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.

As I’ve said before, I believe the Nasdaq will be the key as to where the market heads next. We can see from the chart that it hasn’t given us a signal yet, remaining trapped below the 2100 area, below its declining 50-day MA and above the slightly rising trendline of lows since January. This pattern can’t hold forever, and we’re still waiting to see which of those barriers will be the first to break.

Chart courtesy of StockCharts.com

The market suffered through another lousy session today, again under pressure from high oil prices and higher interest rates, and closed out a pretty lousy week. The celebration of the new highs in the Dow and S&P last Friday didn’t last very long, did it?

The Dow fell 77 points (-0.7%) to 10774, the S&P 500 dropped 9 points (-0.8%) to 1200, and the Nasdaq put in the worst performance of the day (again), dumping 18 points (-0.9%) to 2042. The Russell 2000 held up relatively well, dipping less than a point and closing at 627, the Dow Transports gained 0.3%, Dow Utilities fell 0.7%, and bonds continued to slide, pushing yields on the 10-year Treasury up to 4.54%. The move higher in interest rates had to be the biggest news of the week, as 10-year yields move up nearly a quarter-point from last week.

Market internals were once again quite negative, although volume was very light on both exchanges - maybe a shred of good news. Advances/declines were 13 to 20 on the NYSE and 14 to 17 on the Nasdaq, with up/down volume 5 to 8 on the NYSE and 3 to 7 on the Nasdaq. New highs/lows were 82/39 on the NYSE, and for the second day in a row, the Nasdaq had more new lows than highs at 54/92.

BMB Note: The market internals were not very strong this week, and we’ll need to see advance/declines turn back around and the highs/lows ratio pick back up, or this market will no doubt head lower. The headline numbers on the indices do not tell the real story, as they are skewed a great deal by their weightings. The real story is what’s going on beneath the surface, and continued degradation of market breadth would not be good news. The best news we can glean from today’s action is that volume was very light.

Scanning the winners and losers, we find steel stocks gaining 4.5% on the day, with no other groups managing even a 1% move up. On the down side, semiconductors took the biggest blow, falling 2.7%, followed by computer technology (-1.6%), networkers (-1.4%), REITs (-1.4%), health care products (-1.1%) and biotechs (-1.1%).

Crude oil pushed its way back above $54 to $54.43/barrel, the dollar index slipped another 0.2% (not helped by the morning’s trade data), and gold moved up to nearly $446/ounce.

It’s not only oil and metals prices that are going up in the commodity area. The price of Folger’s is going up due to sustained increases in the price of coffee.

But you will continue to hear the government tell you that there is little to no inflation. Why? Because they need to keep their own inflation figures moderated, as those figures dictate increases required in payouts to social programs. You know, the ‘inflation adjustments’. When you create your own inflation measurements, of course you’re going to nudge them - or squelch them, as the case may be - to your advantage. In some ways, that’s a good thing because it keeps the government from demanding more of your tax dollars. On the other hand, it encourages relaxed monetary policy, resulting in negative real interest rates. As you’re getting paid only 2% on your money markets, real inflation is eating away at your savings.

Those who tell us of a bull market in commodities, like Jim Rogers in his latest book, seem to be on to something. Ignore at your own risk.

No real shocker here - the US trade deficit is getting larger.

And I’m getting pretty tired of the people that keep telling us that a weakening dollar, making our exported goods more expensive overseas, will help close the gap. I’d like to point those people to the charts that show that the dollar has been weakening for over 3 years, but the deficit keeps going up. The weaker dollar hasn’t made a dent in the deficit.

We can start to bridge the gap by tightening monetary policy here. Too much easy money has led to too much spending on foreign goods - and too much spending, period, and no saving. And to finance our deficits, we borrow money from the same countries that produce the goods we’re buying. They’ve got us right where they want us. Not to mention that we, as a country, just don’t produce as much as we used to when it comes to actual goods. No, we provide “services”. The rest of the world doesn’t want our “services” nearly as badly as we want their goods.