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.

Jim Jubak says that 2006 is likely to be another year of rising commodity prices. But it might not be due to shortages in the commodities themselves:

…the global system for producing and delivering commodities is breaking down under the pressure of demand. The world may indeed have plenty of oil, coal, copper, iron, nickel and other essential industrial commodities in the ground to meet current demand — especially with the big incentives to production that current high prices provide. But there’s increasing evidence that commodity industries are suffering from shortages in key materials, gear and personnel. And because of those shortages, they can’t get the oil, coal, etc., out of the ground without substantially higher production costs.

He gives a few suggestions as to which companies he thinks will profit from the situation.

Don’t ever invite this guy to one of your parties. I’m sure this move will do wonders for his popularity amongst the people, don’t you think? I’m guessing he doesn’t really care.

	There was some technical damage done to the Nasdaq Composite and the Nasdaq 100 today, as both indices crashed through their 20-day moving averages, and broke below the support levels of their recent trading ranges. This isn’t good news, but it also isn’t a huge surprise considering the way the Nasdaq has been lagging of late.

Charts courtesy of StockCharts.com

Not a very good start to the Christmas buildup in the market, as stocks took a dive. The Dow Industrials fell 39 points (-0.4%) to 10837, the S&P 500 dropped 7 points (-0.6%) to 1260, and the Nasdaq, which had been struggling of late, gave up 30 points (-1.3%) to 2223. The Russell 2000 also took it hard, losing 11 points (-1.6%) to 672. The Dow Transports dropped 0.8% and the Utilities lost 1.4%. Bonds were mixed near the unchanged mark - the 5-year yield moved up to 4.36% while the 10-year fell to 4.44%. As for the rest of the yield curve, the short end remains slightly inverted with the 2-year at 4.37% and the 3-year at 4.36%. But you don’t hear anyone talking about that…

As for the market internals, let’s be honest - they were horrible. On the good side, volume lightened up from Friday’s high levels, but that heavy volume was mainly due to expiration and rebalancing. Advances/declines were about 3 to 7 on each exchange, with up/down volume worse than 1 to 2 on the NYSE, and 1 to 4 on the Nasdaq. New highs are shrinking, with highs/lows coming in at 70/108 on the NYSE and 92/73 on the Nasdaq.

The only real winners today were the drug stocks, gaining 2.6%. Losers were led by the semiconductors (-2.3%), biotechs (-2.0%), steel stocks (-2.0%), housing stocks (-1.7%), HMOs (-1.7%), internets (-1.5%), computer hardware (-1.4%), software (-1.4%), retail (-1.3%), utilities (-1.3%) and hospitals (-1.2%).

Crude oil prices fell again, dropping 72 cents to $57.34/barrel, but natural gas moved back above the $14 mark at $14.21/mBTU. The dollar index gained 0.2% to 89.93, while gold gave back some early gains to finish near $504/ounce.

BMB Note: Looks like the recent Nasdaq weakness that we’ve been pointing out started to catch up to it today. I think today’s action likely puts in at least a near-term top for the Nasdaq and Nasdaq 100 - the S&P and Dow are still hanging in there. But the Nasdaq looks like it’s in a bit of trouble, at least for now. Stay on your toes, and honor your stops. Who knows? Maybe January comes early this year.

Also, a major move in the major drug stocks today. Maybe, just maybe, this will finally mark a bottom for those stocks that just haven’t been able to find a friend in months and months. Some have really come to life of late: when you get a chance, take a look at the charts of AZN, LLY, MRK, PFE, SNY and others.

Pfizer’s victory in a Lipitor patent dispute has a lot to do with today’s move in the drug stocks.

When “everyone knows” what’s going to happen, Gary Kaltbaum says that’s the time to be worried:

Everyone knows the market will rally into the end of the year. Everyone knows the market will have a strong January as new money enters the market. Everyone knows the economy is strong. Everyone knows the Fed is going to stop raising rates. Everyone knows…and that is why I am starting to get worried. Let’s talk sentiment. Keep in mind, sentiment is a secondary indicator…but when things go to extremes, I take notice.

Nothing is a lock. Just stay tuned to what’s going on, be prepared to act should things change, and you’ll be fine.

Hmm. This is getting old. Another day with rather weak internals and little movement, as the major indices remain mixed with the Dow and S&P up a bit and the Nasdaq down slightly. The biggest move is in the drug group, where the major pharmas seem to have caught fire all of a sudden - the drug index is up 3%, with MRK up 10% and PFE up 7%. That will be something we’ll need to keep an eye on. The big drug stocks have been doing horribly for quite some time - is it time for their turnaround? Also moving higher are health care products and precious metals stocks. Losers so far are HMOs and biotechs - oddly enough, also in the health care arena. Go figure.

Bonds are slightly higher, yields down. Energy prices are lower, with crude trading near $57/barrel. Gold is higher, the dollar is mixed.

In the weekly examination of the market from Schaeffer’s, I don’t see much to convince me that the market is likely to gain momentum in one direction or the other:

Wrapping it up, the market will likely continue tracking across the top of recent highs as investors tepidly buy for the remainder of the year. Some selling pressure may be seen until the equity put/call ratio embarks on a clear downtrend and the Rydex ratios move higher as a reflection of investors in a buying mood once again.