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.

For all you aspiring chartists out there that are struggling with the whole uptrend/downtrend idea, perhaps an illustration might help. This chart of LEE is a very good example of what a downtrend looks like. Got it?

Chart courtesy of StockCharts.com

Yahoo’s earnings report is going over like a lead balloon after the close, and they’re dragging stocks like GOOG down as well. YHOO will also be delaying the launch of a new advertising technology.

On the plus side, the market has reacted favorably to IBM’s earnings. Of course, IBM is just coming off another fresh 52-week low today…

The Russell 2000 has been testing its June low at around 670, and has held it thus far. Any bounce up from this level will face some stiff resistance in the 700-720 area, where the 50-day and 200-day moving averages both lie, along with the downtrend line off the May highs.

Chart courtesy of StockCharts.com

A pretty up and down day in the market today - first a move up, then down, then back up into the close. Commodities took another big hit, and the drop in oil prices might’ve given stocks a bit of a lift during the afternoon. The Dow finished higher by 52 points (+0.5%) at 10799, after hitting a low of 10683. The S&P 500 managed a 2 point gain (+0.2%) to 1237 and the Nasdaq regained 5 points (+0.3%) to 2043. The Russell 2000 also moved higher, picking up 4 points (+0.6%) to 682. The Dow Transports were higher by 0.7% and the Utilities gained 0.3%. Bonds were lower, and yields moved higher: 6-month 5.32%, 2-year 5.18%, 5-year 5.10%, 10-year 5.13% and 30-year 5.17%.

Market internals were positive for the first day in a while, and volume picked up as the indices moved higher, giving us a technical “accumulation” day - we haven’t had one of those in a while either. Advances/declines were about 5 to 4 on the NYSE and 10 to 9 on the Nasdaq. Up/down volume was 5 to 4 on the NYSE and 11 to 8 on the Nasdaq. New highs/lows remain unimpressive at 28/200 on the NYSE and 28/249 on the Nasdaq.

A few more groups up than down. Winners were the airlines (+1.5%), steel stocks (+1.4%) and REITs (+1.2%), while the HMOs (-4.8%), retailers (-2.0%), homebuilders (-1.5%), gold stocks (-1.5%) and oil services (-1.3%) led the losers.

Energy prices turned around during day and headed lower. Crude oil, after being up more than a dollar, fell nearly two bucks to $73.54. Gasoline lost a couple of cents to $2.27/gallon and natural gas dropped 22 cents to $5.56/mmBTU. The dollar index moved just a bit higher to 87.03. Precious metals got whacked again after an early move up, with gold falling to $632/ounce and silver to $10.51/ounce.

BMB Note: Bizarre day. Stocks were up and down (and up), commodities started the day up and then got smacked back down. On the stock front we saw the Dow test the 10700 area again, hold it, and bounce back up. The S&P came within 5 points of its June low and bounced back up. Maybe the major indices will find a little support here and start another bounce higher, and everyone will be saying the “bottom” is in. I don’t think that will be the case, but it could be a bottom for a short time.

Today might relieve the selling pressure a bit, presuming tomorrow’s CPI report comes in at or below expectations. If the CPI comes in too hot, that adds to the likelihood of another Fed hike in August, which would probably be bad news for stocks. On the other hand, if the CPI is rather benign, I could see the market rallying on the prospects of a Fed pause. Perhaps some short covering could come into play, and we could see one of those sharp bear market rallies. We’ll see.

On the commodity front, oil has given back all of its recent spike, and is testing support here around 73. If it falls further, that could help stocks as well.

Looking at the larger picture for now, the downtrend off the May highs is still firmly in place. Until things change considerably, any bounce or rally at this point should be considered sellable and/or shortable. As for me, I would welcome a bounce here. I’m already assembling my list of short prospects, and will be watching them closely and looking to add to them if the market does move higher.

The Morgan Stanley Healthcare Payors index ($HMO) is down more than 4% today, but the losses aren’t purely across the board. One stock, Centene (CNC), is contributing a great deal to that downfall, taking a hit of 35% after lowering their outlook. A couple of the others are suffering as well, namely Molina Healthcare (MOH), down 9.5%, and Amerigroup (AGP), down 5.4%.

Stocks are still unable to muster much of a push. Most of the early gains today have been given back, as the Nasdaq and S&P have fallen just into negative territory, while the Dow hangs onto a slight gain. Advance/decline figures started out strong, but have been falling all morning, although they are still just positive. Action in the groups is pretty split, but the numbers on the downside are larger then the upside. Gaining ground are the airlines, oil stocks and paper stocks, while the HMOs, which had been holding up pretty well, are getting hammered for a 4.6% loss. Also falling are the retailers, homebuilders and semiconductors.

Bonds have slipped a bit, yields moving higher. Energy prices are also higher, with crude oil back up more than a buck. The dollar is holding its ground, gold and silver are also near unchanged.

Deron Wagner is seeing signs of strength in the bond ETFs. As for stocks, well, the picture isn’t quite as encouraging:

The focal point for the broad market as we enter today remains support of the prior lows from June 14 for both the S&P 500 and Dow Jones Industrials. If those levels hold, it could result in at least a short-term bounce off a double bottom. But keep in mind that the Nasdaq has already been trading below its June low for the past three sessions. The longer it remains below that level, the more difficult it will be to recover back above it. For now, the Nasdaq is weighing on the other indices and could easily cause both the S&P and Dow to break down to new lows as well. If you’re short, don’t be complacent with your positions. Keep trailing your protective stops tighter and be on guard for a reversal out of nowhere (which is when they usually happen). Downtrending stocks and ETFs often snap back hard. As for long entries, we don’t see a single equity-based ETF that shows a strong pattern worthy of buying for anything more than a one to two day bounce. Instead, we are waiting for the sector ETFs that have recently broken down to bounce into their new resistance levels. When they do, we’ll be ready to enter new short positions.

The June PPI came in a little hot, up 0.5%, but the sacred “core” rate was only up 0.2%, so the Street will hang its hat on that number. Of course, the PPI doesn’t get the same reaction that the CPI does anyway, so we’ll see tomorrow morning how much of the PPI increase carries over to the CPI.