Bear Mountain Bull

Due to a severe and sudden relapse of foot-in-mouth disease being suffered by John Kerry, we are almost certain to be relieved of any further discussion of Mark Foley and his ‘buddies’ for the duration of this election cycle.

For that, we can all be thankful. Sorry Steve.

	Just when you thought… A week ago, it looked like yields were just dying to move higher. Weak economic data has helped change that, and has sent yields tumbling for five straight days.
	The turn down in yields has been bad news for the dollar.
	In stocks, the drug makers have been struggling quite a bit lately…
	…and transportation stocks have been unable to make much headway despite continued weakness in oil prices.

Charts courtesy of StockCharts.com

Another pretty wishy-washy day for stocks. The major indices looked like they were going to suffer a bit around midday, but the saviors, whoever they are, showed up with the ‘buy’ tickets and ran stock back up to around the UNCH mark by the close. The Dow suffered its third consecutive down day, the first time that’s happened since late August. Of course, the Dow has only dropped about 80 points in those three days. Here are the numbers:

Bonds continue to rally on soft economic data, and have completely reversed the recent move up in yields:
6-month: 5.11%   2-yr: 4.70%   5-yr: 4.57%    10-yr: 4.60%    30-yr: 4.72%.

Market internals leaned negative, and volume increased over yesterday’s low levels. Advances/declines were just below the flat line on both exchanges, with up/down volume 4 to 5 on the NYSE but a positive 5 to 4 on the Nasdaq. New highs/lows were 215/24 on the NYSE and 163/45 on the Nasdaq.

Gold and silver stocks (+2.6%) led the way today, followed by oil stocks (+1.1%), natural resources (+1.0%) and oil services (+1.0%). Giving up more ground today were the HMOs (-3.6%), followed down by paper stocks (-1.6%), transportation (-1.6%), hospitals (-1.2%), airlines (-1.0%) and insurance (-1.0%).

Energy prices had a wild ride today. Crude oil dipped all the way down to $57/barrel before rebounding strongly to finish up on the day at $58.73/barrel. Gasoline worked its way back to even at $1.46/gallon, and natural gas finished higher at $7.53/mmBTU. The dollar weakness continued, pushing the dollar index down to 85.33. Gold snuck up a couple of bucks to $606/ounce. Silver did a little better, gaining to $12.24/ounce.

BMB Note: Hard to get a good handle on the action here. A lot of chopping around today, with the Dow down some 70-odd points at one time only to finish near flat. Most groups are either still consolidating or pulling back here. That could provide some good buying opportunities if we see a little more strength to start another move higher. BMB grabbed one of the utilities that had pulled back when it bumped up this morning - we’ll see how that holds up.

A few groups to avoid - the hospitals continue to look horrid, and the drug stocks are fading pretty badly. The HMOs have been pounded the last couple of days - don’t know how long that lasts - and the paper stocks are looking weak. Internets still look the best of the techs, as semis, networks, and software have stalled. Transports, retail, brokers have all stalled as well.

The dollar has been in trouble, and if that continues, that will be probably be bullish for the commodities. Gold and silver, as well as the gold stocks, are shaping up pretty nicely here, but it might still be just a touch early to dive in with both feet. Crude oil may have drawn a line in the sand today with its strong reversal off the $57 mark. As far as the energy stocks go, they haven’t looked nearly as weak as crude itself has, and many of those stocks are in pullback mode right now. It’s possible we may see another move up in the energy complex, but again, it’s a little early to tell for sure.

The bond market seems to have once again changed its mind, and is now leaning toward a much weaker economy. Will they be right? Tomorrow we get auto sales and the ISM index. We’ll see what those telll us, if anything.

It looked to me like the oil markets were challenging OPEC’s will and/or ability to actually cut back on oil production. But obviously, I’m not in the thick of things when it comes to oil trading.

According to Phil Flynn, there’s something much more sinister at work:

What a spooky sell-off! On the eve of Halloween it was an eerie sight as the bulls ran from the energy complex and were consumed with fright. A ghoulish sell-off had just occurred and the lines between sanity seem for ever blurred. A market that was once consumed with terror and fear is now challenging OPEC to get their cuts in gear. The bears were selling like they were a demon possessed as they continued to assault the low without a moment of rest. Believing perhaps that the economy is dead and that a rebound in crude supply will make the bulls bleed red. The bears danced with a fiendish delight as and the bullish traders refused to fight.

Inspired by warming forecasts the heating oil fell and by the size of the move you would think it would was hotter than hell. You could tell by the move that the market was spooked and that the amount of the selling was not just a fluke.

The bearish sprits of October have once again spoken and if you try to go long your back will get broken. Like ghosts and goblins the bears have haunted the oil and once again near Halloween the bulls have toiled.

Those bearish spirits are following through so far today, pushing oil down more than a buck, near $57/barrel.

The consumer confidence report out this morning fell a little short of expectations, and the Chicago PMI came in with the lowest reading since last summer.

This news has moved bonds higher - yields lower - and sent the dollar lower as well.

Pickin’ up where yesterday left off by going nowhere. Major indices are mixed but near flat, A/D lines just above the zero line. In the groups, gold stocks and biotechs are showing the best gains (which isn’t saying a lot), with HMOs and hospitals moving to the downside.

Bonds are again moving higher, pushing yields lower. The dollar has taken a hit, probably on weak Chicago PMI and light consumer confidence reports. Gold and silver are slightly higher.

The recent weakness in the dollar has Deron Wagner keeping an eye on some of the new currency ETFs.

As for the broader market:

…it seems to be in a short-term transition right now. Stocks corrected firmly last Friday, but did so on lighter volume, which is bullish. However, yesterday’s bounce in the Nasdaq occurred on even lower volume, which means the buyers may be drying up too. It may be a bit challenging to “scare up the profits” on either side of the market today, so we are continuing to tread lightly and maintaining a cautiously neutral stance overall.

The Big Picture points to a blog dedicated to keeping an eye on David Lereah, the economist and mouthpiece for the National Association of Realtors. Note how the title and cover to Mr. Lereah’s book have been conveniently updated for the “changing times”.

As BMB implied last week, any statements coming from Mr. Lereah should probably be taken with a few blocks of salt.

A few stocks that have made some ugly looking moves below their 50-day moving averages over the last few days:
AZN CBK CLS GD GSK GVA IVGN MHK MUR RESP SIMO SYMC TRID UST WTNY

For all those who were blaming the “big oil companies” for the runup in oil prices over the past few years, don’t you wonder why those same ‘evil’ companies would be willing to “let” the price fall from $78/barrel in July to $58/barrel today?

A rather uninteresting and messy day, as an early dip was bought up (aren’t they all these days?), and held the major indices just above the flat line for most of the day. A bit of a stumble late sent the Dow just into the red:

Just to add to the mixed up mess, the NYSE composite ($NYA) and S&P 100 ($OEX) both finished just in the red today.

After last week’s rally days, the bond market looked like it took the day off:
6-month: 5.14%   2-yr: 4.75%   5-yr: 4.63%    10-yr: 4.67%    30-yr: 4.78%.

Market internals were mostly positive, but volume backed off from last week’s levels. Advances/declines were about 10 to 9 on both exchanges, with up/down volume diverging at 9 to 10 on the NYSE but nearly 3 to 1 on the Nasdaq. New highs/lows were 163/19 on the NYSE and 121/40 on the Nasdaq.

Disk drives (+3.4%) held the top spot in the group moves, helped by a big move in Iomega (yeah, we love those 40 cent moves in the 3 and 4 dollar stocks). Following the drives were the airlines (+2.3%), which always move when oil prices move, transportation (+1.8%), software (+1.2%), computer hardware (+1.2%) and semiconductors (+1.1%). Losers on the day included HMOs (-1.7%, with a healthy drop in HUM), oil stocks (-1.6%), natural resources (-1.5%) oil services (-1.4%) and natural gas stocks (-1.0%).

Energy prices took another dive, and crude oil moved back near its low of last week, dropping more than two dollars to $58.36/barrel. Gasoline fell a dime to $1.46/gallon, and the new front month natural gas contract dropped to $7.42/mmBTU. The dollar index was flat at 85.56. Gold fell back but hung onto a 5 dollar gain at $604/ounce, and silver ticked up to $12.08/ounce.

BMB Note: A bit of a snoozer today. The morning dip was bought up, but there wasn’t a lot of power behind the slight gains today. Not a lot of change in the bigger picture, but any end-of-month support will be drying up soon.

Pullbacks are the name of the game right now, so keep your eyes open for opportunities if things firm up and the trend resumes. For now, stocks seem a little uncertain about where to go - maybe they’re just resting here - a little rally in the bond market has stalled the move up in yields, and energy prices can’t get going to the upside, but they’re not collapsing either. The gap up in gold today is hinting at a move higher, but a lot of the initial bump this morning was sold off. Just another area to keep an eye on.

Short-term treasuries took a step back in this week’s auction, following last week’s move lower in longer-term yields. The 3-month drew an investment rate of 5.108%, down from 5.124% last week, and the 6-month brought 5.153%, compared to 5.174% last week.

A rather unspectacular open to the week, with the major indices dipping slightly into the red on negative advance/decline numbers. Most groups are in the red as well, with gold stocks and disk drives bucking the trend by moving higher. Leading the losers are HMOs, oil services and natural gas stocks.

Bonds are near flat. The dollar is flat as well. Energy prices are lower, precious metals are higher.

Data out for September showed a 0.5% increase in personal income, but only a 0.1% increase in spending:

September’s spending increase was less than the 0.3 percent gain that economists were expecting. Income growth, however, turned out to be stronger than the 0.3 percent increases that economists were forecasting.

I found this little ‘insertion’ (my emphasis) into the next paragraph to be curious:

When consumer spending is adjusted for inflation, which is now easing, the spending picture looked better. Spending rose by a 0.4 percent in September, a turnaround from a 0.1 percent dip in August.

“…inflation, which is now easing”. Note how the author just slid that in there, without any support for the statement whatsoever. See, the Fed’s jawboning works. Like they always say, they’re concerned with inflation “expectations”, not necessarily with inflation itself.

It seems like Wal-Mart has been forecasting same-store sales increases in the 2-4% range for years. The forecast wasn’t any different for this October - but the results were quite different:

Wal-Mart said sales at established U.S. stores rose an estimated 0.5%, far off the 2-to-4% gain the company originally forecast for October.

On Oct. 23, company executives pared back their rosy outlook, saying that October same-store sales would be closer to September’s figure of 1.3%.

The 0.5% same-store sales figure for October is the weakest since the 0.3% rise posted in December 2000, according to the Wall Street Journal.

Wal-Mart executives blamed the weak October figure on weakness in sales of women’s apparel, as well as disruption to sales from remodeling efforts at almost half of its U.S. stores.

Hey, they’re a retailer! What’s wrong with them? Don’t they know you’re supposed to blame your poor sales numbers on the weather? Certainly there must have been bad weather somewhere.

Some stocks that have made moves off their lows: ACI AL ARII ATPG BTU CENX CNQ CNX FCL GSF HAL MEE RTP TIE TRN XME

And a few that I’m watching for possible entry: AYE D NE

One wonders just how bad this situation has to get before our politicians have the courage to do something about it. It isn’t like they don’t know that it’s a problem. But it’s obvious they’re not listening, because the GAO had to take their ’show’ on the road:

There’s a good reason politicians don’t like to talk about the nation’s long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.

The problem is I’m not sure the people care all that much about the problem either. They’ll care someday — when something breaks.

Items of note on the latest industry moves:

• Steel/metals stocks ($DJUSST chart) and biotechs ($BTK chart) have been on the move.
• Hospitals still in rough shape ($RXH chart), and defense stocks have pulled back for a couple of weeks ($DFX chart).
• Energies - oil services ($OSX chart), oil stocks ($XOI chart), natural gas stocks ($XNG chart) - all trying to turn the corner.
• Internets ($DOT chart), REITs ($DJR chart), telecoms ($XTC chart) remain strong.
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page.

I got a chuckle out of this blurb from Paul Van Eeden following his discussion of the weakness in the housing market:

Faced with the above, the Federal Reserve decided to leave interest rates unchanged. My guess is that the Fed has no idea what to do, so they’re doing exactly what people do when they don’t know what to do: nothing.

Van Eeden believes that a slowing US economy could put a crimp in metals prices:

I don’t expect the gold price to break out to the upside until the dollar gets hit and in the meantime the decline in the US economy is bad news for base metals. New orders for primary metals in the US declined by 1.0% from August to September (a 12% annualized decline) and shipments of primary metals declined by 2.0% (24% annualized). Because the gold price rallied along with base metals from July last year to May this year, a sharp decline in base metals prices remains the biggest short-term risk to the gold price. But until we get some idea whether base metals are going to fall first, or whether the dollar is going to fall first, it will be difficult to take a hard stance on where the gold price is going. Either one could happen soon, or both stay range-bound for quite some time. It is why markets test our patience and convictions.

BMWife here.

I don’t go shopping very often and when I do, I try to avoid crowds. Went shopping today. Let me just say that the American Consumer is alive and well. I drove past the mall. Mobbed. Cars pulling in there like there was a Christmas sale or a rock star. Maybe both.

Went past OfficeMax (almost full parking lot), Petsmart (little less so, but there were people and dogs in healthy numbers) and then had to stop and wait in front of something called “Ross.” Couldn’t even turn down a parking lane there was so much traffic. Didn’t bother to look for a spot there as it was obvious people were circling.

I was trying to get to Ulta (for those of you that don’t know, it’s a relatively expensive make-up, skin-care and salon place). There can’t be that many women going there, right? Wrong. Apparently I wasn’t the only one with a 20 percent off coupon. Not only that, the place is next to Best Buy. I guess the rock star at the mall must have stopped at Best Buy first. Not a parking spot in the place.

I tucked myself into a parking spot quite a ways back from Ulta and went in. I haven’t been there in a few years, but since my last trip they have added shopping baskets. Baskets???? This stuff is small and sold by the ounce, people. That means that for one little package (doesn’t matter if it is makeup, cream, powder, hair gel, whatever) you’re in for 10 to 15 dollars. Minimum. You get 2 tiny little packages, easily held in one hand, and you’re over 20 bucks. You get three and you’re at 50 bucks and that’s if you’re getting the cheaper stuff. Who needs a shopping backet when you’re looking at things that cost 15 bucks an ounce????

Okay, never mind my supreme cheapness. The point is, there were lots of ladies more willing than I to pay big bucks for the miracle cure for crows feet (mine are laugh lines, thank you very much), split ends and uneven skin tones.

I’m thinking retail stocks will do just fine. And after the people shopped, I’m sure they stopped at a restaurant to eat. Those stocks are probably good buys too.

John Mauldin is sticking to his guns, still believing it’s going to be tough to avoid recession:

As long-time readers know, I have been suggesting we will see a slowdown or a mild recession next year. Among other reasons, an inverted yield curve is the most reliable predictor of recessions of all our forecasting tools, and the inversion of the yield curve is continuing to deteriorate. Today the ten-year bond is 43 basis points below the 90-day T-bill. This is the largest differential this cycle.

The yield curve inverted in the third quarter of 2000 when nearly all economists were projecting solid growth. Something like 50 of 50 Blue Chip economists did not predict a recession. As it turned out, the economy was actually in a very mild recession in the third quarter, but we did not know it for another few years as the GDP kept being revised downward. The actual beginning of the “official” recession as tracked by the National Bureau of Economic Research was not until March of 2001 through November of 2001.

The general stock market was just fine, making new recent highs (except for the tech bust, of course). Calling for a recession, as I did, in August of 2001 was not a consensus view. And reminding people that stock markets dropped an average of 43% during recessions was not popular. Everyone was rooting for the return of the bull, and it sure looked like it was coming back.

***

If I am right and we are going into a recession or serious slowdown next year, if the market did not have a serious problem, it would be the first time in history. I don’t like betting on “It’s different this time.” So far this year, I have been wrong; but I don’t think the game is over. The fat lady hasn’t sung. In the meantime, absolute-return investing has the potential to provide good returns while limiting your exposure to a market correction.

And as an aside, I hope I am wrong. I hope we get a soft landing, and that it happened last quarter. I hope new-home sales really do pick up. I hope unemployment stays low and that the porridge will be just right.

I have a feeling we won’t know who’s been right and who’s been wrong for quite some time yet. If nothing else, the chart comparing yield spreads from 2000 and 2006 is pretty interesting.

Not a lot to complain about when looking at these short-term (2 months) sector charts. Ok, maybe the financials (XLF) and techs (XLK) have flattened out a bit, and the industrials (XLI) and health care (XLV) are pulling back. Still, these are NOT bad looking charts at this point.

Energy (XLE) has been a latecomer to the party, with the 20-day MA just now approaching a cross above the 50-day. The Staples (XLP) had leveled off but have resumed their run. And the rest are still in good shape.

The numbers as the market continues to run:

Charts courtesy of StockCharts.com

	Some groups seem to have lost a little of their momentum, even though it hasn’t really slowed the major indices a great deal - yet. The Software Index dipped below its 20-day MA for the first time since July.
	The brokers, as a group, haven’t gained ground in a month - even though Goldman (GS) has been going straight up.
	The retailers tried to sneak out of their range yesterday, but gave it all back today.
	We’ve been pointing out the semis for a while. Not getting any traction. A rebound the last couple of days, then smacked back down today.

Charts courtesy of StockCharts.com

The weak GDP report started things off on sour note, and things never got a lot better. As a matter of fact, they got a little worse as the afternoon grew longer, giving us the worst day we’ve seen in a while. You heard me. Yeah, I know it’s hard to believe - a DOWN day in the market:

Bonds rallied on the weak GDP, and yields, which looked just a few days ago like they were moving higher, have collapsed rather quickly:
6-month: 5.14%   2-yr: 4.75%   5-yr: 4.64%    10-yr: 4.68%    30-yr: 4.80%.

Market internals were well in the red. If there was any ‘good’ news in today’s action, it was that volume pulled back. Advances/declines were near 1 to 2 on both exchanges, with up/down volume 1 to 3 on the NYSE and 7 to 13 on the Nasdaq. New highs/lows were 254/18 on the NYSE and 165/35 on the Nasdaq.

Not much green to be seen in the group list, but HMOs gained 1.7% and hospitals, which have had a very rough time of it lately, were higher by 1.0%. Leading the long list of losers were oil services (-2.5%), semiconductors (-2.1%), disk drives (-2.0%), housing stocks (2.0%), computer tech (-1.6%), software (-1.6%), networking (-1.6%), insurance (-1.5%), airlines (-1.5%), natural gas stocks (-1.5%), steel stocks (-1.4%), computer hardware (-1.3%), retail (-1.2%), telecom (-1.2%), internets (-1.2%) and drug stocks (-1.2%).

Energy prices were mixed, with crude oil gaining 35 cents to $60.71/barrel, gasoline falling a penny to $1.56/gallon and natural gas sliding 35 cents to $7.15/mmBTU. The dollar has been on a bad streak, and that continued today as the dollar index fell to 85.53. Gold held steady at $598/ounce and silver slipped to $12.00/ounce.

BMB Note: You mean the market can actually go DOWN? Hard to believe these days.

Despite the drop, the technical picture hasn’t changed a great deal. The Nasdaq gave back its little breakout of yesterday, and is back in its two-week trading range. Amongst the groups, today’s action didn’t change much - most of the uptrends are still intact. Some of the tech groups have been moving sideways, defense has been weakening and hospitals doing poorly.

Some of the weak action in tech today can be blamed on a report from Goldman Sachs forecasting weakness in computer motherboard shipments. How true it is I have no idea.

Let’s get the end of the month and the election out of the way. Oh, but then there’s Christmas to deal with. It’s always something.

BTW - I voted in early voting today. I couldn’t find the “PURGE” button. I was greatly disappointed.

An early selloff following the weak GDP report has subsided somewhat, but it leaves the major indices, A/D lines and most groups slightly in the red for now. HMOs and metals are moving higher, drug stocks lead the losers.

Bonds have rallied for the third straight day, and that has pushed yields lower again. Energy prices are just below flat, the dollar has fallen further, gold is up slightly and silver down a bit.