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.

The market managed to stop the bleeding for a day, fighting off the bad headline inflation numbers and more concerns about Refco. The major indices all finished on the plus side for a change: the Dow Industrials were up 71 points (+0.7%) to 10287, the S&P 500 rose 10 points (+0.8%) to 1186 and the Nasdaq got back 18 points (+0.9%) to 2065. The Russell 2000 also recovered some of its losses, adding back 10 points (+1.6%) to 633. The Dow Transports were higher by 1.4% and the Utilities up by 1.3%. Bonds, however, fell for yet another day, and yields moved ever higher, the 5-year to 4.35% and the 10-year to 4.49%.

Market internals were solidly positive, for the first time in quite a few days. Volume did lighten up a bit, however. Advances/declines were just better than 2 to 1 on both exchanges, and up/down volume was better than 3 to 1 on each. New highs/lows were 23/243 on the NYSE and 46/169 on the Nasdaq.

The gains were pretty much across the board, with only the gold & silver stocks (-0.9%) and semiconductors (-0.8%) struggling. Leading the move up were the airlines (+2.9%), followed by oil services (+2.5%), HMOs (+2.5%), REITs (+2.3%), natural gas stocks (+2.1%), biotechs (+2.0%), steel stocks (+2.0%), disk drives (+2.0%), hospitals (+2.0%), software (+2.0%), natural resources (+1.6%), internets (+1.5%) and brokers (+1.5%).

Crude oil prices fell again in the morning, but recovered some of their losses to finish at $62.63/barrel, down 45 cents. Gasoline fell 2 cents, but natural gas was up 19 cents. The dollar backed off again today, the dollar index falling 0.5% to 89.36. Gold recovered from early losses, and finished down only slightly, at $469/ounce.

BMB Note: Well, it’s a somewhat light volume bounce, and it may not last, but I’ll take it for now. Today should help slow the fall for a time, but it does little to repair the significant damage done, nor does it give us much of an idea as to what happens from here. If the market were to start to move higher, we need to get a more solid foundation built and some idea as to where the leadership will be coming from before we can put money to work on the long side. Too early for that at this point. Also too early to tell whether any sort of bounce will have any lasting power. If you had lots of stock yet to sell, knowing the market was oversold, you’d be waiting for any sort of bounce to sell into. That scenario could set up some opportunities on the short side.

The Nasdaq has now set up a great deal of overhead resistance in the 2100-2200 area, and the S&P has the same problem between 1200 and 1245. On the flip side, it’s vital that those indices hold above their lows of yesterday, 2025 on the Nasdaq and 1168 on the S&P.

Not a lot, at least when it comes to the short-term outlook for the market. From Larry McMillan’s weekly newsletter (sign up) today:

Deeply oversold markets are tricky because they are so volatile that they can cause consternation for both bulls (during market declines) and for bears (during sharp reflex rallies). At this point, though, things have deteriorated so badly that any rally that materializes will surely not last; there will have to be something of a retest before any true bottom sets up. Having said that, a rally can still be substantial — just short-lived.

One other point: usually at a trading bottom, the market opens down on the day, plunges dramatically in the morning, and then has a sharp upward reversal sometime near mid-day or early afternoon. This particular market has been opening higher each day, and then selling off badly in the late afternoon. That is bearish action. One of these days, though, S&P futures will be down substantially (say, 10 or more) and then rally strongly at mid-day, closing on the upside. That will start the short-term rally. It probably wouldn’t carry even to the 20-day moving average however, before retracing and retesting the bottom once again. A successful retest would then signal a more lasting bottom.

Gary Kaltbaum gives you some excellent guidance in what is a very difficult time in the market. Read what he has to say, and understand what he’s saying.

Be patient. Let the market decide what it’s going to do, then react to it.

After some initial volatility from the morning CPI report and a preliminary reading on consumer sentiment, the majors have settled down right near the UNCH line. Winners so far are HMOs, airlines, hospitals and disk drives. Losers are precious metals and oil stocks.

Bonds haven’t moved much, holding yields steady. Energy prices are falling yet again, with crude oil down $1.38 to $61.70 and natural gas down 24 cents to $12.86. Gasoline is also lower, near $1.67/gallon.

The Consumer Price Index jumped 1.2% in September, the largest rise in many years. But the market seems happy with the number, at least that’s what the futures are indicating. Why? Because if you’re one of those lucky souls who doesn’t purchase food or energy, your prices were only up 0.1%.

If you can get by without food or energy, please email me. I’d like to know how you do it.