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.

Sure, it’ll help. Temporarily. But what will the states do when gas prices keep going up, and they won’t be able to reinstitute the gas taxes without a rebellion?

I’m sure the state budgets aren’t prepared to do without the revenue for very long.

Peter Brimelow at MarketWatch tells us that a Connecticut-based institutional service, Bridgewater Daily Observations, believes “the odds of a dollar/ U.S. debt crisis in the next twelve months are elevated (say 50 percent).”

Bridgewater’s savage summary: “…Now you’ve got a new, academic, waffling Fed chairman, a falling dollar, a falling bond market, rising gold and commodities prices, and an underperforming stock market all with a giant current account deficit …”

Its caustic conclusion: “Bernanke is rapidly losing control.”

With the bill headed for Bush’s desk, I’m assuming he’s going to sign it.

Democrats charged that the investor-oriented provisions are skewed too heavily toward the top end of the income scale and crowd out prospects for tax relief aimed more squarely at the middle class.

You’re kiddin’ me, right? The Democrats said that? Are you sure you heard right?

Ack, you’re right. You don’t even have to hear them say that to write about it, because you know they’ll say it eventually. They always do.

Martin Goldberg says that, despite the feeling that absolutely every market is going up,
there actually are some sectors that are - believe it or not - going down. After today’s action, that movement seems to be even more apparent.

I’ve never experienced a bull market in practically everything across the globe. From the looks of world markets expressed in US Dollars and considering valuations, you would think that the market is discounting world peace and healthy economic growth and prosperity into the hereafter. While practically all of us wish this were true, this does not seem plausible. I’ve also never experienced a market that was led by precious metals and commodities also accompanied by sustained real advances in consumer related businesses; yet that is what we now have. In Europe, an environment of tepid economic growth at best; European stocks (expressed in US dollars) have recently gone upward in a parabolic manner. I have only two reasonable fundamental explanations for the behavior of the markets. Either what we are seeing is the nominal rise of worldwide assets expressed in US dollars due to a central-bank-induced world-wide liquidity bath, or worldwide markets are discounting the near term arrival of the messiah.

We haven’t heard from Martin enough lately. Glad to see his column tonight at FSO.

The biggest area of concern after today’s action might be the tech sector. Not only has the Nasdaq broken its near-term support level, but a number of tech-related indices have broken theirs as well. Here we see the chart of the Nasdaq Composite, along with software, internets, networking, semiconductors and computer tech.

Charts courtesy of StockCharts.com

Well. That wasn’t very pretty, was it?

BMB mentioned yesterday that he thought we might see some weakness in stocks after yesterday’s very tepid reaction to the Fed statement. We got a strong dose of that weakness today. The Dow gave up 142 points (-1.2%) to 11501 - so much for the all-time high, at least for the moment. The S&P 500 lost 17 points (-1.3%) to 1306, and the Nasdaq stayed at the back of the train, tumbling 48 points (-2.1%) to 2273. The small-cap Russell 2000 fared no better, dropping 18 points (-2.4%) to 757. The Dow Transports fell 1.0% and the Utilities were lower by 1.1%. Bonds were weak as well, pushing some yields up to new relative highs on the longer end of the curve: 6-month 4.98%, 2-year 4.98%, 5-year 5.03%, 10-year 5.16% and 30-year 5.23%.

Market internals were horrid, and volume increased significantly, making today an obvious distribution day. Advances/declines were 4 to 15 on each exchange, and up/down volume was 1 to 5 on the NYSE and 1 to 8 on the Nasdaq. New highs/lows were 191/140 on the NYSE and 133/97 on the Nasdaq.

Looking at the groups, there was no good news. Leading the long list of losers were the disk drive stocks (-3.7%), steel stocks (-3.4%), paper stocks (-3.3%), networkers (-3.2%), internets (-2.7%), brokers (-2.4%), software (-2.4%), airlines (-2.4%), housing (-2.4%), semiconductors (-2.3%), REITs (-2.2%) and computer tech (-2.1%).

Energy prices were mixed, as crude oil moved up another buck-and-change to $73.32/barrel and gasoline gained a nickel to $2.22/gallon. Natural gas pulled back on a bearish inventory report, falling to $6.65/mmBTU. The dollar had made some gains overnight, but gave all of those back and then some as the morning wore on, and the dollar index finished down at 84.33. Gold pulled back a few bucks late in the day to near $715/ounce, with silver at $14.81/ounce. Copper neared the $4 mark, with futures trading at $3.92/pound.

BMB Note: Not good. Pretty big breakdown today - the S&P gave back all of its breakout from last week, and the Nasdaq, which has been the weakest of the three biggies, broke near term support big-time. Tech is looking pretty scary at the moment. I’d stay away.

Nowhere to hide today as everything got hit. We’ve had a few of these days over the past few months where it looked like everything was just going to pack it in, and then things would turn around a few days later. Someday, things aren’t going to turn around and we’ll have to suffer through a long-overdue correction. Could this be the start? It could be, but it’s impossible to say for certain.

The commodities themselves held up pretty well today, but the associated stocks got taken down along with the market. At the moment, those areas are probably still the strongest, as they can trade somewhat independently of the rest of the market, but everything is vulnerable after a day like today. Time to be defensive - watch your stops, be careful about adding new positions, and don’t be afraid to push the ‘eject’ button if things start to get worse. Preservation of capital is always job #1.

I mentioned yesterday that I thought there might be some weakness ahead, and that’s exactly what we’re seeing today. The morning didn’t start out real well - except for the metals again - but things appear to have weakened considerably, and we’re seeing a pretty broad selloff.

The major indices are all off by more than 1%, and internals are pretty ugly at the moment. Precious metals stocks are doing the best, but that just means they’re treading water. Leading the way down are some of the techs, disk drives and networkers. Paper stocks, airlines, internets, steel stocks and semiconductors lower as well.

The bond market isn’t helping matters any, as bonds are selling off as well and pushing yields higher - the 10-year stands at 5.17% at the moment. The dollar rebounded overnight but has been melting down all morning. Energy prices are higher in crude and gasoline, but lower in natural gas. The precious metals are one area that is holding up, with gold near $720/ounce and silver just below $15.00/ounce.

According to the Commerce Department.

David Callaway says the Fed’s got at least two more to go.

The statement was just made on CNBC, by the host no less, that even amidst all of the talk of a new high in the Dow Industrials, only 9 of the 30 Dow stocks are higher than they were back at the high in 2000. 21 of the stocks are actually lower now than they were then.

Interesting.

Not a lot to push things around this morning. April retail sales numbers weren’t real strong, as a lot of consumers’ money went into their gas tank. Weekly initial jobless claims are out as well.

And no matter what the Fed says about inflation fears being “contained”, the precious metals market chooses to ignore them. Gold futures at $721 this morning.