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Stocks continued their slide today as traders are holding tight until they get the Fed's word on the economy. Bernanke & Co. are expected to wrap things up tomorrow, so we could see another round of lower closing prices. 

The Dow closed down 96.50 points at 9,241.45; the Nasdaq finished at 1,969.73, down 22.51; and the S&P 500 fell back below 1,000 to finish the day's session at 994.35, down 12.75 points. 

Stocks in the Russell 2000 were down 9.75 points to end at 562.12. 

Oil closed at $69.38, down $1.22 and gold was at $946.20, up $1.20.
Bucking the downward trend were small-caps like Avanir Pharmaceuticals (Nasdaq:AVNR) up 30%; EchoStar (Nasdaq:SATS) up 19%; and Ivanhoe Energy (Nasdaq:IVAN) up 15%.  

Trending down with the broader markets many small-cap outpaced the market's fall, including Anthracite Capital (NYSE:AHR), down 30%; Javelin Pharamceutical (Amex:JAV), down 27%; Petroleum Development (Nasdaq:PETD), down 22%; and Flotek Industries (NYSE:FTK), down 20%. 

*****Have you noticed that analysts are starting to downgrade stocks? Sprint Nextel (NYSE:S), Yum Brands (NYSE:YUM), PETsMART (Nasdaq:PETM), MBIA (NYSE:MBI) and Aegon (NYSE:AEG) were all marked down by analysts yesterday.  
Coverage was initiated on American Express (NYSE:AXP) at "Sell" by Ladenburg Thalman. Boeing (NYSE:BA) and Research in Motion (Nasdaq:RIMM) have also been downgraded in the last few days.  

So what gives? If everyone's so bullish right now, why are stocks getting downgraded?  
First, stocks have rallied strongly since March. And second, there's no guarantee that earnings can continue to rise. The analysts may be playing it safe, but investors should take note.  

*****AIG (NYSE:AIG) has doubled in the last three days. If there was ever a company that shouldn't double, it's AIG. The government owns something like 90% of the company. And it's actively selling off its important pieces to pay off debt. It's highly unlikely there will be any return for common shareholders.  

And if a completely speculative stock like AIG is moving, we might expect to see others. And sure enough, General Motors, which now carries the ominous name Motors Liquidation Company (MTLQQ.PK), has very nearly doubled in the last week. I don't think that's a good sign for the health of the stock market.

*****Word is that more traders think the dollar may have put in an important low. That would be bad for stocks and commodities. To follow the action, watch the iShares Barclay's 20+ Treasury Bond Fund (TLT).

When this ETF rallies, stocks are usually selling off. And the chart for TLT shows a pretty decent looking double bottom at $90.

*****The latest FOMC meeting starts today. Nobody really expects the Fed to raise interest rates. Even the inflation crowd has to admit that the economic recovery is too frail for higher rates. Still, judging by the declines in the stock market, investors are nervous about what the Fed has to say.

Alan Greenspan used to try to let his words act as monetary policy. Instead of actually moving rates, he would voice his bearish opinion, in the hope that he could keep a lid on asset prices.

It didn't work. And I hope Bernanke doesn't make the same mistake. There's no substitute for actual changes in rates. And despite the weak economy, investors could probably use a message about asset bubbles and risk.  

*****The Managed America Internet video conference aired last night with great success. You can still catch it if you missed. There's a replay available HERE if you're interested in discovering the trends that will affect your investments for the next couple of years and how you can profit from them.

Ian Wyatt
Editor
Daily Profit

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Small-cap stocks are expected to start out the week on a steady tone, with support from another decline on inter-bank lending rates countered by caution into this morning’s ISM Manufacturing Survey and Tuesday’s national elections. The Russell 2000 (NYSE:IWM) finished out last week’s trading with four consecutive higher sessions, but still closed out October with historic losses.

Libor rates have been on the decline consistently and overnight hit the lowest point since the Lehman Brothers bankruptcy. The pullback on inter-bank rates reflects growing trust among banks and is seen by many as a proxy that clogged credit lines are starting to thaw.

This is a heavy week for economic data risk, and things kick off at 10:00 a.m. ET today with the ISM Manufacturing Survey and finish with a flourish Friday morning with the big employment report. The ISM figure is expected to come in at 42%, well below the 50% line that indicates contraction.

In company news overnight, The Boeing Co. (NYSE:BA) saw workers approve a contract offer, which should end a long-running strike at the airplane maker. BA shares were actually down a tad in pre-market trading, as the contract approval was already in the news last week. Analysts at Merrill Lynch downgraded their price target on rival Goldman Sachs Group Inc. (NYSE:GS).

Stock markets in Europe were firm ahead of the U.S. open, and Asian stocks . . .

Small-cap stocks were in rally mode Tuesday morning, taking flight in response to signs of a thaw in the credit market freeze, oversold conditions that brought out bargain hunters and a sizable jump in overseas equities markets. From an economic data perspective, today’s consumer confidence report and Case-Shiller Home Price Index releases were somber at best. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 8.74, or 1.95%, at 457.14.

The consumer confidence report came in at 38, which was a new record low and way below the forecast of 52.0. The stock market pulled back modestly after the dour confidence report, but the damage wasn’t as severe as the startling number might have suggested.

Earlier this morning, the Case-Shiller Home Price Index came in at minus 16.6, which was in line with the forecast but still reflected a record decline in home prices. Since the report met the forecast and since the data is a little dated (for August prices) stock futures had a brief dip on the report, but then recovered into the opening.

Libor, or inter-bank lending rates continue to pull back, which investors see as a sign that credit lines are starting to unclog and that banks are developing trust in one another again. The dip in Libor rates also corresponds with the FOMC meeting, which began today and which should result in a rate cut Wednesday afternoon.

After a global rout in equities Monday, investors came in today with relief that stocks in Asia and Europe were in rally mode instead of deepening the slide. In Japan, the Nikkei index collapsed to 26-year lows Monday, but bounced some 6% overnight. Also, European shares rallied about 4% into the U.S. open, lifted in no small way by a bizarre run in Volkswagen shares, which soared some 80% and are up . . .

Small-cap stocks are expected to leap on the opening, spurred by oversold conditions, bargain-hunting, a rally in overseas stock markets and another decline on inter-bank (Libor) lending rates. Stock index futures were up some 4% in after-hours trading, which suggests an opening for the Russell 2000 (NYSE:IWM) near 466. There is a little resistance zone near 462, but it appears the market could leapfrog that zone on the opening.

U.S. equities tumbled to fresh closing lows Monday, with the Russell sinking to the lowest point since August 2003. Meanwhile, shares in Japan slumped to 26-year lows Monday, but mounted a 6.4% comeback Tuesday. In Europe, stocks were up about 4% heading toward the U.S. open.

Stocks in the news overnight include General Motors Corp. (NYSE:GM), which reportedly was preparing to ask the government for $10 billion in assistance to merge with Chrysler Corp. Toyota was up some 7% in Asia. Meanwhile, in European trading, carmaker Volkswagen had a wild ride, rising some 19% and at one point was up quite a bit more than that, becoming the world’s largest company in terms of market cap. Also, in Europe, strong earnings were reported on large energy companies, which could ripple into energy stocks in the United States.

The tech front has been battered in recent days by worries about global spending on technology, but the area could get a boost this morning after analysts initiated coverage in Google Inc. (Nasdaq:GOOG) with a “buy” rating.

The Boeing Co. (NYSE:BA) was up 6% in pre-market trading on reports that the firm has come to an agreement with union leaders to halt a strike that has been costing the plane maker some $100 million a day.

The chart picture for the Russell is oversold on momentum readings, but otherwise sports no bullish patterns of note. Resistance today comes in at 474, . . .

Small-cap stocks remained solidly lower into midday trading, pressured by concerns that the latest batch of quarterly earnings were painting a difficult canvass moving toward 2009. Even the bullish earnings surprises seem tainted by worries that a prolonged recession will pull down corporate profitability for some time. At 12:47 p.m. ET, the Russell 2000 (NYSE:IWM) was down 12.71, or 2.39%, at 518.10.

At the lows today, the Russell was testing minor trendline support drawn off the recent lows. That line also forms the bottom edge of a pennant pattern, and a breakdown through today’s lows would suggest further downside probing toward that major low. Below today’s low at 514.42, there is very little chart support until we get close to the “figure” point at 500, which stands as another important test for any bulls who want to find value at the depressed levels.

As for the latest batch of earnings today, there were red flags from nearly every sector, with pharmaceutical firm Merck & Co. (NYSE:MRK) projecting a very cautious outlook. ConocoPhillips (NYSE:COP) was down about 6%, warning that exploration and output would slide and airplane maker The Boeing Co. (NYSE:BA) was down about 6.5% as a strike hurt profits.

The biggest declining sectors this morning came from coal, motorcycle manufacturers, metal and mining stocks, oil and gas drillers, aluminum, gold stocks and casinos. For the second day in a row, commodities were getting nailed as the prospect of global slowing takes a toll on physical markets and the companies that deal in those products. The Commodity Research Bureau Index of 19 physical markets . . .

Small-cap stocks spent most of the day in the green, but closed well off the intraday highs as a slide in crude oil prices was countered by mixed returns on the earnings front. The Russell 2000 (NYSE:IWM) edged up 2.36, or 0.33%, to 719.19, the highest close in four weeks.

The market also may have been ripe for a little bit of a consolidation “breather” session today as the Russell has rallied 12% off the July 15 lows in just seven sessions. Short-term intraday momentum readings were overdone coming into today’s action, which could easily have sparked some long profit-taking from traders who caught the recent bounce. Also, it’s a little easier to find the silver lining in the news when the market is oversold.

In recent days, the dominant upside theme has been the financial story. Big-name banks have had a string of upside earnings surprises, and that momentum easily spilled over into the small- and mid-cap financial names as well. While GSEs were a strong performer today, the overall financial landscape was a little more cautious, with the Financial Select Sector SPDR hovering near breakeven levels late in the session.

Large-cap stocks that dominated the picture today included McDonald’s (NYSE:MCD), Pfizer (NYSE:PFE), Boeing (NYSE:BA), AT&T (NYSE:T) and Washington Mutual (NYSE:WM). Those stocks reflected the mixed signals investors had to navigate when trying to read through earnings results to get a feel for consumer spending, economic turmoil and macro trends. Washington Mutual was clobbered 19%, which took some of the wind out of the financial sails, but was countered by optimism on the GSE horizon, as hope for a quick passage of the Treasury rescue plan lifted both Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). As for the aforementioned names, MCD was down about 0.9% after reporting earnings, PFE was up over 3%, BA was down nearly 4% and T . . .

After falling off slightly after the opening, small-cap stocks staged a swift rally but then deflated somewhat as oil continued to pull back for a second straight trading session amid mixed corporate earnings reports and as President Bush and the House came to an agreement on a housing bail-out plan.

At 12:30 p.m. ET, the Russell 2000 (NYSE:IWM) was up 0.68, or 0.09%, at 717.50 amidst a broad market rally. The Dow was up 4.39, or 0.04%, to 11,606.89, while the tech heavy Nasdaq gained 9.1, or 0.39%, to 2,313.06 as investors welcomed the deflation in oil prices, which may ease pressure on the consumer and businesses.

Crude oil prices slipped roughly $0.60 dollars a barrel to $127 midday, marking the second consecutive day the commodity has lost its mojo. Today, an increase in U.S. gasoline stockpiles added to the downward pressure on crude. The energy market has been sinking this week as Hurricane Dolly veers away from key production areas in the Gulf of Mexico and on worries about demand for high-priced crude oil amid sluggish economic conditions in the United States and new usage curbs in China.

As crude oil prices have slipped in recent sessions, the U.S. dollar is turning green again, rising against the euro and the yen in mid-day action. The assent in oil, has contributed to the dollars demise this past year, so naturally that correlation has reversed itself today. A stronger dollar often has a bearish impact on global commodity values since so many products are priced in dollars. Also on the commodities front, grains markets are expected to trade sharply lower today amid improving Midwest weather and the firm dollar tone.

President Bush dropped his veto against the House’s housing package that bails out struggling homeowners by offering $3.9 billion for areas containing the most foreclosures. The House is expected to vote on the bill as early as today. Additionally, lawmakers came to a mutual agreement that permits Treasury Secretary . . .

Lately the broader markets have been a bit grounded. The Dow finished down for the month of December for only the third time in eleven years. The 3.5% return that the S&P 500 posted in 2007 left much still to be desired. Not to mention the fact that the Russell 2000 fell to 15-month lows earlier this week. However, one segment of the market that’s been taking off has been the aerospace and defense sector. The Dow Jones U.S. Select Aerospace & Defense Index posted a mighty return of 28.2% in 2007. 

One small cap that’s been leading the boom is Ducommun Incorporated (NYSE: DCO). And the results that this Carson, Calif.-based company have posted have been anything but common. At a market cap of just $331 million, the company struck it rich in 2007. Ducommun’s stock soared nearly 67% last year.

Founded in 1849 at the height of the Gold Rush, Ducommun is the oldest continuously operating business in Los Angeles. Back then the company repaired watches for prospectors. Today it engineers and manufactures components and assemblies for commercial aircraft, military aircraft and space programs.

A prominent example of Ducommun’s work is its support for a subsidiary of United Technologies Corporation (NYSE: UTX), which manufactures the Black Hawk helicopter for the military. In November, Ducommun locked up a five-year, $60 million deal to provide titanium erosion shields for the helicopter program. The shields are designed to protect the Black Hawk’s main rotor blades. Some of the company’s other major customers include the U.S. government, The Boeing Company (NYSE: BA), Lockheed Martin Corporation (NYSE: LMT), and Raytheon Company (NYSE: RTN).

The Black Hawk contract win is reminiscent of the wave of success that Ducommun has had recently. For the third-quarter ended Sept. 29, management reported net income of $5.8 million, or $0.55 per diluted share on $94.7 million in sales. These figures handily topped analysts polled by Thomson Financial, who were expecting EPS of $0.45 per share on $90.6 million in sales. The results also represented a 42.3% increase in net income and a 16.1% increase in sales versus the year-ago quarter.

The airline business is a confounding business; profits are often as ephemeral as the contrails from a Boeing (NYSE: BA) 737 — a year in the black can easily be vaporized by a subsequent year in the red. Then again, profits are often transitory when business economics couple high-fixed costs (airplanes and legacy liabilities) with high-variable costs (employees and fuel).

That's not to say money can't be made moving people through flight; it can if you either run a more efficient traditional transportation operation, like Southwest Airlines Co. (NYSE: LUV), or eschew tradition all together, and focus on the airlines themselves, like AeroCentury Corp. (AMEX: ACY) of  Burlingame, Calif.

AeroCentury leases used regional aircraft and engines — purchase prices of $1 million to $10 million — to various airlines around the globe. At Sept. 30, 2007, the company owned eight deHavilland DHC-8-300s, three deHavilland DHC-8-100s, three deHavilland DHC-6s, fourteen Fokker 50s, two Saab 340As, six Saab 340Bs, four Fokker 100s and one turboprop engine. Most of AeroCentury's business is conducted overseas: Europe and the United Kingdom accounted for 39% of 2006 revenue, Asia for 25% and the Caribbean for 21%. The remainder is spread equally among the United States, Canada, Africa and South America.

Lease terms on AeroCentury's aircraft panoply are typically five years or less. To improve the marketability of an aircraft after the lease expires, AeroCentury includes lease provisions that provide for maintenance and return conditions. These provisions ensure the company receives its property back in salable or lease condition, or it receives sufficient recompense from the lessee to cover any maintenance or overhaul required to make it so.

Ducommun Inc. (NYSE: DCO) CEO Joe Berenato said the aircraft parts maker expects continued growth in its commercial and military segments. Berenato made the comments during a morning conference call.

The chief executive said the company sees outsourcing opportunities in its commercial segment, as well as rising business activity rates by The Boeing Company (NYSE: BA), one of the firm’s chief customers. Ducommun also sees outsourcing opportunities in business jets and light commercial aircrafts, he said.

Wars in Iraq and Afghanistan continue to drive the company’s military segment, he said.

“While the overall defense budget will stay large, there will be winners and losers within that framework,” Berenato said. “Our focus is to continue trying to increase our design and engineering content and moving and migrating to higher-level assemblies.”

He also said Ducommun sees new opportunities for the firm’s titanium and composite-based aircraft components.

Before the opening, Ducommun reported third-quarter sales of $94.7 million, above analyst estimates of $90.6 million and 16% above $81.6 million a year earlier. The firm’s quarterly profit rose 42% to $5.8 million, or $0.55 per share, above Wall Street projections of $0.45 per share and compare with $4.1 million, or $0.40 per share, during the same period of 2006.

Leo Fasciocco is a technical expert who focuses on isolating “breakout buys” – stocks that have either just broken above resistance levels or are poised to do so. For short sale candidates, he does the reverse, finding stocks that are breaking below previous support levels. Each day, breakout candidates are featured in his newsletter, Ticker Tape Digest.

A recent breakout buy to the upside is Park Lake Mary, Fla.-based FARO Technologies (Nasdaq: FARO), a small cap that is a maker of control and measurement systems. The company has annual revenues of $152 million and a market capitalization of $550 million.

FARO manufactures a mechanical arm known as the FARO's Control Station measuring system. “With a touch of this arm, the system can facilitate reverse engineering of an undocumented part or a competitor's product,” Fasciocco says.

The FARO Arm, he explains, is a portable, jointed device that simulates the human arm's movement and works with FARO's CAM2 3-D measurement software to take measurements, perform reverse engineering, and inspect parts by comparing them to digital designs.

Aerospace, automotive, consumer goods, and heavy equipment companies such as The Boeing Company (NYSE: BA), Caterpillar Inc. (NYSE: CAT), General Motors Corp. (NYSE: GM), and Siemens AG (NYSE: SI) use FARO Arm units in their factories, Fasciocco points out. Overall, he notes, the company has some 6,000 customers worldwide.

“FARO has finally come to life,” Fasciocco says. The stock has “broken out powerfully,” after the company on July 31 reported a “massive 550% surge” in net for the second quarter to $0.39 a share from $0.06 a share a year earlier.

The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) posted gains on a day of rollercoaster stock movement following news of strong earnings and conflicting economic reports. The small-cap index snapped a three-day losing streak, adding 0.64 points, or 0.08%, to 812.50. The Dow added 68.12 points, or 0.50%, to 13,785.07.

The day began on a bullish note as investors reacted to news that Chicago-based aerospace heavyweight Boeing Co. (NYSE: BA) soared to a second-quarter profit of $1.1 billion, compared with a loss a year earlier.

The brief opening rally, during which the Russell 2000 cleared 820 points, lasted only 30 minutes.

That’s because at 10 a.m. ET the National Association of Realtors reported that sales of existing homes fell a more-than-expected 3.8% in June to the lowest level in almost five years.

The Russell 2000 (NYSE: IWM) has slipped into negative territory and the Dow Jones Industrial Average (INDU) is flat on news of an unexpected drop in June U.S. home sales.

At 10:44 a.m. ET the Russell 2000 had lost 2.26 points, or 0.28%, to 809.60. The Dow had added 21.30 points, or 0.16%, to 13,738.25.

Sales of existing homes fell more than expected in June but prices rose modestly, the National Association of Realtors reported at 10 a.m. ET.

The Russell 2000 futures have moved into positive territory and the small-cap index (NYSE: IWM) is likely to rise on upbeat earnings news.

Shares of online retailer Amazon.com, Inc. (Nasdaq: AMZN), are continuing their climb after an announcement shortly before the close on Tuesday that second-quarter profit more than tripled due to higher electronics sales. Looking ahead, the Seattle-based company said that it expects third quarter net sales in a range of $3.0 billion to $3.18 billion. Twenty analysts polled by Thomson Financial projected revenue of $3.01 billion.

The Dow gained despite news of disappointing economic data, while the Russell 2000 fell for the second day.  Among small caps, shares of II-VI Incorporated (Nasdaq: IIVI) dropped due to an earnings forecast that missed expectations, while news of a partnership with Boeing raised shares of iRobot Corporation (Nasdaq: IRBT).

The Russell 2000 lost 1.19 points, or 0.14 percent, to 826.36.  The Dow Jones Industrial Average set a new record close, adding 34.54 points, or 0.27 percent, to 12,953.94.