Bear Mountain Bull

A watched bubble can still be a bubble, says Bill Fleckenstein. And the fuel behind the housing bubble is the prevalence of ridiculous financing schemes:

That brings me to the point about what has allowed this folly to take place: The fact that financial institutions have totally taken leave of their senses. Rather than being even slightly concerned about getting paid back, they only seem to care about generating loans, such that anyone with a pulse can finance anything.

To some, aid to Africa isn’t the solution to the nation’s problems. It just makes matters worse:

“When aid money keeps coming, all our policy-makers do is strategize on how to get more,” said the Kenya-based director of the Inter Region Economic Network, an African think tank.

“They forget about getting their own people working to solve these very basic problems. In Africa, we look to outsiders to solve our problems, making the victim not take responsibility to change.”

I think the same can be said about nearly any welfare program.

Go ahead. Buy yourself a town. You’ve earned it.

Wonder why the Dow Industrials Index has been lagging behind, while the S&P 500 and the Nasdaq have moved back up to 4-year highs? Or while most small and mid-cap indices are setting all-time highs?

Here are a few of the reasons. Take a look at these 6-month charts:

Charts courtesy of StockCharts.com

Items of note on the latest industry moves:

• Why REITs would be the best group of the week as interest rates continue to climb is beyond me. The bank stocks aren’t taking kindly to the higher rates.
• Why airlines would one of the best groups of the past 4 weeks as oil prices snake their way back up to $60 is beyond me. I continue to ignore the airline stocks, simply because they’re all over the place. The worst will be bankrupt, and the best are dead money for now.
• Telecoms got a boost from some legislation in Congress that I haven’t paid any attention to – maybe somebody can fill us in on what that’s all about.
• The financials have been a bit of a divergence, with the broker/dealers being strong (althought they gave a little back this week) and the banks being somewhat weak.
• The gold & silver stocks get no respect, and it seems that everyone thinks that gold’s run is over too. Wait ’til the next leg down in the dollar, which might not be too far away, although higher yields on Treasuries might help keep the greenback propped up.

Remember the GDP report that came out Friday? The only number that made the headlines was the one that said that Q2 GDP grew at an annual rate of 3.4%.

Here’s the news that didn’t make the headlines:

Instead of growing at a 3.1% annual rate in the three years from 2002 through 2004, the economy actually grew at a 2.8% pace, the government said.

At the same time, inflation was a bit hotter than previously thought, especially in 2004. The closely followed core personal consumption expenditure price index rose at a 1.7% annual pace in the three years, rather than the 1.4% earlier estimated.

Maybe that’s why the market pulled back a little – and the inflation news probably had something to do with the bond market selloff, sending yields higher. The media needs to be a little better at getting the entire story out, not just the pretty headlines. At least Marketwatch.com picked it up.

BMB has been mentioning how the large-cap stocks don’t seem to be pulling their weight in the market here, and how the Dow has been lagging the other indices quite badly.

From Scott Bleier of HybridInvestors.com, on Gary Kaltbaum’s Investor’s Edge radio show yesterday:

If you look at the overall market, we’re inching our way higher without the participation of the biggest cap stocks that weigh the most in the indices. One day these stocks are either going to catch up, or they’re going to start to fall and take the whole market with them.

Only two sectors in the red this week, but only two sectors up more than 1%. Not much movement. No sectors in the red over the past 4 or 8 weeks – I suspect that will not continue for much longer. Energy and utilities still way ahead of the rest of the pack on the year. No contest.

Utilities had a good week, despite the hints of rising interest rates. Still one of the strongest looking sectors, and one that nobody ever talks about. Note the pickup in volume this week.

Health care had the second best week, and continues to be a frustrating area to get your arms around. A lot of churning within the health care sector as the drug stocks go up and down, the hospitals and HMOs were doing tremendously, then broke down and bounced back this week – it just seems like a mess. I would expect health care as a whole to become a little more stable if the market were to start to struggle. It tends to be one of the place investors go in times of market angst, as was demonstrated earlier this year.

Here are this week’s numbers:

Charts courtesy of StockCharts.com

This is an obvious pattern with the bald guy on CNBC.

• Write an article for the paid subscribers on RealMoney.com: Get a Lift From Terex in Heavy Machinery By James Cramer
• This runs the stock up for the day: TEX up 8% on 3x average volume.
• Come out and tout stock on TV show that afternoon. TEX was the first stock mentioned on today’s show. Get all the viewers of the show to buy in, after getting the subscribers in first. Let the TV viewers pump the stock up a little more, and the subscribers cash in.

He sucks, and should be in jail instead of having his own TV show.

Not a very nice follow up to yesterday’s move today, as the market staggered right from the opening bell. The major indices gave back most or all of their gains from yesterday, and finished right near their lows of the day. The Dow Industrials slipped 65 points (-0.6%) to 10641, the S&P 500 gave back 10 points (-0.8%) to 1234 and the Nasdaq fell 14 points (-0.6%) to 2185. The Russell 2000 dropped 3 points (-0.5) to 678, the Dow Transports were down 0.5% while the Utilities were unchanged, and the bond market struggled along with stocks, with the 5-year yield moving up 4.12% and the 10-year up to 4.28%. Watch those rates – they’re sneaking up there, along with oil prices…

Market internals were quite negative on light-to-average volume. Advances/declines were 3 to 5 on the NYSE and 7 to 8 on the Nasdaq. Up/down volume was a little uglier, at worse than 1 to 2 on the NYSE and right at that ratio on the Nasdaq. New highs/lows were 339/20 on the NYSE and 218/17 on the Nasdaq.

Weakness across the board, with only a couple of exceptions: paper stocks were up 1.3% and airlines up 1.0%. Leading the groups lower were the housing stocks (-1.8%), internets (-1.3%), broker/dealers (-1.3%), software (-1.2%), steel stocks (-1.2%), retail (-1.1%), banks (-1.0%), computer hardware (-1.0%) and networkers (-1.0%).

Crude oil closed above $60 once again, gaining 63 cents to $60.57 – and news of two refinery fires didn’t help matters. The dollar index was nearly unchanged at 89.34, and the price of gold moved above $429/ounce.

Remember “Tommy”? You know, The Who’s rock opera with the “deaf, dumb and blind kid” who “sure plays a mean pinball”? Ok, some of you probably don’t, and I’m no doubt showing my age here. If you’ve never heard of it, go look it up on the web and this will all make more sense…

Anyway, this teenager plays video games instead of pinball (of course), but it sounds like he’s just as amazing as Tommy.

…but crude oil is back above $60/barrel, currently trading at $60.45. Of course, as long as the market is doing well, you won’t hear much about it. If the market starts to falter, the high oil prices will be blamed.

Stan Weinstein is scheduled to be the guest Market Monitor on NBR tonight.

If you believe the government’s numbers – and I can’t imagine why you would – the initial reading for Q2 says the economy grew at an annual rate of 3.4%. Let us not forget that the housing market contributes to GDP.

Maybe they’re a little overloved. Another great column from Martin Goldberg at FSO.

And I think it’s the slime surrounding Cramer’s stock recommendations. Tonight on the show, he talks about a bill before Congress that would relieve American gun makers like Smith & Wesson (SWB) and Ruger (RGR) from legal and insurance fees. Of course, those two stocks start trading madly in the after-market. But let’s take a look at how the two stocks traded today – before the show even aired. SWB normally trades around 200K shares a day. Today?? It was up 6.5% on 1.6 million shares. RGR usually trades less than 100K shares. Today?? It was up nearly 10% on almost 700K shares. I find that activity a bit out of the ordinary, don’t you? Let’s take a look on Yahoo, and see if we can dig up any news on these stocks. Yup, there’s some news from today. Hmmmm, isn’t that curious. The news headline says: “[$$] New Bill Should Fire Up Gun Makers at RealMoney by TheStreet.com.” Note the source, and note the $$ – meaning it’s a ‘for pay’ article. Let’s click on it anyway – maybe we can read the first couple of sentences. Ahhh, here it is – New Bill Should Fire Up Gun Makers By James Cramer. Now I get it. How very convenient. I write an article for my paid subscribers so they can go out and buy the stocks that I write about, then I go out on national television and tout those stocks the same evening. Then the non-paying public runs out and buys the stocks too – and my subscribers love me for it. I’m sorry, that smells, and it smells really bad. That’s about as slimy as it gets. I see that Cramer has done nothing to improve his image in my mind. He’s scum.

Charts courtesy of StockCharts.com

As BMB has noted before, keep an eye on those interest rates. If they keep rising, they’ll put a crimp in things sooner or later. The bond market appears to have topped out, at least in the near-term, and some of that money is probably moving into the stock market as equities are moving higher. That could continue to push rates higher, which will eventually be bad news for the housing market and for stocks.

Here we see that mortgage rates have risen for 4 consecutive weeks.

Helping out a strong steel sector has been a small-cap provider of iron ore, Cleveland Cliffs. One of the big movers today, CLF was up more than 11% on their earnings report. (Disclosure: By some stroke of luck, BMB owns shares of CLF. And not being a complete fool, took advantage of today’s move by locking in some profits!)

Chart courtesy of StockCharts.com

The market put together another nice advance today, finally pushing the Nasdaq above its December highs, but stalling at the 2200 level. Who knows why? Certainly good reactions to earnings have trumped the bad reactions over the past few weeks. Crude oil tagged $60 again today, but that doesn’t seem to matter much at the moment.

The pundits are touting the Dow Industrials finishing at a 3-month high. The fact is, the Dow is still badly lagging the rest of the market, and remains nearly 300 points shy of its March highs, unable to confirm the new highs of many other indices. Today the Industrials picked up 68 points (+0.6%) to 10706. The S&P 500 added to its highs, picking up 7 points (+0.6%) to 1244 and the Nasdaq moved up 12 points (+0.6%) to 2198. The smaller stocks did even better, with the Russell 2000 gaining 8 points (+1.2%) to 683, and the S&P Small and Mid-cap indices gaining 0.9 and 1.3% respectively. The Dow Transports had another strong day, gaining 1.5% and the Dow Utilites were up 0.8%. Bonds joined stocks in moving higher, pushing the 5-year yield down to 4.04% and the 10-year to 4.20%.

Market internals were quite strong on healthy volume. Both advances/declines and up/down volume came in at better to 7 to 3 on the NYSE and just under 2 to 1 on the Nasdaq. New highs/lows were 412/38 on the NYSE and 227/19 on the Nasdaq.

The good fortune was widespread in that most groups finished in the green, but only a few put up big numbers, like HMOs (getting some back, up 3.5%), housing stocks (+2.4%), steel stocks (+2.2%), chemicals (+1.5%), transportation stocks (+1.3%), REITs (+1.2%) and disk drives (+1.0%). No groups posted significant losses.

Crude oil touched $60 before falling back to close at $59.94/barrel, up 83 cents. The dollar fell on world currency markets, the dollar index dropping 0.5% to 89.33, and the price of gold snuck up to $428/ounce.

With the exception of the Dow, the market still looks pretty strong. I’m sure the bulls would like to see the Dow making new highs, but the internals are still healthy and the small and mid-cap stocks are picking up the slack from some of the mega-caps. We’ll see how far this goes, and just hang on for the ride as long as it’s moving.

Ok, I know many don’t use something as archaic as a VCR anymore, in these days of DVRs. Whatever you’ve got, set it up to record Nightly Business Report tomorrow – Friday – afternoon/evening on PBS. Check your local listings for time in your area.

The guest Market Monitor on the show this week is scheduled to be Stan Weinstein, noted market technician and author of Secrets for Profiting in Bull and Bear Markets. If you miss the segment, the video clip will be available for the following week on NBR.com, in the streaming video section.

As a trader – or an investor – you will not be right all of the time. If you can accept your imperfection, and work within it, you will be much more successful:

If you have a perfectionist mentality when trading, you are setting yourself up for failure, because it is a “given” that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses ( that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small ( because of the need to be perfect), then you will watch that small loss grow into a larger loss and so on into a vicious cycle of more and more pain for the perfectionist. Trading on hope does not work. The markets can remain irrational for a lot longer than you can remain solvent.

The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. This is a marathon…not a sprint.

The greatest traders know how to take cut losses and let winning positions run. Perfectionists often do exactly the opposite. They get in at the wrong time, stay in too long and then get out the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionistic trader and exploit it day after day.

Read the pair of articles posted on Financial Sense Online. And while you’re at it, go read BMB’s investment dos-and-don’ts, and follow the advice: Never lose big.

	Amazon.com (AMZN) gave the internet sector a nice shot in the arm on their earnings report, racking up a gain of more than 15% today.
	On the flip side, InfoSpace (INSP) earned the rather dubious distinction of having its stock drop 10 points twice in three months. That would be two consecutive earnings reports. Yikes. And the analysts were tripping all over each other downgrading the stock this morning. Thanks guys…you’re a big help.
	Wanna see what a mention on Cramer’s show does for a stock? Take a look at IntraLase. Before today, 50-day average volume was about a half-million shares a day. Today, more than 6 million. Stay away from these things, unless you’re willing to trade the after-market and you’re quick on the button as soon as he opens his mouth. Watch the show, and watch the symbols roll by on the after-market ticker as the groupies rush to buy in. Wouldn’t it be nice to know which ones he’s going to mention before the show starts? Don’t be surprised if one day we find out that some people do…notice ILSE had a nice little pop on Tuesday too. Hmmm…

Charts courtesy of StockCharts.com

The major indices overcame a rather sluggish start to finish in the green on some encouraging economic news from the Fed – should you choose to believe them. Personally, I don’t put a great deal of trust in government numbers as they have a vested interest in making things look good, but that’s a whole ‘nother story. Not to mention, the market doesn’t really care what I think.

The Dow Industrials finished with a gain of 57 points (+0.5%) to 10637. The S&P 500 eked out another 4-year closing high, picking up 6 points (+0.5%) to 1237 and the Nasdaq added 10 points (+0.5%) to 2186. The entire market didn’t participate, however, as the Russell 2000 was pretty much unchanged on the day. The Dow Transports were higher by 0.5% and the Utilities by 0.4%. The bond market didn’t make much progress, with yields ending the day at 4.09% and 4.26% for the 5-year and 10-year.

Market internals also came back from negative territory early to finish on the positive side, with trading volume right around average. Advances led declines by 19/13 on the NYSE and 8/7 on the Nasdaq. Up/down volume was right around 3 to 2 on both exchanges, and new highs/low still look good at 231/35 on the NYSE and 164/20 on the Nasdaq.

Looking at how the various industries fared, we find that internet stocks led the way with a 1.7% gain, helped by a big move in Amazon stock. Also moving higher were telecoms (+1.4%), chemicals (+1.4%), drug stocks (finally, +1.4%), networkers (+1.3%), computer hardware (+1.2%) and health care products (+1.1%). Moving lower were disk drives (-1.3%), HMOs (again, -1.2%), airlines (-1.2%) and steel stocks (-1.0%).

Crude oil made an approach to $60, but pulled back and finished the day down 9 cents at $59.11/barrel. The dollar index fell 0.3% to 89.78, and gold moved back up to $425/ounce.

Boeing ups their outlook, and June durable goods orders still looked pretty good.

Out of the gate, stocks moved slightly higher, bonds slightly lower. The market likes Amazon’s numbers from last night, pushing AMZN up more than 11%. Transportation and airlines are leading the way so far, with disk drives and semiconductors falling back.

Lexmark stock hasn’t been in very good shape, and today’s action just adds to the trouble. On its earnings report, LXK dove more than 10%.

Chart courtesy of StockCharts.com