Bear Mountain Bull

Items of note on the latest industry moves:

• Precious metals stocks are leading the list over all timeframes, and were the only group to move higher this week.
• The disk drive group finally had a bit of a pullback this week.
• Many tech groups have made their way onto the ‘worst’ list.
• The ‘worst’ list is starting to get plenty of red back in it.

	Materials stocks did the ‘best’ in a week where all sectors lost ground. The XLB still looks to be in good shape here, although it didn’t finish near the top of the pack for the year of ‘05.
	Energy stocks had a great year, but are struggling just a bit over the past couple off weeks. The XLE needs to hold the current area near the 50-day MA.
	The utilities haven’t done much of late, but put in the second-best showing of the year.
	Consumer Discretionary stocks had the worst performance of the year, and are looking pretty toppy again after their November runup.
	The beloved tech stocks had the second-worst year of the sectors, and are now the worst over the past 8 weeks. If you’re one of those that doesn’t look at anything but tech, you’d best be choosy.

The numbers as we close the books on 2005:

Charts courtesy of StockCharts.com

Apparently some folks aren’t real happy with Gary Kaltbaum’s speaking the truth - namely, that the market is looking a little wobbly at the moment. But it ain’t broke ’til it’s broke:

It’s amazing how upset some people get when you are not wildly bullish. I actually had to do a double take on my reports. The way the emails were written, you would have thought I predicted the Apocalypse. Here is what I did not say.

I did not say we are headed for a crash. I did not say we are headed for a bear market. I did not say we are headed for much lower prices. I did not say the end of the world is coming. All I said was that I am seeing the conditions that in the past, have led to lower prices…but in order for that to occur, support must be broken…and that hasn’t even occurred. If it does, we will deal with it. That’s all.

Read the column for Gary’s thoughts going into ‘06.

Larry McMillan, in his weekly email newsletter (sign up), says his indicators don’t agree with what the media is telling him, and he isn’t real optimistic on the market’s chances for January just yet:

One final point: the media and the bulls are saying that there is a lot of pessimism out there, and that markets don’t necessarily repeat themselves, so they expect January to be bullish. Of course, markets don’t repeat themselves, but that’s hardly a reason to be bullish for January. As for the pessimism, we don’t see it. $VIX is near historic lows; that’s not pessimistic — it’s complacent, if anything. Furthermore, put-call ratios are not at highs — which is where they’d be if there were pervasive pessimism.

The market stumbled out of 2005, ending a pretty unimpressive year. Stocks started lower this morning on poor internals. The internals improved somewhat as the day wore on, but the major indices never got back on their feet. The Dow Industrials finished the day down 67 points (-0.6%) at 10718. The S&P 500 lost 6 points (-0.5%) to 1248 and the Nasdaq dropped 13 points (-0.6%) to 2205. The Russell 2000 lost 5 points (-0.7%) to 673. The Dow Transports slid 1.1% and the Utilities lost 0.4%. Bonds also gave up ground, pushing yields higher but not repairing the damaged yield curve. At day’s end, we find the 2-year yield at 4.40%, the 3-year at 4.36%, the 5-year at 4.35% and the 10-year at 4.39%.

Volume ticked up slightly from yesterday, but was still at low holiday levels. Advances/declines were 3 to 2 on the NYSE and 11 to 8 on the Nasdaq, with up/down volume about 3 to 7 on the NYSE and 5 to 14 on the Nasdaq. New highs/lows continued to worsen, at 65/104 on the NYSE and 74/77 on the Nasdaq.

Not many groups gained ground, with oil services the best, adding 0.5%. Losers were led by paper stocks (-1.7%), transportation (-1.4%), steel stocks (-1.2%), precious metals stocks (-1.2%) and HMOs (-1.1%).

Crude oil rallied again, pushing up to $61.04/barrel, but natural gas held steady at $11.22/mBTU. The dollar index was higher by 0.3% to 91.16, and gold held at $516/ounce.

BMB Note: A rather fitting end to a frustrating year. In case you’re curious, today’s closing levels leave the Dow down for the year by 0.6%, the S&P 500 up 3.0% and the Nasdaq up by 1.4%. Buying and holding, especially the large-cap stocks, didn’t get you very far this year. Hopefully next year will be better, but you can’t count on it. The market has been basically sideways for two years now, and you have had to be quite nimble to make money - and you needed to make sure your money was in the right areas. Right now, it’s hard to say what’s going to do well in ‘06. We’ll likely be surprised.

BMB will have the regular weekend posts available tomorrow, and then will be off the first week in January. Let’s hope this January isn’t quite as ‘interesting’ as January of ‘05 was.

It looks like this year’s “Santa Claus rally” might turn out to be a total bust. Negativity permeates the stock market this morning, with the major indices all in the red, and market internals very poor. Virtually no groups are moving higher. Leading the losers are the paper stocks, transports and airlines. It would seem that many folks are attempting to book their profits before year’s end.

The yield curve is still a mess, with the 2-year at 4.38%, the 5 at 4.33% and the 10 at 4.37%. The dollar is higher, for whatever reason, and gold is steady. Energy prices are also holding steady.

Well, yesterday we closed with the yield curve inverted. This morning we wake up to the inversion gaining just a bit of traction–the 2 and the 10 separated a bit further:

2 year: 4.36%
10 year: 4.34%

This article says that the inversion of the yield curve puts a damper on the enthusiasm for Adjustable Rate Mortgages:

On Tuesday, two-year Treasury yields rose above 10-year yields, inverting the yield curve for the first time in five years. ARMs are pegged against the yields on shorter U.S. Treasury yields, and fixed-rate loans are set against longer Treasury yields.

This means that it costs more for banks and lenders to borrow short-term while earning less on longer-term loans they have on their books. If the curve inversion grows, banks and lenders will have to charge home buyers higher rates on ARMs than on fixed loans.

“As a borrower, you have nowhere to hide,” said Greg McBride, financial analyst at Bankrate.com.

Another lackluster day in the stock market, with oil prices moving higher and the yield curve remaining in its topsy-turvy state. Stocks faded late in the session, leaving the Dow 30 with a loss of 11 points (-0.1%) to 10785, the S&P 500 down 4 points (-0.3%) to 1254 and the Nasdaq falling 11 points (-0.5%) to 2218. The Russell 2000 dropped 2 points (-0.3%) to 678. The Dow Transports continue to amaze, gaining 0.4%, while the Utilities dropped 0.1%. The bond market was mixed, and left the 2-year yield at 4.37%, the 3-year at 4.34%, the 5-year at 4.32% and the 10-year at 4.36%. Yes, I know the yield curve does indeed appear to be inverted, but don’t you worry - it’s different this time.

Typical of this holiday week, volume remained very low. Internals were negative, with advance/declines just below even on the NYSE and 4 to 5 on the Nasdaq. Up/down volume was about 4 to 5 on the NYSE and 4 to 7 on the Nasdaq. New highs/lows are starting to worsen as well: 80/86 on the NYSE and 73/56 on the Nasdaq.

Not a lot of movement in the groups: winners were gold & silver stocks (+1.7%) and transports (+0.9%), while losers were oil services (-1.6%), semiconductors (-1.0%), networking stocks (-0.9%) and computer hardware (-0.9%).

Crude oil prices are holding the $60 level at $60.32/barrel, but natural gas is staying down at about $11.22/mBTU. The dollar index barely moved (91.09), and gold held pretty steady as well, near $516/ounce.

BMB Note: When the market isn’t moving and volume is light, it’s hard to read too much into it. I am troubled (oops, I sound like Tom Daschle) by the fact that the market was “supposed” to drift up this week, and instead it’s drifting lower. We’ll probably see more not-much-action tomorrow, but you’ll need to be alert going into next week. I’ll be out of the office, but my stops will be in place - you can bet on that. And if the market moves up instead of down, great!

…and I’ve got some bad news…

On the good news side, the Chicago PMI manufacturing index still looks strong. On the bad news front, existing home sales slipped in November, and the inventory of unsold homes is at a 19-year high. But, not to worry, we’re being assured that all is well:

“Housing activity has peaked,” said David Lereah, chief economist for the trade group. However, he insisted, “there are no balloons popping.”

The yield curve couldn’t make it the day without inverting. Here it is barely lunchtime and the 2 is at 4.4 and the 10 is at 4.39%.

Even worse news, the guy they had on CNBC used the words, “It’s different this time.” He had this astounding proof to offer: “I see growth next year in the 3 percent range.”

Rob Hanna at TradingMarkets sees five reasons why he thinks the market may sell off in the short-term. Of course, that doesn’t mean the end of the world. In Rob’s opinion, a selloff may just set things up for another move higher:

The market looks very toppy. Bad breadth, poor follow-through, distributive action, and overly bullish sentiment are all pointing towards a selloff. I would be surprised if it began in earnest before 2006, but I believe we will hit a rough patch in January. The market has been in neutral for nearly two years now and the upcoming selloff could be just the medicine it needs to launch the next leg higher. Not to get too much ahead of myself, but I believe the upcoming rough patch will prove to be just that, a rough patch. Once through it, I expect the market will rally strongly in 2006 and good traders will enjoy the ride. More on that next week…

At even this morning–no wait–2.36 for the two year and 2.37 for the ten year. We’ll call the yield curve flat–not yet improving, but not getting any worse either.

The major indices were kept to rather small ranges today, and came off of their best levels late in the day to finish with modest gains. The Dow Industrials gained 18 points (+0.2%) to 10796, the S&P 500 was higher by 2 points (+0.1%) to 1258 and the Nasdaq added 2 points (+0.1%) to 2229. The Russell 2000 got back 4 points (+0.5%) to 680. The Dow Transports were higher by 0.2% while the Utilities fell 0.5%. The bond market straightened itself out just a bit, leaving the 2-year yield at 4.36%, the 3-year at 4.33%, the 5-year at 4.32% and the 10-year at 4.37%. We’ve been treated to a parade of folks on CNBC today telling us that the inverted yield curve doesn’t matter, that things are very different today than they have been at times in the past when the curve has inverted. Whatever. We’ll find out, won’t we?

Market internals were mixed but leaned to the postive side, and volume lightened up even further. Advances/declines were 12 to 7 on the NYSE at 8 to 7 on the Nasdaq, with up/down volume 3 to 2 on the NYSE but negative at 9 to 10 on the Nasdaq. New highs/lows were also negative on the NYSE at 64/111, but positive on the Nasdaq at 73/54.

Precious metals stocks led the groups today, up 2.5%, followed mainly by energies: oil services (+1.9%), natural resources (+1.6%), oil stocks (+1.6%), commodities (+1.3%), and steel stocks (+1.1%). The airlines finally hit some turbulence, falling 2.4% as oil prices moved higher.

Crude oil moved back above $60, then pulled back to $59.89/barrel, and natural gas moved back above $11 to $11.56. The dollar had it rough early, but recovered late to push the dollar index up 0.2% to 91.21. Gold held much of its early gains, and is now trading near $516/ounce.

BMB Note: Stocks held their ground today, but this week is kinda hard to read due to the very light trading. Next week - when BMB will be on vacation - might be when we really find out where things are headed in the near term. Then again, maybe not.

Gary Kaltbaum discusses Tuesday’s action, some of the early warning signs he’s been seeing, and gives you the support levels you need to keep an eye on.

Markets have bounced a bit after yesterday’s selloff - the major indices are all in the green, but there hasn’t been a lot of significant movement in the industry groups. Another pop in the price of gold has precious metals stocks leading the way so far today, followed by steel and oil stocks. No groups are suffering big losses yet.

In the news of the morning, mortgage applications fell to their lowest levels since the middle of 2002, and consumer confidence continues to rebound (hey, it’s Christmas).

The bond market continues to befuddle the pundits as the 2 and 10-year yields remain in very close proximity. Energy prices are holding relatively firm, the dollar is lower and gold has jumped back up the near $517/ounce.

Update: CNBC is spinning the mortgage application number, saying that this time of year is typically a weak season. While I agree that Christmas time is not a strong season for mortgages, the number still means that applications were weaker than those of December ‘02, ‘03 and ‘04.

First thing this morning, yields on 2, 3, 5, and 10 are fully inverted.

2 yr –4.36
3 yr–4.32
5 yr–4.30
10yr –4.35

The “Santa Claus Rally” started with a huge lump of coal today, as all of the major indices took a tumble. The Dow Industrials fell 106 points (-1.0%) to 10778, the S&P 500 dropped 12 points (-1.0%) to 1257 and the Nasdaq dropped 23 points (-1.0%) to 2227. The Russell 2000 lost 10 points (-1.4%) to 677. The Dow Transports dropped 1.2% and the Utilities fell 0.6%. The bond market got a lot of attention today, as the 2-year yield moved above the 10-year for the first time in more than five years. At day’s end, we find the 2-year yield at 4.34%, the 3-year at 4.31%, the 5-year at 4.29% and the 10-year at 4.34%. No matter how you slice it, and no matter what the reason, that is out of whack.

Market internals were pretty lousy, and volume, though still very light, picked up from Friday’s anemic levels. Advance/declines ran about 6 to 13 on the NYSE and 5 to 14 on the Nasdaq. Up/down volume was worse, at 3 to 11 on the NYSE and 1 to 3 on the Nasdaq. New highs/lows were 126/81 on the NYSE and 119/53 on the Nasdaq.

The only group to gain ground today was the airlines, up 1.6%. There were plenty of losers, with the energy complex getting hit the hardest: oil service (-3.1%), oil stocks (-2.8%), natural gas stocks (-2.7%), natural resources (-2.6%), networking (-1.6%), commodities (-1.5%), transportation (-1.4%), biotechs (-1.3%), semiconductors (-1.3%), steel stocks (-1.3%) and disk drives (-1.2%).

Crude oil prices have fallen below $58 to $57.77/barrel, and natural gas prices continue to fall as well, dipping to near $11/mBTU. The dollar index gained 0.1% to 91.17, and the spot price of gold is above $507/ounce.

BMB Note: Blame it on the weakening sentiment indicators, blame it on the yield curve, it doesn’t matter - the market fell today. Technically, the major indices haven’t broken their recent support levels, and this is typically a strong time seasonally, so I’m not sure it’s much to get worked up about just yet. But stay on your toes, especially around the energy stocks, and maybe some of the tech names - as we showed in the weekend sector scan, the XLK has rolled over and looks like it might want to head lower. BMB got stopped out of some his energy shares today - you just never know how bad it will get, and I’m not going to stand around to find out.

As I said last week, January could come early this year. Investors may have gotten jittery on the yield curve news, but I’m sure the selloffs of the last two Januarys are in the back of everyone’s mind. People don’t want to get stung again, I’m sure. Neither do I.

Well, at least somebody’s finally talking about the inverted yield curve. The fact that the 2-year yield was above the 10-year finally got their attention. But of course, we had to hear the inevitable:

Despite the warning signs in the Treasury market, however, few economists expect a recession in the next year. This time, they say, things are different.

The emphasis is mine. When someone says “things are different” this time, be vary wary. Things are rarely different. Remember the “new economy” back in the late 90s? Yeah. Sure. Right.

The yield curve inversion doesn’t indicate anything in particular, in and of itself. But it certainly does indicate that something is not quite right…

Once again, much of the earlier gains of the morning have faded. We now have the Dow up, but the Nasdaq and S&P 500 right at the zero line. Winners thus far are the airlines and paper stocks, and the losers are the energy stocks.

Bonds are mixed, with the 5-year yield slightly higher but the 10-year slightly lower, and the 2-year is threatening to move higher than the 10-year. The 2-year yield, at 4.38%, is already considerably higher than the 5-year at 4.33%. The 10-year is hovering right around the 4.38% mark.

Energy prices are relatively stable, the dollar is steady, and gold is up above $507/ounce.

In the near term, sentiment would appear to favor the market bears. From the weekly wrap at Schaeffer’s:

Summing it up, while the market will search for reasons to rally this week, we are more likely to see a continuation of weakness as investors decide to take their gains from the past month rather than risk the uncertainty of the coming weeks. With a potential swing in sentiment and market breadth continuing to weaken, the wise investor will be postured to take advantage of the pockets of opportunity available in this market while protecting their portfolio with puts.

Items of note on the latest industry moves:

• The disk drive/flash memory group has really been helped by a comeback in Sandisk (SNDK) and a big move in Maxtor (MXO) on the Seagate (STX) buyout.
• Paper stocks? Can’t argue with the numbers.
• Drug stocks had another good week. Two in a row. Almost unheard of this year.
• Airlines still flying high.
• You know it’s been a nice run when the 8-week ‘worst’ list is all green, and has a group up 4.8%!!

	Materials stocks still holding up well, leading the way again this week.
	Industrials are maintaining strength as well.
	We’ve been complaining about health care stocks being unable to get going all year. The XLV has made a nice move in the last couple of weeks, and the major drug stocks have finally chipped in to help. Definitely an area to watch.
	Energy stocks have weakened, and are in danger of sliding back into the wide trading range of October/November.
	Tech stocks look to be in danger of rolling over. The recent pullback after the first move down had better hold.
	The XLU had a decent year, but can’t seem to get much going now.

The numbers going into the Christmas holiday:

Charts courtesy of StockCharts.com

Bear Mountain Bull would like to wish all of you a very happy holiday weekend. We would also like to take this opportunity to thank you very kindly for taking the time visit our site.

BMB will be taking a couple of days off for R&R, but will be back with the normal weekend posts on Monday, the 26th. Don’t forget, the markets will be closed on that day. Looking ahead, BMB will also be on leave the first week in January, so you’ll have to keep a close eye on the markets at what could be an interesting time!

Pretty quiet day, as expected, with little volume and little movement. The Dow Industrials fell 6 points (-0.1%) to 10883, the S&P 500 added a half-point to 1269, and the Nasdaq gained 3 points (+0.1%) to 2249. The Russell 2000 was higher by 2 points (+0.3%) to 686. The Dow Transports continue to move to new highs, gaining 0.4% while the Utilities added 0.2%. Bonds rallied, pushing yields much lower, and messing up the yield curve even further. Here’s the scores for today: 2-year 4.36%, 3-year 4.33%, 5-year 4.32%, 10-year 4.37%. We now have the 2-year pretty well ahead of the 5-year, and within one basis point of the 10-year.

Market internals were positive, but on very light trading volume as expected. Advances/declines were 12 to 7 on the NYSE and 10 to 9 on the Nasdaq, with up/down volume 11 to 8 on the NYSE and 2 to 1 on the Nasdaq. New highs/lows were 125/55 on the NYSE and 117/36 on the Naz.

Winning groups today were the networking stocks (+1.3%), steel stocks (+1.1%) and airlines (+1.0%), while housing stocks (-0.7%) led the losers.

Crude oil moved higher by 15 cents to $59.43/barrel, but natural gas prices continued to dive, falling to $12.28/mBTU. The dollar index was higher by 0.1% to 90.89, and gold hung around $502/ounce.

BMB Note: Not much to take away from days like today. Enjoy the holidays, and we’ll see if the market does anything next week. I kinda doubt it, but we’ll find out. We’ll probably need to wait until January to see any significant movement.