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.

On last week’s market, from Ike Iossif’s Tuesday market wrap at Financial Sense Online:

For the second consecutive week the markets went “aggressively nowhere!” Moreover, Friday’s rally appears to be short-covering rather than anything of substance, and here is the reason why. Supposedly the markets rallied sharply due to the GDP numbers, however, the markets are “forward looking.” They never celebrate or mourn for something that happened in the past. The markets care for this quarter’s and next quarter’s GDP, neither of which appears to be in good shape. Most indicators are at the zero line, and the indices are near resistance. If they can overcome it and the internals turn positive, then it will be time to turn bullish. Until then, neutral-to- bearish, is the only logical place to “hang our hat on.”

BMB has been telling you that he just hasn’t been seeing many opportunities on either the long or the short side lately, and much of that is due to the lack of trends in either the market or the various industry groups.

I guess I’m not the only one. Here’s a blurb from Dave Landry’s column at TradingMarkets.com today:

Some of you may have noticed that I haven’t been writing as much lately. There just hasn’t been much to write about from a momentum trader’s perspective. The market has changed directions 8 times in 12 days. Most sectors have exhibited a similar choppy behavior. As I picked up the phone to cancel my column for today, it hit me–years ago, I wish someone would have told me when to stay out of the market. In fact, the more I thought about it, the more important it became for me to do a column. The “secret” to any methodology is knowing when to back off during less-than-ideal conditions.

I’m having a hard time imagining what type of methodology would work well in this type of environment. Investor or trader, you still need the trend in your favor. If there is one at all.

A bit of a pullback day in the market, with the major indices giving back a small part of their gains of the last two sessions. The Dow Industrials finished lower by 33 points (-0.3%) at 10407. The S&P 500 slipped by 4 points (-0.4%) to 1203 and the Nasdaq lost 6 points (-0.3%) to 2114. The Russell 2000 fell 4 points (-0.6%) to 643. The Dow Transports were up 0.6% as energy prices stayed low, and the Dow Utilities fell 2.6%, hurt by poor earnings from TXU. Bonds slipped a bit, pushing yields up: the 5-year to 4.47%, and the 10-year to 4.58%. Portions of the yield curve are getting quite flat, though, with the 2-year note just 5 basis points lower than the 5-year, at 4.42%. Interesting.

Market internals fell to the negative side, with volume slipping a bit from yesterday’s levels. Advances/declines were 9 to 10 on the NYSE and 8 to 11 on the NYSE, with up/down volume 2 to 3 on the NYSE and 5 to 6 on the Nasdaq. New highs/lows were 93/107 on the NYSE and 97/73 on the Nasdaq.

Little movement in the market, little movement across the groups. Moving higher were steel stocks (+1.9%), oil services (+1.6%) and transportation stocks (+1.1%), while computer hardware (-2.2%), REITs (-2.2%), utilities (-2.0%), gold & silver stocks (-1.8%) and semiconductors (-1.0%) were lower.

Crude oil fell just 9 cents to $59.85/barrel, but natural gas moved lower by 30 cents to $11.90/mBTU. The dollar was unchanged, and gold continued its pullback, falling just below $459/ounce.

BMB Note: Not much to comment on today. Dell’s announcement hurt the Nasdaq, but the market was in need of a breather here anyway. The Fed’s 1/4 point move was obviously no surprise, but we’ll need to keep an eye on the long rates, as they’re still not moving higher nearly as quickly as the short end. It seems as though continued upward pressure on the short end is bound to invert the yield curve sooner or later, and that usually doesn’t indicate good times ahead.

No big surprise here. The U.S. auto makers are having an extremely tough time of it, while foreign auto makers are doing better. We’ve been here before - remember the 70s?

These companies are in rough shape. And it’s not going to get better for them anytime soon.

As energy prices have come down in the past few weeks, there hasn’t been much talk about our nation’s energy supply. But I’m not going to let you forget that all is not perfect on the energy front. Let’s take a look at the latest shut-in statistics, courtesy of the Minerals Management Service (GOM = Gulf of Mexico):

Today’s shut-in oil production is 1,000,092 BOPD. This shut-in oil production is equivalent to 66.67% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.

Today’s shut-in gas production is 5.269 BCFPD. This shut-in gas production is equivalent to 52.69% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.

The cumulative shut-in oil production for the period 8/26/05-11/01/05 is 75,664,514 bbls, which is equivalent to 13.820% of the yearly production of oil in the GOM (approximately 547.5 million barrels).

The cumulative shut-in gas production 8/26/05-11/01/05 is 386.397 BCF, which is equivalent to 10.586% of the yearly production of gas in the GOM (approximately 3.65 TCF).

That’s right. Fully two-thirds of our Gulf oil production is still shut in, and more than half the natural gas production. Don’t be surprised if energy prices move back up as winter sets in. No matter what the weather forecasts say, I’m betting that it will still get cold up north. Trust me.

From the Fed, that is. Raised the Fed funds rate 1/4 point to 4.0%, the language in the statement remaining pretty much the same.

These guys have no imagination.

The market bounced up a bit after the announcement - I can’t imagine why - but now seems to have drifted back down.

A bit of a snoozer so far, as the major indices dangle just a bit under the flat line. In the industry groups, steel stocks and internets are higher, with REITs, utilities, computer hardware and gold & silver stocks falling.

Bonds are slightly lower, meaning yields are slightly higher. Of course, we’ll see the Fed’s quarter-point rate hike announced this afternoon, and further action today will hinge on their accompanying statement.

Energy prices pulling back even further today, with a 26 cent dip in crude oil and a 34 cent drop in natural gas, pushing it back below $12/mBTU.

The dollar is up a little, and gold has fallen back to near $460. Nice pullback if you’ve been looking for a chance to buy those gold bars you’ve always wanted…

What was behind the big selloff in energy yesterday? Here’s Phil Flynn of Alaron on the subject:

It was a Halloween bloodbath that would put any Hollywood slasher movie to shame. It was a day that slaughtered the bulls in a ghoulish sell off that seemed to take on a life of its own. With weather forecasts turning warmer than normal and OPEC claiming they have plenty of supply, traders were left with little good reason to buy. Oil demand is at its seasonal low and the snow is melting in the Northeast. This had traders yelling, “look out below”! “Winter’s over!”

But it was probably comments by OPEC that got the ball rolling in earnest. Last week the market got a little boost out of a New York Times story calling into question OPEC’s spare capacity. OPEC, as they usually do, responded this week with a flat out denial. OPEC claims that they indeed have sufficient spare capacity to meet demand. In fact OPEC’s acting Secretary General Adnan Shihab-Eldin says OPEC’s spare capacity of 2.0 million barrels of oil a day would be more than adequate to cover demand this winter. The Financial Times reported that OPEC’s President Sheikh Akhmad al-Fahd al- Sabah said that the group had spare capacity and that demand was falling. He also said OPEC had offered extra crude deliveries in the aftermath of hurricanes Katrina and Rita, but there had been no takers.

Yet the truth is the reason there were no takers is the oil offered up by OPEC was heavy crude. And the refineries that are best able to refine heavy crude were shut down in the storm. The issues with Katrina and Rita were all about the refineries that were and still are shut down.

This extra OPEC oil was also rejected because the US was offered Europe’s reserve oil and that made heavy OPEC oil even less desirable. Demand is down that’s true and it’s true every year at this time. This is normal demand slow down time. In fact it was just a little less than a year ago when OPEC was convinced demand was falling and moved to cut oil production. Of course OPEC was wrong about demand then too.

If you like this kind of stuff, you can sign up for Phil’s free newsletter here.

Analysts are coming out of the woodwork to issue downgrades on Dell this morning, after the company warned of lower profits and revenue yesterday after the bell. You know, BMB could have done that too. I could have issued my own downgrade yesterday afternoon, after I heard the news.

Why do these analysts even have jobs? Who listens to them? Does anyone actually trade on their upgrades/downgrades? They are perpetually behind the curve, and certainly are of no use to the investing public. Maybe they serve some purpose inside the companies they work for, but I can’t imagine what purpose that might be.

Yet they continue to have jobs, pull down big salaries, and get their names and opinions splashed all over television and the rest of the media. I’m sorry — I just don’t get it.

On the Dell news: BMB has said before that he figured there was trouble brewing in Round Rock when they started selling televisions. That smelled pretty strongly of “we need to find a new revenue stream, any stream.” And whatever brilliant mind thought that they could recapture profit margins by selling a new line of more expensive computers should probably be relieved of his/her duties. Dell grew its entire business by beating other companies on price. For them to come out with a (supposedly) upscale line of computers - especially at this stage of the evolution of the PC - was just totally ridiculous. Note to Dell: higher prices are not enticing to the buyer. Got that?