Stocks were lower for the eighth time in nine sessions as the third quarter kicked off on a somber note. Admittedly the decline yesterday was modest, but only compared to the 7% beating investors have taken since June 21, when the major indices reversed from their 50-day moving averages, and on Wednesday, June 30, broke to new lows for the year.

In light of the dour economic news, perhaps stocks did fairly well.

Initial jobless claims were higher than expected by 14,000, and continuing claims climbed to 4.62 million from 4.57 million. The ISM manufacturing index for June came in at 56.2 instead of the expected 59 — for the worst decline since January. And pending home sales for May fell 30% month-over-month for the steepest slide in the nine years of record keeping.

The euro was strong throughout the day, and that would have normally been an encouragement to U.S. buyers. But heavy selling in Europe most likely tempered our reaction to a higher euro. France’s CAC 40 Index closed 3% lower, Germany’s DAX was off 1.8%, and the UK’s FTSE fell 2.3%.

At the close, the Dow Jones Industrial Average was off 41 points at 9,733, the S&P 500 fell 3 points to 1,027, and the Nasdaq was down 8 points to 2,101. 

The NYSE traded 1.5 billion shares with decliners ahead of advancers by about 1.4-to-1. The Nasdaq crossed 790 million shares and decliners were ahead of advancers by almost 2-to-1.

August crude oil fell $2.68 to $72.95 a barrel on fears that the economic recovery is weakening. 

August gold fell $39.20 to $1,206.70 an ounce, as investors sought out Treasury bonds for safety rather than the riskier metal.

What the Markets Are Saying

For those who missed the appearance of former Fed Chairman Alan Greenspan on CNBC yesterday morning, you might want to check your DVR or get a copy of the interview for some revealing insights on the workings of the Fed, and Mr. Greenspan’s wry humor. Here are some gems: 

* On his comment four years before the bear market of 2000 to 2002 when he cited tech stocks as showing “irrational exuberance,” he said that a recent complete reading of his statement even left him in the dark as to what he really meant. 

* As to the demise of Bear Stearns and Lehman Brothers, back in the old days when firms were partnerships, the owners were much more careful as to how money was spent and invested since it was their money at risk. Today’s corporations, which are using other people’s money, are less prudent in their approach to risk. 

* He also opined about the way legislation is now written “by junior people who don’t understand the impact of what they are writing.” 

* There were many others, but in one of his final comments he said, “We are on the deflationary edge.”

It is that last remark that struck me as most significant and may explain the recent decline in one sector — gold — that has held throughout Q1.

Gold, as well as other precious metals and commodities, is showing signs of a serious top. These assets are usually considered a “safe haven.” Liquidation typically occurs only during times of stress and is triggered by margin calls that force the liquidation of all assets, good and bad. 

Point-and-figure charts show a “high pole” for gold, and the charts of some of our favorite natural resource stocks are tracing out an unusual bearish formation called a “horn.”

The new bear market has begun, and here is the evidence: 

1. The broad-based NYSE Composite has executed a death cross (50-day moving average crossing down through the 200-day moving average).

2. The other major indices are just a session or two away from the same signal. And many are forming a “horn” or “broadening top” — an unusual but highly accurate formation most often seen at market tops (source: Technical Analysis of Stock Trends by Edwards and Magee). 

3. The Dow Industrials, Dow Transports and Dow Utilities have a pattern of lower highs and lower lows for a Dow bear market confirmation.

4. Finally, the S&P 12-month moving average has been decisively penetrated by June’s falling prices, which is triggered on the final day of the month.

A new bear market has arrived. Next week, we will discuss the possible extent of a projected decline regarding both time and price.

Today’s Trading Landscape

There are no significant earnings to be reported today.

Economic reports due: employment situation (the consensus expects -125,000 for non-farm payrolls, 105,000 for private payrolls, and 9.8% unemployment rate), and factory orders (the consensus expects -0.5%).

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.