Bear Mountain Bull

Matt Simmons, peak oil theorist and author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy”, gives an interview on this week’s broadcast from Financial Sense Online.

Listen to the discussion on oil price volatility, peak oil, the Chevron Gulf ‘Jack’ field, and various other facets of the world’s energy situation. Here is a link to the MP3 file – if you’re looking for other audio formats, go to this page, look for the September 30th broadcast, 2nd hour, and download your format of choice.

Many times, FSO will produce a transcript of interviews like this, and BMB will post a link the transcript if one becomes available.

	Tech stocks continue to move in a steep ascent off the July lows – some of these moves are getting a little extended, and are in need of a rest. The XLK is up more than 15% in 2½ months.
	The Discretionaries had a nice Monday and Tuesday, but then took the latter part of the week off.
	Health care still looks good, but has been going sideways for a couple of weeks now.
	Energy stocks started their big bounce, leading the sectors for the week. We told you they would bounce eventually.
	The Staples was the only sector to lose ground for the week, and has gone nowhere for a month now. It appears as though the market has decided there is much less of a reason to be defensive, and is probably back near max complacency. The May-June drop is already a distant memory.

The numbers after a quarter-end bump:

Charts courtesy of StockCharts.com

	Research In Motion was a big winner on a weak day in the market, pushing up nearly 20% on earnings. The stock has moved up from a low of 61.03 in June and 62.12 in July, hitting a high of 104.50 today. That’s a double in just over two months.
	In retail, Kohl’s has had a nice run, but it looks like it’s topped for now, with two big volume down days in the last week.

Charts courtesy of StockCharts.com

Stocks floundered around the zero line much of the day, but weakened late and went out near the lows of the day, saddling all of the major indices with losses – and depriving the cheerleaders of a new Dow high for yet another day:

Bonds saw little movement, with yields moving only a few nothes up:
6-month: 5.01%   2-yr: 4.68%   5-yr: 4.58%    10-yr: 4.63%    30-yr: 4.76%.

Market internals were to the negative side. Volume looked like it was going to be the lightest of the week, but a late surge brought levels up to about even with yesterday’s on the NYSE and higher on the Nasdaq. Advances trailed declines by 2 to 3 on both exchanges, with up/down volume 4 to 5 on the NYSE and 6 to 11 on the Nasdaq. New highs/lows were 122/21 on the NYSE and 99/46 on the Nasdaq.

Groups were split, but with more big losers than winners. On the green side, we find only the oil services making headway, up 1.2%. Losing ground were the housing stocks (-1.8%), retail (-1.4%), semiconductors (-1.2%), utilities (-1.1%), gold and silver stocks (-1.1%), chemicals (-1.0%) and software (-1.0%).

Energy prices firmed up: crude gained 15 cents to $62.91/barrel, gasoline was up a nickel to $1.55/gallon and natural gas climbed to $5.62/mmBTU. The dollar was stronger, moving the dollar index up to 86.02. Gold slid a few bucks to $599/ounce, and silver fell to $11.41/ounce.

BMB Note: What was a pretty uninteresting day got a little more interesting as it progressed, especially in light of the groups that took losses: housing stocks, which have been up for no good reason, semis, software and retailers, some of the strongest groups of late, and utilities which have been looking pretty shaky for a while now. Telecoms looked a little weak yesterday, but held up better today. Are investors taking profits from these groups?

Ok, quarter’s over, so let’s see what happens next week. Today wasn’t a particularly good day, especially in the small cap area, where the Russell gave back three days of gains. The big cap indices are still holding up, but they’re not getting a lot of support. This market is going to have to come together sooner or later, and either commit to the upside or not. The big push up on Monday and Tuesday certainly stalled late in the week. Is there more push left in the tank? Or is this move getting a little tired out, with the Dow now sitting more than 300 points above its 50-day?

Are the new yearly highs in the Dow and S&P signs of a strong market? You might think so. Then again, the ‘market’ may not be as impressive as it looks on the surface. Brett Steenbarger outlines some of the going’s on behind the curtain:

But it’s not just market strength that has me concerned. I also notice strength in the large cap indices that isn’t being matched by strength elsewhere. Consider the following:

• This week, so far, we’ve seen a maximum number of 1239 stocks register fresh 20-day highs. The week before we had 1498. The week before that, we hit 1622. (Kudos to the Barchart site for these numbers).
• The Russell 2000 Index (IWM) is off its highs from last week and well off its May highs, even as the S&P 500 Index is making fresh bull market highs. Midcap (MDY) stocks are similarly off their May highs, as is the NASDAQ 100 (QQQQ).
• The Energy sector (XLE) is well off its bull market highs. Also failing to make new 20 day highs recently were the Financial (XLF), Consumer Staples (XLP), Healthcare (XLV) and Semiconductor (SMH) sectors.
• Dow Transports ($TRAN) and Utilities ($UTIL) are both well off their highs.

How broad is the large cap rally? Consider this:

• On Thursday, only 37 of the S&P 500 stocks made annual new highs. That figure was 46 the day before that and 48 on Tuesday. Just two weeks ago, we had well over 60 new highs among S&P 500 stocks. In March, we had well over 90 new highs.
• Four Dow Jones Industrial Average stocks out of the 30 made new 52-week highs on Thursday. That was down from six the previous two sessions and down from eight two weeks ago.
• NASDAQ large caps? Only four of the 100 in the NASDAQ 100 Index made new highs on Thursday, down from six the previous day and nine two weeks ago. In March we had over 15 new highs. (Hats off to the Decision Point site for tracking these numbers).

The bottom line is that a narrowing base of large cap issues, highly weighted in the major indices, are carrying this market higher. As we look from the March-May period to the present period and even within the last few trading sessions, the rise is becoming more selective. Every piece of research I have conducted suggests to me that, on average, intermediate-term market returns are subnormal following such extended narrowing.

Not much reaction to any of the numbers this morning, as the market seems determined to just be flat as a pancake for the third day in a row. Most of the indices are hugging the flat line, with the Transports and Utilities down a half-percent. Advance/decline lines are a very faint red.

Bonds have dribbled lower, yields up few bps. No groups up a percent or more, while gold stocks and paper stocks lead the decliners. Energy prices are mixed – crude, gasoline lower and natgas higher. The dollar is higher, gold and silver are lower.

For what they’re worth: the UM consumer sentiment reading for September is revised upward a point, and the Chicago PMI comes in strong.

Personal income and spending out this morning, along with the PCE deflator. Spending was on the weak side, while inflation was not:

U.S. core consumer price inflation rose to an 11-year high in August as household incomes and spending rose at the slowest pace this year, the Commerce Department reported Friday. Consumer prices rose 0.2% in August, and are up 3.2% in the past year, the government said. Core consumer prices, which exclude food and energy, also rose 0.2%. The core personal consumption expenditure price index — the key inflation gauge followed by the Federal Reserve — has gained 2.5% in the past 12 months, the most since January 1995.

Some interesting moves – and some big volume – in the big telecom companies the past few days. These stocks have been some of the strongest in the market recently. Just a correction, or a chink in the armor?

	Remember SanDisk and its 50+ percent move up off the lows? Things have slowed and pulled back a bit, and the stock is slipping through its near-term support level.
	AMD, another big name in chipland, has obviously broken its short-term uptrend, and is now trying to decide what to do from here. Support is just below 24.

Charts courtesy of StockCharts.com

Well, the last half-hour or so did a very little bit to make today interesting, but for the most part, there wasn’t much notable action. And CNBC was frustrated once again in its quest for a new high close on the Dow. The major indices edged a little higher, but the small caps, transports and utilities lagged behind:

Bonds were mixed, and yields snuck down a few ticks on the short end and up on the long end:
6-month: 5.00%   2-yr: 4.66%   5-yr: 4.57%    10-yr: 4.61%    30-yr: 4.76%.

Market internals were again positive, but not overly so, and volume pulled back to its lowest level of the week. Advances/declines were 10 to 9 on both exchanges, with up/down volume 10 to 9 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows were 148/29 on the NYSE and 109/52 on the Nasdaq.

Group movement was very uninspiring, with semiconductors (+0.9%) leading the winners, and airlines (-1.4%) leading the losers.

In the energy markets, crude oil ran up by almost a dollar before sliding back, and lost 20 cents on the day to $62.76/barrel. Gasoline fell four cents to $1.50/gallon. Natural gas, due to the change in front month contract, looked like it took a big jump, to $5.39/mmBTU. The dollar index was flat at 85.72, and the spot prices of gold and silver changed very little, at $603/ounce and $11.54/ounce.

BMB Note: It almost felt like the market was messing with CNBC a bit today, running the Dow up above their sacred record close figure early in the day, then pulling back, then moving back above the record with just 15 minutes to go, but failing to hold it. Other than that, the day didn’t hold a lot of interest, with indices holding right near the flat line most of the day, and the slight move up coming in the last half-hour.

After the big moves on Monday and Tuesday, the market has done virtually nothing for two days. Not enough news? Not enough excitement? Certainly there’s been enough cheerleading done by a certain business channel. I had to chuckle at the line over at Ticker Sense on yesterday’s coverage: “And if you’ve had the pleasure of being glued to a CNBC feed all day, you’ve seen the ‘Breaking News’ banner at the bottom of the screen nonstop for about five hours. (Didn’t Breaking News used to be a finite event?)”

As far as the Dow record goes, try to keep it in perspective. The Dow is only 30 stocks – 30 very large stocks – and most of those stocks are lower now than they were back in 2000. So how much does a new high in the Dow really mean? It would be much more impressive if more of those stocks were hitting new highs along with the index, and if more indices were playing along. So it is what it is.

Tomorrow morning finally brings the end of the third quarter, and a little more news – personal income and spending, the Michigan consumer survey and Chicago PMI. Maybe the end of the week will be a little more interesting than the middle has been – but I don’t expect much of a selloff on the last day of the quarter, regardless of the news.

Mark Hulbert claims that, according to the dividend adjusted version of the Dow Jones Wilshire 5000 index, all of the losses from the 2000-2002 bear market have now been recovered, as of this morning:

What this means: An investor who was unlucky enough to have invested a lump sum in the stock market on March 24, 2000, the bull-market high, but who stuck with his investment and reinvested all dividends along the way, was, on Thursday morning, in the black for the first time.

So I guess the message is that you should never bother selling? That if you ride your stocks all the way down, no matter how far down they go, and re-invest the dividends on the way back up, that eventually you’ll get back to even. If you live long enough.

Seems to me it makes a lot more sense to sell, protect your capital, and then identify and ride the recovery. After all, we’re not aiming for break even here – aren’t we trying to make a profit?? And that would have been a long six years, especially if you needed the money.

Never lose big. Most certainly not that big.

Sounds like Roger (along with BMB) is getting a little frustrated with CNBC. Join the crowd:

Steve Massocca from Pacific Growth Equities was just on CNBC and said the right thing. The Dow and a high close (or not) doesn’t matter. He said it is 30 stocks, it’s not the same 30, it does not matter.

Bingo.

The floor trader they interviewed ten minutes before the open also made fun of the network for how they handled yesterday’s action.

If 3M and Altria both have a bad day-no record.

Joe Kernen made a quick comment in passing when the econ segment was wrapping up; he said we aren’t cheerleading, what are we supposed to root for a hard landing? I guess why I wonder why a journalist would root for anything.

The thing I find most frustrating about the channel is the time wasted covering things that don’t help anyone. The market caps of the two big American car companies adds up to $33 billion, throw in Daimler Chrysler and the entire industry (in the US) adds up to $84 billion.

Perhaps market cap is not the best way to measure the impact of the group on the US economy but I don’t think the auto industry is important enough to merit as much coverage as it gets.

When there is actual news they cover it but I would like to see broader coverage of more things which they do have time and personnel to do.

Just an early morning rant. I need some coffee.

It’s not just the auto companies that CNBC is obsessed with, it’s the cars themselves. They seem to have a serious fetish for cars and movies, and don’t seem to be serious at all about teaching someone how to manage their money and invest wisely. Their message can be summed up in two words: buy stocks. And apparently, they have never, ever heard of a moving average or a trend line. C’mon, gang, get with it – couldn’t you mark up the charts a little now and then? Even your sister station – CNBC World – has entire segments on technical analysis, not to mention forex. The American version of CNBC is a joke.

And today, the Power Lunch pair are having lunch. I think maybe Sue should just have a salad.

Former Fed chief Paul Volcker, who had the ability to recognize inflation when he saw it, and had the guts to try and do something about it, from a round table discussion a few nights ago:

“I am a little bit more worried about inflation…it is kind of creeping up, and I am impressed by the degree of pressure, if that is the right word, psychological pressure, political pressure, there is not to do anything about it.”

“We live in this peculiar world where 3 percent inflation is stability but a half percent decline in the price index is deflation. I am not quite up with modern nomenclature.”

An article with a link to the video of the entire discussion is available at Bloomberg.

Hat tip to Barry at The Big Picture.

Have you seen this Congressional “investigation” into the HP ’spy scandal’? Do these politicians have nothing else to do? Have you noticed how quickly they spring into “action” when some news hits the front pages? And most of these things they have no business getting involved in, be it baseball and steroids, oil and gas prices, or this HP case.

If crimes were committed, we have authorities whose job it is to handle that sort of stuff. If our ‘lawmakers’ on Capitol Hill have nothing better to do than to provide themselves with grandstanding opportunities, I suggest we just send them home.

A pretty quiet day thus far. The indices are just slightly in postive territory, and A/D lines are just in the green as well, but there isn’t much movement in the groups as yet, the biggest being a move down in the steel stocks.

Bonds are lower, and yields are higher. The dollar is pretty flat, gold and silver slightly lower.

I’m having a hard time getting the info on the energy prices – CNBC is showing nothing on their ticker but how far away from the record close the Dow is – no oil, no gold or silver, no currencies. Those people are just sick. They noted the exact SECOND this morning that the Dow traded above its previous high close, and then quickly had to back off from “Dow is trading above” to “Dow traded briefly above” the record.

From other sources, it looks as though oil has dipped back below $63, and gasoline is flat. We do see a big change in the price of natural gas due to a change in front month contract – yesterday’s closing price for October was $4.20 – now the ‘current’ price is $5.50. That’s a pretty hefty difference of nearly 30%.

In what they say will be the last look at Q2 GDP – before further revisions, of course – the economy grew at a 2.6% pace, down from the previously reported 2.9%.

We’re almost at the end of Q3 – why are we still messing with Q2?

Jim Jubak says the Fed is nowhere near done, at least when it comes to exorcising bubbles from the economy. The next one?? Looks like the air from the residential real estate bubble could end up inflating one in commercial real estate – and looking at the stocks of the REITs, he might just be right:

On the local level, commercial real estate lending has taken up the slack left by a slowing residential mortgage market. In Florida’s Manatee, Sarasota and Charlotte counties, 21 local community banks increased their real estate lending by 40% in the 12 months that ended in June 2006 from the prior 12-month period, according to the Federal Deposit Insurance Corp. — even though residential real estate sales are down about 40% in the area in 2006. The biggest increase — some 74% — came in commercial construction and development loans.

That’s not exactly what the Fed was hoping for when it raised interest rates 17 times. Raising interest rates is supposed to make borrowers more reluctant to borrow and make it more expensive for lenders to raise the capital that they use to make loans.

The amount of money available for lending is supposed to shrink, but that doesn’t seem to have happened so far in the market for commercial real estate loans. If anything, too much money is chasing too few good loan opportunities, according to regulators.

They fear that exactly the same situation is developing in the commercial real estate market as developed in the market for residential mortgages, when banks with more than enough money to lend chased after borrowers by lowering their credit quality standards.

Is this the only place in the economy where too much loan money may be chasing too few good borrowers? Not by a long shot. One place to look is the runaway market for mergers and acquisitions and private buyouts of public companies.

The volume of leveraged buyouts, for example, tripled in the 12 months that ended in August from the same period a year earlier. Every private buyout that is announced is larger than the one that closed just the week before.

Rob Hanna goes over the positives and negatives in the markets, as he sees them. Among the negatives is the old UUWNHI:

UUWNHI (Unofficial, Unscientific, Working/Not working Hanna Indicator) – Excitement. Conviction. Strong follow-through. Runaway breakouts. If anybody can find these things in this market, please let me know. In strong uptrends, runaway breakouts swarm like locusts. Currently, I’d liken them more to the rarely seen Snow Leopard. (How’s the Nepal market doing?)

So how does it all add up? Here’s Rob’s summary:

I’d love to be bullish. I truly would. It’s fun to be part of the popular crowd. The indices seem to be masking what is happening under the surface, though. Strong setups are just not revealing themselves. Therefore, I shall remain underinvested until the setups suck me in or (more likely) the market rolls over. I looked back at my trading records over the last 5 years to find months where the S&P rose at least 3% while I struggled and had trouble allocating cash. There were 5 instances. One was at the October 2002 bottom. I was able to get capital into the market much more aggressively in November of that year and make some money as the market continued to rise. In the other four instances, the market declined the following month. As it turned out, being underinvested on the way up saved me on the way back down. The song remains the same. Don’t chase. It’s not as pretty as it appears on the surface.

	Red Hat stock was set back nearly a year, dropping 20+ percent on 10X average volume after reporting disappointing earnings. That’s a no-no.
	Along with a lot of other retail stocks, Auto Zone has been a bit of a ‘head-scratcher’ for BMB lately. AZO has run up a good twenty bucks off the July lows, with most of that coming in the last month. How did the market know I needed a new battery?

Charts courtesy of StockCharts.com

CNBC had the champagne on ice all day long, waiting for the record high close on the Dow that they were just certain would come today, but they were disappointed as the day fell pretty flat. The biggest news came from the commodity markets, where crude oil came back to life with a jump of almost two bucks. Here’s how the major indices finished the day, with the Utilities doing a good job of propping themselves back up the past few days:

Bonds were pretty flat as well, with yields ticking up just a couple of notches:
6-month: 5.01%   2-yr: 4.69%   5-yr: 4.55%    10-yr: 4.58%    30-yr: 4.71%.

Market internals leaned to the positive side, and volume was right around yesterday’s levels. Advances/declines were 3 to 2 on the NYSE and 5 to 4 on the Nasdaq, with up/down volume 5 to 4 on the NYSE but a negative 4 to 5 on the Nasdaq. New highs/lows were 192/25 on the NYSE and 118/46 on the Nasdaq.

Energy and commodities led the winning groups today: oil services (+2.1%), oil stocks (+1.9%), natural resources (+1.6%), disk drives (+1.6%), gold and silver stocks (+1.6%), utilities (+1.3%), biotechs (+1.2%) and commodity stocks (+1.1%). Losing ground were the airlines (-1.8%), internets (-1.3%), brokers (-1.1%), telecoms (-1.1%) and housing stocks (-1.1%).

Energy prices were mixed: crude took a big jump, to $62.96/barrel, and gasoline was up a nickel to $1.54/gallon, but natural gas slid to $4.20/mmBTU. The dollar index was flat at 85.70, but gold and silver had good moves, gold up to $602/ounce and silver to $11.60/ounce.

BMB Note: A pretty unimpressive performance by either the bulls or the bears today, and that doesn’t help us much. The attention was on the Dow all day, while the Nasdaq and S&P hovered right around the zero mark nearly the entire time, and the Nasdaq 100 finished lower by a few points. Even if the Dow manages to bust through to new highs, it’s still just the Dow, and only serves to affirm the move toward very large-cap stocks that has taken hold over the past couple of months. The remainder of the market has yet to confirm the new highs.

The bounce back in oil may mark at least a near-term bottom in oil prices, and with that would likely come a temporary bottom in oil/energy stocks. At the very least, it looks like they may stop falling for the time being. But they’re hardly looking strong at this point. A lot of work to do to get energy stocks back in decent shape.

On tap for tomorrow is yet another rev of Q2 GDP – I guess they just keep trying until they get it where they want it. I’m not sure why they have to come out with each quarter’s GDP six different times, but they do. Today’s news items didn’t seem to move the markets much. I wouldn’t expect the GDP number to move it either, unless it’s way away from expectations – but since this is the third or fourth rev of the number, there shouldn’t be any surprises.

7-11 is dropping Venezuelan-owned Citgo as their gasoline supplier.

Maybe Chavez will think twice about spouting off so wildly on US soil again – but probably not.

Kevin Haggerty, never one to hide his feelings toward the existence of market manipulation, says this week is the “best markup of 2006″:

The third quarter markup by the Generals was accelerated on Monday with the 12:00 p.m. explosion from SPX 1314 to 1329, before closing at 1326. The Noon hour was a perfect time as it was quiet, the market action was soft to the downside and the intraday dynamics were neutral to down. There was really nothing going on at the time and no news in play. There was no problem taking the futures up and accelerating the buy programs, which meant fewer shares of specific stocks had to be bought to accelerate price. Even the empty suits on TV were bewildered and couldn’t attach a news bite or reason for the sudden explosion. I guess that’s a first for them. This move accelerated some short covering. The SPX is +3.4% in 13 days from a 1292 low (9/7/06), closing yesterday at 1336.34, +0.8%, as did the $INDU at a new closing high of 11,669. There was an SPX +7-point program move starting on that ever-familiar 10 a.m. bar, then went sideways until a small push up in the last half hour to the 1336 close. About 75% of the advance starting from the Monday implosion was program initiated. Upstairs trading desks were sitting around watching the price advance but doing very little institutional working order business relative to the extent of the price move. It is also interesting to note that with midterm elections only a few weeks away, just like magic crude oil and pump prices have declined sharply on top of new price highs on the SPX…

…The Generals have done a blatant good job so far on the markup and it should hold up through month-end.

BMB reports. You decide.

A pretty flat open, despite what CNBC’s all-day Dow watch would have you believe. The major indices are all right around the flat line at the moment, with A/D lines just slightly in the green. The groups are showing only a little movement, with disk drives and semiconductors higher, and metals stocks lower.

Bonds are flat to slightly lower. Energy prices are down just a bit, the dollar is flat, gold and silver up slightly.

Another seemingly bearish report for energy prices, showing a very slight drawdown in crude, but builds in gasoline and distillates:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) inched lower by 0.1 million barrels compared to the previous week. However, at 324.8 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. With strong production and high import volumes, total motor gasoline inventories increased by 6.3 million barrels last week, and are above the upper end of the average range. Distillate fuel inventories rose by 2.6 million barrels, and are well above the upper end of the average range for this time of year.

How do those inventories keep building?? BZZZT. Wrong answer. It is NOT due to reduced demand and increased conservation. How about near-record import levels??

U.S. crude oil imports averaged nearly 11.1 million barrels per day last week, up 491,000 from the previous week and the third highest weekly average ever. Over the last four weeks, crude oil imports have averaged nearly 10.7 million barrels per day. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged nearly 1.5 million barrels per day, the fifth highest weekly average ever.

And how’s that demand destruction coming along? Oh, it looks like we still need a little work in that department, as gasoline demand is up 3.8% YOY:

Total products supplied over the last four-week period has averaged 20.9 million barrels per day, or 2.4 percent more than averaged over the same period last year (when Hurricane Katrina lowered demand levels). Over the last four weeks, motor gasoline demand has averaged nearly 9.4 million barrels per day, or 3.8 percent above the same period last year. Distillate fuel demand has averaged over 4.1 million barrels per day over the last four weeks, or 1.1 percent above the same period last year. Jet fuel demand is down 0.2 percent over the last four weeks compared to the same four-week period last year.