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.

Not here. Not yet. But according to Dr. Joe Duarte’s weekly Market I.Q. newsletter, it could be happening in China:

The housing boom in China is imploding, just as major global banks and private equity firms are making huge forays into the Chinese banking system, suggesting that as Wall Street firms trip over one another to buy China, we could be on the verge of yet another Asian contagion.

According to the L.A. Times, China’s model city of commerce, Shanghai is now a model for what happens when a housing bubble bursts.

Indeed, the situation, as described by Don Lee, is bordering on hysteria: “Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices. For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property. Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.”

What makes this interesting is that this is not new, as it has been going on for months. According to the Times: “3,000 brokerage offices had closed since spring. Real estate agents, whose phones wouldn’t stop ringing a year ago, say their incomes have plunged by two-thirds.”

Dr. Duarte’s free newsletter often contains unique insights on global politics and events, and their possible effects on world markets. If you’re curious, you can sign up at Joe-Duarte.com.

Also, if anyone digs up a link to the L.A. Times article mentioned above (I haven’t found it yet), drop it in the comments. Never mind, I found it. Here it is.

There. The Dow finally closed above 11,000. Maybe CNBC will finally shut up about it now. Geez, they’re annoying. Do you know they were showing the Dow chart for about 10 minutes straight, every single tick, as it approached 11,000? Get a life.

The market put together another solid performance today, sending the major indices higher for another day after last week’s strong start to the year. The Dow climbed 53 points (+0.5%) to 11012, the S&P 500 gained 5 points (+0.4%) to 1290 and the Nasdaq was higher by 13 points (+0.6%) to 2319. The Russell 2000 did even better, gaining 7 points (+1.0%) to 706. The Dow Transports picked up 0.6% while the Utilities index fell 0.5%. Bonds moved very little, leaving the yield curve still in a befuddled mess: you can get a 6-month bill at the same yield as a 10-year note (4.37%), while the 2-year sits at 4.35% and the 5-year at 4.31%.

Market internals were strong. Volume pulled back from Friday’s high levels, but was strong nonetheless. Advances/declines fell just short of 2 to 1 on the NYSE and were 3 to 2 on the Nasdaq. Up/down volume was about 3 to 2 on the NYSE and 2 to 1 on the Nasdaq. New highs/low are finally looking strong, at 352/24 on the NYSE and 263/24 on the Nasdaq.

Though it was a good day overall, only a few groups made big moves higher. Leading the way were the housing stocks (+3.5%, with many of the homebuilders up 4.6%. If anyone has a clue why, please drop a comment. I still don’t get the housing thing…most of the data coming in lately hasn’t been very good.). Following the homies were disk drives (+2.9%), biotechs (+2.0%), steel stocks (+1.2%) and brokers (+1.0%). On the down side, HMOs fell 1.2%.

Crude oil pulled back to $63.38/barrel, while natural gas stands at $9.50/mBTU and unleaded gas at $1.76/gallon. The dollar climbed back up by 0.5% to 89.26. And while CNBC could focus on nothing but Dow 11,000, the price of gold pushed above $550/ounce to a new 25-year high before falling back to $549.

BMB Note: I guess I should go away more often — the market did very well when I wasn’t around to watch it! For now, just go with the flow. If stocks want to move higher, for whatever reason, I’m not going to fight it. I’ll be keeping my eyes open for good entry points in strong areas, and that may require a little bit of a pullback as many stocks have moved pretty strongly in the past week.

Don’t get too wrapped up in the Dow 11,000 mania. As CNBC pointed out, the first time the Dow moved above 11,000 was in May of 1999. That means it hasn’t gained any ground in nearly 7 years - take a look at a 10-year chart. That’s not something to be too impressed by.

The majors seem content to edge higher today on positive breadth. Leading the groups up are the housing stocks (why??), the disk drive index, and biotechs. Losing ground are the oil services.

Bonds haven’t moved much at all. Energy prices are lower, with crude oil down 90 cents to $63.30. Gold is having another big day, now above $546/ounce, at levels not seen in nearly 25 years. The dollar is recovering a bit from the trouncing it took last week.

In the weekly look at sentiment and technicals from Schaeffer’s, we’re not surprised to see that last week’s action has swung the momentum into the bullish camp for the near term:

Wrapping it up, the market looks poised to continue its winning ways this week. Short-term traders should extend their long positions to take advantage of the continued upside. Consider a hurdle of the potentially stubborn QQQQ 43 mark a big plus for the market. Earnings outlooks should begin to provide a catalyst as the first such season of 2006 kicks off. Though the heavy action does not begin until next week, some positive earnings numbers sprinkled on top of the recent technical strength should send the market higher.

Gary Kaltbaum’s view is a bit different now than it was at the end of the year — rallies out of nowhere will do that to you:

Use this as a lesson to you as budding technicians. Go with what you see today. Today always trumps yesterday.