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.

Brady Willett explains why cash is attractive.

The yield on the Vanguard Prime Money Market Fund is currently 4.98%. 4.98% is higher than the average yield on REITs (as of June), almost 3-times as high as the dividend yield on the Wilshire 5000, and nearly as high as the yield on the 10-year Treasury bond. With these statistics in mind, I will dare say that many aggressive investors will probably look back say a year from now and regret that they didn’t stop trading and simply move into cash in mid-2006.

Crude at $78.28 in electronic trading. Yikes.

Power demand in California could keep natural gas prices from falling much further anytime soon.

	The Dow was rejected at its 50-day moving average, and in the past two days has fallen all the way back through the late June lows and its 200-day MA like they weren’t even there.
	The S&P was also turned back at the 50-day, and has now given back all of the big June 29th rally, and is threatening those late June lows. The 50-day is looking to cross below the 200-day for the first time since November of ‘04.
	The Nasdaq and Nasdaq 100 are in even worse shape, having now broken back below their June lows.

Charts courtesy of StockCharts.com

More yuk. Probably even yukkier yuk than yesterday. Hopefully you’ve managed to stay out of the way.

The market was already pretty vulnerable, but escalating tensions in the Mideast and record high oil prices helped to push things over the edge this morning. The Dow finished down another 167 points (-1.5%) at 10846. The S&P 500 dumped 16 points (-1.3%) to 1242 and the Nasdaq busted through its June lows, falling 36 points (-1.7%) to 2054. The Russell 2000 gave up 14 points (-2.0%) to 687. The record high oil prices finally got the Dow Transports, sending that index down 2.7% while the Utilities lost 0.2%. As stocks fell, money flowed into bonds, and yields on the long end fell to their lowest levels in about a month: 6-month 5.27%, 2-year 5.12%, 5-year 5.04%, 10-year 5.07% and the 30-year 5.12%.

Chalk up another technical “distribution” day, as volume increased over yesterday’s levels. As you might be able to guess, market internals were pretty ugly. Advances/declines were 1 to 3 on the NYSE and 1 to 4 on the Nasdaq, with up/down volume about 1 to 5 on both exchanges. New highs were nearly absent, as highs/lows registered 23/148 on the NYSE and 24/203 on the Nasdaq.

The numbers in the groups were big and red: airlines (-6.1%), steel stocks (-6.1%), metals and mining (-4.4%), transportation (-4.1%), gold stocks (-2.9%), brokers (-2.5%), commodity stocks (-2.3%), oil services (-2.2%), chemicals (-2.1%), disk drives (-2.1%), computer hardware (-1.8%), biotechs, internets, telecoms and computer tech all down 1.7%.

Energy prices were a big story of the day, as crude oil climbed to new record highs, up $1.75 to $76.70. Gasoline was up 4 cents to $2.30/gallon, and natural gas bounced up another 33 cents to $6.11/mmBTU. Natgas has climbed more than 10% off its lows of four days ago. The dollar index saw little change at 85.82. The precious metals moved slightly higher: gold to $660/ounce and silver to $11.59/ounce.

BMB Note: Little change from yesterday. More terribly bearish action. Unless you’re short this market, you need to be honoring your stops and protecting yourself by staying out of the way. The strongest groups held up much better than most in the turbulence today, but even those areas pulled back somewhat. Most tech groups, along with retailers and homebuilders, hit new 52-week lows today. Most of the energy stocks were lower, despite the huge move up in oil prices.

Looks like the bear is still in charge. Until things change, bounces will remain sellable and/or shortable. If you’re looking for new short entries, however, you might want to wait for those bounces.

Crude oil just topped $77 in electronic trading.

When a pawn shop company like Cash America (CSH) raises earnings guidance and their stock is reaching new 52-week highs, is the market trying to tell us something about what lies ahead for Americans and their personal finances?

Though our sample size is obviously not huge, 90% of respondents to the inaugural BMB poll believe that it will take gasoline prices of $4.00/gallon or more to get Americans to start changing their driving habits, and more than two-thirds believe it will take prices of $5.00 or more.

Considering that the belief is that drivers have yet to make many changes with gasoline at or near $3.00 - and the demand statistics support that belief - we must assume that demand will continue to hold up for now, and will help to support higher prices at the pump. Those of you that think it will take a $5.00 price tag to change the habits of American drivers might just get a chance to test that belief sometime down the road.

A hearty thank-you to all those who participated, and of course, thanks to all who take the time to visit the BMB site. Happy driving!

Initial selling pressure has relaxed a bit for now, but that leaves the majors still in the red, and market breadth looking pretty poor. The Nasdaq went down and dipped below its June low, but for the moment, has bounced back up. Bonds are showing little change.

Record oil prices are having an effect on certain groups - transports, airlines, and steel stocks have been the worst hit. Gold stocks and metals and mining are also lower. Utilities are leading a few winners.

Crude oil up big, at $76.30/barrel. Dollar fairly steady, gold and silver slightly lower.

The new “Ultra Short” ProShares ETFs, designed to track “double the inverse” of the Dow, S&P, Nasdaq 100 and Mid-Cap 400, open for trading today on the Nasdaq. Symbols for the new ultra-short funds are DXD (Dow 30), SDS (S&P 500), QID (Nasdaq 100) and MZZ (Mid-cap 400).

Here’s the press release from ProShares.

Eight other ProShares funds, four providing double performance and four providing inverse performance of the above indices, made their debut a few weeks ago.

As far as Gary Kaltbaum is concerned, a bear market is an environment, not a number.

Read the article, and look at the charts of the retailers, restaurants, housing and the major indices. There’s some ugly stuff going on, and you need to remain aware of that fact. Protect yourself.

I was asked how I can call what we have been seeing a bear market when a bear market only occurs when something is down 20% or more. It is simple. That 20% threshold is a made-up number by someone…and I couldn’t care less about what number someone made up. I am different. For me…if I think a market has topped, I call a top. If I think it is just a normal correction, I call it a correction. If I think we are getting a bear market, I call it a bear market. For me, the 20% doesn’t matter. What matters is the average stock. Indices hold up much better than the average stock because of their weightings. In bear markets, the DOW and S&P hold up better because money flows into the low beta, megacap, liquid companies than have a tremendous impact on the indices. While you may see the NASDAQ only down 10% from the high, the average stock is down much more. But let’s not quibble. You may call the recent action whatever you want. But here are some facts.

Since our call of a top on May 11, the market has done nothing but disappoint. For sure, we have seen bounces…some violent…but that is a characteristic of a bear market. In bear markets, rallies are sharp, they are noisy, they get people talking, they suck people in…and bury soon after. I coined that phrase during the last bear when on any up day, the bottom was called…and rallies were nothing more than selling opportunities. Nothing has changed. On every up day, I am hearing calls of a bottom…and every rally has been sharp and noisy…only to get cracked in the head soon after. Until a real bottom is put in place, get used to it.

Deron Wagner looks at the retail breakdown yesterday, and has this perspective on the broader market:

As for the broad market, the technical picture is beginning to look pretty bearish again. The S&P 500 broke down and closed below its 200-day moving average again after holding above it for only eight days. The Nasdaq Composite also closed right at support of its June 28 low. A break below that will cause the first “lower low” to form since the uptrend began off the June 14 low. Throughout the late June rally, our intermediate-term view never changed from bearish, but our short-term bias had switched to bullish. However, both our short and mid-term biases are now firmly bearish.

Simple. Stocks lower, commodities higher.

Crude oil trading near $75.50 currently, Marketwatch says a new high of $75.89 was hit overnight. In addition to the Israeli offensive action in Lebanon, pipelines were again attacked in Nigeria.