Bear Mountain Bull

If you’re Ben Bernanke, you’re probably already having sleepless nights, and you’re not even a day into your new job. At least that’s what the chief economist for Marketwatch.com thinks. I can’t say as I disagree – and it kinda makes you understand why Uncle Al decided it was time to leave!

Another mixed day in the market. The three majors all finished lower, but not all indices were down, and market breadth was slightly positive. Trading ended with the Dow Industrials lower by 35 points (-0.3%) at 10865, the S&P 500 down 5 points (-0.4%) at 1280 and the Nasdaq losing 1 point to 2306. The Russell 2000, however, was higher by 2 points (+0.3) to 733 – the S&P small and mid-cap indices were higher as well. The Dow Transports were up 0.3% and the Utilities index held steady. Bonds were mixed as well, leaving the yield curve curving in the wrong directions: 6-month yields stand at 4.58%, 2-year at 4.52%, 5-year at 4.46% and the 10-year at 4.52%. What a mess.

Market internals hugged the flat lines, while volume picked up from yesterday’s levels. Advance/declines were about 10 to 9 on both exchanges, with up/down volume 3 to 4 on the NYSE and just better than flat on the Nasdaq. New highs continue to outnumber new lows, by 285/40 on the NYSE and 213/27 on the Nasdaq.

A few groups made solid moves up, led by gold & silver stocks (+3.0%), airlines (+2.0%), HMOs (+1.9%), steel stocks (+1.4%) and commodities (+1.3%). On the down side of the sheet were the semiconductors (-1.4%), paper stocks (-1.1%), housing stocks (-0.9%) and oil services (-0.9%).

Energy prices were mostly lower, with crude oil sliding back to $67.70/barrel. Unleaded gasoline fell to $1.73/gallon and natural gas held fairly steady at $9.37/mBTU. The dollar index fell 0.4% to 88.93, while gold held firm near $568/ounce.

BMB Note: No big surprises today, as the market seems to be trying to digest some of its recent gains. The indices are holding up, and not even really giving up much ground, even though they didn’t get the “all clear” sign from the Fed today. Some areas are getting even a little more extended – namely, the metals continue to be strong, but are getting quite stretched. BMB has been taking some profits there as prices move higher. And with many other areas still up, it’s hard to find good opportunities for entries at this point.

As we mentioned last night, we figured there would be some movement in Google on their earnings report today after the bell. Looks like that was a bit of an understatement. As I write this, GOOG is trading at $370, down about 60 bucks from today’s close. You knew this was coming sooner or later. Hope you weren’t the last one in. Those folks that bought at $470 probably aren’t feeling real well this afternoon. I’m not sure CNBC knows quite what to do either…

No surprise here – the Fed raises rates another quarter-point, pushing the Fed funds rates up to 4.5%. Great news for folks who save their money. The market isn’t real thrilled, however, as the Fed statement certainly left the window open for further rate hikes.

I don’t know what the market was expecting. Apparently, they thought the Fed might say “That’s it. We’re done.” I don’t think that the Fed would say that, even if they were done. Of course, today’s wording might help keep the dollar up.

Update: The Senate has confirmed Bernanke’s appointment as the new Fed chairman.

Big moves in the precious, and some not-so-precious, metals stocks today. I’m sure the big move in PAAS comes with a little help from the Cramer effect, but those of us who have owned precious metals and their stocks for some time now have to wonder where he’s been. After all, the PHLX Gold & Silver index ($XAU) has moved from 80 to 150 in the last 8 months.

BMB feels sorry for all of the Cramer groupies who thought that PAAS was only about Easter eggs all this time. You’ve missed out, waiting for the bald guy to tell you what to do instead of figuring it out yourself. And now that you’re all in, it’s probably just about time for a nasty correction. Who knows – maybe you’ll be buying your shares from BMB readers…

Gary Kaltbaum’s view is that a number of areas are quite stretched at this point, and to watch and wait for pullbacks before diving in.

Some further “settling” today, it would appear. The majors are all showing slight losses, with advance/decline figures decidedly negative at this point. Leading the groups down are the oil services, semiconductors, transports and housing. About the only group making moves higher at this point are the precious metals stocks. Bonds are just slightly higher, yields lower.

Energy prices are down slightly, the dollar is down a bit, and gold is hanging around the $568 mark.

You know, it’s time for the State of the Union address. And the media, with all of its polls, seems to be happy to tell us that a majority of people feel like the economy is in bad shape, the country is headed in the wrong direction, etc. But along comes the financial media, and they tell a completely different story – consumer confidence is at the highest level in three years.

You just don’t know who to believe, do you? And have you noticed that consumer confidence seems to have a close correlation to stock prices?

The Labor Deparment’s Employment Compensation Index reported that wages increased 3.1% in 2005, the lowest increase in nine years. But you shouldn’t feel bad about the news. You see, actually, that’s good news:

The new Employment Compensation Index should ease concerns at the Federal Reserve that improving labor markets could be starting to push up wage pressures.

Never mind that your wages aren’t able to keep up with rising energy prices. Now how do you feel about that “core” rate of inflation?

A mixed day on the street today, no matter how you look at it. Major indices were mixed, some groups up, some groups down, and internals were mixed. After it was all over, we see that the Dow Industrials dropped 7 points (-0.1%) to 10900, the S&P 500 gained about a point-and-a-half (+0.1%) to 1285, and the Nasdaq added 3 points (+0.1%) to 2307. The Russell 2000 fell 1 point (-0.2%) to 731. The Dow Transports were up 1.0% while the Utilities lost 0.6%. Bonds were generally lower, and yields moved up: the 6-month is at 4.58%, 2-year at 4.51%, 5-year at 4.46% and the 10-year at 4.53%.

Market internals were mixed, and volume fell back from Friday’s high levels. Advance/declines were 9 to 10 on both exchanges, with up/down volume 11 to 10 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows were 295/30 on the NYSE and 235/23 on the Nasdaq.

There were some solid gains in the groups, however, with airlines gaining 2.9%, followed by oil services (+2.9%), oil stocks (+2.3%), natural resources (+2.0%), gold & silver stocks (+2.0%), housing (+1.6%), transportation (+1.4%) and natural gas stocks (+1.2%). On the losing side were hospitals (-1.5%) and biotechs (-1.3%).

Energy prices moved higher today, with crude oil trading up to $68.55/barrel, gasoline at $1.77/gallon, and a big move up in natural gas to $9.38/mBTU. The dollar index barely moved (89.43), but gold moved up to near new 25-year highs at $569/ounce, and silver hit new 19-year high levels at $9.81/ounce.

BMB Note: Not surprising that the market took a bit of a pause today, after last week’s strong finish. Fed meeting tomorrow, and we might even get to find out what the Fed decides if CNBC can find time to squeeze it in between segments on Google and their earnings report. Speaking of Google’s earnings, I’m just glad I don’t hold that stock. It must be tough to sit there and wait on those earnings, knowing that the stock will likely move $20-30 in one direction – but not knowing at all which direction it will go! Not for me, thanks.

The market is a bit more subdued this morning. The major indices are showing slight gains, and more groups are up than down, but the numbers aren’t large and advance/decline figures are just above flat. Leading groups are the oil services, oil stocks, housing, natural resources and precious metals, while hospitals and drug stocks lead the losers. Bonds are slightly lower, pushing yields up yet again.

Energy prices are pretty near flat. The dollar is flat, but gold is pushing back up near $564/ounce.

…but personal income didn’t keep up with the spending. Here’s two columns on the same subject, but note the different tone. The AP article on Yahoo comes out right away and says:

To finance the increased spending, Americans dipped further into their savings, pushing the savings rate for all of 2005 into negative territory at minus 0.5 percent. That was the lowest annual savings rate since a decline of 1.5 percent in 1933, a year in which the country was struggling to cope with the Great Depression.

But the Marketwatch.com article doesn’t mention the increasingly negative savings rate until the very end.

Someday, some way, we will pay for these excesses. And if consumer spending starts to slow down, for whatever reason, watch out.

No doubt the media will be filled with glowing praise for Alan Greenspan this week as he finally makes his exit after 18+ years as Fed Chairman. But is he really the genius that we’re constantly being told he is? I tend to think not – I believe that, ultimately, we’ll come to find out that his inflationary ways will have caused more harm than good.

MSN Money has two opposing viewpoints currently on their site. The “saint” viewpoint, from Roger Ibbotson, is titled “How Greenspan got it right.” The “satan” side of the argument comes from none other than Bill Fleckenstein, in a reprise of an article published a few months back, called “The worst Fed chief ever.”

Over time, we should be able to discern which of these gentlemen is right.

Items of note on the latest industry moves:

• Steel stocks had a pretty amazing week. If you’re curious, here are the components of the Dow Jones US Steel index, which is the index tracked here.
• Some groups – like semiconductors, steel and precious metals – have had pretty big runs over the past 4 and 8 weeks. Be a little careful around these groups — there could be some pullback/correction in the works. It’s not unusual to see some money rotate out of the ‘hot’ areas as investors book their profits.
• Still some green on the ‘worst’ list. Obviously, most groups have been doing quite well.
• For an even more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page.

There’s waiting in line and there’s waiting in line. There’s travel and then there’s travel–I read this article about the people going home for the Chinese New Year and thought about American’s griping as we put up with new security in airports. I’m not posting it for that reason however; I’m posting it more because it is yet another glimpse of China, that strange and fascinating place that has become America’s competitor and yet is still our supplier of many things material.

China Trains at New Year

	Energy stocks had a rough day on Wednesday, but the XLE managed to hold above the September highs, and has established a very short-term range between 55 and 57.50.
	Materials stocks bounced nicely off the 50-day moving average and peeked back above the highs of the first week in January.
	The financials had a solid comeback week after last Friday’s selloff, but still look to be range-bound between about 31.25 and 32.25.
	Tech stocks are third-best on the year, but the XLK doesn’t truly reflect the strength in some areas of tech. Tech stock pickers should be doing much better than the XLK.

The numbers after a comeback week:

Charts courtesy of StockCharts.com

This shouldn’t come as a huge surprise to BMB readers: the futures market is now telling us that high oil prices are “The New Reality”. From Business Week online:

Even when short-term prices soared to alarming levels, the futures market had until recently valued oil much more modestly. As new supplies came onstream, traders figured, prices would drift back down to their long-term average, which for years was about $20 per barrel. This thinking still influences the big oil companies, who have held back from investing massively in new projects.

But the futures market is now sending a radically different, and disturbing, message. Until 2002, oil futures rarely moved above $20 per barrel, and by 2005 they still lagged current prices. But in the last year long-term futures prices have been soaring, reaching $62 per barrel for benchmark West Texas Intermediate crude for delivery seven years out. Paul Horsnell, an analyst at London-based investment bank Barclays Capital (BCS ), says the markets are sending a message: “Whatever the long-term price is,” he says, “it is not $20 per barrel.”

Go ahead. See for yourself.

Investors shrugged off completely ignored a lousy Q4 GDP number and near $68 crude oil today, and ran prices up for another session. The Dow Industrials moved up another 98 points (+0.9%) to 10907, the S&P 500 gained 10 points (+0.8%) to 1284 and the Nasdaq bumped up by 21 points (+0.9%) to 2304. The Russell 2000 gained 4 points (+0.5%) to 732, the Dow Transports were unchanged and the Utilities were higher by 0.3%. Bonds moved only slighly higher, edging rates down just a bit: 6 month = 4.55%, 2-year = 4.49%, 5-year = 4.44%, 10-year = 4.51%.

Market internals were again positive, with volume pulling back just a little from yesterday. Advance/decline figures were 12 to 7 on the NYSE and 17 to 13 on the Nasdaq, with up/down volume better than 2 to 1 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows aren’t even close, at 437/35 on the NYSE and 304/24 on the Nasdaq.

Quite a few winning groups today, the best being steel stocks (+4.5%), semiconductors (or should I say BRCM, +2.7%), commodities (+1.9%), HMOs (+1.9%), oil services (+1.8%), natural resources (+1.6%), internets (+1.3%), drug stocks (+1.3%) and REITs (+1.2%). Losers were led by disk drives (i.e., SNDK, -2.1%) and airlines (-1.7%).

On the energy front, crude oil was up big going into the weekend, running to $67.76/barrel. Gasoline is now at $1.73/gallon and natural gas at $8.40/mBTU. The dollar made a strong move higher, pushing the dollar index up to 89.29 while gold hovers around $558/ounce.

BMB Note: Another good day in the market. It’s hard to complain about the action. But it will be interesting to see what happens next week. The Dow has now moved back above the point where last Friday’s selloff started, mostly in the last two days, and the S&P and Nasdaq are sitting right about where they were last Friday morning. And there have been big moves in a lot of stocks this week. It just seems like the market could be ripe for a little profit taking. BMB cashed in some chips today when some of my holdings made big jumps – I’m not one to give back windfall profits if they land in my lap. There could be a lot of others out there feeling the same way. We’ll see what happens.

Apple has take quite a dive in the past week-and-a-half, the biggest drop the stock has taken in quite some time. As a matter of fact, yesterday was the first day that AAPL closed below its 50-day moving average since July of last year, and the stock is lower again today. Maybe it’s time for Apple to take a right turn and rest here for a while, but a break below support just above the 70 mark would invite another leg down.

Chart courtesy of StockCharts.com

Does anyone know what’s going on with the stock of China Natural Resources – symbol CHNR? On Monday, this stock was trading under $4.00, and less than 10,000 shares a day. Since then it has moved all the way up to $13.85 (current price), and has been trading 2 and 3 million shares a day. I don’t get it, and I can’t find any explanation for it.

Is there real news on this company? Is this just one of those momentum China plays that catches on for a week or two? Did Cramer open his big mouth again?

Despite the poor GDP number this morning, the market has gotten off to a strong start. The major indices are all showing decent gains, with steel stocks, semiconductors and oil services leading the way. Moving lower are the airlines and disk drives.

Bond prices are holding rather steady, keeping yield in place. Energy prices are up: crude oil back above $67/barrel, and natural gas moving back up to near $8.50. The dollar is stronger and gold has given back its early gains, holding now around $557/ounce.

Surprisingly enough, new home sales rose 2.9% in December. But not everything in the report was good news:

The inventory of unsold homes increased 2.4% in December to a record 516,000, a 4.9-month supply at the December sales pace, matching the cyclical high set in November.

The median sales price fell 3.4% year-over-year to $221,800 in December. The median price for all of 2005 rose 7.4% to $237,300.

Regardless of what the sales figures tell us, the inventories continue to rise, and prices continue to slide. The housing boom is past its peak.

The first read on Q4 GDP was a big disappointment, coming in at 1.1%. But don’t you worry. The government reports each quarter’s GDP about 8 different times, so there’s plenty of chances for them to come up with a better number:

“We expect big upward revisions,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics, who called the business investment figures “baffling” given other data already reported.

Apparently, Cramer’s latest pump of a tiny stock ruffled a feather or two — as well it should have. Check out the links in the comments section of today’s market wrap.

Hat tip to BMB reader Steve.

Martin Goldberg is trying to ignore all of the anecdotal evidence of a market top: the Cramer thing, TradingMarkets running a stock-picking contest among Playboy models, you know, the usual stuff. He says that stocks need the help of the bond market to continue to move higher. Interest rates must stay stable or move lower, and that’s anything but a sure thing.

Just a thought, as everyone rejoices over this week’s strength in the market: the major indices – Dow, S&P 500 and Nasdaq – have NOT yet recovered their losses from last Friday’s selloff.