressure for homes and the earnings power for public companies going to come from?

It's easy to imagine investors buying foreclosed property at discounted prices. But that doesn't mean the same level of demand exists for regular home sales. In fact, I'd go so far as to say there's no way demand for homes will be sustained beyond foreclosure sales.

*****Banks are taking losses as they clear bad mortgage loans from their books. That means banks will have room to make more loans - but will people want them?

Again, I suspect not.

That means banks will struggle to make up the losses and keep earnings growing. And with earnings season right around the corner (Alcoa (NYSE:AA) kicks earnings season off on July 7) investors should be on their toes.

P.S. A reader sent in an email yesterday asking about China and whether it's a good time to get back in. After last year's sell-off Chinese stocks are moving back up. If you missed the first China bull, this is your second chance. I've just finished a stock research report on 3 China-based stocks that every investor should have in his or her portfolio. Find out more here.

Well, once again my retracement support and resistance levels worked beautifully. After hitting major resistance at 927 as I had talked about yesterday, the S&P 500 is now moving very quickly away and heading towards 905. Honestly, each day the accuracy and profitability of technical analysis amazes me!

We’ve made it through another quarter in the market. To be honest, I can’t wait for this quarter to be over as it’s been nothing but boring. From start to finish stocks have traded completely sideways. Let’s hope that the summer month kick off some changes in the market. I decided to change things up today and put up a chart of the NASDAQ which I think is VERY close to turning sharply downward. Notice the huge open space until we reach 1,810 to the down side. But if we rally today, look for the NASDAQ to hit resistance 1,855. Should be an incredibly interesting day as people shift and transfer money around!

Stocks traded in a generally upward pattern today after a few dips before and after 10:00 A.M. for the indexes. As noted below, stocks were propelled by good news and a resolution to the sentencing of Bernard Madoff, the former trader accused of defrauding investors of tens of billions of dollars.

Notably the VIX, the Chicago Board of Trade Exchange Volatility Index, was down 2.4% today. The VIX is commonly used as a gauge of investor concern about future volatility as reflected as a benchmark for U.S. stock options. It measures the costs of utilizing options contracts as insurance against declines in the S&P 500.

The Dow Jones Industrial Average closed to day at 8,529, up just over one percent. The Nasdaq was up 5.8 points to close at 1,844 and the S&P 500 Index closed at 927, representing an 8.3 point gain.

The Russell 2000, an index representing the 2,000 largest small cap stocks, was the stand-out from the crowd, closing down 2.34 points to end the day at 511.

Gainers in the small-cap space were lead by Crown Crafts (Nasdaq:CRWS) up 45%; NewBridge Bancorp (Nasdaq:NBBC) up 33%; Craftmade Intl (Nasdaq:CRFT) up 34%; and EuroBancshares (Nasdaq:EUBK) up 27%.

Declining small-caps were lead by Cardium Therapeutics (AMEX:CXM) down 31%. Cardium had been one of Friday's big leaders, but gave up some of those gains after a Monday morning opening down 50 cents from the Friday close; others include Park Bankcorp (Nasdaq:PFED) down 29%; Community Shores Bank Corp. (Nasdaq:CSHB) down 27%; and Anchor BanCorp Wisconsin (Nasdaq:ABCW) also down 27%.

*****The positive headlines are everywhere this morning. On Bloomberg alone, we read that the worst is over for Treasury bonds, factory output improved in Japan for the second straight month and home values in England remained stable for the second straight month.  

It's enough to make you think that there's an economic recovery underway… 
Of course, the best news of all would be some price stability for homes here in the U.S. It appears that we're close to that point. 

 *****The rally that began on March 10 was largely about economic recovery. Or maybe it's more accurate to say that the rally began as investors surmised that the economy wasn't getting worse and that a complete financial meltdown had been averted.  

But in the ultimate irony, now that we are about to start the 3rd Quarter, you know, the quarter where actual growth is expected to return to the U.S. economy, traders are starting to question valuations, especially in the commodity space.  

Bloomberg reports that commodities rose 14% in the 2nd Quarter (April-June). Now, many expect prices for some commodities to fall by as much as 30%. That's because producers have expanded supply and investors have bought with little regard for fundamentals.  

*****Now as you know, I have been bullish on commodities, especially oil. But that doesn't mean that prices will make a one-way move higher. Commodities are called "cyclical" for a reason.

In the good economic times prices rise as production expands to meet demand. Once supply and demand reach some level of parity, prices start to drop and producers reel in production.  

The phrase "buy low, sell high" describes commodity investing to a tee. I've advised my SmallCapInvestor PRO readers to take some gains in oil stocks, but we'll be looking to buy back at some point this summer, because any price correction for oil and other commodities is all but certain to be brief.

*****Now let's have a look at the economic calendar this week. Remember, the 4th of July is on Saturday this year meaning the Federal government and the markets will be closed on Friday the 3rd. Many will treat this day as a holiday, including yours truly.  

Tomorrow, June 30th, we get Consumer Confidence, The Chicago PMI manufacturing survey and the Case-Schiller home price index for April.  

Clearly, the home price index is the big one. Expectations are that home prices fell another 18% in April. Any improvement will be bullish, as home prices area integral to economic health. 

Wednesday, July 1, we get construction spending, the ISM Index, truck and auto sales, pending home sales and oil inventories.  

Then, on Thursday, July 2, we get factory orders, initial unemployment claims, factory orders, average workweek (a measure of productivity), and the big one - non-farm payrolls. 

Of course, it's possible for payrolls and jobless claims to expand at the same time. Traders will look to non-farm payrolls as an indication that businesses expect better times ahead.   

*****If you missed Jason Cimpl's video chart analysis on Friday, you missed a great discussion about a potential head-and-shoulders pattern playing out on the Russell 3000. Here's the LINK again if you want to watch it. (Or go to trademasterstocks.com/videoreport/) 

That's it for today.

P.S. Over the weekend I sent investors some information on dividend stocks and how to use them to shore up your retirement funds (whether you're already retired or it's still some years away). I'm following with my Top Stock Insights service. In case you missed it, you can get that information HERE.

Stocks were poised to open lower today and but for a brief few minutes in early trade they generally lived up to the prediction. The Dow shaved 34 points to close at 8,439. The S&P 500 sank 1.5 points to 919, while the Nasdaq closed up 9 points to end the day at 1,838.

Stocks in the Russell 2000 Index, a composite of the 2,000 largest small-cap stocks, bucked the downward trend for the index to close at 513, up 0.78%.

While there was good news about a very modest increase in spending rates, investors seemed most concerned about the boost to the U.S. savings rate to 6.9 percent, up from 5.6 percent in April and significantly up from rates below 1 percent for the period 2005 through 2007. While this could bode well for the longer term economic health of the U.S. economy many analysts see it merely as a side effect to consumer concerns about layoffs, cutbacks, and furloughs.

The increase in the savings rate has come at the expense of consumer spending, which accounts for roughly 70 percent of the U.S. economy. Indeed, many retailers have been battered over the past several quarters as Americans concerned they may receive a pink slip any day shut their wallets to defer spending and switch to lower cost brands for necessities.

Among the stand-outs in retailing are Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Costco (NYSE:COST). Despite more consumers turning to discount retailers, both WMT and COST have seen year to date share price declines. TGT shares are up nearly 20% for the year.

Despite the modest increase in household spending, retailers are girding for continued earnings pressures as American families prepare for unemployment to reach 10% later this year, up from the current 9.4%.

Leading small-cap gainers today was Zion Oil & Gas (AMEX:ZN) up 76%. Zion runs as a development stage oil and gas exploration firm. Based in Dallas, Texas, the firm holds exploration licenses for onshore development in Israel.

Other small-cap leaders included Cardium Therapeutics (AMEX:CXM) up 48%; Schmitt Industries (Nasdaq:SMIT) up 45%; and Caraco Pharmaceutical Laboratories (AMEX:CPD) up 35%.

Decliners were lead by Design Within Reach (Nasdaq: DWRI), a San Francisco-based furniture store, down 41% after announcing that it expects to delist from the Nasdaq on July 16 with trading ceasing July 6. DWRI has had trouble keeping its share price above $1.00 (a key Nasdaq requirement) for most of 2009 and has indicated that it does not have the working capital to meet the Nasdaq's requirements for staying listed.

Besides DWRI, small-cap price decliners were lead by NewBridge Bancorp (Nasdaq:NBBC) down 37%; Cano Petroleum (AMEX:CFW) down 25%; and Cumulus Media (Nasdaq:CMLS), also down 25%.

Yesterday, the Fed scaled back two of its liquidity-providing programs and announced it would let a third one expire on July 1, 2009.  

Each program was designed to provide liquidity to securities dealers and money-market funds that couldn't raise funds in the capital markets. The Fed noted that none of the programs were used anywhere close to capacity. And the improving economy and loosening of credit markets has made the programs less necessary. 

Investors took this as good news because it suggests the economy and financial system is starting to stand on its own. It's also good news because it shows the Fed is willing to be somewhat proactive in shutting off liquidity.  

To me, this is more important. 

*****In one form or another, the U.S. government has made (read:created) something like $11 trillion available to fight this recession. (I'm not sure anyone knows the exact number.) The government has been widely praised for its response to the financial crisis. Its moves are credited with averting a more serious problem.  

But that's only half the job, and it's the easy half, at that. I expect many of you have seen how a toddler reacts when it's time to give up the pacifier. Kicking and screaming is an understatement. And that's exactly how it will happen when the Fed really starts taking away the liquidity pacifier for good.  

Alan Greenspan never had the stones to give the U.S. economy the tough love it needed. And Wall Street became a spoiled bunch of delinquents.  

Will Bernanke have what it takes to guide the U.S. economy from dependent child to responsible adult? We'll see. And we better hope so, because I suspect the stakes are even higher this time around…  

*****While the U.S. is creating debt to support its economy, China is using its currency surplus to secure raw materials. I mentioned yesterday that China's state-run oil company Sinopec (NYSE:SNP) is trying to acquire an oil exploration company for $7.2 billion. And it wasn't that long ago that China tried to take a $19 billion stake in mining giant Rio Tinto (NYSE:RTP).  

When you're an investor, you have to be worried about opportunity cost. That's the cost of profits that you could have made, if your investment capital wasn't tied up in under-performing or illiquid assets.  

Right now, and probably into the future, the U.S. will be suffering opportunity cost as so much of our resources are tied up in simply supporting our economy. 

*****Case in point: Iraq. Iraq is one the verge of opening the deal-making process for international oil companies to upgrade Iraq's oil fields. This promises to be a very convoluted process - the Kurds and Parliament want input and the current oil minister appears ready to bypass them both.  

All Iraqis realize how important oil, and oil revenue, is to their future, and they're all fighting to get a piece of the action and avoid the exploitive situation that occurred before Saddam Hussein kicked Big Oil out of Iraq. 

For this reason, the proposed development contracts are not guaranteed. There is the risk that a subsequent Iraq government could nullify them and there would be no recourse.  

The risks are high enough that Exxon-Mobil (NYSE:XOM) isn't even sure yet if it will enter the bidding process. But I'll bet you dollars to doughnuts that Sinopec's parent company, China National Petroleum & Chemical Corp. will be bidding.  
Now, obviously, the recession has nothing to do with Exxon's uncertainty. But for China's state-run oil companies, national interests are sometimes more important than profits. And that can be a good thing.

*****Now, here's Jason Cimpl's video analysis of this week's action and look ahead to next week. So far he's batting a thousand. You can view the video HERE or go directly to trademasterstocks.com/videoreport. 

Stocks moved higher today after several positive reports reversed early downward trading trends. Investors initially drove down stocks on news that first time unemployment claims increased by 15,000 last week.

Gains were made in homebuilders like Lennar (NYSE:LEN), KB Homes (NYSE:KBH), and Toll Brothers (NYSE:TOL) as well as retailers like Bed Bath & Beyond (Nasdaq:BBBY), Kirkland's (Nasdaq:KIRK), and Pier One (NYSE:PIR). Both sectors have seen bankruptcies (Linens and Things, Circuit City, among others) and layoffs over the past year as the souring economy has brought housing starts to a crawl and forced consumers to pull back in discretionary spending.

The broader indexes were up today with the Dow finishing at 8,472.40, the Nasdaq showing positive gains to close up 37.2 points to close at 1,829.54, and the S&P 500 posting a 2.14% gain to close at 920.26.

Small-cap stocks in the Russell 2000 helped propel that index 2.87% to close at 509.14 today.

Leading small-cap gainer was Jazz Pharmaceuticals (Nasdaq:JAZZ) up 37% on news that the late-stage results for its fibromyalgia drug had met the company's main goal. The drug, Xyrem, is scheduled to be submitted for marketing approval. Gains in Jazz shares outpaced gains made by other, better known, pharmaceutical manufacturers including Pfizer (NYSE:PFE), Merck (NYSE:MRK), and share price losses posted by GlaxoSmithKline (NYSE:GSK).

As we've mentioned in previous updates, this follows a general trend of sector rotation as investors are looking for more defensive plays, like healthcare and pharma, over the summer.

Other small-cap gainers for today include CPI International (Nasdaq:CPII) up 32%; Tween Brands (NYSE:TWB) up 27% on news that Dress Barn (Nasdaq:DBRN) will buy it for roughly $157 million in stock; Royale Energy (Nasdaq:ROYL) up 32.5%, an energy company involved in development and exploration of natural gas and oil in California, Texas, and the Rocky Mountain region.

Small-cap decliners were lead by medical oral diagnostics maker OraSure Technologies (Nasdaq:OSUR) down 23% on news that it needs to conduct more additional clinical trials to get approval for its hepatitis C virus test. The exact timing and costs for these additional tests have not been disclosed by OraSure and investors drove down share prices based on this uncertainty.

A number full of other small-cap stocks were big decliners today including data marketing services provider Acxiom Corporation (Nasdaq:ACXM) down 22%; Capital Bank Corporation (Nasdaq:CBKN) down 20%; and Cordorus Valley Bancorp (Nasdaq:CVLY) down 19%.

The Fed has spoken. Interest rates are not going higher anytime soon. And the Fed announced no change to its $1.75 bond purchase program. Bonds sold off, suggesting that traders hoped the Fed would do more to put a floor under prices.  

The Fed made it a point to say that "…inflation will remain subdued for some time." But the Fed also hasn't made any comments about target levels of inflation, or what levels of inflation would make it uncomfortable. With the amount of money being pumped into the system, this is a concern to me. Especially with commodity prices rising and the spread between 10-year Treasuries and 10-year inflation adjusted bonds (TIPS) increasing over the last month.  

*****Nothing will kill whatever recovery the Fed and others see coming faster than higher interest rates fueled by inflation fears.  

Most signs point to an imminent economic recovery. No one thinks it will be strong. But two straight months of increase for Durable Goods orders has most convinced that recovery, and a small level of inflation, is here.  

The Fed, in the other hand, is still fighting deflation. Unemployment is still on the rise, and modest improvement in the housing market doesn't mean we're anywhere close to working off the massive inventory of unsold homes. 

Given the very low expectations for economic recovery, maybe 2% growth in 2010, how does the Fed hike interest rates and start sopping up liquidity? I believe inflation will have to become a concern before the Fed can act.  

*****In case you missed last night's special Internet Video Conference, called Inflation Busters: Discover the Stocks to Grow and Protect Your Wealth, I have a replay ready for you. You can access it HERE.   

*****Reuter's reported yesterday that Rep. Barney Frank and another Democrat wrote a letter to the CEOs of Freddie Mac and Fannie Mae asking them to relax their standards for condo loans.  

Apparently Freddie Mac and Fannie Mae recently said they wouldn't give loans to potential condo buyers if the condo development was less than 70% occupied. Makes sense, these days. But Frank and his friend are worried the tighter standards will impair the housing market and constrict future developments. 

This is appalling. The only thing we need more than more condos is more Hummers.  
If the government truly thinks we can simply reflate our way back to prosperity, they are sadly mistaken. This recession is new animal, one where both consumers and corporations took on way too much debt. That debt now sits in the form of unsold homes, many of which have been foreclosed upon. 

These homes (and condos) must get sold. But they must get sold to people with the means to pay the loans. Simply lowering lending standards doesn't do it and may well prolong the pain of this recession. Isn't the lowering of lending standards much of what got us into this mess to begin with? 

*****China's still throwing its cash around, this time offering $7.2 billion for oil exploration company Addax Petroleum (LSE:AXC.L). It would be state-run Sinopec (NYSE:SNP) actually doing the deal. But after the attempt to buy a $19 billion stake in Rio Tinto (NYSE:RTP) it should be obvious that China is intent on securing the commodities it needs. 

And in a world starved for cash, don't be surprised when China gets what it wants.  

*****Last year, travel group AAA reported that car travel over the 4th of July was down 10.5%. This year, it will fall another 1.9%.  Airline travel is expected to be up nearly 5%.  

Huh? Futures opened higher before the bell, followed by a mini-crash at the open, and now we are trading higher by 1%+ on the day? Doesn’t make any sense really at all - check out the chart below with today’s action in blue. Honestly, I think this is just another fake-out and manipulation by some of the bigger banks (GS traders out there). Don’t get frustrated out there beginners - this is what they big boys are trying to do to you all. Staying below 920 is incredibly key today.

When the futures markets kicked off the morning they were rallying hard. The /ES was up to 908 literally in the blink of an eye. Now however, following some very weak jobs numbers, they have fallen out of bed - the /ES is now trading at 892! Talk about a huge reversal in sentiment within a couple of hours.

As I have continuously said over and over, jobs is the key to this whole thing. Regardless of how people “feel” about the outlook of the economy, if they do not have a job to pay bills and buy “things” then we are headed lower - point blank. Fortunately for Members and I, we are positioned wonderfully for the run at 880. Who said you couldn’t make money shorting?

Here is the chart of the /ES since yesterday’s close. Know you can visually see what happened this morning. Amazing turn around. Look for 890 then 880 as likely support areas today.