Bear Mountain Bull

Doug Kass is sticking to his (bearish) guns.

Hat tip to At These Levels.

Silver poked up out of a month-long trading range today, though volume was not spectacular. Something to keep an eye on, to see if it can hold the breakout level and/or follow-through to the upside.

Chart courtesy of StockCharts.com

Update: More on the silver move over at TheDOCument.com today:

Given the quiescence in stocks, today’s move in silver stuck out like a sore thumb. Another 3% rise has run the white metal to within a whisper of $13 and sent Pan American Silver shares soaring to a new summer high. One has to doubt, though, whether this is the move. I still intend to hold fast to my play book, which calls for waiting for another sharp pull-back in metals before getting aggressive. Psychologically-speaking, it would make the most sense to have another wash of weak hands before commencing a big run.

Bizarre day today. Very little action, very little movement, and light volume – almost as though stocks were pinned down for the day from the start. The S&P traded in a range of less than 4 points, the Nasdaq in a range of less than 12 points. Here’s where things ended up:

Until further notice, you can assume that bonds were higher and yields were lower, since that’s the way it is every single day:
6-month: 5.11%   2-yr: 4.78%   5-yr: 4.70%    10-yr: 4.73%    30-yr: 4.88%.

Market internals were mostly positive. Volume ticked up just slightly above yesterday’s action, but remains at relatively low levels. Advances/declines were 3 to 2 on the NYSE and 10 to 9 on the Nasdaq, with up/down volume 5 to 4 on the NYSE but 2 to 3 on the Nasdaq. New highs/lows were 182/19 on the NYSE and 102/32 on the Nasdaq.

Not a lot of big movers in the groups today. Gold and silver stocks led the winners, up 1.4%, followed by utilities (+1.3%) and disk drives (or really, SNDK, +1.00). HMOs (-1.1%) and oil stocks (-1.1%) led the red team.

Energy prices were mixed. Crude was up to $70.26/barrel and gasoline picked up a nickel to $1.85, but natural gas fell back to $6.01/mmBTU. The dollar index moved up to 85.05. Gold moved up to $627/ounce and silver had a strong day, advancing to $12.87/ounce.

BMB Note: Weird day. Nice move in some of the metals stocks on the Glamis deal, but how much of it will stick? Those stocks have just bounced around for quite a while, making big moves up and big moves down, and not making a lot of progress.

Don’t know what to make of today’s action – my gut feel is that there was a little bit of end-of-month tape painting going on this week, and today was spent just holding things in place. I wouldn’t normally expect much movement tomorrow, being the Friday before a holiday weekend, but there’s a difference this time – the August non-farm payroll numbers are out tomorrow morning. They tend to move the market pretty heavily. Even though it’s a holiday, traders will still be paying attention to the number. That is, of course, unless it comes in somewhere at medium levels – then maybe everyone will just pack up and go home.

So is a good jobs number tomorrow good news? My suspicion is that it would NOT be – there is still far too much Fed phobia in this market, and any hint of a possible resumption of rate hikes would not be looked upon kindly. And a poor number could very easily spark yet another “Ding dong, the witch is dead Fed is done” rally in an already somewhat giddy market.

BMB mentioned just this morning that it looked like interest rates were headed for zero. Today I was looking at the chart of the 10-year yield, and was doubting that it would ever go up again – it has gone nearly straight down since early July.

Then I ran across this post at The Big Picture. Sounds like things in the bond market might be getting just a little bit on the frothy side:

Regardless of fundamental factors such as the recent Fed pause and signs that the economy may be slowing down, which are likely already somewhat factored into prices, the combination of exuberant optimism, excessive speculation, and a negative technical picture usually means only one thing: prices are headed for a fall.

Silver stocks making big moves today: PAAS up 6.7%, SSRI up 7.0%, SLW up 8.1%. Silver itself is up about 2.8%.

Things started off on a weakly positive note this morning, but have turned around somewhat in the last half-hour, and the major indices are stalled just below the zero line. A/D lines have pulled back as well, but remain in the green for now. Little movement in the groups, however. Gold stock indexes are showing an increase, mainly due to a pop in GLG on the takeover news. Semiconductors and HMOs lead the groups losing ground.

Bonds continue to move up, and seemed to determined to drive rates all the way down to zero. Energy prices are slightly lower. The dollar is now up slightly, with gold and silver a little higher.

Update: Hey, I wrote this about an hour after the market opened, but forgot to hit the ’send’ button. Call me lame.

• Personal income up 0.5%, spending up 0.8%. Spending growth outpaces income growth once again.
• It’s “same-store-sales” day. Retail numbers will be coming in all day.
• Another merger, this time in the gold mining space. Goldcorp is buying Glamis Gold.

Not just here, but in Japan too. On CNBC World, the highlight says “Japan’s Industrial production drops unexpectedly in July.” It was expected to increase 0.7%, but instead, fell by 0.9%. Doesn’t sound good, does it?

Tell that to the Japanese stock market. The Nikkei 225 is up 275 points. They know this game. Bad is good. Why? The guess is now that the Japanese central bank is less likely to raise rates.

“Fed phobia” is a global phenomenon. Thus, economic weakness is good news.

BMB has often said to others that many people these days have never experienced tough times. They don’t have any idea what it’s like to see their father lose his job. They’ve never worked at a company that lays workers off every few months for years, or have never seen entire city blocks with shopping centers and office buildings sitting vacant.

From today’s entry at TheDOCument.com:

In the news, an upwardly-revised GDP number for last quarter bolstered hope for the soft-landing camp, which is just about everybody. I suppose people cannot be blamed for their optimism. A friend of mine with whom I chat frequently makes the good point that no one under the age of 40 has really seen a hard recession in their adult lives, so why expect one now? When reality slaps these people in the face, things are going to get ugly. If you are shrewd enough to pinpoint the psychological tipping point, the markets will be your treasure chest.

Gary Kaltbaum sees a top in oil, and reminds you that if you’re going to be playing this game, it’s important to be choosy about which field you play on:

You can see how important it is to be sector-specific right now. Even though the DOW and S&P are a smidge from the highs…even though the NASDAQ and SOX have the bid right now, there are still plenty of uglies in RETAIL, TRANSPORTS, HOUSING and other areas. In fact, BROKERS are now rolling over badly which is less-than-thrilling. I am playing this game sector by sector right now…now more than ever.

Rob Hanna says we’ve got some good things and some not-so-good things. What does it all add up to?? He’s hanging onto his belief that lower prices are coming:

Summary — So while I am now seeing some positives, caution is still warranted. I still believe the market will most likely suffer another leg down. My best guess is that this low-volume drift upwards will end with a swift move lower. If the move down is deep enough and scary enough, it could wash out enough players that the market could set up nicely for a year-end rally. That’s just a guess, though. I’ll keep watching and listening for clues from the market and adjust my trading plan accordingly. Currently my trading bias remains neutral. Extra vigilance with regards to risk management is warranted, I believe.

	Many of the tech indices have made nice moves off the bottom, pulled back, and now moved higher, like the semis have.
	But watch your step if you’re going to play in this sandbox. Some names have already made huge moves, and would be way too risky to play at this point. NVDA and SNDK come to mind, with NVDA already up 70% off the lows…
	…and SNDK up 55%.
	On the other side of the coin, the Transports still haven’t been able to get their engines started at all. Sooner or later, groups like this will have to get going too, or they’ll begin to weigh the rest of the market down.

Charts courtesy of StockCharts.com

What looks like a relatively positive day in the market doesn’t show up very well in the major indices, mainly because the biggest gains were pretty narrowly focused in the tech sector. Note that the S&P ended up perfectly flat, and the Transports fell again. Here’s how things ended up in the major leagues:

Bonds posted more gains, pushing yields lower again, and turning the “yield curve” into a total abomination. But don’t worry – everything’s fine:
6-month: 5.14%   2-yr: 4.82%   5-yr: 4.73%    10-yr: 4.76%    30-yr: 4.91%.

Market internals were positive, and volume came in a bit below yesterday’s levels. Advance/declines were 12 to 7 on the NYSE and 3 to 2 on the Nasdaq, with up/down volume 3 to 2 on the NYSE and 3 to 1 on the Nasdaq. New highs/lows were 212/23 on the NYSE and 114/34 on the Nasdaq.

Most of the groups were positive, but the big moves were confined to a short list: disk drives (+2.1%), semiconductors (+1.8%), networkers (-1.4%), airlines (+1.3%) and internets (+1.0%). Losers came mainly from the energy space: oil services (-2.1%), steel stocks (-1.9%), oil stocks (-1.4%), natural resources (-1.1%) and natural gas stocks (-1.1%).

As often happen on Wednesdays – when inventory numbers are reported – crude oil took a big dive in the morning, but turned around rather abruptly. After dipping below $69/barrel following the inventory report, crude bounced back to finish above $70 at $70.03, up 32 cents on the day. Gasoline rose a penny to $1.80, but natural gas dipped to $6.29. The dollar was pretty much unchanged at 84.94. Gold rose to $618/ounce and silver moved up to $12.47/ounce.

BMB Note: Another pretty positive day for the market, although the big-cap names didn’t really play along very much today. Strength continues in tech, and the small-caps are holding together, as shown by recent gains in the Russell 2000. But be aware that even though volume has picked up in the past couple of days, it is still well below average levels.

Many of the tech names and indices have formed nice “cup with handle” formations, and some have managed to break out of those handles and are looking good at this point. If I was looking for trades on the long side, I think I’d be looking for some pullbacks in those areas for good entries. But be careful – some of those names have gotten way ahead of themselves already.

Tomorrow we get a few more pieces of data: weekly jobless claims, personal income and spending, Chicago PMI and factory orders.

It took an English economist to say it, and a British publication to mention it. But apparently the Fed was told last week that it’s wrong to place its emphasis on the pet ‘core’ inflation number (duh…I coulda told them that too.). From Daniel Gross’s blog:

The Bank of England’s chief economist thinks U.S. economists miss the point by focusing on core inflation. I agree. Krishna Guha reports in the Financial Times.

“The US Federal Reserve is wrong to focus on core measures of inflation that exclude energy prices, Charles Bean, chief economist at the Bank of England, has suggested.

It should focus instead on headline inflation, which is much higher, he argued. Including energy and food costs, US consumer price inflation is running at an annual rate of 4.1 per cent, against 2.7 per cent for core inflation.

Mr Bean told the Fed’s annual Jackson Hole symposium at the weekend that energy prices were rising for the same reason the price of many manufactured goods were falling: the rise of China and other emerging market economies. Since both price trends had a common cause, he said it makes little sense to focus “on measures of core inflation that strip out energy prices while not stripping out falling goods prices as well.”

Mr Bean did not mention the Fed by name but his implication was clear. Fed officials, including chairman Ben Bernanke, typically talk about measures of core inflation excluding volatile food and energy prices, which they say better predict future headline inflation.

Central bankers in Europe take a sharply different approach. Both the Bank of England and the European Central Bank put greater emphasis on talk of headline inflation, which includes the immediate “first round” effect of rising energy prices.”

Hat tip to Barry at The Big Picture.

Stocks were a little shaky at the start, but things got a little happier after the oil inventory data came out and oil prices took a quick dip. The indices are showing slight gains, and A/D lines are in the green. Winners include the semis and the HMOs, while energy stocks are lower.

Bonds are higher as well, yields lower. Energy prices have fallen further following the morning inventory report. The dollar is near unchanged, gold and silver each higher.

It’s all good. Never mind the bad news – it doesn’t matter anymore. Like the warning from Costco this morning.

Another bearish week for energy prices, as the weekly inventories show builds across the board:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose 2.4 million barrels compared to the previous week. At 332.8 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. Total motor gasoline inventories increased by 0.4 million barrels last week, and near the upper end of the average range. Distillate fuel inventories rose by 1.3 million barrels, and remain above the upper end of the average range for this time of year. Most of the increase was in ultra-low-sulfur diesel fuel inventories, while high-sulfur distillate fuel (heating oil) inventories inched higher by 0.3 million barrels. Total commercial petroleum inventories increased by 4.0 million barrels last week, and remain above the upper end of the average range for this time of year.

Refineries are still cranking, and always will be unless we build more:

Refineries operated at 92.9 percent of their operable capacity last week. Gasoline production declined last week compared to the previous week, averaging over 9.1 million barrels per day, while distillate fuel production increased, averaging 4.2 million barrels per day.

And the demand picture hasn’t changed – still on the rise:

Total products supplied over the last four-week period has averaged nearly 21.3 million barrels per day, or about the same as averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged 9.6 million barrels per day, or 1.6 percent above the same period last year. Distillate fuel demand has averaged nearly 4.1 million barrels per day over the last four weeks, or 2.8 percent above the same period last year. Jet fuel demand is up 2.8 percent over the last four weeks compared to the same four-week period last year.

Deron Wagner this morning:

Yesterday’s gains caused both the S&P 500 and NASDAQ Composite to finish at pivotal resistance levels of the highs of their recent consolidations. Any further buying pressure in the broad market could trigger the momentum necessary for both indices to break out above their two-week ranges. Conversely, traders are also very adept at trapping the bulls by selling into strength of probes above key resistance levels as well. Either way, the good news is that we should soon see resolution and a confirmed move in either direction out of the sideways range. It is time for the market to either “make it or break it.”

Q2 GDP was revised upward to 2.9% from the previous 2.5% reading, but the inflation portion remained pretty much the same:

Key inflation data were revised marginally lower. The core inflation measure favored by the Federal Reserve rose 2.8% in the second quarter, down from 2.9% reported earlier. The year-over-year change was unrevised at 2.3%, above the Fed’s comfort zone of 1% to 2%. It’s the largest increase in core prices in 11 years.

If you’ve got some extra reading time – and you’ll need lots of it – consider browsing over to economist Nouriel Roubini’s blog. His last couple of pieces on the housing situation have gotten quite a bit of attention. The first, “The Biggest Slump in US Housing in the Last 40 Years…or 53 Years?”, makes the case that the collapse of the housing market could bring about recession, even though a setback in housing has never done so previously. His follow-up piece, “Eight Market Spins About Housing by Perma-Bull Spin-Doctors…And the Reality of the Coming Ugliest Housing Bust Ever….”, takes on the various elements of spin coming from the bulls and the media, trying to downplay the severity and effects of the downturn in housing:

Spin #1: Housing prices are not falling, have never fallen and will not fall
Spin #2: We have never had in US history a recession that was initially triggered by a housing bust. So, it cannot happen this time around
Spin #3: In spite of the housing slump, the levels of activity in the housing market are still very high relative to a few years ago. So, there is no housing bust, only a healthy correction.
Spin #4: If the housing bust gets ugly, the Fed will ease rates and rescue us from a recession.
Spin #5: Credit conditions in the housing market are not tight. Credit growth is still perky and there is no credit crunch. So, unlike the past, there will be no hard landing
Spin #6: Given the increase in housing prices there is still so much net wealth (equity) in the housing sector that most households are richer, will keep on feeling richer and will keep on spending more.
Spin #7: Banks and mortgage lender are still very sound and there is no risk of systemic banking crisis.
Spin #8: Housing may be getting into a slump but such a limited sectoral slump cannot and will not cause a broad economy-wide recession.

BMB has said before that he finds it difficult to believe that the biggest housing boom in the history of mankind can be unwound in such an orderly fashion that it doesn’t send some pretty disruptive ripples through the rest of the economy. And that goes for other countries, in addition to the U.S. – we’re not the only ones to have been playing the housing game to the hilt for the past few years.

	Even though the market has worked its way higher, some of the brokers have taken a bit of a turn south. Bear Stearns got hit with a downgrade today.
	I don’t think the Jefferies Group has a good excuse.
	In a totally different vein, it doesn’t look like Google got an invitation to this recent market party either. GOOG has been solidly below both its 50-day and 200-day MAs for well over a month now. What’s up with that? I would be a bit concerned if I were holding GOOG – but I’m not.

Charts courtesy of StockCharts.com

Two different markets today – there was a morning market and an afternoon market. After spending the morning in the red after the weak consumer sentiment report, stocks got a little more “Fed fuel” on the release of the Fed minutes in the afternoon, and worked their way back up above the flat line to post gains for the day. Here’s how the day ended up:

Bonds prices also fell in the morning, but they too snapped back in the afternoon, and sent yields back down:
6-month: 5.15%   2-yr: 4.86%   5-yr: 4.75%    10-yr: 4.78%    30-yr: 4.92%.

Market internals turned positive, and volume picked up again – still well below average levels, but a notch above what we’ve been seeing lately. Advances/declines were 13 to 6 on the NYSE and just less than 2 to 1 on the Nasdaq, with up/down volume 7 to 3 on both exchanges. New highs/lows were 159/40 on the NYSE and 88/47 on the Nasdaq.

Most groups finished higher, led by networkers (+1.8%), semiconductors (+1.7%), disk drives (+1.6%), steel stocks (+1.5%), oil services (+1.1%), airlines (+1.1%), hospitals (+1.0%) and HMOs (+1.0%). Brokers (-1.2%) and oil stocks (-0.9%) led a short list of losers.

Energy prices were mixed, as crude oil dipped below $70, but gasoline and natural gas rebounded from morning losses. Crude finished at $69.71/barrel, gasoline at $1.79/gallon and natural gas at $6.70/mmBTU. The dollar, which had been doing alright in the morning, took a plunge in the afternoon and sent the dollar index down to 84.97. Gold hovered around $613/ounce, but silver managed a move up to $12.21/ounce.

BMB Note: The market continues to try. It just keeps grinding higher, and now a lot of indices and stocks have formed nice little “cup and handle” type patterns. Maybe we bust out of here and head off to the moon, but I’d be surprised. That doesn’t mean we don’t get another leg up though. The ‘mood’ of the market just seems to want it to go higher.

I have a hard time getting too excited about diving in and getting real long this market though. Maybe the consumer sentiment drop is meaningless, maybe the housing market will find a nice “soft” landing (yeah, right), and maybe the inverted yield curve really doesn’t mean anything – maybe it really IS different this time. But I strongly doubt it.

If we get another leg up from here, I may take a trade or two, but I’m still pretty leery of getting suckered into a market against this poor fundamental backdrop. My 5-plus percent in cash is still looking pretty good. After all, the S&P is now back to mid-May levels – just after the first big drop – and the Nasdaq is only back to June/July levels. And a decent “cash stash” has been moving steadily higher during that same time…

Tomorrow we get yet another reading on Q2 GDP and the crude inventories. But I’m not sure it matters much. Seems like right now, the market seems to find a bright spot in just about any news you throw at it. Every dip is bought, and until that changes, I think we keep grinding higher. I just don’t see much that I feel compelled to buy. When the market is being led up by Pepsi (PEP) and General Mills (GIS), I think I’ll just watch.

The minutes of the early August Fed meeting say that the decision to hold the Fed funds rate at 5.25% was a “close call”:

“Many members thought that the decision to keep policy unchanged at this meeting was a close call and noted that additional firming could well be needed,” the Fed said in minutes of the Aug. 8 meeting, released in Washington today. “Members generally saw limited risk in deferring further policy tightening that might prove necessary.”

If “the market” really believes that “the market” has better days ahead, why is it starting to tear down the brokers? They’ve been looking a little toppy lately, and today some are being taken down pretty good: LEH, MS, BSC and GS all down more than 2 percent.

The market isn’t overly impressed with itself this morning, slipping back a bit on negative advance/decline lines. Losing groups include the gold stocks, homebuilders, oil stocks, brokers and natural resources, while the airlines lead a short list of winners.

Bonds are lower as well, and yields have moved a little higher. Energy prices to pull back, with crude oil dipping below $70/barrel. The dollar has bounced back from overnight losses. Gold and silver are lower.

Consumer confidence, as measured by the Conference Board, fell to its lowest level since last November.