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.

If this Bloomberg story is true, it likely will not be good news for an already uneasy US bond market:

China should gradually cut its ownership of U.S. bonds and can stop purchases of dollar-denominated debt, Reuters reported a Hong Kong newspaper as saying, citing Cheng Siwei, vice chairman of the Standing Committee of China’s National People’s Congress. China owned $262.6 billion of U.S. Treasuries as of January 2006.

It seems that, at least according the some, the bulls are starting to stampede all over the sentiment figures.

First, there’s this from Mark Hulbert at Marketwatch.com. Then, there’s this tidbit from Matt Davio’s Daily Investor blog:

Here’s an interesting statistic from the sentiment front. The 10-day Daily Sentiment Index (MBH Commodity Advisors) last week hit a sky high 86.6% Bulls. Elliotwave.com presented the data notes that in the near 20-year history of this survey, only eight days have reached a greater Bullish extreme. This is a good piece of bearish evidence.

The latest issue of the ChartWatchers newsletter from StockCharts.com can be found here. This time around, the discussion looks at small cap vs. large cap, the seeming lack of new trading opportunities and the dark cloud cover candlestick formation.

Well, now that was a bit of a disappointment for the bulls. The market got off to a strong start this morning, but gave most of the early gains back by closing time, with the Nasdaq even reversing into the red. The Dow Industrials gave back more than 100 points from its high of 11248 to finish with a 36 point gain (+0.3%) at 11145. The S&P fell from a high of 1309 to finish at 1298, a gain of 3 points (+0.2%) on the day. The Nasdaq reversed from a high of 2358 to finish at 2337, a loss of 3 points (-0.1%) from Friday’s close. The Russell 2000 fell 6 points (-0.8%) to 759. The Dow Transports gained 1.2% and the Utilities held onto a gain of 0.4%. Bonds were lower across the board, yields moving up: 6-month 4.83%, 2-year 4.85%, 5-year 4.84%, 10-year 4.87% and the 30-year 4.90%.

Market internals turned around from the morning’s levels, and finished mixed with a negative bias. Volume ticked up on the NYSE and was flat on the Nasdaq. Advance/declines were 9 to 10 on the NYSE and 11 to 19 on the Nasdaq, with up/down volume 3 to 2 on the NYSE but 7 to 12 on the Nasdaq. New highs/lows were 272/56 on the NYSE and 253/29 on the Nasdaq.

The group picture also turned around midday, and was mixed as well. Leading the winners were steel stocks (+2.0%), commodities (+1.2%) and semiconductors (+1.1%). The losers were led by the REITs (-1.9%), biotechs (-1.4%) and airlines (-1.0%).

Energy prices ended lower, with crude oil turning around from above the $68 mark early in the day to finish at $66.40/barrel. The front month contract in gasoline has changed - the price in the May contract never rose to the levels of the April contract. Gasoline for May delivery is priced at $1.86/gallon. Natural gas fell a few cents to $7.17/mmBTU. The dollar index fell slightly to 89.64. Gold came off its highs to $588/ounce, and silver trades at $11.67/ounce.

BMB Note: The morning euphoria was met with some selling going in to the afternoon. By mid-morning, it appeared as though the broad market wasn’t as strong as the indices were indicating. Early on, I saw the Nasdaq A/D line dip into the red, and the Russell 2K went negative pretty early as well, indicating that not all issues were sticking around at the party. Turned out the party fizzled.

Ordinarily, a day like today would tell us something about the strength of the market (or lack thereof). I think it still does - the market isn’t quite as strong as the bulls tell you it is, and there are sellers waiting as prices move higher. However, one day’s action hasn’t proved to be a very good indicator of things to come lately, as things have chopped around quite a bit. So I can’t really view this as a terrible omen of things to come - the market hasn’t been honoring such “omens” very well lately. But I think it does show that it’s probably wise to remain somewhat on the cautious side for now.

I suspect we’ll see many more of these types of stories over the next few years.

Listen. We’ve been through - and are just making our way out of - a period where interest rates have been the lowest they’ve been in decades, and they’re still very low in historical terms. Don’t be foolish: get yourself a fixed rate loan and be done with it.

The market is starting out the week with a positive push. The major indices are enjoying nice gains, and nearly all groups are in the green. Advance/declines are solidly in the green on the NYSE, but interestingly, are just below the flat line on the Nasdaq. Steel stocks are leading the way, proving that overbought can become even more overbought. Commodities, natural resources and precious metals stocks are also doing well.

Bonds are slightly lower, putting more pressure on yields to move higher. Energy prices are higher, with crude oil having snuck up above $68/barrel before pulling back. The dollar is slightly higher, but gold has moved up to $590/ounce with silver at $11.71/ounce.

The weekly exam of technicals and sentiment still looks bullish in the short-term:

All-in-all, the current picture remains bullish while the market continues its sideways consolidation. Expect the market to continue seeing some short-term selling hit the tape as some investors raise doubt and concern over interest rates and the upcoming earnings warning season that is now upon us. This short-term selling may slow the market on a day-to-day basis, but given the recent signs of pessimism, this market should continue higher over the short term.

From Deron Wagner’s daily this morning:

When the Nasdaq broke out last week, we were initially very pleased because the index managed to catch up to the breakouts of the S&P and Dow. However, the problem is that the Dow has since failed its breakout and the S&P is in danger of doing the same. As such, we are now looking at the opposite problem we had several weeks ago in which the S&P and Dow were showing strength, but the Nasdaq was lagging. In theory, such a scenario should not present a challenge because one could simply buy a strong ETF such as the Nasdaq Composite (ONEQ) or short a weak one like the Dow (DIA). But the problem is that choppy and erratic trading conditions always prevail when the major indices are out of sync with one another. Such action subsequently leads to failed breakouts and breakdowns in both directions, which obviously tend to stop out traders on both sides of the market. We certainly experienced enough of that in March. Until the indices get back in sync with one another, and in either direction, we prefer to tread very lightly with regard to entering new positions. Although the overall bias is up, having a largely cash position right now is probably a safer bet than aggressively buying or selling the broad market in the short-term.

• GM is selling off a 51% stake in GMAC, their financing arm.
• Another merger, as Alcatel and Lucent try to complete a deal. I wonder if David Faber (CNBC) will have to find a new job when all this M&A activity stops. And it will.

Looking at the futures, the market is paying no attention to oil back above $67 and the 10-year yield at 4.89%. Gold futures are above $590/ounce.