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.

BMB jumped the gun by a day on the Fed’s rate announcement. The FOMC statement will be out on Wednesday this week, not tomorrow (Tuesday). Guess we’ll be held in suspense for yet another day. How will I survive?

Once again government numbers are suspect. Okay, in this case, they designed the test/allowed such a test so that car makers could lie. Just like everything else–if you want to know if there is inflation, you have to add up the numbers. If you want to know your car’s gas mileage, you have to figure it out yourself. Of course if you are buying a car, you might want to check with Consumer Reports to get a hint of what the mileage might be. Like the article says: These days, it matters.

In light of an apparent Venezuelan deal to buy oil from Russia, Dr. Joe Duarte poses the question in his “Peak Oil” series: Is Venezuela Running Out of Oil?

Is Venezuela’s oil production rapidly waning? One source reports that the world’s fifth largest oil producer is showing signs of a rapid decrease in production, one of the key tenets of the peak oil theory.

Venezuela is buying oil from Russia in order to avoid defaulting on deliveries to clients. The situation raises serious questions about the country’s oil production and the future of PDVSA (the Venezuelan national oil company) as a major oil producer, and increases the risk to the U.S. oil supply should the country’s oil production suddenly plummet.

According to the Financial Times: “Venezuela, the world’s fifth-largest oil exporter, has struck a $2bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year. Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with “clients” and “third parties” as it faces a shortfall in production, according to a person familiar with the deal. Venezuela could incur penalties if it fails to meet its supply contracts.”

The news has so far been very much inside baseball, as it has not made the mainstream, due to competition from more sensational stories such as the illegal alien marches, and the media’s obsession with oil company profits.

But, as these things go, we may be on the verge of a major developing story.

The Wall Street Journal Online web site is in the midst of a 10-day free access period, just in case you’re interested.

Looks like Dell won’t be helping this market much tomorrow. They warned after the bell that their May 18 earnings announcement will not contain quite the news everyone was expecting.

I guess this will give the market something to chew on besides Fed worries. It’ll give Fleckenstein a chance to write an article this week on one of his favorite companies to hate.

Some new ETF offerings from Barclay’s hit the street last week: 10 new iShares subsector funds, including oil exploration, medical equipment, aerospace/defense, brokers and home construction.

The market couldn’t quite decide what to do today, so as a whole, it pretty much did nothing. The major indices were pretty much flat - the Dow picking up 7 points to 11585, the S&P 500 lost 1 point to 1325 and the Nasdaq gained 2 points to 2345. The Russell 2000 was unchanged at 782. The Dow Transports were flat as well, but the Utilities dropped 0.8%. Bonds were mixed, with yields moving up on the short end and down on the long end: 6-month 4.99%, 2-year 4.96%, 5-year 5.00%, 10-year 5.11% and 30-year 5.18%.

Market internals were mixed, and volume dropped off considerably. I guess everybody is waiting for “Fed day” tomorrow. Advances/declines were flat on the NYSE but 9 to 10 on the Nasdaq, with up/down volume 11 to 10 on the NYSE but just below flat on the Nasdaq. New highs/lows were 292/69 on the NYSE and 236/42 on the Nasdaq.

Not a lot of big movers in the groups: HMOs (+1.7%), steel stocks (+1.2%) and telecoms (+1.2%) led the winners, while the housing stocks (-1.1%) and gold & silver stocks (-0.9%) led the losers.

Energy prices bounced around today, but finished generally lower: crude oil at $69.77/barrel, gasoline at $2.00/gallon and natural gas at $6.70/mmBTU. The dollar rallied back from overnight losses to bring the dollar index back 85.18. Gold slid just a bit to $679/ounce, and silver is holding near the $14 mark at $13.90/ounce.

BMB Note: Not much to take away from today’s action - light volume and lack of movement makes it look like investors are waiting for the Fed news tomorrow, and they probably are. I can’t wait until there is something else to drive the market. I’m tired of the Fed being the only focus these days.

So, don’t expect a lot of action tomorrow morning either. But wait and see what happens after about 2:15 ET tomorrow. That should give us a little movement. The question is, which direction?

Update: My bad. Fed announcement isn’t until Wednesday this time around.

An initial bump higher has pretty much faded, and the major indices find themselves right around the flat line, with market internals dipping slightly into the red. More groups down than up: the airlines and beaten-down HMOs are leading the few groups that are higher, while oil services, precious metals and oil stocks lead the down side. Bonds are trickling lower, pushing yields up a few BPS.

Energy prices are lower, with crude back below $69 and gasoline below $2. Precious metals are lower as well, and the dollar is mixed, down big against the Yen but holding against the Euro and the Pound.

Still hope for prices to move higher, according to Chris Johnson at Schaeffer’s:

Overall, the market should continue to be the beneficiary of strong technicals and pessimistic sentiment. The major indices have about one to two percent of upside before resistance comes into play. With earning season winding down, investors will likely focus more on oil, interest rates, and geopolitical concerns. While these three fundamentals may cause some weakness over the short run, traders should still find a lot of bullish potential in the current market.

Deron Wagner this morning:

Looking purely at price action, the major indices made impressive gains, but the one thing suspiciously lacking was higher trading volume. When an index such as the S&P 500 breaks out of a choppy, sideways range that has been in place for several months, it normally coincides with a large surge in trading volume due to traders on the other side of the market covering their positions, as well as traders buying new positions on the breakout. But mysteriously, turnover in both exchanges declined last Friday. Total trading volume in the NYSE fell by 3%, while trading volume in the Nasdaq was 5% lower than the previous day’s level. In the Nasdaq, it was also the second consecutive day in which trading volume came in below its 50-day average level. Today’s issue of popular financial newspaper Investors Business Daily gave this example of how a negative divergence between price and trading volume can sometimes lead to surprising results: “Take the action of Jan. 26, 2004. On that day the Nasdaq powered ahead 1.4%, hitting a three-year high. But trading volume fell off sharply, retreating 14%. The Big Picture noted the curious gulf between the market’s price and trading volume action. Stocks fell hard the next day, then sank into a 6 1/2-month downtrend.” It should be noted, of course, that both the percentage gains and trading volume declines in last Friday’s session were more moderate, but astute traders will nevertheless be on guard against a potential failed breakout in the broad market…

Overall, we feel it is okay to continue buying the stocks and ETFs that are showing the most relative strength to the broad market, but just be alert and on top of your positions in case the situation changes. True, the S&P 500 did manage to break out of its range, but the lighter trading volume combined with the relative weakness in the Semiconductor Index keeps us cautious against a potential failed breakout. Short positions are a bit more risky now, but we feel that relatively weak sectors such as the Broker-Dealers can be sold short on any bounces into resistance.

That’s what Wall Street needs, according to Bill Fleckenstein this week:

The chip business is tough. Higher rates hurt. But the only problems traders see are in South America.