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.

See that black smoke on the horizon? It’s from all of the blowups in the oil patch recently:

Charts courtesy of StockCharts.com

SUSU. Started Ugly, Stayed Ugly. The market took some of the air out of this latest ‘rally’ today, with many of the indices giving up about four days worth of gains. And from the internal perspective, the day looked quite a bit worse than the major indices let on:

Bond prices fell again today. Simply amazing. Yields pushed up, but only slightly:
6-month: 5.11%   2-yr: 4.81%   5-yr: 4.74%    10-yr: 4.79%    30-yr: 4.95%.

Market internals were… hey Barry, what’s that word? Oh yeah, “fugly”. And volume picked up on both exchanges. Advances/declines were 4 to 15 on the NYSE and 5 to 14 on the NYSE, while up/down volume was 1 to 4 on the NYSE and a hideous 1 to 9 on the Nasdaq. New highs pulled back considerably, with highs/lows at 67/27 on the NYSE and 60/37 on the Nasdaq.

Action in the groups was not any prettier - no winners. Disk drives led the long list of losers, getting crushed for 5.4%, followed by oil services (-3.9%), oil stocks (-3.5%), semiconductors (-3.2%), airlines (-3.1%), natural resources (-2.8%), steel stocks (-2.8%), networking (-2.8%), biotechs (-2.4%), transportation (-2.3%) and natural gas stocks (-2.1%).

What could have been the best news of the day for the market didn’t seem to help one bit, and that was a further pullback in oil prices. Crude oil fell more than a buck to $67.50/barrel. Gasoline held pretty firm at $1.64/gallon, and natural gas slipped a nickel to $5.99/mmBTU. The dollar swung higher in the morning then back down in the afternoon, and finished with the dollar index up slightly 85.13. Gold slid 5 bucks to $628/ounce and silver was up a nickel to $12.97/ounce.

BMB Note: Well, this is more along the lines of what I’ve been expecting. The market didn’t like the economic news today, and took stocks down pretty hard. Does it last? Who knows.

As far as technical damage, all is not lost yet. Most of the indices have pulled back to right near their last little ‘breakout’ levels of a week or so ago, so it certainly isn’t time to pack it in and turn everything to the short side. But the breadth of the selloff, on higher volume, isn’t real encouraging either.

The big selloff in energy prices hasn’t helped the market very much, in fact it’s probably hurt it by starting to tear down most of the energy stocks that had been helping to hold things up, like the big oils ($XOI chart). Who knows how far down this goes before it finally bottoms out?

In the ‘market leading’ category, the semiconductors ($SOX chart), which had helped ignite this last move up, really haven’t followed through, and have gone mostly sideways for three weeks now. The disk drives ($DDX chart) exploded today, and the utilities ($UTY chart) look like they’re beginning to lose steam.

If you’re long this market, I wouldn’t be looking to add until the market is able to gather itself again and maybe poke through to new highs - if that even happens. And make sure you’ve got your stop points picked out in case this move down turns into something more significant.

The price of oil stands at a rather critical juncture once again. Support exists right here in the high 60s, as does the 50-week moving average which has marked the lower limits for oil prices over the past three years. If prices were to break significantly below current levels, the bull market in oil could finally be in danger.

Chart courtesy of StockCharts.com

More Fed fodder. The lone dissenter at the August meeting, who voted for another quarter-point rate hike, is interviewed in USA Today:

Federal Reserve Bank of Richmond President Jeffrey Lacker drew attention last month by becoming only the third Fed policymaker in three years to dissent on an interest rate decision.

Lacker wanted the Fed at its Aug. 8 meeting to continue raising interest rates in a bid to thwart inflation. His colleagues all voted to leave rates unchanged, arguing a slowing economy would cool pricing pressures.

In an interview Tuesday, Lacker was unbowed.

“I don’t think moderating growth is going to bring down inflation by itself,” Lacker said. “Moderating growth doesn’t change inflation. Central banks change inflation.”

Yes, “central banks change inflation” alright. They increase inflation by expanding the supply of money, and they could help decrease inflation by decreasing the supply of money. But they seem very unwilling to bite the bullet and take that step. So they try to play games with interest rates instead, but all the while keeping the money spigots wide open. That ain’t gonna cut it.

An initial wave of selling has cooled off for now, but has left the major indices in the red and the A/D lines at the lowest levels we’ve seen in weeks. Currently there are no winners to speak of, and disk drives, homebuilders, steel stocks, biotechs, oil stocks and transports lead the losers.

Bonds, amazingly enough, are lower again today, pushing yields up. Maybe those unit labor costs reported this morning are spooking a few folks.

Energy prices started lower but seem to be coming back. The dollar is higher, gold is flat and silver higher.

Disk drive stocks are taking a hit this morning after a warning from Komag. KOMG stock is down 11%, and the news isn’t helping names like HTCH (-3.3%) and STX (-6.7%).

So much for the talk of there being no wage inflation. Unit labor costs rose 5% in the past year, the highest rate since 1990.

Mortgage applications were up 1.8% last week, but are down 26% from a year ago.