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.

From today’s wrap-up on TheDOCument:

Just in case no one has noticed, the Dow Jones Transportation Average put in one of its largest weekly gains ever this week, rallying 6.5%. It has now officially doubled from its 2003 low… a doubling that occurred while the price of oil went up nearly three-fold. Consider that equities in general also have experienced an unusual positive correlation with commodity prices and, it makes a rather compelling case for hyperinflation, doesn’t it?

In its own rather twisted way of looking at things, the market charged out of the gate after this morning’s rather poor April jobs report and never looked back. The Dow Industrials gained 139 points (+1.2%) to 11578, the S&P 500 added 14 points (+1.0%) to 1326 and the Nasdaq picked up 19 points (+0.8%) to 2343. The Russell 2000 moved to new highs by gaining 7 points (+0.9%) to 782. The Dow Transports added to their new high levels by gaining 1.0% and the Utilities enjoyed a 2.2% rise. Bonds also rallied on the weak jobs report, sending yields lower: 6-month 4.98%, 2-year 4.93%, 5-year 4.98%, 10-year 5.10% and 30-year 5.19%.

Market internals were positive, but the price movement was not confirmed by a pickup in volume, as volume fell on both exchanges. Advance/declines were 3 to 1 on the NYSE and 12 to 7 on the Nasdaq, and up/down volume was nearly 4 to 1 on the NYSE and 13 to 6 on the Nasdaq. New highs/lows were 375/60 on the NYSE and 273/34 on the Nasdaq.

Nearly every group was higher, with the brokers (+3.2%) topping the list, followed by biotechs (+3.2%), natural gas stocks (+3.0%), housing stocks (+2.5%), utilities (+2.0%), HMOs (+2.0%), retailers (+1.9%), oil services (+1.7%), hospitals (+1.5%), transports (+1.5%) and paper stocks (+1.4%).

Energy prices were mixed - crude oil backed off to $70.19/barrel, gasoline snuck up to $2.03/gallon, and natural gas slipped to $6.78/mmBTU. The dollar fell yet again, pushing the dollar index down to 85.15 - not that the weakness in the dollar seems to matter a hill of beans to anyone these days (except maybe the precious metals traders - I wonder if the Fed cares?). Gold continues its amazing run, moving to $682/ounce, while silver is hanging right with it at $13.90/ounce.

BMB Note: Strong day. Hard to argue otherwise, so it would be foolish to try. Are there concerns? Well, the Nasdaq still lags the Dow and S&P, and volume didn’t provide strong confirmation of the price action, but we don’t make money on volume.

The S&P made a nice break above its recent trading range. If this break holds, you’d think there might be more gains to come, but recent breakouts haven’t been providing strong springboards to higher levels of late. We’ll see what happens with this one.

The big question for next week is: what happens Tuesday when the Fed meets on interest rates? I think it’s pretty much a done deal that they’ll raise another quarter point. But what will their statement say? We’ve now had what is probably the fifth “the Fed is finished” rally. What if the Fed comes out a little more hawkish - could this whole thing be undone in one afternoon? It could - but I’m not sure the Fed IS all that hawkish right now. I think it’s more likely that they will try to pause sometime in the next few months - and the dollar will tank, commodity prices will head for the moon, interest rates will start taking off again, and inflation will become an even bigger concern than it is already. Then we’ll see what their next move will be.

Let’s look back to 10 days ago when Cramer told you to sell TIE and buy UNH. I didn’t think that was a very good idea at the time - see “I Don’t Think So” - and yes, I still hold shares of TIE.

On that date, TIE closed at $72.01 and UNH at $48.97. Currently, with a little over an hour to go in this week’s trading, TIE is trading at $77.94 and UNH at $46.22. So you would have missed out on a $5.93 gain on TIE and taken a $2.75 loss on UNH, for a net loss of $8.68 per share if you’d have bought an equal number of shares. Not a great trade the way I look at it.

Don’t sell strength to buy weakness.

You know, I understand why the market is behaving the way it is today after the employment report. I understand that the stock market has a Fed fetish at the moment, and good news is bad news and vice versa. Yet, I struggle to resolve the conflict in my own head when I see the banner on CNBC: “Broad Market Rally on Weak Non-Farm Payrolls.”

There’s just something very unsettling about this inverse, sort of corrupted logic that has ruled the market for the past few months. I see it - and I don’t fight the market, for it will do what it does no matter what I think - but it still bothers me, even though I’m making money.

Someday, this inverted logic scenario will unwind itself. And to me, the big question is where we’ll end up when that happens.

Now that the initial excitement over the jobs number has dissipated, lets take a look and see where things are:

The major indices are holding on to modest gains. The S&P 500 finally moved well above that 1310-1312 range, hitting above 1321 early on, but has drifted back to 1318. If this market is to break out and move higher, the S&P must be above that prior range high.

Bonds are rallying on the weak jobs number, pushing yields down - but the 10-year still stands at 5.11%

Advance/decline figured have pulled back from very high early levels, but are still positive. Most groups are in the green - the numbers aren’t huge, but they’re green. Leading the pack at the moment are the brokers, natural gas stocks, oil services, REITs and HMOs. The only real losers at this point are the gold & silver stocks.

Energy prices are pretty stable - crude oil moved above $70 early, but has pulled back below that level. The dollar is getting smacked pretty good as interest rates fall. Gold had pushed above $680 early, but has drifted back to about $676/ounce, and silver is holding its ground.

Toll Brothers cuts its estimate of ‘06 housing deliveries yet again:

The Horsham, Pa.-based builder of luxury-level housing said the value of signed contracts declined 29% in the quarter ended April 30 as the company continued a trend of disappointing orders coming from the housing-builder group this reporting season.

Toll Bros. again cut its estimate of deliveries for the year, as speculative buyers quit the market and ordinary demand slackens on concerns about the direction of house prices.

Now this wouldn’t be considered good news by the market, would it? Think again. TOL stock up 2.2% in the early going. Go figure.

The April non-farm payroll report out this morning was actually pretty lousy. Of course, in this Fed phobic world, that is seen as good news (except maybe by those looking for jobs).

Then again, in looking at some other aspects of the report, we find this little inflationary tidbit:

Earnings are up 3.8% in the past year, the biggest year-over-year gain since August 2001. Wages rose 5 cents in March and 7 cents in February.

The acceleration in wages will keep pressure on the Federal Reserve to continue to raise interest rates to stamp out inflationary pressures stemming from wage costs.

This market is just so whacked out these days it doesn’t know good news from bad news, and can’t tell up from down. Someday, things will make a little more sense again. And I don’t think that will be good news.