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.

This week, Martin Goldberg takes a look at the charts of “companies that produce expensive playthings for the average US consumer”, and finds them all in similar shape - on the way down:

From snowmobiles, boats and pool tables, to Winnebago’s and motorcycles – these stocks have entered their own little bear market in 2005. As the general markets around the world look increasingly weaker, US home equity evaporates on a daily basis, and money becomes more expensive to borrow; it appears that this bear market has only just begun.

And on today’s market:

Today’s action saw a wonder rally with stocks finishing up on roughly average volume. Evidence suggests that today’s action will bring on some more buying pressure by momentum players. Check for yourself, but it appears likely to me that today will be declared an Investors Business Daily (IBD) “follow through day.” This should bring in legions of buyers of the momentum variety. The market will be the ultimate judge, but once this rally plays out, it will set up one of the best selling opportunities of a generation.

We’re constantly hearing the whining of those that complain about the Fed raising rates, and they’re convinced that the Fed always goes too far - which they do - and the economy lapses into recession - which it often does.

But over at The Big Picture, Barry Ritholtz has a bit of a different take on the subject — that the Fed’s going too far is probably a good thing, and that a recession isn’t that bad, especially if you consider the alternative:

Has the U.S. ever not bounced back from a recession? Of course not. Over the next century, we will have a dozen or more recessions, and an equal number of recoveries.

But consider the alternative error: What happens if Inflation is no longer contained — if it gets away from them?

That is a far, far worse outcome than a recession. I am old enough to remember the nightmare of the 1970s. I have no desire to live through THAT again (and I’m not referring to Disco, Bell bottoms or Nixon). It was FUGLY.

Once inflation is no longer contained, it becomes a runaway wildfire. The Fed — indeed, central bankers everywhere — find it difficult to play catch-up. Inflation is self-reinforcing — it forces everyone in the system to raise prices, pass along increases, demand higher wages. It feeds upon itself.

The response? The Fed goes Volcker (now, a verb) on the economy: They force an even more severe recession. The medicine to recover from this is a brutal, economic chemotherapy. It can take a decade to recover from uncontained inflation — or the cure.

What did I say in the market wrap today about this possibly being a sucker rally? Check out the title of today’s post over at TheDOCument.com.

The Vonage customers that agreed to buy IPO shares, then failed to pony up the money after the shares fell from their $17 IPO price (today’s close, $11.63), are going to have to fork over the cash for the shares after all.

It only makes sense.

Tomorrow morning is the big monthly non-farm payroll report. Always interesting to see how that number pushes stocks and bonds around.

Hey, how ’bout that? Two in a row.

Another pretty positive day for stocks, and another nice rally into the close. Volume was bit lower today, but the price action was positive. The Dow finished with a gain of 92 points (+0.8%) to 11260. The S&P 500 added 16 points (+1.2%) to 1286 and the Nasdaq picked up a healthy 41 points (+1.9%) to 2220. The Russell 2000 was higher by 15 points (+2.2%) to 737. The Dow Transports gained 1.6% and the Utilities added 1.3%. Bonds were pretty quiet today, yields changed very little: 6-month 5.06%, 2-year 5.02%, 5-year 5.02%, 10-year 5.10% and the 30-year 5.20%.

Market internals were pretty solidly on positive ground, but volume did pull back from yesterday’s levels. Advance/declines were about 3 to 1 on the NYSE and 14 to 5 on the Nasdaq, with up/down volume near 4 to 1 on both exchanges. New highs/lows were 69/72 on the NYSE and 101/45 on the Nasdaq.

Most groups in the green, with only the gold & silver stocks (-0.6%) and disk drives (-0.6%) losing ground. Networkers (+4.1%) led the upside, followed by HMOs (+2.9%), steel stocks (+2.7%), telecoms (+2.6%), internets (+2.4%), airlines (+2.0%), REITs (+2.0%), housing stocks (+1.8%), retailers (+1.7%), defense stocks (+1.6%) and banks (+1.5%).

Energy prices were mixed - crude oil fell to $70.34/barrel, gasoline held steady at $2.13/gallone and natural gas was higher, to $6.45/mmBTU. The dollar had a strong morning, but took an afternoon dive, and the dollar index finished at 84.81. Gold and silver both got smacked around a bit, with gold falling to $630/ounce and silver to $11.97/ounce.

BMB Note: So far so good - the market has put together a couple of nice days. So how do we know this isn’t a sucker’s rally? It certainly could be. I think I’d like to see the market pull back a little bit and make sure it can hold last week’s lows or build a little support here before moving higher, instead of just taking a ‘V’ route. Nonetheless, we’ll be watching for opportunities for trades if things continue to look good.

In the commodities areas, both gold and silver broke their near-term support and their 50-day moving averages today. Probably won’t even be interested in looking at those metals until the sharp downtrend off the mid-May highs is broken. Be patient.

Let’s hope the market is finding its footing here. I’ll need a few more days like the last two to start to feel much confidence. You don’t want to be suckered in, only to get slammed by the big boys if they start selling into the rally.

Oh, what a surprise. May was a bad month for auto sales, especially for American car makers. Maybe that’s why we’re seeing the sales incentive programs, hmmm?

And tell me again why GM stock is up?

Note: the article was written before GM’s numbers came out. And of course, GM’s numbers were not good. I’ll update the link if the article is updated.

The utility group has been holding up well during the market down turn, and looks like it’s trying make a turn for the better. One of the healthiest is TXU, moving to new highs today. AES and FE are also relatively healthy, and a few others look like they’re trying to come off a bottom: AEP, ED, EXC, maybe FPL.

The usual disclaimer: these are not recommendations, just observations. BMB does not own positions in any of these stocks at this time.

A mildly positive start. The major indices are nursing small gains, but advance/decline stats are positive and there are more groups up than down. Moving higher are the airlines, networkers, retailers, HMOs, REITs and telecoms. On the down side, we find the precious metals stocks and disk drives.

Bonds are little changed. Energy prices are mixed, even after the morning inventory reports - crude is lower, gasoline near unchanged, natgas is higher. Gold and silver are getting whacked again, and have now broken near-term support. The dollar is higher.

Deron Wagner sees the BBH as having some short-term potential here, but on the broader market, he has this to say:

The main focus in the coming month is on the former uptrend line that the S&P fell below on the week ended May 19. That uptrend line, which began with the low of March 2003, has become the new primary resistance level. Remember the most basic tenet of technical analysis is that a prior support level becomes the new resistance level after the support is broken. A good example of this is last week’s action, in which the S&P tried, but failed, to recover back above that prior uptrend line. Therefore, our overall bias on the broad market will remain bearish unless the S&P recovers back above that trendline. Presently, resistance of the prior uptrend is around the 1,288 level, although the 10-week moving average will also provide resistance just above that. If you look at the daily chart of the S&P, you will notice that the uptrend line also coincides with resistance of the 20-day moving average at 1,288. The 50-day moving average is at 1,296. As for support, the obvious level to watch is the 200-day moving average that the S&P bounced off of last week and again yesterday. The 200-day MA lies at 1,258. A solid close below the 200-MA would likely trigger significant downside momentum, but the market is likely to chop around for a while until that happens.

Have you seen the chart of HJ Heinz (HNZ) lately?

Ok, lemme see what’s going on.

We’ve got the weekly initial jobless claims - which keep going up, yet the unemployment rate doesn’t go up. Go figure.

Also we have a revision to the productivity data. Since I totally do not understand how one measures productivity, I tend to ignore nearly everything associated with that report, but the market probably doesn’t.

European markets down a bit, Japan flat, Hong Kong down a couple hundred points. Gold is down about 16 bucks this morning, oil down a bit. US index futures pretty flat at the moment.

Oh, we get oil inventory numbers this morning, and it looks like today is the day when the retail same-store sales numbers float in all day long.