Bear Mountain Bull

Apparently the market wasn’t real pleased with what came out of the Fed meeting today, although I’m sure it was not surprised. The Fed hiked rates another 1/4 point and said nothing new. I’m sure some were disappointed that there was no hint of rate hikes being over and done with. The selling began slowly just after the Fed release, and gained steam as the afternoon wore on.

The Dow Industrials lost just less than 100 points (-1.0%) to 10275. The other major indices weren’t hit quite as hard, with the S&P 500 down 9 points (-0.7%) to 1191 and the Nasdaq dropping 12 points (-0.6%) to 2057. The Russell 2000 slipped 3 points (-0.5%) to 640, the Dow Transports fell 0.7%, the Dow Utilities were higher by 0.3% and bonds made gains as stocks fell, with the 10-year Treasury yield falling to 3.92%.

Market internals were negative, and volume was heavy on the NYSE but about average on the Nasdaq. Advanced trailed declines just slightly on the NYSE, but 4 to 5 on the Nasdaq. Up/down volume was pretty ugly at 6/11 on the NYSE and 2/5 on the Nasdaq. New highs/lows were 203/31 on the NYSE and 117/34 on the Naz.

The only real movers were to the downside today, led by airlines (-3.3%), paper stocks (-2.6%), steel stocks (-1.8%), networking (-1.8%), gold & silver stocks (-1.6%), chemicals (-1.4%) and disk drives (-1.2%).

Crude oil prices slid again, but that didn’t help the market. The price for a barrel of oil fell 72 cents to $56.50. The dollar index was unchanged and the price of gold fell to $435/ounce.

Not a real pretty day in the market. Not a disaster, but not real encouraging. It still looks to me like the path of least resistance is sideways to down.

The market has moved very little so far today. Maybe everyone is waiting on the word from the Fed on interest rates this afternoon – like they don’t know what’s going to happen. Yeah right. Lemme see, 1/4 point hike, monetary policy is accomodative, raise rates at measured pace, blah, blah, blah. Like that same old line is going to get anyone stirred up.

More likely, there may be some activity before the end of the day since today is the last day of the quarter. We’ll see.

I was wondering why Boeing (BA) stock, which has been looking like a good short lately, took such a big jump this morning. I assume this is the reason.

The TV folks seem to get quite excited about mergers like this one between Bank of American and MBNA. They mean almost nothing to me, other than I’ll have one less stock to watch. Of course, mine isn’t one of the 6000 jobs to be cut either…

The market never got much going in either direction today, and hung around just below the “UNCH” level most of the day. By the time the trading was over, the Dow Industrials had fallen 31 points (-0.3%) to 10374, the S&P 500 lost 2 points (-0.1%) to 1200 and the Nasdaq dropped 1 point to 2069. The Russell 2000 managed a gain of 1 point to 643, the Dow Transports added 1.0% to their recovery, the Dow Utilities fell 0.2%, and the bond market staggered a bit, pushing the 10-year yield up to 3.98%.

Market internals were tilted to the positive, on a slight increase in volume from yesterday. Advances led declines on the NYSE by 17/14, but trailed on the Nasdaq by 14/15. Up/down volume was just better than flat on the NYSE and was 8/7 on the Nasdaq, with new highs/lows still strong at 199/34 on the NYSE and 116/33 on the Nasdaq.

The big winners on the day were the gold & silver stocks, with the XAU (PHLX Gold and Silver) index surging 3.8%. Networking stocks also moved higher, gaining 1.2%. Losses were seen in paper stocks (-1.0%), semiconductors (-0.9%) and internet stocks (-0.8%).

Crude oil prices fell for the second day, losing almost a dollar to $57.26/barrel. The dollar held pretty steady, with the dollar index up 0.1% to 89.14. The price of gold moved up to $437/ounce.

Bernie Schaeffer compares the current market condition to that of mid-year last year – and he isn’t very encouraged by what he sees.

So far, not a lot happening that’s worth reporting. The final Q1 GDP was up a bit from the preliminary readings, and the weekly crude oil inventory data has pushed crude prices down even more to $57.10/barrel, but neither of those seems to have given the market much reason to follow through on yesterday’s rally.

So far, the big winners of the day are the gold & silver stocks, up 3.4%.

Stephen Roach of Morgan Stanley laments the fact that the Fed is doing nothing – and probably never will – to try and suppress the “bad growth (driven by asset bubbles and debt)” in the US economy. Failure to address the problem only makes for “an ever more treacherous endgame.”

Meanwhile, the excesses in the US property market are now starting to display all the classic symptoms of a mania — underscoring the inherent vulnerability that Yale professor Robert Shiller has long warned of. It’s not just the growing profusion of exotic financing schemes — the interest-only and negative-amortization mortgage loans that have become the rage in the hottest of real estate markets. Equally worrisome is evidence that “asset flipping” is now reaching Ponzi-like proportions. The latest rage is www.condoflip.com — a website dedicated to creating an electronic market whereby “buyers of preconstruction condos resell or assign those condos to new buyers.” Debuting in Miami, expansion is set shortly for Las Vegas, Los Angeles, Dallas, Chicago, and New York. If you hurry, you may even be able to own a “Condo-Flip” franchise of your own. Five years later, this is nothing more than a reincarnation of the day-traders of the dot-com era.

As former Fed Chairman Paul Volcker noted recently, the saddest thing of all is that no one in a position of responsibility wants to put an end to this madness (see his 10 April 2005 op-ed in the Washington Post, “An Economy on Thin Ice”). Congress is focused on fiscal profligacy and China bashing. The White House is fixated on “transformational politics.” The Fed remains steeped in denial. And the rest of the US-centric world is begging for another spin around the track. Sadly, bad growth begets more bad growth — until it’s too late. Following this week’s likely rate hike, the US central bank will have only 325 bp in its arsenal — literally half the ammo it had five years ago when the first bubble popped. With the aftershocks of the property bubble likely to be far more worrisome than those of the equity bubble, this time the Fed may be ill equipped to face what is shaping up to be an increasingly treacherous endgame.

	Today’s action in the market was pretty positive. But does it really change the picture much? The Dow Industrials bounced back up to only the very bottom of its recent range, and is going to face some stiff resistance here if it wants to move higher.
	The Nasdaq Composite finds itself right in the middle of its recent trading range.
	Same for the S&P 500.
	And the Nasdaq 100 is still looking a little sickly to me.

Charts courtesy of StockCharts.com

The market got a little excited over a drop in oil prices today, and managed a decent bounce off of the recent lows. If you were watching CNBC you couldn’t be sure that any stocks other than Google were actually trading today, but if you look at the numbers you’ll see that the Dow Industrials got back 115 points (+1.1%) to 10406, the S&P 500 gained 11 points (+0.9%) to 1202 and the Nasdaq had an even better day, adding back 25 points (+1.2%) to 2070. The bounce was pretty broad based, bringing the Russell 2000 back up by 13 points (+2.2%) to 641, the Dow Transports rebounded for 2.5%, the Utilities gained 1.0%, and bonds slid a bit, pushing the yield on the 10-year Treasury up to 3.97%.

Market internals were very positive, and volume picked up from yesterday, but didn’t come near the levels seen during last week’s selloff. Advances led declines 23/9 on the NYSE and 7/3 on the Nasdaq, up/down volume was better than 3/1 on the NYSE and better than 4/1 on the Nasdaq. New highs/lows came in at 169/32 on the NYSE and 96/36 on the Nasdaq.

A number of winners today, including airlines (+6.3%), steel stocks (+2.6%), biotechs (+2.3%), transportation (+2.3%), housing (+2.3%), defense (+2.2%), broker/dealers (+1.9%), retailers (+1.9%), hospitals (+1.9%), HMOs (+1.8%), chemicals (+1.7%), and health care products (+1.3%). On the losing side were energy stocks: oil services (-2.1%), natural gas (-1.6%) and oil stocks (-1.1%).

Crude oil prices took a dive today, falling more than $2 to $58.20/barrel. The dollar gained back some of its recent losses, with the dollar index rising 0.6% to 89.06. The price of gold fell to $436/ounce.

Anti-competitive practices in the computer industry? (Like it doesn’t happen in every industry…).

Nah, it just can’t be, can it? Hmm, but wait, there was this big software company that was accused of the same sort of activity a few years back. The name escapes me right now, but I think it started with ‘M’…

Never mind that oil closed above $60/barrel. Never mind that the market did nothing to make back any of the losses of last week. No, what does CNBC put up an “alert” for at the closing bell?? “Google Tops $300.” Yeah, that’s what matters to us all.

Don’t listen to CNBC and their Google hype. The market today stunk only a little bit less than it did at the end of last week. The Dow finished down 7 points (-0.1%) at 10291, the S&P 500 fell less than a point at 1191 and the Nasdaq – yes, despite Google hitting $300 – dropped 8 points (-0.4%) to 2045. The Russell 2000 dipped 2 points (-0.3%) to 628, the Dow Transports fell another 0.5%, the Utilities were up 0.4% and the bond market held the 10-year note below 4% at 3.91%

Market internals were again weak, on lighter volume than the end of last week. Advances/declines were just below the flat line on the NYSE, but a poor 2/3 on the Nasdaq. Up/down volume was just better than 2/3 on the NYSE and 1/2 on the Nasdaq. New highs/lows were 127/55, but fell below even on the Nasdaq at 48/51. We haven’t seen that in quite a while…not good.

A few winning groups on the day: housing stocks – the stocks that just won’t die – were up 1.5%. They were followed by energy stocks – natural gas, oil services and oil stocks all up 1.3%. On the down side, we find airlines (-3.2%), paper stocks (-2.6%), networking (-1.5%), semiconductors (-1.3%) and gold & silver stocks (-1.0%).

Crude oil posted its first close above the $60 mark at $60.54. The dollar index fell 0.4% to 88.44, and the price of gold stayed near $440/ounce.

Not surprisingly, the weekly look at the market from Schaeffer’s indicates more risk to the downside than reward on the upside. The summary:

Wrapping it up, after a handsome run-up by the market, it appears that optimistic sentiment mixed with a turn in the shorter-term technical price patterns is casting a shadow of doubt over the market that will likely cause a move back to the bottom of the trading range. This, of course, does not include the potential negative effects of this week’s FOMC meeting and surging oil prices. The market remains soft to the downside and is at risk of more selling as the key technicals highlighted above begin to fall.

I know, last week crude oil prices touched $60, then pulled back. Well, in overnight trading, crude has moved pretty solidly above that mark and stayed there, currently trading at $60.42/barrel.

This week, Bill Fleckenstein tells us why stocks are on borrowed time, and that global interest rate cuts will boost the precious metals markets.

While you’re planning for your financial well-being, you should be paying just as much attention – if not more – to your physical well-being.

Start working at it now – Invest In Your Health.

Items of note on the latest industry moves:

• Only two groups in the green in this lousy market week.
• The ‘worst’ list is once again all in the red.
• The broker/dealer stocks have moved to the top off all three ‘best’ lists, steel stocks to the bottom. Steel stocks, after making a nice move two weeks ago, were absolutely devastated this week.
• In the materials sector, energy and precious metals are holding up while steel, paper and chemicals remain weak.
• The housing stocks took a hit this week, but you sure can’t count them out yet. They have had a strong tendency to bounce back.

	Utilities were the only stocks to hold above the zero line for the week. As interest rates stay low, utilities continue to hold up well.
	Energy stocks had a rough week, but they’d had a huge run. Not too much damage done yet – the question is what happens from here.
	Significant breakdowns suffered in Industrials…
	Consumer Staples…
	and Basic Materials.

Here are this week’s numbers:

Charts courtesy of StockCharts.com

The Dow Transports were showing signs of weakness coming into this week, and just gave it up the last couple of days. The index is already pushing down to test its April lows. That’s not good news for the rest of the market.

Chart courtesy of StockCharts.com

Well, the market proved today that yesterday’s lousy performance wasn’t just a one-day flop. The follow-through to the downside today pretty much says that we’ve seen the top, at least for a while. Now it’s time to keep a close eye on your holdings and protect your capital.

The Dow Industrials gave up another 123 points (-1.2%) to finish at 10298, and has given up all its gains since May 17th in this one week. That’s not good. The S&P 500 fell another 9 points (-0.8%) to 1191, and is back where it was at the beginning of June. The Nasdaq dropped 17 points (-0.8%) to 2053, its lowest close since May 25th. The Russell 2000 lost 4 points (-0.6%) to 630. The Dow Transports continue to disintegrate, dropping another 1.3% today, and the Utilites joined in the “fun” by falling 0.7%. The bond market kept long-term rates down, with the 10-year note now at 3.92%.

Market internals were ugly, and volume was again strong, a rather dangerous combination. Advances trailed declines by 3 to 5 on the NYSE and 2 to 3 on the Nasdaq. Up/down volume was pretty gross at 3 to 7 on both exchanges, but the new high/low figures haven’t yet turned negative, coming in at 241/56 on the NYSE and 121/80 on the Nasdaq.

There were few bright spots again today, with the broker/dealers (+1.7%) and gold & silver stocks (+0.9) managing to keep their heads above water, but there was plenty of bad news: airlines (-3.0%), networkers (-2.8%), steel stocks (-2.2%), computer hardware (-1.9), semiconductors (-1.9%), paper stocks (-1.9%), housing stocks (-1.8%), computer technology (-1.6%), internets (-1.6%), defense (-1.4%), retailers (-1.3%), disk drives (-1.3%), chemicals (-1.2%), and hospitals (-1.2%).

Crude oil continues to be a nagging issue, sneaking closer to a $60 close at $59.84. The dollar index fell 0.4% to 88.69, and gold prices hung around $440.

The market picture has changed a great deal in the last two days. Watch your step. Time to take on a much more defensive posture.

Don’t worry, buy call options.

Yesterday, on the worst market day in over a month, the CBOE equity only put/call ratio came in at 0.471 (387,284 put options to 821,689 call options), the lowest level seen since May 26th. On that date, the ratio was 0.471 as well, and a lower reading hasn’t been seen since a ratio of 0.470 was registered back on December 13th of ‘04.

I guess a lot of people saw the market drop as an opportunity to jump in and buy calls (betting that stocks will rise) because, well, the market isn’t really going to go down, is it?? Or they jumped in and bought calls early during the morning tech rally. Either way, it seems to me that the sentiment factor might be getting just a bit too bullish… Of course, another down day today – like we’re seeing today – could start changing those attitudes.

When you see the headlines this morning, you’ll see things like this: “Durable Goods Orders Jump in May”.

The truth is:

Excluding the volatile transportation sector, new orders for durable goods fell by 0.2 percent last month, marking the third decline in the past four months for orders outside of transportation.

And the truth in the transportation numbers is:

Last month’s surge was concentrated in demand for commercial aircraft, which jumped by 164.8 percent last month to $18.7 billion.

And this:

demand for motor vehicles and parts edged up by a tiny 0.2 percent, reflecting a slowdown in auto production this year.

Bottom line? Boeing had a good month in May. Got it?

This week, Martin Goldberg gives us a comparison of two bubbles – the stock bubble of the late 90s and today’s housing bubble. And this tidbit on the insider selling by the executives of the home builders:

While it is not a useful timing tool, looking at insider selling can be an enlightening experience, especially when the airwaves seem to be saturated with discussions of the US housing market and homebuilders. It seems that a day doesn’t go by where the face of a homebuilder CEO or CFO doesn’t grace the stage at CNBC. They are all saying bullish things. But what are they doing? It seems that many corporate insiders are selling their company shares like they are going out of style. Of the 14 major homebuilders listed in the chart below there are only 9 where insiders presently own more than 10% of the company. Two of best performing homebuilders, NVR Homes and Toll Brothers, have seen insiders sell over $700 million in stock over the last 6 months. That’s a lot of “wealth management” and “portfolio balancing.” It is notable that the underperforming homebuilder, Dominion Homes, has experienced significant insider buying over the last 6 months, and it is the only homebuilder that has not seen any insider selling.

Even if you don’t read the whole article, do yourself a favor and read the last section on “Today’s Market – A Potential Turning Point”. Important stuff to keep an eye on.

	How bad was the damage done to the market today? Bad enough to send the Dow back to mid-May levels, unraveling 4 weeks of progress.
	Ditto for the Nasdaq 100, which has been struggling of late anyway. Probably time to be a little more cautious until we see where this all leads.

Charts courtesy of StockCharts.com

I think the folks at eBay would have been more than happy to end the auction for their shares early today. The stock was hit for more than 5%.

Chart courtesy of StockCharts.com