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 first of three Bernanke speeches this week is in the books, and much to the media’s displeasure: “Bernanke didn’t address monetary policy or interest rates.”

I don’t know if that’s good or bad for the market, but I’d like to see the Fed folks get used to the idea: if they’re going to give speeches, which is inevitable, they certainly don’t have to babble about interest rates in every single one.

Maybe someday they’ll learn to talk less and do more. On second thought, how ’bout they talk less and do less. Things just might go a little smoother if they just let the markets and the economy work on their own.

Tomorrow morning we get PPI (Producer Price Index) and retail sales numbers at 8:30 ET. Should provide some interesting pre-market discussion and futures action.

All these stock option investigations aren’t helping matters one bit.

	I didn’t think it would do it, but the Nasdaq managed to take out its low of last Thursday.
	The S&P came within an eyelash of its low, and both indices took out their closing lows pretty convincingly. I kept waiting for someone to push the big green “buy” button in the last hour, but it never happened.

Charts courtesy of StockCharts.com

I suggest we call it the market ‘crap’ today…

The selling continues. We get just a hint of green in the morning, and then the exit doors start to open. A little bit at first, but by the last hour, we have something just short of a stampede. The Dow Industrials gave up another 99 points (-0.9%) to 10793. The S&P 500 dropped 16 points (-1.3%) to 1236, and the Nasdaq tumbled 44 points (-2.1%) to 2091. The Russell 2000 was even worse, losing 18 points (-2.6%) to 683. The Dow Transports lost 1.8% and the Utilities hung on for a 0.1% gain. Bonds didn’t do so well either, as they drifted lower and yields moved higher, especially on the short end of the curve: 6-month 5.09%, 2-year 5.01%, 5-year 4.94%, 10-year 4.98% and 30-year 5.02%.

Another day of horrible internals, but only a very slight uptick in volume from Friday’s low levels. Advance/declines ran about 4 to 15 on each exchange, and up/down volume was near 1 to 9 on each - yes, you read that right, 1 to 9. New highs/lows were 23/179 on the NYSE and 56/173 on the Nasdaq.

Little joy in the groups - only the utilities managed to avoid the bloodbath, holding on for a 0.3% gain. Leading the destruction were the steel stocks (-4.7%), networkers (-4.7%), oil services (-4.6%), airlines (-3.3%), brokers (-3.2%), gold and silver stocks (-2.9%), housing stocks (-2.8%), commodities (-2.6%), HMOs (-2.5%), natural resources (-2.4%), internets (-2.3%), defense stocks (-2.3%), computer hardware (-2.2%), transports (-2.1%) and disk drives (-2.0%).

Energy prices were mixed - crude oil down more than a buck to $70.31/barrel and gasoline down a couple of cents to $2.13/gallon, but natural gas higher by a nickel to $6.22/mmBTU. The dollar held fairly steady, with the dollar index at 85.93, while gold hung around the $605/ounce mark and silver dipped to $10.94/ounce.

BMB Note: Just to help you out, CNBC has officially labeled the drop in the Nasdaq a “correction” because it hit the magic 10% mark. Apparently the drop in the Dow and S&P don’t qualify yet. Let me help you out - don’t wait for the 20% “bear market” declaration to take action to protect your portfolio.

Are things oversold here? Probably, in many cases. Does that mean we don’t drop further? Of course not. Fear can do funny things to people, and it looks like a lot of them are finally getting worried. Sooner or later, this will stop, and we’ll get a bounce. That bounce could even be a rather sharp rally when it happens. But until things shape up, every bounce will be sellable (if you still own stocks) or shortable.

If you’re already short, good for you. If you’re not, be patient - I don’t think now is the time to dive in. Wait for some of that bounce to take stocks back up toward resistance for better risk/reward entries.

The AMEX Networking Index ($NWX) is down more than 3 percent this morning. Who’s taking the hits?

The two worst performers are Comverse Tech (CMVT) down more than 11 percent after announcing that they’ll be delaying the filing of their Q1 report “due to an ongoing review of stock option grants.” Second in line is Tellabs (TLAB), down 8% on a downgrade.

Today’s T-Bill auction results have the 3-month going at an investment rate of 4.926% and the 6-month at 5.121%.

With the stock market continuing to ooze to the downside, and short-term yields sneaking higher, those T-bills look better and better. Where are you putting your cash?

A rather shaky start to the week. A slightly positive open quickly gave way to some selling, and that has left the major indices near the flat line, but advance/decline figures well into the red, and most groups lower as well. Maybe things will turn around as the day goes on. Utilities and precious metals stocks lead the short list of winner, but with only marginal gains. Leading the losers are the networking stocks, oil services, homebuilders, brokers and steel stocks.

Bonds are down slightly, with yields a little higher across the board. Energy prices are down a bit, the dollar is mixed, and the precious metals are near unchanged levels as well.

In the weekly exam of technicals and sentiment from Chris Johnson at Schaeffer’s, we find that the signs of a market turnaround - a change in sentiment - just aren’t there yet:

Market tops and bottoms - true opportunities for the long and short sellers - are created by a shift in buying and selling patterns, which often follow signs of extreme optimism or pessimism that in hindsight are referred to as “capitulation.” While some of our indicators are showing signs of extreme sentiment, we have not yet seen a trend reversal (or unwinding) in these indicators, suggesting that the market’s selling struggles may not be over. Additionally, significantly important technical trendlines are being stressed by the recent selling, offering potential for this market to begin “snowballing” lower as technical sellers enter the market on breaks of more significant support levels…

Overall, though signs of an intermediate-term bottom are beginning to build, a shift in the balance of power from sellers to buyers is necessary before proclaiming that it’s safe to jump back into equities. While considerable risk remains, current market conditions favor those willing to pick stocks poised to bounce from extreme pessimism rather than blindly buying indices that appear to be forming a base. Waiting for a shift in sentiment from selling to buying will increase the potential for success. Until then, this market remains prone to short-term (one-day) buying and selling.

That would be Gary Kaltbaum’s answer to just about any of your questions regarding the markets finding a “bottom” here.

On current conditions, it’s necessary to seek some perspective:

We have seen absolutely nothing that changes our stance that a bear market started on May 11. We have no clue as to price and duration and find it folly to try to predict. Unfortunately, just like the last bear market, we suspect we are going to have to make this statement over and over again. We understand Wall Street’s always-bullish bias so it is extremely important to ignore the noise and pay strict attention to reality. Too many continue topay attention to the trees (the near-term oversold condition) and not the forest (the overall market condition). If we had a dollar for every email we received in the past couple of days asking if the market had put in a bottom on Thursday…well…let’s just say we would not be writing this. It is so amazing how investors try to grab for any lifeboat when the market is in a bearish phase…

Lastly, we have been asked to explain why this meltdown around the globe has been happening. Ok…we’ll take a stab because we think there is a simple explanation. In one sentence: Policy makers around the world are now removing the largest stimulus from the system that we have ever seen…and the markets are now adjusting to them. This at a time where economies around the world have also topped. Do not underestimate this massive change in policy. We are not!

Deron Wagner this morning, on market conditions:

In terms of the “big picture,” each of the major indices except the Dow Jones Industrial Average are hanging out just below their 200-day moving averages. The Dow is fractionally above its 200-MA, although it probed below it intraday on June 8. As we have mentioned on numerous occasions, the 200-day moving average is closely regarded by institutions as a barometer of the market’s long-term trend. Therefore, the longer the indices stay below their 200-MAs, the more likely we are to see another wave of institutional distribution. However, with the exception of the Nasdaq, none of the indices are below their 200-day MAs by a wide margin and could easily snap back above them. Despite the broad market’s losses last Friday, don’t forget that the previous session was a very high volume reversal attempt. Although we are not yet seeing enough confirmation to enter new long positions, we are wary of entering new short positions. Be on the lookout for potential upside follow-through to the June 8 reversal day, but don’t “jump the gun.”

Japan’s Nikkei up 80 point, but Hong Kong down 7. Currently seeing European markets also lower, but U.S. index futures are higher.

Looks like it’ll be another big week on the Fed news channel.