Bear Mountain Bull

It’s time again for a little BMB R&R, especially with the market behaving as bizarrely as it’s been. Maybe if we stop watching it start to behave a little better…

Posting will be very light and variable over the course of this week, but we’ll put up an open thread each market day for our readers to comment on the day’s market activity or to post any interesting links they might run across.

Check the space below for whatever the latest might be during this ‘off’ time, and please visit the various sites in the ‘Links’ and ‘Regular Stops’ for up-to-date market news and analysis.

BMB will be back in full swing by next weekend.

Stephen Roach of Morgan Stanley voices his concerns over the latest reports on savings rates and housing prices.

His summary:

While it has only been four and a half years since the bursting of the equity bubble, memories have already dimmed of that extraordinary speculative excess. Yet in retrospect, that may have only been the warm-up for the main event. Bubbles have a way of feeding on each other — ultimately compounding the problem and leading to an even more treacherous shakeout. That’s certainly the lesson from Japan and could well be the case in the United States. America’s housing bubble is now in the danger zone. So is its saving rate, current account deficit, and overhang of consumer indebtedness. It’s been a US-centric world for so long, that everyone takes it for granted. Yet global rebalancing poses challenges for all major countries in the world. Saving-short America will not be spared — especially if it must now come to grips with the biggest asset bubble of them all.

As was mentioned in the Schaeffer’s article linked to earlier today, the 10-day moving average of the CBOE Equity put/call ratio appears to have put in a bottom, and has turned up and crossed over the 21-day moving average. This indicates that the level of put buying, or bearish bets, has increased relative to calls, or bullish bets. This may be due either to speculation that prices may turn down or to investors purchasing puts as protection against possible declines.

In general, peaks in the put/call ratio occur near market low points and troughs occur near market high points.

Here is a chart of the moving averages of recent CBOE equity put/call readings:

The markets ended mixed today after dipping at the open. The Dow never regained positive ground and lost 45 points (-0.4%) to 10547. The Nasdaq managed to sneak up 3 points (+0.2%) to 2151 but the S&P 500 slipped 1 point to 1190.

Advances lagged declines by about 4 to 5 on both exchanges, and up volume trailed down volume on the NYSE by about the same ratio. There was an interesting divergence on the Nasdaq, however, with up volume leading down volume by almost 7 to 3. There were about 365 new highs to 45 new lows.

Winners were led by disk drives (+2.1%), computer hardware (+1.7%), and utilities (+1.0%). Losers were airlines (-1.6%), gold stocks (-1.4%) and commodities (-0.9%).

The dollar gained a little ground today, gold slid back to the $452 area, and crude oil regained its footing a bit, moving back up to just above $43/barrel.

The weekly wrap on sentiment indicators from Schaeffer’s. Starting to see signs that we may be near a short-term top.

Herb Greenberg comments on how the ‘bubble mentality’ is still alive and kicking.

BMB would agree, especially in light of the recent rally. The last people in on stocks like TZOO are going to get burned, and burned badly.