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.

Or is it the Supreme Dwarfs?

According to Captain Ed, Americans are much better at naming the Seven Dwarfs and/or the Three Stooges than they are at naming the members of the Supreme Court or the three branches of government.

BMB isn’t terribly surprised. But I think Captain Ed has a pretty reasonable explanation:

Well, okay, but these are trick questions. After all, we’re pretty sure that Grumpy (David Souter) and Sleepy (Ruth Bader Ginsburg) sit on the Supreme Court. The American government can certainly be described as stooges, too, but even we admit that three is just too few. We think that federal bureaucrats and politicians might number more like 15 million, and all of them unfortunately are Larry.

Dave Landry likes today’s action in software, internets and semis. But he cautions:

Judging from the above comments and charts, one would think that this is the “all clear.” Well, I don’t know about that, but it sure looks like a good start. As usual, follow through will be key. Don’t be a hero just yet. Let the market prove itself further.

AMAT - closed at 15.69, trading at 16.13
ANF - closed at 55.52, trading at 60.15
HAR - closed at 82.10, ask of 78.60
PETM - closed at 23.36, trading at 22.45
SNDA - closed at 16.55, trading at 17.75

Well, whaddya know? Finally we get a rally that holds into the close.

The market took the supposedly tame PPI reading this morning and ran with it, pushing stocks higher in yet another triple-digit Dow gain - we’ve had a number of these since the June lows, and where has it gotten us? The Nasdaq led the charge, as techs came back roaring back to life. Will it last more than a day?

Here are the numbers:

Bond prices rallied along with stocks, and sent yields lower once again:
6-month: 5.18%   2-yr: 4.94%   5-yr: 4.87%    10-yr: 4.93%    30-yr: 5.05%.

Market internals were strong, and though volume wouldn’t be considered “strong”, it did manage to outpace yesterday’s reversal levels. Advances/declines were 16 to 3 on the NYSE and 3 to 1 on the Nasdaq, with up/down volume 8 to 1 on the NYSE and 9 to 1 on the Nasdaq. New highs/lows were 115/37 on the NYSE and 69/108 on the Nasdaq.

A long list of winners in the groups today, led by tech: semiconductors (+3.7%), computer hardware (+3.4%), networking (+3.4%), steel stocks (+3.3%), software (+3.2%), internets (+3.0%), disk drives (+3.0%), transportation (+2.8%), brokers (+2.7%), housing (+2.5%), retailers (+2.2%), computer tech (+2.2%) and airlines (+2.1%).

Energy prices were mostly, as crude oil fell to $73.05/barrel, gasoline held at $1.99/gallon and natural gas slipped to $6.86/mmBTU. The dollar index slid to 85.22. Gold fell a few bucks to $624/ounce and silver gained a few cents to $12.08/ounce.

BMB Note:A very good day for stocks. But we’ve seen these days before, haven’t we? Is this the start of something different, i.e., a meaningful move higher out of the trading range, or is this yet another noisy bear market rally? All I know is that one day doesn’t solve all the problems facing this market - we’ll need to put together a string of these types of days. We haven’t been able to hang our hat on any of these big rallies since mid-June. Why should we believe that this one is any different?

We’re now at the point where the Nasdaq and S&P have once again reached their ‘frustration’ zones, areas that they have been unable to move above for quite some time. Maybe tomorrow’s CPI report will give things another boost - then again, maybe it’ll set us back. All I know is we need to see better volume on these up days, and I’d like to see some sort of market leadership that lasts more than three days, instead of the big winners always being the groups that were down the worst the week before. Maybe we’ll get that soon - and maybe not.

For now, I’m managing my existing positions, and not looking to put more money to work on either side of the market until this spastic, choppy action smooths out, assuming it does. Then, and only then, I’ll go wherever it is the market decides to go.

We can count on Barry Ritholtz to flush out the gory details behind the morning’s PPI number:

Today’s data release got the party rolling: Core PPI (excluding food and energy) fell 0.3%, the first such drop since October ‘05. Stocks rallied, as did Bond prices, driving yields down 75 bps across the curve.

A closer look reveals how this happened: Vehicle prices fell 2%, with Car prices down 0.8%. But the real action was in dropping Light Truck prices: Given Q2 surge in Oil and gasoline, its no surprise that light truck prices fell 3.1%. I expect to see this metric to be under continued pressure for the foreseeable future.

The drop in Car and Truck prices accounts for nearly the entire decline in the core PPI.

Check out the rest of Barry’s post over at The Big Picture, and don’t miss the PPI charts added at the bottom. And look around while you’re there, he’s got lots of good stuff.

On the market’s reaction to the PPI, a song comes to mind - The Boxer, from Simon and Garfunkel: “All lies and jest. Still a man hears what he wants to hear and disregards the rest, hmmmm…”

As the stock market bounces, the confidence of US homebuilders continues to slide, now falling to a 15-year low:

The confidence of U.S. home builders collapsed in August, falling to the lowest level since February 1991, the National Association of Home Builders said Tuesday.

The NAHB/Wells Fargo housing market index dropped by seven points to 32 in August, indicating that most builders think the housing market is poor.

A year ago, the index was at 67. A reading of 50 would indicate builder sentiment was balanced between good and poor.

The index peaked at 72 in June 2005 and has fallen in 12 months since then. It’s the fastest decline in the 21-year history of the index, which has had a fairly good record of predicting the number of new homes started.

Builders in all four regions of the country are pessimistic about the market.

That’s probably not going to help the housing stocks, despite the strength in the market today. You might just hear CNBC label the survey’s participants “a bunch of party poopers.”

In this week’s commentary, Jeffrey Saut of Raymond James recalls the happenings at the recent “Minyans in the Mountains” conference, held last week:

I began my keynote address at this year’s “Minyans in the Mountains” retreat (www.minyanville.com) with the above quote since the theme was “The Markets are Speaking, are You Listening?!” The confab was attended by some of Wall Street’s “best and brightest,” as well as 250 high-net worth retail investors, and was moderated byBarron’s articulate Michael Santoli. While all of the conference’s sessions were thought provoking, the question du jour was posed by Minyanville’s founder Todd Harrison. Indeed, when asked on CNBC what the conference’s intelligentsia were pondering, Todd responded:

“To understand where we currently are, we must fully understand how we got here because there is a huge difference between legitimate economic growth and massive debt-induced growth!”

And that, ladies and gentlemen, is a question investors should currently be considering. Another more tactical question was posed by market strategist Tony Dwyer, who suggested in the conference’s last panel discussion, “The question investors should be asking themselves is if this is just a mid-cycle economic slowdown, or something worst?” In Tony’s mind this is merely a mid-cycle slowdown with no recessionary overtones. The rest of the panel, however, was not so sanguine. Vicis Capital’s co-founder John Succo framed the panel’s discussion, much the same as Todd, by noting that there is a major difference between an income-driven economy, where incomes are re-invested, thus sustaining the economic expansion, and an asset-based economy that “feasts” on ever increasing debt. Also speaking on behalf of Vicis was Scott Reamer, who noted (as paraphrased by me):

The synchronized global credit-boom is ending. Such booms never end with a “pause” because you can’t have a credit-boom without an ensuing credit-bust. You are seeing the “credit” stress-cracks more and more every month. And the idea that a failing consumer, who is 70% of the economy, is going to hand-off economic growth to a business capex spending-cycle just does not foot with reality, especially given the negative “knock on” effect that falling real estate prices are having on consumers’ balance sheets. The consequence for the various markets is likely deflationary; however, the timing of such a deflationary event is difficult. Yet, this is what the markets seem to be sensing as “risk-seeking” investors have become “risk-adverse” investors.

Read the whole thing - but do it soon, as the column is replaced weekly…

Many of the beaten-down tech names are leading the bounce this morning, with MRVL, NVDA, BRCM, AMD, RACK, DELL, SNDK, QCOM, KLAC, NTAP, MXIM, AAPL, PALM and LSI all up more than 3 percent thus far.

However, many of those names have a long way to go before any sort of turnaround would be considered meaningful. And the way things have been going lately, we’ll have to see how much of those gains hold up into the close.

Once again, the market rushed out of the gate, and so far, has been able to hang onto most of the gains. S&P up 0.9%, Nasdaq up 1.2%. A/D lines well into the green - but the indices haven’t yet managed to break to new highs, so we’re not looking at anything too meaningful yet. Leading the groups are the networkers, semis, airlines, homebuilders, brokers and software.

Bond prices have jumped on the Treasury capital inflows news, sending yields back down, the 10-year back to 4.93%.

Energy prices are near unchanged. The dollar is lower, gold and silver slightly lower.

Ya know, sometimes it just seems like whatever can go wrong will - and I’ll bet that’s the way Dell is feeling these days. The latest problem is a huge laptop battery recall.

The July PPI report came in below expectations, even showing a decline of 0.3% in the ‘core’ rate, and that news has the still Fed-phobic stock futures much higher before the market opens. Of course, not all the data in the report was good news:

For intermediate goods destined for further processing before final sale, prices rose 0.5% in July. Core intermediate goods prices rose 0.7%, bringing the year-over-year increase to 7.9%, the most since February 2005.

In other numeric news, the Empire State manufacturing index came in much lower than expected, and the Treasury Department released its monthly report on US capital flows.