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.

	The Dow Industrials have been the ‘best’ behaving of the three major indices - but that’s not saying a lot. Today the Dow registered a new near-term closing low, and fell back to recent support in the low 11000s. A break below these levels would not be good news.
	The PHLX Housing Index had insult added to injury today, breaking the most recent low support level and inviting another leg down.

Charts courtesy of StockCharts.com

Ok, we knew this market was a little shaky, but we weren’t really expecting that, were we?

It was pretty ugly today. Things didn’t start out all that great, but once Bernanke started talking, things kinda fell apart. The Dow finished the day down 199 points (-1.8%) at 11049. The S&P 500 dropped 23 points (-1.8%) to 1265, and the Nasdaq gave up 50 points (-2.2%) to 2170. The Russell 2000 got hit even harder, losing 24 points (-3.2%) to 714. The Dow Transports fell 3.0% and the Utilities lost 1.0%. Bonds fell, sending yields higher, more in the middle of the curve than at the ends: 6-month 5.01%, 2-year 4.97%, 5-year 4.95%, 10-year 5.02% and 30-year 5.11%. How’s that for a flat curve?

Market internals were about as ugly as they get, but volume was still below average, ticking up just slightly on the NYSE and falling on the Nasdaq. Advances/declines were 4 to 15 on each exchange, with up/down volume 1 to 9 on the NYSE and only slightly better than that on the Nasdaq. Yikes. New highs/lows were 53/85 on the NYSE and 91/68 on the Nasdaq.

Only the REIT index ($DJR) was able to keep its head above water, helped by some consolidation news. The rest of the groups showed pure red. The worst of them: steel stocks (-6.3%), housing stocks (-4.4%), oil services (-3.7%), biotechs (-3.6%), commodities (-3.1%), natural resources (-3.1%), semiconductors (-3.0%), brokers (-2.9%), transports (-2.8%), networkers (-2.7%, oil stocks (-2.7%), disk drives (-2.7%), natural gas stocks (-2.7%), gold & silver stocks (-2.7%), computer hardware (-2.2%), chemicals (-2.2%), internets (-2.0%) and paper stocks (-2.0%).

Energy prices were mixed. Crude oil gave up most of its early gains, but finished up slightly at $72.60/barrel, while gasoline dropped to $2.17/gallon and natural gas fell to $6.46/mmBTU. The dollar got a bit of an afternoon boost from the higher yields, and the dollar index moved up to 84.22. Gold slipped late in the day to $636/ounce and silver is trading at $12.03/ounce.

BMB Note: Ugly stuff. Of course, we haven’t been seeing many good opportunities, and have been suggesting you remain cautious and defensive. Obviously, that stance has not changed!

Here’s a simple thought: ignore the pundits telling you to “buy quality companies”, or to move into “defensive stocks”, or even the Cramers telling you to stick with names Altria and Pepsico. You are NOT a mutual fund manager, and you don’t have to be fully invested. You don’t have to be invested at all. You don’t have to be in stocks! You can make 4.5% - 5% on your cash pretty easily these days, with virtually no risk. Take advantage of that fact, and just stand aside and watch everyone else wringing their hands over what’s going on in the market - well at least those who have even noticed yet. Then when this is finally over, you’ll have your cash available for opportunities when they present themselves. Really, it’s a simple concept.

This is no longer a ‘buy the dip” market. The more nimble of you should be keeping your eyes open for short opportunities. The recent bounce set many stocks and indices up pretty nicely, and as long as the downdraft continues, that’s where your focus should be.

Fed chief Bernanke, in a speech today, is still sounding as though he wants to be tough on inflation. The bond market has reacted, sending yields higher in somewhat of a reversal of the moves following Friday’s weak jobs report.

The results of today’s T-Bill auction have the 3-month going off at 4.833% and the 6-month at 5.003%, a slight down from last week’s yields. Still, we see the short-term yields holding up, tracking closely to the Fed funds rate, as longer term yields have fallen over the past few days.

If you watch CNBC - or any financial info channels - you no doubt see currency quotations from time to time. CNBC has quotations on the Yen, Euro and Pound appearing regularly on the top line of their screen. But do you know what those numbers mean? Is the dollar getting stronger or weaker?

CNBC’s presentation is quite confusing, since the quotations they show are not consistent. To be specific, the CNBC ticker displays Dollar/Yen, Euro/Dollar, and Pound/Dollar. What’s it all mean?

Well, here’s what it means: if the little green arrow is pointing up on the “Yen” quotation, it means the dollar is stronger against the Yen. But if the little green arrow is pointing up on the “Euro” or the “Pound” quote, it means the dollar is weaker against those currencies. Confused? You have good reason to be.

Let look at a couple of examples. “Yen” (really Dollar/Yen) is displayed today as 111.65. That means that one dollar will buy you 111.65 Yen. And if that number goes higher, it indicates Dollar strength. If you took that same currency ratio and inverted it, you would be looking at Yen/Dollar: 1 / 111.65 = approx. 0.009. That means that one Yen would buy you just less than a penny. As that number increases, it indicates dollar weakness.

But the very opposite is true of CNBC’s display of the “Euro” currency. What they are displaying is the Euro/Dollar value, today just under 1.30. That means that one Euro would buy you $1.30 - if that number gets larger, it indicates dollar weakness, as a Euro would buy more and more dollars. If CNBC were to display Dollar/Euro, as they display Dollar/Yen, the number would be in the neighborhood of 0.77, indicating that one dollar would buy just over three-quarters of a Euro.

So to sum it up, CNBC is showing you two different formats of the currency exchange ratios, one (the Yen) where the dollar is the numerator, and the other two - Euro and Pound - where the dollar is the denominator. So if you really want to know whether the Dollar is stronger or weaker against the other currencies by using the little red and green arrows, it depends which one you’re looking at!

CNBC really should make their display a little clearer, but I guess it’s just not that big of a deal to most folks. On CNBC World, where they discuss currency exchange much more often than they do on the main CNBC network, they will often display “Dollar/Yen” and “Euro/Dollar” values, just to help make it clear what it is you’re looking at. But it can be pretty hard to keep it all straight.

Why did crude oil prices jump this morning? I’ll guess you one guess. You got it. Iran. Here’s Phil Flynn from The Energy Report this morning:

Oil prices today are getting the supreme treatment as Iran’s Supreme Leader Ayatollah Ai Khamenei said that if the US makes the wrong move, his country could stop shipping oil. Of course he didn’t say what a wrong move might be leaving us to only guess. Perhaps he worried we are going to give him the full Monte. It seems that the Supreme Leader is supremely sensitive this morning. It is tough being the grand exalted supreme leader some days.

So will Iran use oil as a weapon? It’s obvious that oil is their best negotiating weapon to use against the West to try to get their way. Well at least it’s their best weapon until they get the bomb. Then of course they could threaten to blow Israel off the face of the earth. Oh wait, I think they already made that threat.

Weakness out of the gate this morning, leaving the major indices with slight losses thus far, advance/decline figures in the red and most of the groups below water. Leading the way down are the steel stocks and housing stocks, while the REITs lead a short list of winners. Bonds are lower as well, with yields up a bit.

Energy prices are mixed - crude up, gasoline flat and natgas lower. The dollar is mixed but nearly flat, gold and silver slightly higher.

In the weekly market exam from Chris Johnson at Schaeffer’s, we see that the market seems to be finding some support at the longer-term moving averages, but sentiment indicators aren’t showing much buyer enthusiasm just yet:

Bottom line, while the market may seem enticing for bargain hunters, the wise buyer will wait for the market’s sentiment measure to begin supporting stock prices. This will happen when the trend in such indicators as the equity put/call ratio and Nova/Ursa ratio show that buyers are entering the market. From a technical perspective, the market will become more attractive when resistance provided by the 50-day trendlines on the major indices is taken out. For the DJIA, this means crossing the 11,274 mark (just above the current price), while the SPX and COMP need to stretch to 1,296 and 2,290, respectively.

Gary Kaltbaum looks at the recent rally off the lows, and wraps up the current (somewhat questionable) state of the market:

Thursday’s move was impressive in price. We also liked the fact that the NASDAQ and NDX finally found a bid…but…WHERE WAS THE VOLUME? Until volume really kicks in, we consider the recent action nothing more than a ridiculously oversold bounce up into resistance. Studies have shown that in order to confirm a lasting rally after a low has been put in, the market should jump in the 4th through 10th day off the low on a pick up in volume. Thursday’s volume was not only down, it was anemic. We are not opposed to one showing up. We just want to wait until one occurs. We will then need to see bases show up and leadership break out. Let us be clear. There is a clear lack of leadership right now and very few bases to consider…

We are less thrilled than most with this market. If volume had shown up on Thursday, we could at least get a little excited. We cannot say yet whether the recent plunge and this anemic bounce will lead into something deeper but we can be clear of one thing. If volume starts to rear its ugly head while the market starts to turn down off this recent bounce, you best put on your raincoats and get out your umbrellas. And…if recent lows are taken out, (which we don’t think will happen imminently) then see ya.

It’s as simple as that. Keep your eyes on what’s happening, and try to stay out of trouble.

Deron Wagner says it’s make or break time for gold / GLD. BMB would agree on the GLD: though I have little interest in shorting gold at this point, I’d likely look to be a buyer when the downtrend is broken.

On the broader market, he has this to say:

As for the broad market, the S&P remains at the 50% Fibonacci retracement level of its selloff. It closed just above its 20-day MA, but resistance of both the April low and 50-day MA remain overhead. The bounce in the Nasdaq has been more feeble. As we mentioned last Friday, our overall bias remains on the short side unless the S&P recovers back above its 61.8% retracement, which would also put it back above its 50-day MA. While such an occurrence would not necessarily be the signal to begin aggressively buying the market, it would definitely necessitate a change in the bearish bias. But until that happens, we are viewing the recent bounce in the major indices as an opportunity to initiate new short positions in the stocks and ETFs with the most relative weakness. In addition to the DIA short, we are long two positions (FXE and TLT), but the beauty of those plays is that neither one is directly correlated to the price action of the stock market. Specialty ETFs that track a commodity, currency, or bond market are also great for those of you with cash accounts in which you cannot sell short, especially when in a weak market that provides minimal odds for profitably buying equities-based ETFs and individual stocks.

Another market scandal in Japan, the Nikkei down in Monday trading, Hong Kong up. European markets are mixed, US index futures down slightly before trading opens.