Bear Mountain Bull

Now that we’ve gotten the government’s weekly oil inventory report out of the way, let’s take a look at the current Gulf production shut-in statistics from the MMS (GOM = Gulf of Mexico):

Today’s shut-in oil production is 547,223 BOPD. This shut-in oil production is equivalent to 36.48% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.

Today’s shut-in gas production is 2.965 BCFPD. This shut-in gas production is equivalent to 29.65% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.

The cumulative shut-in oil production for the period 8/26/05-11/30/05 is 95,878,528 bbls, which is equivalent to 17.512% of the yearly production of oil in the GOM (approximately 547.5 million barrels).

The cumulative shut-in gas production 8/26/05-11/30/05 is 495.336 BCF, which is equivalent to 13.571 % of the yearly production of gas in the GOM (approximately 3.65 TCF).

So we’ve still got more than one-third of the daily oil production shut in, and that has totaled more that 17% of the annual production so far. Not to mention nearly 30% of the natural gas production, comprising more than 13% of the yearly total.

Oil prices are now back to mid-July levels, long before Katrina even formed. Looking at the shut-in stats, the fundamental picture for oil - and gas - is certainly worse than it was 4 months ago. Maybe that’s why I don’t expect oil prices to fall much lower.

Another mixed session today, with interest rates and oil prices helping to dampen stocks, especially the financials. The Dow Industrials dropped 82 points (-0.8%) to 10806, and the S&P 500 fell 8 points (-0.6%) to 1250. The Nasdaq held up much better, gaining just a fraction to hold at 2233. The Russell 2000 did fine, gaining 4 points (+0.5%) to 677. The Dow Transports fell 0.4% and the Utilities dropped 0.9%. Bonds fell again and rates moved up, the 5-year to 4.43% and the 10-year to 4.50%. The yield curve hasn’t steepened much, however, as 2-year rates are at 4.42% and 3-year at 4.41%. Still a bit of a mixup on the low end, and pretty flat overall.

Market internals were mixed as well, and volume ticked up again today. On the NYSE, advances trailed declines by 9 to 10, and up/down volume was 3 to 5. On the Nasdaq, things were a little more positive, with advance/declines at 10 to 9 and up/down volume about 5 to 4. New highs/lows were 99/75 on the NYSE and 114/45 on the Nasdaq.

In the industry groups, the few winners were oil services (+1.9%, still the strongest energy group), semiconductors (+1.2%) and steel stocks (+1.0%). On the losing side were gold & silver stocks (-2.4%), banks (-1.6%), chemicals (-1.4%), utilities (-1.0%) and brokers (-0.9%).

Crude oil prices climbed in the afternoon after morning weakness, closing up 82 cents at $57.32/barrel. An even stronger move was made by natural gas, which climbed 87 cents to $12.61. The dollar index held steady at 91.57, and gold pulled back to $494/ounce.

BMB Note: Not much to say after a day like today. The market is pulling back - we told you it would, and it is. Now we wait to see just how deep/long the pullback goes. On the economic front, the market is playing the good news/bad news game: it’s happy that the data flowing in is still strong, but it’s disappointed that the strong data may give the Fed reason to continue hiking rates. That’s why rates have moved back up in the past few days, and why financial stocks took the hit today - not to mention the yield curve is very flat and inverted on the low end.

Oil prices dipped in the morning, even after the drawdown in the weekly crude inventory report. But something sparked a rally in both crude and natural gas (especially!), and I’m not sure what caused that. No matter what, if energy prices start moving back up, stocks will have a rough time resuming their uptrend. But then again, it’s the Christmas season…the buzz on CNBC has turned from “Dow 11,000″ to “Santa Claus rally”. Whatever. We’ll try to deal with reality here. If that’s Santa Claus, great. If not, well, we’ll deal with that too.

The market is off to a modest start, with the majors all just slightly higher. Leading the way are oil services, disk drives, semiconductors and airlines, while the gold & silver stocks are falling back.

Bond yields are just slightly higher. The weekly oil inventory report showed a larger-than-expected drawdown in crude inventories, but oil prices have held below $56.50/barrel. The dollar is helding steady, and gold is just above $495/ounce.

How many times does the government have to report the same number? Today’s release of the “preliminary” Q3 GDP reported the economy grew at a 4.3% annual rate, rather than the 3.8% rate reported in the “advance” Q3 GDP. Now, we can await the “final” GDP report.

Things like this always catch my eye - on consumer spending, we find “Consumer spending increased 4.2% in the third quarter, contributing about 3 percentage points of the 4.3% increase.” But if we look at wages and salaries: “The report also showed a significant downward revision in wages and salaries. In the second quarter, wages increased $42.4 billion, down from $80.3 billion. Real-disposable incomes increased 0.2% in the second quarter and declined 0.7% in the third quarter.”

You decide what that means…

Wanna know the real reason behind the stock market rally? Take it from Ike Iossif, and today’s market wrap:

“Seasonality” still favors equities, and there are many in the industry who stand ready to defend their year-end bonuses by throwing their clients’ money in support of the market. Unless there is an exogenous event that forces money managers to change their posture for right, there is one reason behind the market’s behavior, and it is directly linked to the interests of the “financial industry” and can be summed up like this: “We have got to support prices so we can get our bonuses at the end of the year; we have got to pay for that new HUMMER, and the vacation in London to please the wife; we’ll worry about aligning our positions with reality later!” All the rest is just conversation and academic garbage.

There you have it. ‘We’ll worry about whether stock prices make sense after Christmas.’ And you let these people manage your money?

To all the groupies of the Great Bald One out there: How in the world do you decide which of his recommendations to buy, and which ones NOT to? You can’t possibly buy them all - with him recommending 3-5 stocks every night, there’s no way you have enough money to buy all of them. Or if you actually do have enough money to buy them all, why in the world are you listening to Cramer?

Not to mention that, if you watched long enough, he would eventually recommend every stock in the market — so you may as well just save the trouble and buy a market index…

A rather disappointing day in the market today, as strong morning data on new home sales and consumer confidence got things off to a fast start, but the move completely fizzled as the day wore on. The good numbers were bad news for bonds as well, and interest rates stopped their slide and took a big jump upward.

The major indices gave back big gains early in the session, and finished split: the Dow finished down 3 points at 10888 (maybe that will get CNBC off the “Dow 11,000″ kick for a day or two), the S&P 500 was unchanged at 1257 and the Nasdaq dropped 7 points (-0.3%) to 2233. The Russell 2000 gained ground, moving up 2 points (+0.3%) to 674. The Dow Transports were higher by 0.2% and the Utilities gained 0.4%. Bonds had a rough day, and rates moved up: the 5-year to 4.40% and the 10-year to 4.48%. The yield curve remains pretty flat, however, with the 2-year and 3-year at 4.39%.

Market internals, which were very positive early, finished poorly, and volume ticked up just a bit from yesterday. A big divergence on the NYSE with advance/declines at 11 to 8, but up/down volume at 9 to 10. On the Nasdaq, winners and losers were pretty evenly split, but up volume trailed down volume by 7 to 9. New highs/lows were 122/96 on the NYSE and 102/52 on the Nasdaq.

A few winners in the industry groups today: steel stocks (+3.0%), paper stocks (+2.0%), HMOs (+1.3%), commodities (+1.0%) and chemicals (+1.0%). On the losing side were airlines (-1.4%) and internets (-1.1%).

Crude oil prices fell back another 86 cents to $56.50, and the early run in natural gas pulled back as well. The dollar bounced back from yesterday’s losses, moving the dollar index up 0.7% to 91.65. Gold, after trading above $500 overnight, is now hovering around $499/ounce.

BMB Note: Not a good day - a pretty big reversal off the morning highs, and that was on good news from the consumer and housing sales. You don’t like to see that. It appears that the rally is struggling a bit. Retailing stocks haven’t really gotten a lift after the big shopping weekend. Housing stocks were lower again today, even though the housing starts number was good. I don’t think the market liked the fact that interest rates sprang back to life.

But I also saw a few significant knockdowns in some big tech names - call it profit taking, or whatever you want, but the moves were not small: NVDA (-6.3%), GOOG (-4.7%), MRVL (-3.8%), AMD (-3.4%), AAPL (-2.2%), EBAY (-1.9%). Some of these stocks have been supporting this rally, and the bulls can’t afford to have them break down. Just something to keep an eye on.

I must have missed this report from Gary Kaltbaum when I looked yesterday. Anyway, check it out. A day late, but not a dollar short, as the information is just as useful today as it was yesterday.

October new home sales jumped 13% to a new record in October. This is in contrast to the drop in existing home sales reported yesterday. In other consumer news, consumer confidence has recovered from low levels in the past couple of months.

The market seems to like the morning news so far. The major indices have recovered much of yesterday’s losses at this point. Winners are steel stocks, housing stocks, paper stocks and oil services, with gold & silver stocks lagging. Bonds have slipped, and yields are up. The dollar has strengthened and gold has pulled back from the $500 level. In energy, we’re seeing crude oil up about 30 cents, but natural gas has moved higher by about 45 cents, back above $12/mBTU.

Durable goods orders were up 3.4% in October, and September’s lousy number was revised upward a bit.

As always, we need to look behind the headline numbers. The report says this: “Orders are carefully watched for clues about the direction of both consumer and business spending.” But looking at where the big gains came from, I’m not so sure the report says much about the strength of the consumer, or private business, for that matter:

Orders for defense aircraft rose 140.4%, the largest increase since June 2000.

Civilian aircraft orders rose 50.4%, as the machinists union ended a strike at Boeing Co.

Orders for defense capital goods rose 52.8%, the biggest gain since February 2002.

Not that many businesses buy aircraft. And nobody buys defense goods but the government.

Jim Jubak lets loose on lazy, single-minded management at some companies (like GM) whose approach to problem-solving is limited to cost-cutting:

…it’s even more shocking to me that the chief executives who run some of our biggest manufacturing companies now seem to have only one solution to any corporate problem: Cut costs. These CEOs are cost-cutting the United States out of a middle class. They’ve forgotten how to compete and grow.

Hey, CNBC will “alert” you when Google goes over $300 or $400, but probably not when gold goes above $500…so how would you know?

As of the time of this post, Kitco.com was reporting the bid price for spot gold to be $501.90 per ounce. The last time the metal topped the $500 mark was in December of 1987.

Again, I had no idea that Cramer was alive more than a hundred years ago. Maybe that explains why he doesn’t have any of his hair left.

Another blurb from “Reminiscences of a Stock Operator” by Edwin Lefevre:

Tips! How people want tips! They crave not only to get them but to give them. There is greed involved, and vanity. It is very amusing, at times, to watch really intelligent people fish for them. And the tip-giver need not hesitate about the quality, for the tip-seeker is not really after good tips, but after any tip. If it makes good, fine! If it doesn’t, better luck with the next. I am thinking of the average customer of the average commission house. There is a type of promoter or manipulator that believes in tips first, last and all the time. A good flow of tips is considered by him as a sort of sublimated publicity work, the best merchandising dope in the world, for, since tip-seekers and tip-takers are invariably tip-passers, tip-broadcasting becomes a sort of endless-chain advertising. The tipster-promoter labours under the delusion that no human being breathes who can resist a tip if properly delivered. He studies the art of handing them out artistically.

Ok, so I added the emphasis on the last part. But it fits. Throwing a chair is “artistic”, isn’t it?

The market finally got the start of a pullback today, with very few stocks managing to move higher. The Dow Industrials fell 41 points (-0.4%) to 10891, the S&P 500 dropped 11 points (-0.9%) and the Nasdaq took the worst of it, losing 24 points (-1.0%) to 2239. The Russell 2000 took an even bigger hit, losing 12 points (-1.8%) to 672. The Dow Transports dropped 1.4% and the Utilities fell 0.5%. Bonds moved higher, pushing yields down and really flattening the lower end of the yield curve, inverting the 2 and 3 year yields: according to Bloomberg, we have the 2-year yield at 4.32%, the 3-year at 4.31%, the 5-year at 4.32% and the 10-year at 4.40%.

Market internals were less than impressive, with volume a bit on the light side. Advances/declines were just better than 1 to 2 on the NYSE, and about 3 to 7 on the Nasdaq. Up/down volume was just better than 1 to 3 on the NYSE and 3 to 7 on the Nasdaq. New highs still outnumbered new lows, at 130/97 on the NYSE and 115/50 on the Nasdaq.

Just one winning group on BMB’s list today, that being the disk drive index, up 1.4% (that index is heavily influenced by the flash memory stocks, SNDK and FLSH). There were lots of losers, the worst concentrated in the energies: oil services (-3.9%), oil stocks (-3.7%), natural gas stocks (-3.5%), brokers (-2.9%), natural resources (-2.9%), housing stocks (-2.8%), HMOs (-1.9%), biotechs (-1.9%), tranports (-1.8%), retail (-1.6%) and commodities (-1.5%).

Crude oil prices fell $1.35 to $57.36/barrel. The dollar fell hard, bringing the dollar index down 1.2% to 90.96. Gold is teasing the $500 mark, at just under $499/ounce.

BMB Note: Pretty much a pullback day, with a little heavier damage than normal in the energies. Internals were not good, but one day doesn’t start a bear market - this market does need to relax a bit anyway. More noteworthy would be the arguments/confusion over the strength of the weekend retail sales, the disappointing existing home sales numbers, and the beginnings of the inversion of the yield curve. No matter what stocks do today or tomorrow, those things will have an influence on where stocks go longer term, and they’re not real encouraging.

I had to try the ‘alert’ thing - obviously CNBC gets some sort of kick out of it.

As of this writing, the bond rate page at Bloomberg is showing the 2-year at 4.32% and the 3-year at 4.31%. Of course, it could change at any time.

The weekly look at market technicals and sentiment from Schaeffer’s. This week’s bottom line:

It’s bottom-line time. As I said, the really easy money has probably been made in this rally as the market is nearing some longer-term overbought readings. Sentiment continues to support the rally and will likely add fuel for a short period. The point when sentiment begins to turn will be critical for those that have been piling money into stocks, as the market is becoming crowded and any rise in selling may send the masses for the doors considering that market fundamentals lack the long-term “oomph” needed to keep investors interested in a long-term buy-and-hold strategy. Let your long positions run for the time being, as fighting the trend has become a fruitless venture.

Merck will be cutting jobs and closing plants. The stock is taking a hit - that’s not helping an already weak drug group.

Why is it that Merck announces job cuts, and their stock takes a dive? If a tech company announces layoffs, the market cheers and buys it up…

Existing home sales dropped in October, and the number of unsold homes rose. The National Association of Realtors is actually admitting that “the housing sector has likely passed its peak.”

Interesting. Then again, we’re moving into the holiday season, which seems to me to be a slow housing period anyway. Still. I think the real estate thing is over.

Newmont Mining says gold could reach $1000/ounce in the next five to seven years.

I certainly can’t say that it won’t happen. But you have to consider that Newmont (NEM) is the world’s largest producer of gold - do they know this to be true, or is it wishful thinking on their part?

Let’s get to $500 first, and we’ll go from there.

Something new at BMB - the Bull Session. Now and then, we’ll open up the “Bull Session” for a lively discussion on the topic of the day/week/month. This Bull Session post will remain at the top of the main page for a time, giving everyone a chance to see it and join in. Normal posts will continue to appear below the B.S.

This session’s topic: What do you expect to see happen in ‘06?

Will the Fed continue to raise rates? Can the government possibly cut spending? (Fat chance). Will we see the economy slow down, maybe even a recession? Where do stocks go — bull market, bear market, or do we stay stuck in this trading range for yet another year? How about the housing market: crash, slowdown, or to the moon? Where will oil prices go: $40 or $70? Which will hit $500 first — gold or Google? Will Cramer’s show last beyond May? Does anyone care if it does? China? India? The dollar? Commodities? Bueller…Bueller?

Chime in with your expectations for ‘06. And you can tell other BMB readers why they’re right — or why they’re wrong! Just click the comment link to the lower right, and let ‘er rip…

Likely not, says this column from KWR International Advisor. This is one of the more rational discussions of the current global imbalances, and how central banks and foreign economies are likely to start working their way out of them.

Or, the sky might fall.

Items of note on the latest industry moves:

• Still seeing the ‘worst’ groups over 4 weeks in the green. Things will settle down eventually.
• Most energies had a decent week, oil services still the strongest.
• Airlines giving some back as oil prices stabilize. The rest of the transports seem to be holding up for now.
• Semiconductors have been leading the techs.
• Drugs stocks just can’t get going, and haven’t been able to for a long, long time now.

Well, the initial shopping numbers are in. And despite record stories of uncountable millions flocking out to shop on Friday…it seems sales were flat…to…gasp, down. But don’t worry. According to this report Friday wasn’t that important (anymore). The important shopping day will be moved out until they get the shopping day they want…or Christmas is over, whichever comes first!

It’s a good thing there are private companies–and entrepreneurs out there still able to dream up genius ideas. Who would have imagined what was going on at Bose, known mostly for audio?

	Energy stocks had the best week, and have held pretty steady since taking a beating the first part of October. A break and hold above 51.50 would be bullish for the XLE.
	Financials remain strong, despite the incredibly flat yield curve. XLF is still overbought, and still needs a rest.
	Basic Materials are still second-best over 8 weeks, but most of that has come in the last 4 weeks. The XLB could stand to pause a bit as well.
	Utilities have been holding their own after the October selloff, and have been helped by a relaxing of interest rates.

The numbers after a quiet Thanksgiving week:

Charts courtesy of StockCharts.com