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.

That’s the word Frank Barbera uses to describe the large number of breakdowns we’ve been seeing in the market recently. Needless to say, Frank doesn’t think this behavior is a sign of good times:

What is striking about the stock market behavior in recent weeks is the inability of badly oversold stocks to find any kind of a trading rally, and in many cases, any type of solid bottom. Even more to the point, is the fact that selling within the broad market has been indiscriminate in that virtually every major stock sector has seen its shares of disasters, or what I call “airpockets” stocks just blowing up in one day.

Last week, on a modest EPS miss, healthcare insurer Aetna Life collapsed 20% in one day, and since then has not managed to find even a single advancing session. Along with Aetna, Omnicare, Varian, Healthnet and Coventry have all experienced frightening declines. Even more telling, all of these supposedly “defensive stocks” sell at very low P/E and PEG multiples, at levels where they should be viewed as bargains. I start this with the obscure discussion of healthcare stocks to make a larger point, namely, that selling pressure appears to be gaining ever increasing control within the market. Just look at Tech leaders — Qualcomm, Motorola, EBAY, AMZN or YHOO. What do you see on these charts? In one word, carnage. How about EMC, JBL, SANM, TXN, INTC or AMD in the broader tech space? Again, carnage.

Over and over, I pour through sector after sector and see the giant hand of the bear reaching out to pull stocks down. Yes, there are exceptions, and to date, still a fair number of exceptions. But the pattern of progressive deterioration is unmistakable, implying that “net, net” the bear is gaining traction.

To those of have never lived through a stock market “bear” – the outcome is usually pretty horrible. In the case of today’s stock market, major averages like the S&P 500 have actually held up very well despite widespread damage on the broad tape. Looking at the broad A/D Line, we see that despite the recent relatively decent percentage recovery by the S&P, the A/D Line has hardly bounced and is still just barely inside its declining 200 day lower band. This is not a good sign for the primary trend of the market.

Read the whole thing.

CKFR - closed at 43.13, trading below 35.00
ERTS - closed at 46.52, trading at 49.00

	The Nasdaq has already given back all of last Friday’s big move up, and remains in a strong downtrend, buried beneath its 50-day MA.
	The Dow Transports have just crumbled throughout the entire month of July, dropping 14% from their highs.

Charts courtesy of StockCharts.com

The good news is that the market didn’t blow up today. The bad news is that it could have…

After a weak open, the Dow was down more than 100 points early in the afternoon, but a buying spree in the last hour pared the losses, and the 30 Industrials finished the day with a loss of 60 points (-0.5%) to 11126. The S&P 500 dropped 6 points (-0.5%) to 1271, and the Nasdaq continues its lagging performance, falling 29 points (-1.4%) to 2062. The Russell 2000 fell 11 points (-1.5%) to 690. The Dow Transports put in yet another lousy session, losing another 2.0% while the Utilities gained 1.1%. Bonds ended the day near unchanged, and yields moved little: 6-month 5.17%, 2-year 4.95%, 5-year 4.89%, 10-year 4.98% and 30-year 5.06%.

Market internals were pretty lousy, and volume ticked up slightly on the NYSE, but fell yet again on the Nasdaq. Advances/declines were 8 to 11 on the NYSE and 3 to 7 on the Nasdaq, while up/down volume was 2 to 3 on the NYSE and a gross 1 to 7 on the Nasdaq. New highs/lows were 77/90 on the NYSE and 56/123 on the Naz.

The group picture wasn’t much prettier. A few groups held up: gold and silver stocks had a good day (+2.5%), followed by the utilities (+1.1%) and the natural gas stocks (+0.9%). But the list of losers went a little deeper: transportation - again - down 3.1%, followed by paper stocks (-2.8%), airlines (-2.8%), disk drives (-2.6%), steel stocks (-2.6%), networkers (-2.0%), semiconductors (-2.0%), internets (-1.7%), biotechs (-1.5%) and software (-1.5%).

Crude oil moved up 50 cents to $74.91/barrel and gasoline rose a nickel to $2.28/gallon, while natural gas pulled back to $7.57/mmBTU. The dollar index took a morning rise and an afternoon dive to finish down at 85.03, while gold moved higher, to $647/ounce, along with silver, to $11.67/ounce.

BMB Note: The action early in the day sure felt like the top was in on this latest little rally, but there was a late buying spree that leaves some question. Volume also wasn’t powerful enough to do a great deal of convincing either, so we’ll have to give the market the benefit of the doubt for now. But I still wouldn’t be overly confident on the long side.

The transports just continue to self destruct. That can’t be good news. More big breakdowns each day than big moves up - and former market leaders continue to fall (GRMN down another 5 bucks today). Tread lightly, or continue to load up your list of short candidates.

No economic news for tomorrow, other than the crude inventories. But geez, the media has been talking about Friday’s jobs report since last Friday. Get a life, would ya?

Auto sales for July: Daimler-Chrysler and Ford down by more than 30%, GM down nearly 20%.

Update: In contrast, Toyota had its best US sales month ever.

The morning weakness has worsened, and unless we get an afternoon reversal, it looks like we may have seen the top in this latest move up.

Some names down big, on volume: GPI, WFMI, UTHR, CYBX, GRMN, EXPD.

Not a very healthy open for the markets this morning, with the major indices showing losses - Nasdaq down 1.3% - and advance/decline figures deep in the red. Just about all groups are lower - HMOs are flat - and some big losses being seen in some areas: steel stocks down 3.3%, transportation down 3.3%, airlines down 2.5%.

Weakness in the metals in names like SCHN, CMC, NUE, ATI and OS. In the transports, EXPD, UAUA, AMR, CHRW, NSC, CAL and BNI are leading the way down.

Bonds are down just slightly, yields a little higher. Energy prices are mixed, with crude and gasoline higher but a bit of a pullback in natgas. The dollar is a little higher, gold and silver also higher.

Well, at least according to the personal income and spending report out this morning. And when the government says that inflation is high, you can imagine how high it really is. All in all, this report was just full of good news:

U.S. core consumer inflation matched an 11-year high in June, keeping the pressure on the Federal Reserve to fight inflation, the Commerce Department reported Tuesday.

The core personal consumption expenditure price index (excluding food and energy) increased 0.2% for the third straight month in June, and has risen 2.4% in the past 12 months, matching the largest year-over-year gain since April 1995.

Consumer prices including food and energy also rose 0.2% in June, and are up 3.5% in the past year.

Meanwhile, personal incomes rose 0.6% in June, outpacing the 0.4% increase in consumer spending. Read the full government report.

The personal savings rate rose to negative 1.5% from negative 1.6%, the 15th consecutive month of negative savings. Consumers can have negative savings by spending previous savings, or by borrowing or selling assets to support their consumption.

So everyone wants the Fed to stop raising rates, but inflation is at an 11-year high? Tough call…

Rob Hanna contributes his end-of-month breakdown of the market’s positives and negatives. Amongst the negatives:

UUWNHI (Unofficial, Unscientific, Working/Not Working Hanna Indicator) — The lack of upside opportunities are speaking volumes about this market. I have not seen so little opportunity on the long side since September of 2002. Unless more stocks star breaking out of solid basing foundations, this rally is likely doomed. The choppiness over the last two months has made shorting somewhat difficult. Still, I believe profits have been easier to come by on the short side than the long — as long as you don’t outstay your welcome.

Summary: From a technical standpoint, the market is still doing very little to convince me that this rally is for real. I expect economic news to worsen and the market to make another leg down before a strong, sustainable rally develops. A pause by the Fed next week may delay the selloff a bit longer, but I don’t see a large move up at this point being probable.