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 alright. No big rush. Some of our gulf oil and gas production still isn’t back online after last summer’s hurricanes, and no one seems to mind. They just bitch about the big oil companies and threaten them with windfall profits taxes. Yeah, that’ll fix it.

Today’s auction finds the 3-month fetching 5.124%, up from 5.108% last week, and the 6-month returning 5.190%, up from 5.174% last week.

And yet another market leader becomes a “former” market leader. HANS has been added to the list of high-flyers that have been taken to the woodshed, joining names like BIDU, FMCN, GRMN and ISRG. HANS today became a rather spectacular example of the damage being to these once-darling stocks, as it was stripped of 25% of its value on more than 5 times average volume.

Chart courtesy of StockCharts.com

Jitters over another spike in crude oil and a Fed meeting tomorrow helped make for a rather shaky session, resulting in a rather negative market on very light trading. The Dow Industrials dropped 21 points (-0.2%) to 11219, the S&P 500 lost 4 points (-0.3%) to 1276, and the Nasdaq performed the worst of the big three - again - losing 13 points (-0.6%) to 2073. The Russell 2000 fell 5 points (-0.7%) to 696. The Dow Transports put in yet another poor showing, losing 1.4% while the Utilities fell 0.9%. Bonds drifted lower and yields edged higher: 6-month 5.17%, 2-year 4.94%, 5-year 4.86%, 10-year 4.92% and the 30-year 5.00%.

Market internals were solidly in the red, and look worse than the indices might imply. As previously mentioned, volume was very light - a lack of commitment with the Fed meeting tomorrow. Advances/declines were about 2 to 3 on the NYSE and 1 to 2 on the Nasdaq, with up/down volume 7 to 11 on the NYSE and 1 to 3 on the Nasdaq. New highs/lows were 56/67 on the NYSE and 42/106 on the Nasdaq.

More losers than winners among the groups today, but the numbers stayed relatively small. On the up side were the paper stocks (+1.8%), steel stocks (+1.4%), metals and mining (+1.4%) and the gold and silver stocks (+1.1%). Losing ground were the disk drives (-1.5%), biotechs (-1.5%), airlines (-1.4%), transports (-1.4%), health care products (-1.2%), utilities (-1.0%) and REITs (-1.0%).

Energy prices were a big story today, crude oil in particular. The surprise news of an Alaska oil field shutdown sent crude prices up over 2 dollars to $76.98/barrel. Gasoline rose a couple of cents to $2.25/gallon and traders forgot about natural gas, sending the price down to $6.91/mmBTU. The dollar index edged higher to 84.75. Gold also snuck up a few bucks to $649/ounce while silver slipped back to $12.24/ounce.

BMB Note: Another day when it felt like the market had a chance to fall apart, but there just weren’t enough people playing to make it happen. It seems that everyone is waiting for Fed Day tomorrow.

The two-dollar jump in oil prices isn’t real good news, especially since we have no idea how long that 400K barrels of supply will be offline.

The big interest rate decision is tomorrow - 2:15 ET - and tomorrow morning will likely be even quieter than today while everyone waits for the word. I know I won’t be making any new bets in one direction or the other until the news is out and the market has decided whether it’s good or bad. And who knows how long that will take? Can there really be much of a rally waiting in the wings when most everyone already assumes there won’t be a rate hike? And considering that fact, the market feels a little on the ’soft’ side in light of Friday’s big reversal and today’s mediocre session.

Not a lot of movement in either direction at the moment. An initial move lower has left the major indices - and the A/D lines - in the red, but the moves haven’t been too large as of yet. Metals and mining and gold stocks lead the winners, while biotechs, disk drives and transports lead to the downside. Bonds have drifted lower, pushing yields up a bit.

Energy prices are the big story so far, with crude oil up more than a buck-and-a-half. The dollar index is near unchanged, gold and silver slightly higher.

Chris Johnson at Schaeffer’s, on investors’ posturing ahead of tomorrow’s Fed announcement:

The activity in the equity put/call ratio and Rydex ratios indicates that investors hold a bit of a bearish bias ahead of the Fed. The market is likely to remain somewhat cautious, given the current intermediate-term resistance and short-term overbought conditions. After some weakness in the market due to oil prices rallying this morning, investors should expect the market to go into a holding pattern until 2:15 p.m. on Tuesday. Two outcomes exist - another 25-basis-point hike or no change - and the market is not convinced of either, which means that there will be a degree of surprise either way. The former will likely result in some volatile selling that should send stocks down to the bottom of the recent trading range, a consequence of investors bidding prices higher on growing expectations that the FOMC will pause. On the other hand, the market is likely to rally through intermediate technical resistance should interest rates remain unchanged. In addition, we will likely see an unwinding of recently built-up pessimism, resulting in a rally that should have legs to boost the major indices over the next month or two.

He’s a little more optimistic than BMB is - I’m not so sure the market has a lot of energy left to push things much higher, even if the Fed does come through with a pause. After all, look what happened on Friday? So, we’ll see what the market does, and react to it.

The Fed, BP and Alaskan oil, possible copper mine strikes in Chile, and of course, the Middle East, are all lining up at the same time and keeping investors a bit jittery, according to Dr. Joe Duarte’s free market intelligence report today:

The Federal Reserve is facing an onslaught. At least four major issues in the business world and marketplace are coming together nearly simultaneously, the stock options problem and the potential impact on earnings, a slowing economy, and now a threat to the world’s oil and copper supply. And with the Lebanon conflict reaching what looks as an imminent crescendo, the central bank is facing a very difficult set of decisions.

For the last 6-8 weeks, we’ve been noting the potential for a significant set of circumstances to develop. And we may be reaching that point, as circumstances along with the global economy starting to reach a key set of crossroads.

No matter what the Federal Reserve does, it’s bound to cause problems. If the central bank pauses in its quest against inflation, but commodity prices continue to rise, due to strikes, and other issues, such as supply disruptions for oil, the market is likely to be spooked. Yet, if the Fed continues to raise interest rates, the markets, which have priced in a pause, according to the Fed Funds futures, are likely to be disappointed. If the Middle East conflict starts to spread, and Iran and Syria take an active role in the conflict, all bets are off. From all visible points of view, the Federal Reserve is not likely to come out of the current situation with anything better than a draw.

For the financial markets, we may now be just one or two events away from some kind of significant decline, although any such decline is by no means guaranteed. Yet, if the reaction in Asia, Europe, and the U.S. futures, early on 8-7, is any indication, the markets are clearly on pins and needles.

Bill Fleckenstein says that it doesn’t really matter what the Fed does this week - the trend is still down, and that there are a lot more problems that lie ahead in housing / finance land:

One such problem — the rot that lies ahead for the “structured-finance” wing of the housing food chain — was the subject of “Condo Woes,” a story in last Tuesday’s Wall Street Journal. Said the story: “In the latest sign that supply of condominiums has outstripped demand, a leading national developer of condo-hotels has missed payments on loans for two major projects.”

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This is the first I’ve heard of missed payments by a developer — though I imagine that others have occurred. I expect to see many more still. However, I have heard about isolated cases of “jingle mail,” where homeowners have mailed in the keys because they can’t make the payments and no longer have any equity in their homes.

That phrase was a prominent feature of the S&L bust and ensuing real-estate debacle in 1990-1991 — and something we’ll be hearing lots more about in the future. As sure as I am that there’s going to be a train wreck in structured finance/derivatives, I’m sure I only have the faintest idea of how bad it’s really going to be.

Hansen Natural (HANS) another one of the high-flying growth stocks that has been showing weakness of late, looks like it will follow through to the downside today after their earnings report this morning.

HANS is down more than $7 in pre-market, trading at 32.88 after to 40.25 close on Friday.