Bear Mountain Bull

All this talk about “hurricane season” just drives me crazy. It isn’t like it’s a hunting season, or a football season, where the activity is either illegal or doesn’t actually start until the first day of the season. C’mon, let’s get real - the storms have no idea when “hurricane season” starts. Nor do they care.

This is how ridiculous it is - on CNBC tonight, the show started with the banner “Hurricane Season Hours Away”, and the host actually said “Hurricane season starts in five hours.”

Yeesh.

Ford joins GM in the sales incentive game.

So, tell me again why GM stock is up? Ford’s sure isn’t.

Rob Hanna wraps up the month of May, and says he’s “trading in bear-market mode.”

As he outlines the positives and negatives he sees, there is only one positive, that being sentiment, the recent decline having spooked many investors. Among the negatives:

My shrunken watch list — It’s been over three years since my watch list has been this small. I am not finding anything with intermediate-term potential. Bases have been destroyed and it will be some time before most of them can be rebuilt.

It wasn’t always very convincing, but we got an up day pretty much across the board on increasing volume, and a nice rally into the close - we’ll take it.

The Dow recovered 74 of the points it lost yesterday, up 0.7% to 11168. The S&P 500 gained 10 points (+0.8%) to 1270 and the Nasdaq picked up 14 points (+0.7%) to 2179. The Russell 2000 was up 10 points (+1.4%) to 721. The Dow Transports enjoyed a dip in oil prices, rising 1.9% and the Utilities added 1.4%. Bonds slid, however, and rates moved higher, to the highest level we’ve seen in nearly 2 weeks: 6-month 5.07%, 2-year 5.04%, 5-year 5.04%, 10-year 5.12% and 30-year 5.22%.

Market internals were positive on solid increases in volume on both exchanges - that’s somewhat encouraging. Advances/declines were 14 to 5 on the NYSE and 19 to 11 on the Nasdaq, with up/down volume a strong 4 to 1 on the NYSE and 7 to 3 on the Nasdaq. New highs/lows were 42/112 on the NYSE and 66/82 on the Nasdaq.

Looking at the groups, there were no losers to speak of. Leading the winners were oil services (+3.1%), airlines (+2.8%), paper stocks (+2.5%), biotechs (+2.4%), natural gas (+2.2%), natural resources (+2.1%), oil stocks (+2.0%), semiconductors (+1.8%), insurers (+1.6%), commodities (+1.5%), gold and silver stocks (+1.5%) and retailers (+1.5%).

Energy prices were mixed, with crude oil slipping to $71.29/barrel and gasoline dipping a penny to $2.14/gallon, but natural gas rallied to $6.38/mmBTU. Crude oil has fallen near $70 on the news that the US would be willing to enter talks with Iran over their nuclear program - but that’s not exactly right around the corner. The dollar staged a small afternoon rally, pushing the dollar index up to 84.69. Precious metals fell: gold to $645/ounce and silver to $12.56/ounce.

BMB Note: Some encouraging signs today. The lows of last week have held for now. Today was a pretty positive day, and volume picked up. That’s good news. We’ll see what it leads to.

Interesting that we saw energy stocks higher today, even though crude was down big most of the day. Gold and silver stocks were up as well, even though the precious metals were lower. A few things to keep an eye on.

Bad news on the bond front, as rates are sneaking higher once again. Could be a bad omen for stocks down the road - we’ll see. Good news for savers - maybe time to sneak into more of those T-bills if rates hold these levels for a few days.

Maybe today’s action will start a more solid bounce higher - too early to tell. Still a lot of damaged merchandise out there, so I’m not in a huge rush to start picking through the rubble to see what’s attractive. I’ll wait to see if the market can hold these levels and firm up a bit - maybe we’ll see a nice tradeable rally in some areas. That would be a welcome change. But I’m not getting my hopes up, especially for the longer term.

Barry Ritholtz (yes, the guy at The Big Picture), offers up some good advice with his 10 lessons learned in the recent selloff. You would do well to read them and learn from them. Here’s the quick list, but you’ll want to read the whole thing:

1. ‘Cheap Stocks’ Can Always Get Cheaper
2. Macro Issues Matter
3. Oversold Markets Can Become More Oversold
4. Support & Resistance Don’t Always Hold
5. Investors Have Short Memories
6. A Major Shift Is a Subtle Process
7. Stop Losses Are Lifesavers
8. Money Management Is Crucial
9. When Your Timing Is Off, Step Away
10. Smart People Do Dumb Things

One potential market mover for today is the release of the May FOMC meeting minutes, coming up at 2PM ET / 1PM CT. You know how this market can be when it comes to the Fed…

Update: The minutes have been released, and it sounds as though the Fed discussed options ranging from no increase in rates to a 50 basis point hike. Also there were discussions on energy price increases and the dollar.

The futures apparently got it right this morning, as we’re seeing a relatively positive opening hour. The major indices are all slightly higher, advance/decline figures are in the green, and most groups are higher as well. Leading the way up are the utilities, airlines, HMOs, paper stocks and semiconductors. Bonds are slightly higher, yields lower.

In the energy markets, prices have fallen across the board, with crude oil down to $70.30/barrel. Gold is down to about $645, and silver to $12.66. The dollar is near unchanged.

Good advice from Tim Truebenbach today — keep an eye on the volume, and wait until we see evidence that the big boys are buying again:

Many stocks are taking high-volume hits to break below key areas of support. Subsequent rallies, or bounces are coming on diminishing volume. We know that prices move up and down all of the time. Stocks do not go straight up or straight down, but the important factor to always consider among price movement is volume. When volume is heavy and above-average it is probably an indication that institutions are selling shares. Another important point to consider is that institutions do not trade like individual investors. Individuals sell 1,000 shares or so and are done immediately. Institutions may sell a thousand, five-thousand or more shares a day for months. So, when we start to see them selling it is a good idea not to bother with the stock until we start to see them buying.

Japan’s Nikkei 225 dumped nearly 400 points, sending it back down just below its lows of last week. This morning, we’re seeing European markets trading higher, and U.S. index futures are indicating a higher open.

It will be interesting to see if the lows set last week will hold.

Hey, no fair. Gary Kaltbaum slipped this article out mid-morning, after the market had already started lower. And he certainly was right, at least for today.

Update: “Reliable sources” tell me that the article was submitted before the market opened. Apparently the Trading Markets’ timestamp of 11 ET is inaccurate. We wouldn’t want to give Gary K. a bad rap.

I didn’t hear any mention of this on BubbleVision today - of course, I didn’t listen to any of the “Fedspeak” they had on this morning, so I may have missed it.

Regular BMB readers know that I’m of the opinion that the Fed may be influenced by a weakening dollar. Over the weekend, San Francisco Fed President Janet Yellen pretty much confirmed this for us:

The Fed is watching the U.S. dollar’s depreciation for its possible impact in raising import prices as well as boosting export demand, Yellen said in answer to a question after a speech at the University of California Santa Cruz on “Monetary Policy in a Global Environment.”

A depreciating dollar could stimulate aggregate demand and raise inflation somewhat, and “would appear to call for a response of tighter policy,” Yellen said.

Thanks to Dr. Joe Duarte for mentioning this in his weekly market IQ email.

So the light volume bounce of the last few days is all but gone. In another rather ugly session, investors sent the major indices back down to test their recent lows. The Dow dumped 184 points (-1.6%) to 11094, the S&P 500 dropped 20 points (-1.6%) to 1260 and the Nasdaq gave up 46 points (-2.1%) to 2165. The Russell 2000 fell 19 points (-2.5%) to 711. The Dow Transports were down 2.1% and the Utilities lost 1.0%. Bonds fell as well, and yields moved up: 6-month 5.02%, 2-year 4.97%, 5-year 4.97%, 10-year 5.08% and the 30-year 5.18%.

Market internals were pretty gross. The one shred of good news was that volume was not particularly heavy, although it was stronger than last Friday’s pre-holiday session. Advances trailed declines by about 1 to 3 on each exchange. Up/down volume was a pathetic 1 to 8 on the NYSE, and a little worse than 1 to 3 on the Nasdaq. New highs/lows were 25/126 on the NYSE and 61/73 on the Nasdaq.

In the groups, pretty much all bad news, with the exception of the Natural Gas index ($XNG, +1.0%) which hung on for a gain on a 19% advance in KMI. Everywhere else, there was red: steel stocks (-5.2%), airlines (-3.9%), brokers (-2.9%), paper stocks (-2.9%), transportation (-2.7%), housing stocks (-2.4%), internets (-2.2%), semiconductors (-2.2%), telecoms (-2.1%), biotechs (-2.0%), oil services (-2.0%) - and there’s plenty more.

Enegy prices didn’t help matters, as crude oil moved up to $72.03/barrel, gasoline to $2.15/gallon and natural gas to $6.12/mmBTU. The dollar index got smacked back down to 84.34, gold gave back some of its early gains and is trading near $653/ounce, and silver is at $12.99/ounce.

BMB Note: So much for the bounce. Maybe things have just pulled back to test the ‘bottom’ here, but it’s too early too tell. I didn’t like the ease with which the market gave it all up today, and finished right at the lows of the day. Pretty ugly.

So, as we’ve been saying here at BMB, there’s no compelling reason to own stocks at the moment. The banks, which had been holding up the best, gave back 1.4% today. The food and beverage ETF (PBJ) that we mentioned over the weekend fell 1.8%. There just aren’t too many places to go for shelter right now. Cash and/or short-term treasuries look real good, and the recent bounce probably turned up some good short opportunities.

Some of the commodities themselves are still holding up - for example, crude oil hasn’t given up much at all, and gold, so far, has firmed up after its initial correction. We’ll see if that continues. The Deutsche Bank commodity index ETF - symbol DBC (chart) - has been building a base since mid-April. Keep an eye on that one for a breakout of that range if the commodities start to move again.

Today’s T-Bill auction results have the 3-month going at 4.843% and the 6-month at 5.030%. Considering the way stocks have been performing, the short-term Treasuries still look like a pretty nice option.

If approved, there may be some ETFs available that will give you a little more bang for your buck.

Then again, they could nail you with a bigger loss too…

Consumer confidence as measured by the Conference Board fell to 103.2 in May from 109.8 in April.

A negative opening to the week for stocks. The three majors are all down between 0.6-0.8%, advance/declines are well in the red, and most groups are in the red as well. Leading the few groups to the up side are the natural gas stocks and gold & silver stocks — the move in the natural gas index ($XNG) is being distorted by a 20% gain in Kinder Morgan (KMI), on a move to take the company private. Leading the losing groups thus far are the steel stocks, disk drives, brokers, homebuilders, software and retailers.

Bonds are slightly lower, yields up. Energy prices are higher, as are the precious metals, and the dollar is lower.

Finally proving all of the speculation true, Treasury Secretary John Snow has resigned, and President Bush has nominated Goldman Sachs chairman Hank Paulson for the cabinet post.

The weekly look at technicals and sentiment from Schaeffer’s sees quite a bit of fear remaining in the indicators. That indicates continued weakness in the market until the fear factor becomes unwound and begins to turn toward optimism:

To wrap up, despite some potential technical shoring due to recent oversold conditions, the market should be considered tepid at best until we see a combination of technical strength and a reversal in the sentiment trend that is currently signaling additional selling. Defensive positions, including hedging portfolios with protective puts, continue to be the common-sense play until this sentiment reversal is evident in the day-to-day activity of our indicators.

Heard on CNBC this morning: Vonage offered its IPO stock to its customers, and a number of them took the company up on the offer. Well, since the stock IPO’d at $17 and is now trading at $13, apparently many of these customers are no longer interested, and Vonage is having trouble getting them to follow up and actually pay for the shares they agreed to purchase.

I guess Vonage considered suing those customers to get the money out of them, but decided that wouldn’t be such a good idea. It sounds as though Vonage is just going to let them slide and not force them to buy the stock. But like Joe Kernan said, what if I’m a retail investor that bought in at $17? I want that same deal - I changed my mind, and I don’t want the stock either!

Chicago Fed president Moskow is live on CNBC this morning, for what looks like nearly the entire hour as a guest host on Squawk Box.

These guys really need to learn to keep their mouths shut. Or maybe things are a lot worse than we’re being told they are, and that’s necessitating their relentless PR campaign.

US markets are closed today in observance of Memorial Day. Take some time to remember all of those who have served our country so courageously and so well, both past and present.

UK markets are also closed for a holiday today.

Bill Fleckenstein says we’re now seeing the wraps taken off the next great corporate scandal: backdated options.

Items of note on the latest industry moves:

• A bit of a bounce week for most groups. Some of the tech groups were left out.
• Semiconductors and computer hardware are all over the ‘worst’ list. That’s not real good news for the market.
• Not much to brag about at the moment. Banks ($BKX chart)and utilities ($UTY chart) are the only groups above their 50-day moving averages. Looking at the charts, the banks look like the stronger of the two.
• Another group that appears to be holding up is the food and beverage area - one of the “consumer staples” groups. BMB doesn’t track the food and beverage stocks in this table, but the PowerShares Dynamic Food and Beverage Portfolio ETF (PBJ chart) does track a food and beverage index. Considering current market conditions, the fund is doing well. The top holdings of the fund include names like General Mills, Coca-Cola, Kellogg, Yum Brands and PepsiCo.
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page.

Matt Davio isn’t too excited about the market’s prospects, as long as the semis and the biotechs aren’t playing:

The weak performance of the semi’s is why I think that the market has ultimately more correction work to the downside. More broadly, both the Semi’s and Biotechs generally lead the markets and both have been very weak the past few months. The BBH sector peaked in November of 2005 and since then the sector has fallen to this week’s lows of $167, a 20% downward move, which is typical behavior of a bear market. The Semi’s (SMH) did had similar action - peaking in Dec of 2005 and hitting a recent low, 25% off the peak.

These were key divergences for me during this year’s rally, when the market leadership was waning and concentrated in a few non-traditional sectors like the commodity companies. This is not typical bull market behavior and why I still think the markets have some downside catch up work. And since I have found this correlation with the BBH and SMH as leading indicators for the overall markets, I believe that the recent past behavior of these sectors shows that there is more downside to come. The 5% corrections we just saw in the SPX should lead to further declines sometime in the next year. The market mode has changed and unless the recent May highs can be overtaken, I believe that selling rallies is the right side of the equation versus buying the dips.

The Indianapolis 500 - one of the biggest sporting events of the year, certainly in the racing world, and it’s not broadcast in high-definition by ABC.

What’s up with that?