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.

I just happened to catch Peter Schiff’s CNBC appearance with Art Laffer that he writes about today. I’d have agree with Peter here, in that Mr. Laffer was a real laugher indeed. But then, I think that of many of the “rose-colored glasses” crowd that appear on Kudlow’s show, including Kudlow himself:

…today’s current account deficit has the much more limited role of solely financing consumer spending. Borrowing to produce is the way poor nations become rich. Borrowing to consume is the way rich nations become poor. By squandering borrowed money on consumption, America has no way to repay the principal of its debts, let alone the interest. Borrowing to build factories is not the economic equivalent of borrowing to buy flat panel, high definition televisions, and it’s amazing that Laffer can’t see the difference.

When the S&P was making new highs around 1325 back in May, nearly 75% of the S&P 500 stocks were above their 150-day moving averages. Now, with the $SPX just a percent or two from that same level, the percentage of stocks above the 150-day MA has fallen to just over half. So how confident should we be in this rally?

Chart courtesy of StockCharts.com

Stocks got another lift today, for no real reason that I can come up with. Another very low volume creep higher - as the market just continues to float upward on good news, bad news, or no news at all. The numbers, led by the Dow this time:

On a shortened trading day, the bond market started lower. But since bonds are no longer allowed to go down - ever - they turned around and finished a little higher on the day, of course. Yields were lower yet again - and yes, the yield curve is still quite inverted. But don’t you worry - I’m sure things will be different this time:
6-month: 5.10%   2-yr: 4.76%   5-yr: 4.68%    10-yr: 4.73%    30-yr: 4.87%.

Market internals were positive, but volume was at very low, pre-holiday levels. Advances/declines were nearly 2 to 1 on the NYSE and 5 to 4 on the Nasdaq, with up/down volume 7 to 3 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows were 175/16 on the NYSE and 95/27 on the Nasdaq.

The move up was led by oil services (+2.5%), steel stocks (+2.5%), metals and mining (+1.7%), natural gas stocks (+1.1%), natural resources (+1.1% and retailers (+1.0%). The semiconductors were the day’s biggest losers, falling 1.1%.

Energy prices were lower again today (if the economy is doing ’so well’, why are energy prices falling?). Crude oil dropped to $69.19/barrel, gasoline to $1.73/gallon and natural gas to $5.88/mmBTU.

BMB Note: I’m glad these last couple of weeks are over with. Let’s see what happens the next couple of weeks when maybe we can get a little more meaningful participation.

Have a great holiday weekend. College football starts in earnest this weekend, and the pros next week. That should help distract me from the markets a bit.

Ron Sen, MD, at his blog today, relays some thoughts from his son Conor:

Conor sent me an email today that summarizes where we are:

“To me it’s a fairly simple world:

Economic growth is predicated on debt growth (as well as technological improvements, which are deflationary — see the internet creating arbitrage in markets and opening up communications channels for Indian workers to do US tech jobs).

Debt growth is tied to interest rates and risk appetite. Interest rates are tied to debt demand (risk appetite), inflation expectations, and central banks. Risk appetite is tied to asset prices. Asset prices are tied to investor greed/fear.

So we’ve increasingly got an economy, because of debt having more and more of an impact, which is based on the psychology of investors reflected through asset prices.”

What Conor says is that in an asset based economy, assets must be supported. In a savings and production-based economy, people can invest their savings in production (e.g. Asia). As long as people believe the value of their assets can be extracted (e.g. by financing them) then the hamster wheel of an economy can keep running. However, when the hamster doesn’t get fed, then it’s trouble.

This matches pretty well something I was thinking as I saw the late August increase in consumer sentiment - it seems there’s a pretty good correlation between where the stock market goes and where consumer sentiment goes.

Oh oh. Luckily, I wasn’t watching CNBC when the non-farm payrolls came out this morning. I was out for my morning walk, figuring the market would find some way to turn any number into good news - that’s just the way it’s been lately.

Apparently, Barry Ritholtz was watching. Hey Barry, you really need to learn to watch that channel without the sound. You can watch, but for heaven’s sake man, don’t listen!!

The Human capacity for self-delusion never ceases to amaze. If you ever hear me spouting the same sort of $%#* I heard on CNBC at 8:31am, grab me by the lapels, throw a glass of water in my face, slap me HARD across the face, and yell “WAKE UP MAN, YOU’RE DELIRIOUS!”

And the market just continues to grind higher…

BTW, those who aren’t familiar with the term “fugly” might find that this Yahoo answer explains it pretty well:

“it is like saying someone got hit by every branch on an ugly tree”

A feeble early push higher has faded, and things have moved back to near the flat line, although the major indices are still slighly in the green. The NYSE A/D line is just above flat, the Nasdaq just below. Oil services are up, semiconductors are down.

Bonds are actually lower this morning, and yields higher, in a shortened day of trading for the bond folks. Energy prices are slightly lower, the dollar has backed down from gains following the jobs number, and gold and silver are both lower.

Construction spending fell in July, no big surprise there.
U of M consumer sentiment improved in late August from the preliminary reading, but still down from July.
US ISM index was a little below expectations.

Deron Wagner is watching both gold and silver. On yesterday’s overall market action, he makes this observation:

Total volume in the both the NYSE and Nasdaq was 4% higher than the previous day’s levels. Although the major indices finished nearly unchanged, it was actually bearish that turnover increased. When consolidating at the top of a range, you want to see decreasing volume because it indicates the bears are not stepping in while the buyers are taking a rest. However, if near the high of a range, increasing volume occurs without corresponding gains often points to traders selling into the strength of a rally attempt. This is known as “churning” and should serve as a warning sign that a short-term top may be forming. We liken “churning” to a sports car that attempts to accelerate too fast. Rather than shooting down the highway, it will merely spin its wheels in place. Conversely, the opposite volume pattern is effective at predicting short-term bottoms. If, at the low of a range, you see increasing volume without further price losses, it indicates traders are buying into weakness and accumulating shares of stock. Remember that volume is the one technical indicator that never lies and is the most accurate leading technical indicator at your disposal.

Historically, September has been the worst month of the year for stocks. Check out this week’s free Chart of the Day.

Sounds like the August non-farm payroll numbers didn’t shock very many people on either side of the number, showing an increase of 128,000 jobs, and the survey data showed unemployment down to 4.7%.

Here’s a little bit of analysis that says that the data paints a mixed picture, saying “The US labor market is good, not great.”