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.

The airlines just haven’t been a good place to be for the last week or so. One of the groups that led the rally off the October lows seems to be coming back to earth in a bit of a hurry. Rising fuel prices are once again a painful reality, and today, Continental’s outlook for the first quarter wasn’t exactly encouraging. At this point, if you still own any airlines, any bounce would certainly be sellable. For the more aggressive traders, bounces from here may present some short opportunites. Charts here are shown with their 20-day (blue) and 50-day (red) moving average. Symbols are: $XAL, ALK, AMR, CAL, JBLU, LUV.

Charts courtesy of StockCharts.com

For some reason, the market wasn’t very happy with the idea of $66 oil and the re-inversion of the 2 and 10 year yields. I wonder why.

The Dow Industrials fell 64 points (-0.6%) to 10896. The S&P 500 dropped 5 points (-0.4%) to 1283 and the Nasdaq lost 14 points (-0.6%) to 2303. The Russell 2000 was 5 points lower (-0.7%) to 704. The Dow Transports suffered again, falling 1.4% while the Utilities actually gained 1.3%, most likely on a fall in interest rates. Speaking of rates, bonds were higher pushing yields down, and screwing up the yield curve even worse. Bloomberg’s rate page has the 6-month at 4.42%, the 2-year at 4.33%, 5-year at 4.27% and the 1o-year at 4.34%. Go to that page and take a look at the yield curve chart - that’s NOT what it’s supposed to look like…

Market internals were negative with little change in volume. Advance/decline figures were just better than 1 to 2 on the NYSE, and about 7 to 12 on the Nasdaq. Up/down volume was just worse than 1 to 2 on both exchanges, while new highs/lows were 153/31 on the NYSE and 132/34 on the Nasdaq.

The few groups moving higher were led by natural gas stocks (+2.1%), natural resources (+1.9%), oil stocks (+1.8%), steel stocks (+1.7%), oil services (+1.6%) and utilities (1.0%). On the down side, the airlines got smacked again, this time down 6.1%. They were followed by telecom (-1.6%), semiconductors (-1.6%), networking (-1.4%), transportation (-1.2%), insurance (-1.1%), computer hardware (-1.1%), retail (-1.1%), disk drives (-1.0%) and brokers (-1.0%).

Crude oil prices jumped to well above $66, now trading after-hours at $66.60/barrel. The other energies were higher as well, with gasoline moving to $1.82/gallon and natural gas to $9.31/mBTU. The dollar started higher, then fell back to save a gain of 0.1% on the dollar index, to 89.24. Gold moved above $560/ounce before settling back near $555.

BMB Note: Oil prices back above $66, the yield curve moving back to where people will again admit it’s inverted. Not good news. The Dow has now pulled back into its recent trading range, while the S&P and Nasdaq are still holding their breakout levels. No disasters yet, with the exception of the airlines, which have broken down big-time. Normally, I wouldn’t be concerned about this recent pullback, but if these energy prices continue, I’m not so sure that the upward trend can resume out of it. It will be interesting, especially with big-name earnings coming out in droves. IBM and Intel, among others, after the bell tonight.

Update: It doesn’t appear that the news from IBM, Intel and Yahoo after hours is going over very well.

Yield curve fully inverted again today.

The events in Iran and Nigeria are clearly rattling the oil markets. From today’s energy report by Phil Flynn:

Iran’s Economic Minister added to the risk premium by saying oil prices could go a lot further than the West thinks. This comment was more than ample reason to speculate that Iran will not hesitate to use its oil as a political weapon in this dispute with the world.

Russia and China are backing the rest of the world in talking tough to Iran but will they support economic sanctions? Right now they want more diplomacy and talk but the rest of the world thinks the time for talking is over. Iranian oil exports are in jeopardy. This is the most serious threat to the world’s oil production since the hurricanes this past summer.

Yet on the bearish side China reported that their 2005 oil demand was flat! Flat? That’s right. They say their demand for oil did not grow from the year before. Of course many doubt that China’s oil demand was flat. I think China is low-balling the numbers so they can hopefully slow the price rise of oil long enough to buy more at these price levels.

Clearly, these events are something to keep an eye on. The stock market will NOT be happy if oil continues to move higher.

The weekly look at sentiment from Schaeffer’s indicates that, barring bad earnings news, there still exists a bullish bias in the short term:

According to our sentiment indicators, the market remains positioned to have some continued upside mobility. The only major Achilles heel for the short-term outlook appears to be this week’s earnings announcements.

Stocks started the week off on the wrong foot, taking an initial hit on crude crude oil back above $65 and weakness in Asia, especially Japan. The major indices have recovered off of their worst levels, but market internals remain quite negative. We’ll see how things progress over the course of the day.

Groups making headway are concentrated in the commodity areas - steel, oil services, natural resources, natural gas and oil. Leading the losing side are the airlines, semiconductors, telecom, disk drives and networking stocks.

Bonds are slightly lower, yields higher. Energy prices are higher, with crude above $65, gasoline at $1.76 and natural gas back above $9.00. The dollar is up and gold down to $554/ounce.