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.

More ugly. Not as bad as yesterday, and stocks came off their worst levels by the close, but it certainly wasn’t anything to write home about.

The Dow dumped another 47 points (-0.4%) to 11002. The S&P 500 lost just over a point (-0.1%) to 1264, and the Nasdaq fell 7 points (-0.3%) to 2163. The Russell 2000 dropped 3 points (-0.4%) to 711. Both the Dow Transports and Utilities fell 0.2%. In the bond market, prices were mixed, moving yields a little higher on the short end and lower on the long end: 6-month 5.04%, 2-year 4.99%, 5-year 4.94%, 10-year 5.01% and 30-year 5.08%.

Market internals were negative and volume picked up — not a combination we like to see. Advances/declines were near 7 to 12 on both exchanges, and up/down volume around 1 to 2 on each. New highs/lows were 28/136 on the NYSE and 53/141 on the Nasdaq.

More ugly stuff in the groups, with most of them in the red. Telecoms led a short list of winners, up a meager 0.6%. Among the losers were gold & silver stocks (-2.8%), housing stocks (-2.8%), paper stocks (-1.4%), computer hardware (-1.4%), defense (-1.2%), brokers (-1.1%) and commodity stocks (-1.0%).

Energy prices were nearly unchanged - crude off a dime to $72.50/barrel, gasoline up a penny to $2.18/gallon and natural gas off 7 cents to $6.39/mmBTU. The dollar index moved higher, to 84.77. Gold fell to $629/ounce and silver to $11.77/ounce.

BMB Note: Today’s action only serves to reinforce our stance that you should not be buying stocks in this market, under any circumstances. Nearly all groups are now severely broken, or at best, trading under their 50-day moving averages. Until further notice, all bounces are sellable or shortable. If you’ve got your eye on a few strong stocks that are holding up, keep them on a list for when market conditions are more favorable. Don’t forget that you want to have as many factors in your favor as possible: that means Market, Sector, and Stock. Right now, the “Market” factor is most definitely not on your side.

Honor your stops and preserve your capital. Make sure your cash is earning you a decent rate by finding a good money market account (should be paying at least 4.75% right now) or rolling it into short-term Treasuries (1-month, 3-month, 6-month).

As for things like the precious metals, BMB is still keeping an eye on gold and silver, but the downtrend off the highs continues. Be patient.

There are times to act, and there are times to wait. This is a time to wait. And we could be waiting a while.

The US markets are not the only ones struggling with rising interest rates. The European markets will be watching the European Central Bank very closely on Thursday.

You have to believe that a move by the ECB would affect the US bond market as well, not to mention the currency markets.

The Dow has now broken through it support level of the April 17 and May 19 lows around 11010. The S&P 500 and Nasdaq are closing in on tests of their May 24 lows.

Ugly stuff.

A pretty feeble bounce at the open has given way to a rather feeble dip at this point. The major indices are showing slight losses, advance/decline figures are in the red, and many more groups down than up. That said, the action hasn’t led to a further breakdown yet. Leading the way down are the housing stocks, precious metals stocks, steel stocks, airlines, transportation and commodities. In the housing arena, many of the homebuilders’ stocks dipped to new 52-week lows this morning.

Bonds are slightly lower, with yields up slightly across the board. Energy prices are also lower. Gold and silver both taking hits today, with gold down about $16 and silver down more than 50 cents.

Barry Ritholtz at The Big Picture last night:

Everyone on Kudlow & Company tonite was Bullish.

Everyone.

Sheesh! That’s no way to end a sell-off.

Alex, I’ll take Complacency for $100 . . .

I think Barry is one a select few that is able to get on Kudlow & Company without being bullish…

We can add Gary Kaltbaum to the list of TradingMarkets gurus who have warnings for you:

There is nothing good to say about Monday’s action if you are a bull. What we are seeing is classic bear market action. The NASDAQ (COMP), NASDAQ 100 (NDX) and the SOX (SOX) are already deep into the abyss. All it would take to really confirm things is a break below 1245 on the S&P (SPX) followed by a break of the DOW 10,860…which is its 200-day moving average. But you should not be waiting for confirmation as so many stocks and sectors are already going by the wayside.

The patterns of every major index are now very ominous looking. A break of recent lows will only serve to make what has already been a bludgeoning into something much worse. We were thinking those lows would hold in the near-term but Monday’s action may dictate something else.

Those who listen to Gary’s radio show know that he’s not feeling much better than the market is right now. Let’s all wish him a speedy recovery!

Rob Hanna says he doesn’t know if this is a “bear market”, but that it’s sure trading like one:

Now, below are a few ways that you make look to take advantage of a market with these characteristics:

1) Concentrate on shorting — Any time the market bounces you should be looking for opportunities to short. This is especially true of sharp bounces. They fool the most people and create the easiest opportunities.

2) Play the overreactions — Increased volatility and fear, brief but sharp rallies, and panic sell offs lead to over-reactions in both directions. Think like a contrarian and you’ll find some nice opportunities.

3) For longs, focus on playing oversold reversals rather than buying breakouts.

4) For longs — shorten you time frame. Take profits quicker. Don’t assume the reversal is going to lead to s sustainable rally. Instead, take you profits and wait for the next opportunity.

That is what I mean by “trading in bear market mode”. Are we in a bear market? I don’t know. I do know the market has been trading like one. The UUWNHI (Unofficial, Unscientific Working/Not working Hanna Indicator) is saying that bear market strategies are beginning to work. Therefore, until the market looks to be turning up, that’s where my focus will be.

From Deron Wagner this morning:

We pointed out the Real Estate ETFs because that sector showed the most relative strength to the broad market yesterday, but we also wanted to convey just how difficult it is to be long in the current market environment. Even when you pick the right sector, a difficult enough task in itself, the selling pressure from the broad market is probably going to prevent the sector from rallying in any significant manner. This is why we simply follow the primary trend of the broad market rather than fighting it. Just as water flowing down a stream will always follow the path of least resistance, so too will the stock market. If there is more supply than demand, stock prices will move lower, regardless of how much it may have already fallen. Therefore, we hope you have been following our advice to avoid the long side of the market or, at the very least, have been trading with reduced share size and only on a very short term basis to play counter-trend bounces. If you’re net short right now, the market is giving you a lot of room for error with choosing the proper sectors and even the proper timing. This is why it is always easier to profit from a stock market that is trending steadily in either direction; you can make a few mistakes and often still come out on top just as long as you are on the right side of the market.