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.

	Gold and silver stocks had made a nice little move out of their trading range a few days ago. That move promptly failed.
	There are a few good things happening. Apple is moving back up to test its May highs, with help from an upgrade or two and anticipation of new product announcements. Will this be a ’sell the news’ scenario?
	On the other hand, there has been some ‘yuk’ as well. Garmin, a former market leader that had recovered nicely from the May ugly stuff, has been trapped under its 50-day moving average since it broke down in July. Over the past two days, GRMN has given back four weeks of retracement gains.

Charts courtesy of StockCharts.com

Stocks suffered a second consecutive day of losses, adding to the concern that yesterday may have marked the top of the late summer rally. The numbers on the day weren’t quite as bad as yesterday’s, but every rally attempt was snuffed, and the indices went out near their lows of the day:

Bond prices recovered slightly, and pushed yields lower:
6-month: 5.11%   2-yr: 4.81%   5-yr: 4.73%    10-yr: 4.79%    30-yr: 4.93%.

Market internals were not quite as bad as yesterday, but were solidly negative. Volume increased over yesterday’s levels, giving us our second straight “distribution” day. Advances/declines were 1 to 2 on the NYSE and 11 to 20 on the Nasdaq, with up/down volume 1 to 2 on the NYSE and 3 to 7 on the Nasdaq. New highs/lows were 48/41 on the NYSE and 48/56 on the Nasdaq.

Looking at the groups, there wasn’t much positive, with the inexplicable exception of the homebuilders, up 1.5% on the day. Leading the losers were the gold and silver stocks (-3.5%), followed by computer hardware (-1.6%), internets (-1.4%), chemicals (-1.2%), brokers (-1.2%), networkers (-1.1%), software (-1.1%) and banks (-1.0%).

Energy prices continue to slide: crude down another 18 cents to $67.32/barrel, after slipping below the $67 mark intraday, gasoline holding at $1.64/gallon and natural gas falling to $5.72/mmBTU. The dollar index moved up to 85.56, while gold fell to $617/ounce and silver tumbled to $12.55/ounce.

BMB Note: A pretty choppy day, but certainly with a negative bias. The market is clearly stumbling here, it’s only a matter of whether or not it can regain its footing and steady itself, or if it trips completely and goes sprawling face-down.

Most of the group indices, as well as the majors, have now given up their breakouts from last week and tucked themselves back into their ranges. The weakest of them, like the Transports, are back to testing their lows and threatening to break down further. Time to keep an eye on things and watch your stops - you never know when the dam might let loose.

24/7 Wall St. put together their list of the “Twenty Best Financial Blogs”. Of course, we’re disappointed to see that BMB didn’t make the list.

I haven’t visited all of the sites mentioned, but I’ll have to make sure I get around to checking them out. And I do have some opinions on the ones I have seen, but I’ll let you decide for yourself what you think of them.

I also have to say that I think there are a few worthy sites that were snubbed, aside from BMB of course. Oh well, maybe next year!

BMB pointed out the bad news from the homebuilders this morning. Barry Ritholtz also mentioned it over at The Big Picture:

Cancellations up dramatically;

Forecast cut;

Sales down significantly year over year;

Inventory up tremendously.

• Beazer Homes USA: said net home sales for the two months ended Aug. 31 fell 49% from the year ago; Their cancellation rate rose to 50% from 26%.
• KB Home cut its forecast today;
• Hovnanian Enterprises reported a second straight quarter of declining earnings and orders

So can someone explain to me why the homies are leading the market today, with many of the homebuilders’ stocks are up between 2.5% and 7%?? Who buys on this type of news?

The market is not logical…

More losses this morning for stocks, with the major indices down a half-percent or so. A/D lines are better than they were yesterday, but are still well in the red for now. Leading the way down are the gold stocks, which have already look to given up Tuesday’s little breakout, steel stocks, computer hardware, networking and chemicals.

The bond market is up slightly, yields a bit lower. Energy prices are flat to slightly lower, with little significant reaction following the morning inventory report. The dollar is higher, gold and silver lower.

A drawdown in crude inventories, but builds in gasoline and distillates:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell 2.2 million barrels compared to the previous week. However, at 330.6 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. Total motor gasoline inventories increased by 0.7 million barrels last week, and are above the upper end of the average range. Distillate fuel inventories rose by 3.1 million barrels, and remain above the upper end of the average range for this time of year. Most of the increase was in ultra-low-sulfur diesel fuel inventories, while high-sulfur distillate fuel (heating oil) inventories inched higher by 0.4 million barrels.

Refineries are still running with the pedal to the metal:

Refineries operated at 93.6 percent of their operable capacity last week. Gasoline production increased last week compared to the previous week, averaging over 9.2 million barrels per day, while distillate fuel production also increased, averaging nearly 4.3 million barrels per day.

And of course, in contrast to the talk you hear in the media, demand continues to increase year-over-year:

Total products supplied over the last four-week period has averaged over 21.2 million barrels per day, or 0.4 percent less than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.6 million barrels per day, or 1.4 percent above the same period last year. Distillate fuel demand has averaged 4.1 million barrels per day over the last four weeks, or 3.2 percent above the same period last year. Jet fuel demand is up 3.4 percent over the last four weeks compared to the same four-week period last year.

From Deron Wagner today:

As with all trendlines, we must assume that the current uptrend in the S&P will remain intact until the index proves otherwise. An intraday probe below support is highly likely, but the important point is whether or not it closes below the trendline. Even a one-day close below the trendline would not confirm the break of support, but it would clearly serve as a warning sign to the bulls. Now is the time to tighten your stops on all long positions and begin making a new watchlist of short setups.. If the S&P breaks its uptrend line, the first bounce that occurs after the trendline break would provide the ideal entry point on the short side. Waiting for that retracement into resistance is much safer than selling short the actual breakdown.

Gary Kaltbaum gives his reasons why he thinks yesterday’s action may have been important:

Wednesday’s action was the first distribution day since the August 15th follow through day. Normally, I would tell you that one distribution day is not the end of the world…normally! But there has been nothing normal about the recent rally. In fact, I believe it has been a “less than meets the eye” rally. The dirty little secret is that the Dow and S&P have masked very poor action in many important areas of the market. The RAILS have not budged. The TRUCKERS have not budged. BIOTECHS have not budged. The AIR FREIGHTS have not budged. The RETAILERS have not budged. HOUSING is now breaking new lows. The DISK DRIVES hardly budged and are now gagging badly. The BROKERS have lagged. The LENDERS are acting like the RED SOX. COMMODITY stocks have just stayed in range…and most importantly, the SMALL CAP and MID CAP INDICES have lagged badly. All this while the Dow and S&P were close to cycle highs. Keep in mind, since May, we told you the Dow and S&P would outperform during this time.

I am now seeing tops in names like NOKIA, XILINX, TEXAS INSTRUMENTS, LAM RESEARCH and a bunch of TECH names…on the first bad day we have had. This could be meaningful. Why? Because if TECHNOLOGY and more specifically, the SOX tops…well, I don’t need to tell you my thoughts. The SEMIS are vital to the health of the market and they may have just put in the high of this latest move. One day is just one day…but in the context of the past few months, it may just be an important day.

Judging from the start of today’s trading, yesterday’s move might not have been just a one-day thing.

In the homebuilders, Hovnanian’s Q3 income drops 34%, and both KB Homes (KBH) and Beazer (BZH) revise fiscal 2006 forecasts. Yeah, that would be downward.

This sort of news could add some momentum to another leg down for the homebuilders, which look like they’re ready to break below their recent ranges - ranges which are already barely off the lows.