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.

Larry McMillan isn’t giving this market a very strong vote of confidence just yet. He has this to say in the Option Strategist Weekly Updater (sign up here):

Last week we noted that the market was severely oversold and due for a rally — but warned that any such rally was likely to be sharp, but short- lived. So far, the market has rallied every day since then, with one major exception: a nasty 185-point Dow decline this past Tuesday. The oversold conditions have largely abated now, and the market is about to run into more severe resistance (not to mention the fact that the seasonal buying that takes place around the beginning of the month is about to end). Therefore, we don’t feel this rally has much more room to run, despite the fact that it has looked quite strong at times.

$SPX now sports a double bottom on its chart at 1245 — those having occurred on the first day of this year and then again last week. That level, therefore, defines the major support level. This rally has overcome several resistance levels, most notably the one at 1280. However, it is now confronting the 1290 area, which has been both support and resistance at times this year (see Figure 1). More importantly, the declining 20-day moving average is at that level as well and that average often is the halting point for initial reflex rallies, such as the one we’ve had.

In summary, we still fee that this market suffered some serious intermediate- or long-term damage in the heavy selling that took $SPX down from 1327 to 1245. We would expect to see that level retested, if not broken. Whether that happens immediately or a few weeks down the road, could depend on how the equity-only put-call ratios unfold. Right now, the market is no longer oversold, so anyone who bought on that basis should be lightening up and tightening stops.

BMB was pretty busy doing other things today, so I didn’t spend much time keeping an eye on things, but it doesn’t look like I missed much. Good day? Bad day? Looks pretty much to me like an indifferent day, maybe a bit more positive than negative.

The Dow was down 12 points (-0.1%) to 11248, the S&P 500 gained 2½ points (+0.2%) to 1288, and the Nasdaq lost a half-point to 2219. The Russell 2000 added a point (+0.1%) to 737. The Dow Transports gained 0.4% and the Utilities had another good day, rising 1.1%. Bonds rallied strongly after the weak jobs report, and sent yields much lower: 6-month 5.00%, 2-year 4.91%, 5-year 4.90%, 10-year 4.99% and 30-year 5.10%. Hmm - is that the 10-year under the Fed funds rate?

Market internals were mixed on another slight dip in volume. Advances/declines were 2 to 1 on the NYSE but only about 10 to 9 on the Nasdaq. Up/down volume was 3 to 2 on the NYSE, but 2 to 3 on the Nasdaq. New highs/lows were 90/55 on the NYSE and 131/42 on the Nasdaq.

More groups were higher than lower. Leading the winners were the oil services (+2.0%), steel stocks (+1.6%), oil stocks (+1.5%), gold & silver stocks (+1.4%), natural resources (+1.3%), utilities (+1.2%) and REITs (+1.0%). Losing ground were the airlines (-2.4%) and housing stocks (-1.3%).

Energy prices were higher, as crude oil popped a couple of bucks to $72.33/barrel, gasoline rose 8 cents to $2.21/gallon and natural gas moved up to $6.62/mmBTU. The dollar fell hard as bond yields came down, and the dollar index dropped to 84.04. Gold rose to $637/ounce and silver to $12.10/ounce.

BMB Note: Not a lot changed today in stocks, but the bond market was pretty strong. Does the weak jobs report move the Fed toward a pause in late June? Who knows?

Stocks didn’t rally like the pundits thought they might. That’s interesting. The major indices remain in rather questionable condition - the Dow trapped below its 50-day moving average, the S&P stuck below its descending 50-day but above its 200-day, and the Nasdaq still below the 200-day. That’s not bull market stuff, folks. Lotta work to do.

The utilities rallied again today, as interest rates came down. The utes look like they’re trying to get going here. Definitely an area to keep an eye on - might be some opportunities there.

Oil up a couple of bucks. I still like the idea of a ‘buy the dip, sell the spike’ trade on oil, although we haven’t had any real spikes of late. But as they say, we’re always only one event away from a spike - be it something happening in Nigeria, a defiant statement from Iran, or a tropical storm/hurricane scare (those storms are legal now that it’s hurricane season…). And oil trading has been made much easier with the USO ETF.

What looked to be a promising open, according to the futures, just hasn’t really materialized. The Dow is down slightly, the Nasdaq and S&P barely in the green. Advance/declines are in good shape on the NYSE, but barely positive on the Nasdaq. More groups are up than down, but not a lot of big movers. Leading the winners so far are the steel stocks, precious metals stocks, biotechs and oil services. Losing ground are the paper stocks and airlines.

Bonds were up sharply after the weak jobs reports, sending yields lower. Energy prices are higher. The lower yields have sent the dollar lower, and precious metals are higher.

The May non-farm payroll number came in at a weak +75K — of course, the pundits on television are cheering the bad news, saying this is great news for stocks because it decreases the likelihood of further Fed rate hikes.

In addition, the job increases for March and April were revised downward.

Someday, bad news will actually be bad news.