Bear Mountain Bull

Big time Dullsville. Typical day before a holiday weekend – expect Monday morning to be just about useless. But it looks like some trading right before the close – end-of-quarter type stuff – has messed with the index closes and volume figures.

The Dow was only down a few points rolling into the closing bell, but my screen now shows it down 41 points (-0.4%) to 11150. The S&P 500 dropped 3 points (-0.2%) to 1270 and the Nasdaq lost 2 points (-0.1%) to 2172. The small caps bucked the majors, with the Russell 2000 gaining 10 points (+1.4%) to 724. The Dow Transports moved up 0.8% and the Utilities added another 0.3%. Bonds rallied again, pushing yields down on the long end for another session: 6-month 5.24%, 2-year 5.15%, 5-year 5.10%, 10-year 5.14% and 30-year 5.19%.

According to my charts, volume was on a pace to come in just below yesterday’s levels, then spiked huge in the last 5-10 minutes of trading. I don’t know if that’s accurate, and if it is, I don’t know what caused it. Hmm, maybe this from Yahoo’s market update section is a clue:

3:25 pm : If things are going to get interesting today, now is the time as the rebalancing of the Russell indexes is expected to lead to a pickup in trading volume in the last half hour of the session.

Market internals finished in the green, with advances/declines 11 to 5 on the NYSE and 3 to 2 on the Nasdaq. Up/down volume registered 3 to 2 on the NYSE and just above flat on the Nasdaq. New highs outnumbered new lows for the first time in quite a while, at 119/77 on the NYSE and 132/58 on the Nasdaq.

Most groups gained ground today, with airlines (+2.1%) leading the way, followed by gold and silver stocks (+2.0%), biotechs (+1.7%), telecoms (+1.2%), drug stocks (+1.0%), REITs (+1.0%) and hospitals (+1.0%). Losing ground were computer hardware stocks (-1.8%), computer tech (-1.1%) and semiconductors (-1.0%).

Energy prices were mixed again: crude up another 40 cents to $73.93, gasoline back down to $2.29/gallon and natural gas slipping a few cents to $6.10/mmBTU. The dollar got smacked some more, pushing the dollar index down to 85.19. The precious metals had another big day, with gold up to $613/ounce and silver to $10.97/ounce.

BMB Note: Not much to talk about today, except maybe the slumping dollar and the jump in the precious metals. It’s looking like gold and silver may have put in a bottom here, and got a big boost when markets started to smell an end to Fed rate hikes. I won’t be chasing the precious metals here, but I might be tempted to buy some on the dips. I was really thinking that there might be a retest of the lows in the works, and that could still happen, but it doesn’t look real likely in the near-term. But things could change.

On the commodity front, oil looks like it’s thinking about making another run – buying the May/June dips in USO has so far turned out to be a profitable move. We’re keeping an eye on sugar too, and coffee has made a big move up off its lows. Have you seen orange juice lately? Through the roof! If stocks are choppy, take a look at the commodities…

Quiet day on Monday, with stock markets only open a half-day and some of the other markets may not be open at all. Tuesday is the holiday, so we don’t get back to full trading until Wednesday. Going into July, we’ll start to see the earnings flood begin, and that may hold the key as to whether this ‘rally’ has any more steam left in it or not.

In this week’s Option Strategist Weekly Updater (sign up here), Larry McMillan admits he’s “not completely in agreement with the super- bullish interpretation of the Fed statement”, but does agree that we’re likely to get some upside testing. However, he’s not certain on what might follow:

This short-term breakout should carry the averages up to at least the early June highs — about 1290 on $SPX. The jury is still out on what happens after that. It is possible that an intermediate-term rally will take place, but we are not jumping on that bandwagon yet. The June lows are eventually going to be retested, we’re sure, even if it takes several months to do so. This could develop into the kind of bottom we saw in August-October 1998 or July-October 2002. But, for now, enjoy the rally while it lasts.

The indices are drooping a bit after yesterday’s big move – not a big surprise. Advance/declines are hugging the flat line, but there are still more groups up than down. For the second day, the precious metals stocks are leading the way, followed by biotech, drug stocks and paper stocks. Taking a hit are the computer hardware stocks, semiconductors and housing stocks. Bonds are showing little change.

Energy prices haven’t moved much. The dollar has weakened further, and that has helped push the precious metals higher for another day: gold and silver lead the way in the commodities area.

Mark Hulbert tells us that the opinion of many newsletter writers is that “the stock market’s huge rally Thursday afternoon was a knee-jerk reaction that will get corrected as soon as investors seriously examine the rationales that were used to justify that rally.”

BMB has said time and time again that it didn’t make a lot of sense to get all excited about the Fed finally putting an end to the rate hikes. Why? Because it would mean that the economy was weakening, and that, ultimately, would not be good news for stocks. To me, that’s only simple logic:

As Jeffrey Hirsch of the Almanac Investor Newsletter put it Thursday evening, “When the market rallies because the Fed says the economy is weakening you are in trouble.”

Or, as Stephen McKee of the No Load Mutual Fund Selections & Timing Newsletter added, “Something isn’t right, though it may take a few months for the markets to figure it all out.”

Particularly useful to keep in mind is an analysis conducted several months ago by James Stack, editor of the InvesTech Research Portfolio Strategy newsletter. When ranked according to risk-adjusted performance, Stack’s advice is in fourth place over the last 20 years, according to the Hulbert Financial Digest.

Stack examined all instances in the Federal Reserve’s history in which it raised interest rates at least two times in succession. He then measured the S&P 500’s gain or loss following the final rate hike in each of these series. On average, the S&P 500 index was lower three months later, in six months, and a year later.

This, coupled with the balance of the other indicators that Stack looks at, convinces him that “we have seen the market highs for the time being.”

This rally may just set up some very attractive shorting opportunities…

Water is a commodity, more precious than gold and silver or even oil. But it isn’t traded on a exchange. Maybe it should be.

Right now, one of the areas you can look if you’re interested in trading stocks in the water industry is the PowerShares Water Resources Portfolio ETF, symbol PHO.

Personal income and spending numbers out – let me give you a clue, we’re not saving any more than we were before.

Consumer sentiment up in June.

Chicago PMI lower than expected, with the prices paid component at its highest level in 18 years. So how’s the market feeling about that Fed pause now?

Gary Kaltbaum is on vacation in Hawaii. Some vacation – this is his third column this week! He agrees that the market looks like it wants to make a move higher – so we should be looking for leadership:

Just like our call of the top, we will say the same thing about Thursday’s action. WE DO NOT KNOW HOW LONG THE MOVE LASTS OR HOW FAR IT GOES. WE WILL JUST LET THE MARKET DECIDE. We will now need to see leadership. We will now need to see leading stocks breaking out on heavy volume off of sound bases. The more we see the better. It is vital for a good move to have strong leadership to move things higher. Time will tell.

We are not ones to worry that this occurred right at the end of the quarter. Skeptics would say it is just window dressing because the 2nd quarter was so poor. Skeptics would say it was just a lot of short covering. They may be right. We have no quarrel with the possibility…but we keep our blinders on and just pay attention to the action. Bulls will give excuses in bear markets. Bears will give excuses in bull markets. We believe in what we see.

Deron Wagner says the short-term appears bullish, but the intermediate term remains bearish, unless:

Historically, the initial knee-jerk reactions from Fed days have often proven to be false and the following days often result in a move in the opposite direction. However, yesterday’s rally was so powerful that the move is unlikely to quickly come undone. Still, it is something to keep in the back of your mind.

Our intermediate-term bias still remains bearish unless the indices confirm their strength by rallying back above their prior highs from June 2. However, we are now bullish on the short-term. Momentum should enable many sectors to achieve at least another week or two of gains. We are focusing on the ETFs that were showing the most relative strength before yesterday’s rally. Stocks and ETFs that don’t drop when the market does are usually the first to surge higher when the market eventually rallies.

The big news this morning is that the Tracinda investment group (Kerkorian’s gang) is pushing GM to form a partnership with Nissan and Renault.

Some follow through in the Asian markets from the big move in the US yesterday – the Nikkei and Hang Seng both up in the neighborhood of 400 points. European indices are showing gains again this morning.

The dollar has continued to fall – just two days ago, Dollar/Yen was above 116, and this morning it is at 114.26. Gold futures back above $600, and oil hanging on to $73.50.

So Apple joins the parade of companies – mainly tech companies – that seem to have some funny stuff in their past when it comes to stock option dating. In Apple’s case, it seems they tried to get out in front of any news of an SEC investigation by doing their own internal scrutiny.

What bothers me is that this whole idea of backdating options supposedly isn’t illegal:

Backdating stock options isn’t necessarily illegal, but it can cause a company to improperly deduct employee compensation expenses — a misstep that could exaggerate profits and result in an underpayment of taxes.

If the backdating isn’t properly disclosed, regulators also might interpret the action as a form of financial fraud, exposing companies to civil penalties and a raft of shareholder lawsuits.

So, if backdating option grants isn’t illegal, how come I can’t back date my stock purchases? Hey, I’m perfectly willing to account for them correctly, and even pay the taxes on my cap gains. Just let me pick my own “buy” date, and I’d be a happy guy.

Peter Schiff offers up his view of where our economy is headed:

Now that the Fed has raised rates to 5.25%, and has left the door open for future increases, the overriding concern is that over-tightening will tip the economy into recession. However, given the state of our imbalanced economy, a recession is not only inevitable, but absolutely necessary, and will occur no matter what the Fed does. Furthermore, the coming recession will not come about because the Fed went too far, but because it did not go far enough.

Poor Peter. I caught a bit of his appearance on Kudlow’s show tonight, where his rather sobering views of the US economic situation weren’t very well accepted. Not surprising, of course, given the rose-colored lights that are always shining on the Kudlow and Company set. And Peter was continually shouted down by the likes of Ben Stein and Bob “I’m All Ears” Froehlich. Let’s just say it didn’t go real smoothly – but Peter gave it his best shot. It’s just that no one wants to listen.

	Today’s big jump finally boosted the S&P above the downtrend off the May highs, back above the 200-day MA and out of its recent trading range. If the SPX can hold above that range, it may find some resistance around the 50-day MA near 1275, but the big hurdle would be the early June high near 1290.
	The Nasdaq has been weaker than the SPX, but also managed to break free of its range today. It faces congestion all the way up to its June high in the 2230 area, which is also where the 50 and 200-day moving averages are hanging out.
	The Nasdaq 100 has been the weakest index for some time now. Even today’s big move didn’t convincing break it free of its trading range, and it’ll have to work to try to get back above 1615 or so.

Charts courtesy of StockCharts.com

Wow. Sometimes you get a “Fed funk”, and sometimes you get “Fed fun”. Today, we got the latter.

The market seemed to be pretty pleased with what the Fed did and said, and the morning rally got a shot in the arm once the news was out. The Dow zoomed ahead by 217 points (+2.0%) to 11191. The S&P 500 jumped 27 points (+2.2%) to 1273 and the Nasdaq took off for 63 points (+3.0%) to reach 2174. The Russell 2000 did even better, racking up a 26 point gain (+3.8%) to 714. The Dow Transports didn’t balk at the jump in oil prices today, but instead gained 3.4%. The Dow Utilities were higher by 1.0%. The bond market also rallied on the Fed news, and sent rates lower: 6-month 5.25%, 2-year 5.20%, 5-year 5.16%, 10-year 5.20% and 30-year 5.25%.

Market internals were almost as good as they get. Volume didn’t set any records, but it was decidedly stronger than it has been, and moved up to average to above-average levels today. Advances led decliners by 16 to 3 on the NYSE and 15 to 4 on the Nasdaq, and up/down volume was a big 9 to 1 on both exchanges. New highs/lows were 90/102 on the NYSE and 88/61 on the Nasdaq.

Green groups all over, with some big, big numbers. Gold and silver stocks led the charge, up 7.0%. They were followed by the steel stocks (+5.0%), transportation (+4.6%), networking stocks (+4.3%), oil services (+4.3%), brokers (+4.1%), semiconductors (+4.0%), commodity stocks (+3.8%), biotechs (+3.7%), airlines (+3.4%), natural resources (+3.3%), chemicals (+3.1%), and housing stocks (+3.1%). Most of the rest of the groups were up more than 2% on the day.

Energy prices moved higher, but stocks didn’t seem to notice. Crude oil was up more than a buck to $73.52/barrel, and gasoline jumped 9 cents to $2.29/gallon. Natural gas bounced back by 15 cents to $6.13/mmBTU. The dollar took an afternoon dive on the Fed announcement, as bond yields dropped and the prospect of a Fed pause or stop became apparent. The dollar index fell to 85.99. Gold and silver made big moves, with gold up to $597/ounce and silver to $10.70/ounce.

BMB Note: First thought – the markets seemed to think they got what they wanted out of the Fed today. Of course, that could change, but for now, that appears to be true. And everything, absolutely everything, was up. If you own stocks that weren’t up today, you’ve got some real stinkers on your hands.

Second thought – today’s action changes the thinking in the short term, assuming the breakout of the trading range holds. We will likely see some upside testing. The question is how long it lasts and how far it goes. We’ll look at the index charts later to see what those targets might be. If you’ve got your eye on some things, you could probably try probing a little on the long side. Some of the energy and commodity related stocks have been making the best runs, but some have already gotten a little extended. You may have to wait for some pullback from today’s big move for better entries. But be careful, and use relatively tight stops – this market has been, and will likely continue to be – very choppy and unpredictable.

Third – we’ve got a holiday weekend coming up. Markets are only open a half-day on Monday and are closed all day Tuesday. That amounts to pretty much a four-day weekend for a lot of folks, and many of them will be getting a head start on that holiday tomorrow. Don’t expect a lot more action tomorrow or Monday – I would think that today’s big move did most of the “window dressing” work. The real game will start up again on Wednesday of next week.

Fourth – I think we got a hint of what could, and probably will, happen when the Fed really does stop raising rates. I gotta believe that’s going to be bad news for the dollar, and good news for commodity prices. The Fed has worked pretty hard to keep the dollar up and managed to knock commodity prices down over the past month, but they can’t keep raising rates forever.

Not much of a surprise here. The Fed bumped rates up another quarter-point to 5.25%. The statement said that some further firming may be needed, but didn’t sound as though the FOMC was panicky about inflation.

Initial reaction from the market was positive in the first couple of minutes – we’ll see if that attitude holds.

Here’s the text of the statement for your reading pleasure.

Update: Oh, and I’m going to go ahead and say I told you so. There was no way they were going to raise rates by 50 bps, and I don’t know where all those idiots got that idea.

The worldwide rally in stocks seems to have leaked into the US markets, at least for the morning. The opening gains have pushed the major indices back up near the top of their recent trading ranges, even while they wait for the Fed announcement this afternoon. A/D lines are very positive, and all groups are showing green at the moment.

Bonds have found a bit of a rally as well, and yields are falling. Energy prices are mixed, with big moves up in oil and gasoline (crude up more than a buck, gas up 7 cents), but another dip in natural gas after the weekly natgas inventory report showed a build of 66 billion cubic feet. The dollar is near unchanged, while gold and silver have moved higher.

A relatively positive open in the market today, with the A/D lines about as positive as we’ve seen them in some time. But not everyone has been invited to the party. Just in the past few minutes, I’ve seen a few big names go by at new 52-week lows, like Ford (F), Fortune Brands (FO) and Home Depot (HD).

Aventine Renewable (AVR) goes public today.

Have you noticed that there have been a lot of IPOs lately? It hasn’t been a great time in the market, and summer is just getting started, so I’m not sure it’s a great time to IPO.

What was the big deal about this J Crew IPO (JCG) yesterday? CNBC was slobbering all over it, and I’ve never even heard of them. From what I could tell, it sounded like just another retailer. But then again, I don’t get excited about very many retailers. Probably because I don’t shop. Now that I think about it, I never buy anything.

And don’t forget, the stock market works on supply and demand, just like everything else. All of these IPOs mean a greater supply of stock – and that serves to hold stock prices down.

Note to webmasters: I absolutely HATE web sites that have those little ‘video’ ads that lock your browser for a minute or two while you wait for them to finish playing.

And yes, those of you at MarketWatch.com, your site comes to mind. I HATE those ads…

In yet another revision of Q1 GDP (I think this is supposed to be the last one – for now), the Commerce department said the US economy grew at 5.6% in the first quarter.

Weekly initial jobless claims were up, but the 4-week average fell.

Action in overseas market saw the Nikkei in Japan up about 1 1/2 percent, the Hang Seng in Hong Kong up less than 1%, and Australia’s index up about a percent. European indices are showing healthy gains for today. Hopefully some of that will carry over to the US markets.

Deron Wagner has his eye on oil, China and Mexico. On the prospects for today, he has this to say:

Expect a lot of volatility in the final hours of today’s session. The Federal Reserve Board will announce their decision on interest rates at 2:15 pm EDT, and whipsaw action in both directions is expected after that time. As mentioned yesterday, we continue to avoid entering new ETF positions ahead of the Fed announcement. However, we are considering several ETFs on both the long and short side of the market, depending on how the market reacts to the interest rate announcement. The unbiased technical picture is that each of the major indices remain below resistance of their seven-week downtrend lines, so odds obviously favor lower prices. But a shock from the Feds could easily invalidate the technicals. Stay alert and don’t fall in love with your opinions. The actual facts of the interest rate announcement are irrelevant; all that matters is the market’s reaction to the announcement.

	Every time the price of oil stalls or pulls back a bit, we hear everyone calling “the top”. Mostly, I think that’s just wishful thinking. Crude’s been on a run for a few years, and on this weekly chart, I don’t see anything that looks like a top yet. As a matter of fact, oil hasn’t even been able to get below about $68 for quite a while now.
	Garmin, maker of GPS equipment, continues to be one of the strongest stocks in the market. GRMN hiccupped a bit along with the rest of the market in May and June, but has recovered quickly and strongly, turning in a new 52-week high today.

Charts courtesy of StockCharts.com

Today was looking to be a real snoozer, but things perked up a bit in the last hour, and the market managed to save itself from further destruction for another day. The Dow finished higher by 49 points (+0.5%) at 10974, the S&P 500 got back 7 points (+0.6%) to 1246 and the Nasdaq added 12 points (+0.6%) to 2112. The Russell 2000 picked up only 1 point (+0.2%) to 688. The Dow Transports gained 0.6% and the Utilities finished higher by 0.5%. Bonds gave back pretty much all of their gains from yesterday and then some, and yields moved back up near or above their recent highs: 6-month 5.30%, 2-year 5.27%, 5-year 5.23%, 10-year 5.24% and the 30-year 5.28%.

Market internals were mildly positive. Volume failed to match yesterday’s levels, but was better than the few days before that – still well below average. Maybe we’re sliding into summer trading levels here. Advances/declines were 11 to 8 on the NYSE but just better than flat on the Nasdaq. Up/down volume was 7 to 4 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows were 25/221 on the NYSE and 43/177 on the Nasdaq.

The group picture ended more positive than negative, without a lot of big moves. Steel stocks (+2.0%) led the winners, followed by oil stocks (+1.9%), natural resources (+1.5%), natural gas stocks (+1.4%), commodities (+1.3%) and oil services (+1.2%). The airlines fell 1.0% to lead the losers.

Energy prices were mixed, with crude oil up a quarter to $72.19/barrel, gasoline unchanged at $2.20/gallon and natural gas down over a dime to $5.98/mmBTU. The dollar gave up some of its early gains during the afternoon, but the dollar index finished higher at 86.66. Gold and silver held fairly steady, at $579/ounce and $10.18/ounce.

BMB Note: I guess about the best thing you can say about today is that the market didn’t melt down. It wasn’t a horrible day, but it certainly wasn’t a great day either. Advance/declines were flat on the Nasdaq, and volume was nothing to brag about. Oh well – you know much of the market is just marking time until the Fed announcement tomorrow. I wish that weren’t true, but it is.

The reaction to the Fed tomorrow will likely dictate direction for a while – hopefully that direction won’t be sideways. As far as groups trying to get their act together, I still think the best action is in the energies, but I haven’t been in a rush to dive in. Maybe I’m just not convinced that anything is safe yet.

Fed rate announcement should be around 2:15 ET tomorrow. Don’t expect too much market movement before then – and we’ll see what happens after that. And of course, we need to remember that it isn’t the news that’ important – it’s the market’s reaction to the news that matters.

I had my eye on Panera Bread (PNRA) as a possible shorting opportunity. I was right – it would have been a great pick. But it broke down so fast this morning, presumably on CAKE’s warning, that it never gave an opportunity for entry. And I’m a little hesitant to jump in after it’s already down 2 bucks on the day.

Oh well.