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 USA Today, via Yahoo:

Millions of visitors to national parks across the country this summer will find higher fees, closed facilities, reduced maintenance and fewer rangers to explain the natural wonders because of the squeeze of tight budgets.

From Maine to California, park managers are struggling with higher fixed costs and operating budgets that haven’t kept pace with inflation.

Hmm. Isn’t that interesting. Is the government that runs the national parks the same government that keeps trying to tell us that there isn’t any inflation?

May I suggest that the market wrap be termed the “market crap” for today…

Finally, we get follow-through, the kind we didn’t really want. More moves to the down side today, as the market just couldn’t find any good reason to hang onto stocks - any of them. The Dow tumbled another 120 points (-1.0%) to 11381 - funny, I don’t think I heard any talk of a new all-time high on CNBC today. The S&P 500 fell another 15 points (-1.1%) to 1291, and the Nasdaq continues to perform the worst of the big three, dropping 29 points (-1.3%) to 2244. The Russell 2000 lost 15 points (-2.0%) to 742. The Dow Transports dropped 2.1% and the Utilities lost 1.0%. Bonds also fell, and sent yields up across the curve: 6-month 4.99%, 2-year 5.00%, 5-year 5.07%, 10-year 5.19% and the 30-year 5.30%.

Market internals were horrible again today, with volume picking up slightly on the NYSE but dropping off on the Nasdaq. Advances/declines were 4 to 15 on the NYSE and 1 to 4 on the Nasdaq, with up/down volume 2 to 9 on both exchanges. New highs have collapsed - new highs/lows on the day were 35/199 on the NYSE and 72/129 on the Nasdaq.

Almost no joy in the groups again - HMOs “led” the way, picking up 0.4%. Leading the declines were oil services (-4.1%), gold and silver stocks (-4.0%), steel stocks (-4.0%), natural gas stocks (-3.1%), natural resources (-3.1%), commodity stocks (-3.0%), paper stocks (-2.9%), transportation (-2.6%), brokers (-2.3%), oil stocks (-2.2%), airlines (-2.1%) and defense (-2.1%). And there’s more.

Energy prices stumbled on the IEA demand forecast news, with crude dropping more than a buck to $72.04/barrel. Gasoline also fell to $2.18/gallon, and natural gas slid to $6.28/mmBTU. The slaughter of the dollar continues, with the dollar index falling to 83.85. Gold slipped to $710/ounce, silver to $14.21/ounce, and copper to $3.86/pound.

BMB Note: Whoa. This is getting pretty ugly. No escaping the pain again today, and the energies and commodities were at the top of the “dump” list today.

So what do we do now? The name of the game until further notice has to be defense and damage control. We don’t know how long this goes on or where it ends up, and we don’t know who the survivors will be - if there are any. I would expect there will be some bounces - you may choose to take the opportunity to lighten up on those bounces if they occur. Bounces in some of the areas that have been rolling over of late - like tech and the brokers, for example - may provide some good shorting opportunities. This probably isn’t a good time to be diving in on the short side just yet, as most things are somewhat oversold in the very short term.

This has been a rather dark tunnel for a couple of days. We’ll have to see if anything comes out alive on the other end. I’m glad it’s the weekend - I think.

As of last night, Larry McMillan (The Option Strategist Weekly Updater - sign up here) was looking for the first break of support on the S&P at about 1300:

Our intermediate-term outlook is bearish (no 9% correction for 1,181 days; 4-year Presidential cycle; and general bullish euphoria in the media), but we wouldn’t buy puts on the major indices unless some of the major support areas were broken: 1300 and then 1285, basis $SPX. Even though today’s Dow decline is the largest in 4 months, one big down day may not mean much more than last week’s big up day did. So, until proven differently, we continue to expect this market to trade in a range, with frustrating lack of follow-through.

Looks like we’re getting the break of that first level today, with only about a half-hour to go and the S&P at 1294.

The IEA lowered its 2006 oil demand forecast by 15%, and that is a large part of the reason for the dip in crude oil prices today.

Personally, I don’t know how any of these agencies can possibly forecast worldwide energy demand with any shred of accuracy. But, like the US government numbers, they get thrown out there, and the market reacts to them. We have to deal with it.

From MarketWatch.com:

The University of Michigan consumer sentiment index fell to 79.0 in May — it’s the lowest level since October’s 74.2 reading — from 87.4 in April. Economists expected a much smaller decline to about 86.4, according to a survey conducted by MarketWatch.

The article places the blame on rising gasoline prices. There’s probably some truth to that.

Some follow through on yesterday’s nastiness, and it’s another “I hate commodities” day on the street. The majors are all down 0.3-0.6%, but advance/decline figures are pretty gross again, at least at the moment, but have come off of their very worst levels of the day. The groups show only a little green in the HMOs and hospitals, but lots of red, and traders are running from the commodity stocks like they’re on fire. Gold & silver stocks lead the stampede for the door, followed by oil services, steel stocks, natural gas stocks and natura resources. Looking at the metals, I see lots of names down 3 to 5 percent. That’s what happens in these areas - you come to expect these days if you’ve been around these stocks for a while.

Bonds are lower as well, rates higher: the 10-year stands at 5.18%, the 30-year at 5.30%. Highest rates we’ve seen in quite some time. Energy prices have dropped back a bit. The dollar dropped overnight but has been recovering throughout the morning. Gold and silver are pulling back with the commodity stocks.

This bulletin from MarketWatch:

Explosion near Nigerian capital; hundreds feared dead: BBC

NEW YORK (MarketWatch) — An oil pipeline has exploded near the Nigerian capital Lagos and up to 200 people are feared dead, according to news reports Friday.

Accident? Or is this related to the Nigerian rebels that have been wreaking havoc on the oil exports there. More news as it becomes available.

Update: As was pointed out in the comments section, it sounds like a terrible accident.

For the second consecutive month, the first time that’s happened since November ‘03.

John Dvorak sings praises to HP for its new offering of ’skins’ for your CPU. I’m glad he likes them - but personally, I couldn’t care less what the box looks like. I never, ever look at it, other than to find the power switch in the morning.

Wasn’t it Acer’s boxes back in the heyday that had those little moonpits all over them? Didn’t care then, and I don’t care now. I’ll take boring, especially if I can get it cheaper…

Gary Kaltbaum’s advice after yesterday’s ugliness:

We suspect the NASDAQ/NDX/SOX/INTERNET/BIOTECH are only going to get worse. INTERNET and BIOTECH have been in their own private bear market. The amazing thing is that these areas led the market out of the brutal bear in 2003. Now they are leading it down. We would completely, seriously avoid these areas as all bounces will be sellable as supply has taken over.

We suspect there is risk here. The strongest groups as well as many of the markets around the world are stretched and extended way beyond the norm. They are going to correct and believe this will be the opportune time.

As far as the other major indices, we believe they are going to correct also. Just keep in mind, if the NASDAQ drops 10%, the DOW will drop 5%…and so on. This is normal as the NASDAQ usually leads down and up. We also want to make note that the DOW has been leading recently which is never a thrilling sign. As far as COMMODITIES go, they are the highest of risk here. Some names actually have been Internetish…as their charts look like the Eiffel Tower. We suspect and believe that serious corrections are due also.

We will have a much bigger report on Monday…but we urge you to now start playing defensive as many areas are speaking very loudly.

Deron Wagner today:

A lot of overhead supply was created in yesterday’s selloff from the investors and traders who bought the breakout in anticipation of a new uptrend. Further, the selloff attracted new short sellers who have been anticipating a failure of the breakout all along. In trading, we have learned to never say “never,” but we feel comfortable saying that it will be very difficult for the market to recover from the technical damage that was created yesterday. In just one day, the balance of power seems to have shifted to the bears. Therefore, don’t fall into “hope” mode with your long positions. If they have fallen to your predetermined stop price, be sure to maintain discipline by cutting your losses quickly. Rather than looking to buy strong stocks on this retracement, you might consider new short positions in the sectors that are demonstrating the most relative weakness. Because weakness in the techs preceded yesterday’s selloff, there is probably not a very good risk/reward to sell short the technology-related stocks and ETFs at current levels. Instead, look for those sectors that broke some type of key support level only yesterday. On the short side, we continue to like the Broker/Dealer Index (XBD) because it closed yesterday back below its 50-day moving average after a “lower high” followed its May 1 selloff. Overall, we expect to see the S&P and Dow-related sectors to catch up with the weakness in the Nasdaq.

You just don’t want to play these small drug companies that don’t make any money - way too risky. You might just wake up one morning and find your stock down 76% - like Threshold Pharma (THLD) this morning.