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 at TheDOCument:

One of the first bits of commentary I read this morning was Bloomberg piece highlighted the sharp drop in commodities prices this morning. The first line of the article read, “Commodity prices plunged, led by copper and silver, on concern rising global interest rates may curb demand…” I wonder where we’ve heard that line of thinking before.

We’re going to hear a lot of talk in coming weeks about how commodities, especially metals, have already peaked and perhaps a bit of banter about bubbles. Don’t listen to it. This reprise will be easy to believe as we get sharp pullbacks in commodity prices and related equities such as mining shares, but I believe the retreat will only set up beautiful buying opportunities for the next push higher in this commodities bull market. Instead, I intend to watch carefully for events and price behavior that could signal the beginning of the next run. Then I will get aggressively long commodity-based assets because I believe the price gains in next phase of the bull market will dwarf the gains seen to date.

BMB concurs with Mr. Cadora’s assessment. But that doesn’t make it any easier to sit through the occasional massive correction, nor does it mean that one should not take steps to protect their capital during times like these.

Ben Stein tells you to stop blaming the oil companies for high oil and gasoline prices: and if you’re looking for someone to blame, maybe you should take a look in the mirror.

All kinds of negativity in the housing reports today: home builders have turned negative on the market outlook, existing home sales are down 15% in the nation’s hottest markets, and Paul Farrell says it’s time to be conservative, because the turndown in the real estate will likely take the rest of the economy with it.

Today’s T-Bill auction results from the Treasury: investment rate on the 3-month bill was 4.864%, 6-month bill 5.009%.

These days will keep you jumpin’, won’t they?

Stocks went through some pretty rough periods today, but you wouldn’t know it looking at the final tallies, as the market dug in its heels in the last hour and made a run for it. The Dow finished higher by 47 points (+0.4%) at 11428. The S&P 500 steadied itself for a gain of 3 points (+0.2%) to 1294, and the Nasdaq shook off most of its early losses and closed with a loss of 5 points (-0.2%) at 2239. The Russell 2000 fell 5 points (-0.6%) at 738. The Dow Transports gained 0.1% and the Utilities were higher by 0.4%. Bonds were higher pretty much across the board, and yields moved down: 6-month 4.98%, 2-year 4.98%, 5-year 5.03%, 10-year 5.15% and 30-year 5.26%.

Market internals still finished the day in the red, with volume ticking up on the NYSE but down on the Nasdaq. Both advances/declines and up/down volume were 8 to 11 on the NYSE. The A/D line was 7 to 12 on the Nasdaq, with up/down volume coming in at 2 to 3. New highs/lows were 30/186 on the NYSE and 59/146 on the Nasdaq.

Looking through the groups, we find a few groups that escaped trouble: airlines (+2.4%), health care (+1.4%), REITs (+1.3%), drug stocks (+1.1%), health care products (+1.1%) and HMOs (+1.0%). Leading the down side were the gold & silver stocks, which got slammed for 6.1%. They were followed by the other commodity/energy groups first: oil services (-2.8%), commodity stocks (-2.7%), natural resources (-2.7%), steel stocks (-2.4%), oil stocks (-2.3%) and natural gas stocks (-1.7%). Then came the brokers (-1.3%), housing (-1.2%), computer hardware (-1.2%), disk drives (-1.0%) and semiconductors (-1.0%).

Energy stocks took a tumble, as did just about all of the commodities. Crude oil fell more than 2 bucks to $69.41/barrel, gasoline lost 12 cents to $2.06/gallon, and natural gas slipped to $6.12/mmBTU. The dollar index worked its way back up to 84.66. The precious metals took a spill, with gold fallling back to $678/ounce and silver sliding to $13.13/ounce.

BMB Note: Wake me up when it’s over.

It hasn’t been very pretty in the market, unless you’ve been bucking the downtrend in health care. I’m hoping the mini-rally in the last hour is a hint that things might stabilize a bit here.

Energy/metal/commodities continue to be the ugly ducklings - last week, investors couldn’t get enough, today they want nothing to do with them. That’s the way it goes. I would expect some bouncing - in all areas - to begin sometime soon. The big question will be what happens once the retracing begins - what areas will consolidate, and possibly move higher, and which areas will roll over. Only time will tell. Until then, defense remains the name of the game. Too early to know where the new long opportunities will appear, and too oversold to look for shorts at this point.

PPI and housing starts numbers out tomorrow. The housing stocks don’t need much more bad news, with many of them at or near 52-week lows already. A tame PPI report could help the general market by throwing the “Fed is done” crowd another bone to gnaw on.

The title for the weekly look at the market from Chris Johnson is: “Market Approaching A Breaking Point”:

Bottom-line time. The market remains somewhat attractive from a short-term perspective as a few sentiment indicators remain intact for the bulls. That said, sellers are in position to take control of the market as key short-term trendlines for the major indices have been violated. Bulls should wait until technical support kicks in before moving more money into the market. From that perspective, watch the aforementioned 80-day moving averages, as they may provide the short-term strength needed to put some wind back in the market’s sails.

Not much rebound from the Thursday-Friday selloff last week. Even though the Dow and S&P are showing slight advances, market breadth remains on the negative side. Metals/energies/commodities are taking the brunt of the hit again today. Fear is obviously picking up - we’ve seen a spike in the VIX from around 12 to about 15 in the past three days.

Bonds are higher, pushing yields down. The dollar caught a bid overnight to make back some of its losses, and has leveled off this morning. Energy prices have moved lower, with oil dipping back below $70/barrel. The precious metals have slumped, with gold diving back below $700, now near $690 after hitting a low around $685.

Deron Wagner this morning:

Hopefully you followed our advice to stay disciplined and quickly cut your losses if any positions hit their predefined stop prices. Now is a very bad time to fall into “hope” mode because overall conditions have rapidly become quite negative. There is never a guarantee that a bounce will come today just because stocks dropped a large percentage over the past two days. Obviously, a retracement will eventually come, but it might not happen until the broad market has fallen further. Therefore, capital preservation must be your number one priority right now!

Gary Kaltbaum warns that the state of things appears to be shifting:

Before we get into the forest, let’s talk about the trees. Shorter, term, anything can happen but gather we can get a bounce soon. First off, the put/call figures spiked up big time on Friday indicating a large amount of short term fear…and secondly, just the fact things have come straight down so quickly and just the fact things are already stretched to the downside…especially on the NASDAQ and NDX, lends itself to a bounce. This will probably occur with a decent down open followed by an intraday reversal to put in a short-term low…but that’s just a guess. But that’s as far as we can go because that’s the trees. The forest: THE COMPLEXION OF THIS MARKET AS WELL AS MARKETS AROUND THE WORLD HAVE CHANGED…AND WE DO NOT WANT YOU TO FORGET IT…

…All in all, until we say otherwise, we believe it is still time to be defensive. We also know that nothing has changed and most in this wacky business have not learned any lessons. If this is the start of a bear phase, the bulls will stay bulls regardless what happens. We believe it is your job to listen to the market because the market knows all. It does not care about you are us. Expect some serious volatility ahead.

• New York manufacturing index falls.
• European markets are weak.
• Commodity prices falling this morning, with gold below $700, crude below $70.