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.

Let’s follow up on the Goldman Sachs Commodity Index gasoline story we mentioned the other day. Over at The Mess That Greenspan Made, Tim Iacono has a little fun with the story, and digs down a little deeper on the possible ‘why’ and the ‘who’ behind the index changes:

…as far as conspiracy theories go, this is quite a good one. The motivation for the commodity index change and the impact on other energy prices will likely never be confirmed or corroborated, but it makes for an interesting story.

Make a little change that causes $6 billion in unleaded gasoline futures to be dumped onto the NYMEX, then watch prices tumble. Stand clear, watching for traders like Aramanth to implode, and get ready to mop up any other messes that arise during the process - all to relieve a little pain at the pump, prior to the polls opening.

Some at the White House may be patting themselves on the back figuring that the best thing they’ve done in years was to get Hank Paulson to take the job at Treasury.

Lately, when I’ve read some of Rob Hanna’s comments, I’ve wondered if he hasn’t been reading my mind:

As far as the market goes, this rally has me stumped. So many divergences have me believing it must go lower, yet it continues to forge ahead. Today’s move up was especially impressive. Good breadth and volume as well. As of right now I feel it is too extended to buy aggressively and too strong to short aggressively. Therefore, I need to wait for it to come to me before attacking.

Read the rest of his column today, where he talks about focusing on those pieces of data that are important to your trading style:

There’s a saying that a butterfly beating it’s wings in China can cause a hurricane in the U.S. While this may be true, meteorologists aren’t worried about Chinese butterflies. They focus on the things that are most important to hurricane analysis. Determine the pieces of data that you feel provide you the best edge in your trading. Then understand that information as best you can. Filter out everything else. It is just noise. When your data says there is an edge, pounce. When it doesn’t, stalk.

Some of you - maybe all of you - may have noticed that the BMB site has been sluggish and/or unavailable a lot of the time recently. We are in contact with our web host, and are trying to isolate the problem(s) to see if we can get things smoothed out in the near future.

BMB thanks you for your patience. But ours is wearing a little thin…

Update: I don’t mean to imply that the problem is with our web hosting service - we have been and remain pleased with the service we get from them. At this point, evidence suggests that the problem lies with one of their upstream providers.

Update - 10/5, 6:30pm: Word is that a problem has been admitted to identified, and new equipment is to be installed “soon”. How soon is soon? I have no idea… but chances are good that things will get better someday.

It was two years ago today that BMB started reporting on the markets on a full-time basis. Let’s hope we’ve got at least another couple of years in us yet…

A sincere thank-you to all of you who find it worth your time to visit us every day, or even every now and then. Here’s to hoping that you’ll continue to honor us with your internet ‘presence’. We pledge to do our best to try and keep things informative and interesting!

	A very good day for the market today. Everyone tells us we should watch the semiconductors, since they are supposed to be a good proxy for the market as a whole. The SOX had a solid day, but still has a little work to do to get back on the upswing.
	On the other hand, the Transports, which had been struggling to get back in gear, got going some today. They’ve got a ways to go yet to catch up and confirm the new high in the Dow, but it’s a start.

Charts courtesy of StockCharts.com

There was no shortage of investors jumping on board the runaway train today, as a midday rally sent stocks higher. Another one of those days where just about anything and everything was up:

The bond market was back to its old self, trying to push yields into the ground:
6-month: 4.98%   2-yr: 4.58%   5-yr: 4.48%    10-yr: 4.55%    30-yr: 4.71%.

Market internals were strong, and on good volume - that’s a good thing. Advances/declines were 15 to 4 on the NYSE and 7 to 3 on the Nasdaq, with up/down volume 4 to 1 on both exchanges. New highs/lows were 241/71 on the NYSE and 112/76 on the Nasdaq.

In the groups, lots and lots of green. Transportation led the way, up 3.2%. Following were disk drives (+2.7%), internets (+2.6%), biotech (+2.3%), brokers (+2.2%), retail (+2.1%), software (+2.0%), networking (+2.0%), computer tech (+1.9%), semiconductors (+1.8%) and oil stocks (+1.8%).

On the energy front, we saw a bounce back in crude prices, which dipped early after the weekly inventories came out. Crude recovered to $59.41/barrel, and gasoline snuck back to $1.50/gallon. Natural gas had another strong day, moving back to $6.00/mmBTU. The dollar had a good morning but a lousy afternoon, and the dollar index finished up just slightly at 85.82. Gold slipped again to $567/ounce, and silver fell to $10.75/ounce.

BMB Note: Sure. A day after I tell you nothing’s moving but a few Dow stocks, what happens? Everything moves. Somebody’s trying to make me look bad.

Certainly another strong day for the market. Did the new high in the Dow start a scramble to get on board? Is everyone afraid that they’re missing out? That’s about all I can think of, especially given the weakness of the action yesterday. Add in a little some soothing Bernanke babble, give it a little stir, and voila! Instant rally!

For the most part, the charts still look pretty good, with uptrends in most areas still intact, and getting another shot upward today. But let’s do a quick check of the all-important semiconductors. Hmm, I see the SOX had a good day today, up 8 - but didn’t even get above Monday’s high. Something to keep an eye on.

The biggest concern at this point is the velocity of the recent move, with momentum indicators now approaching the areas where things have slowed down over the past couple of years. And quite frankly, I think the major indices could use a bit of a breather. These things can’t keep going straight up forever, and a pause with some consolidation would be much healthier than an exhaustion high. But the way things felt today, there’s a bit of a mad rush to get in. You know how people are - they’re afraid they’re going to miss out on the next big bull market.

Just be aware that risk picks up after the big moves have been made - and when everybody and their mother is bullish.

In the numbers game, not a lot on tap except factory orders tomorrow morning. That is, of course, until the monthly jobs number on Friday. But with as bullish as the market has been, does the Friday jobs report really matter? Doesn’t seem like it.

As Gomer Pyle would say, “Surprise, surprise, surprise!”:

A top European Union negotiator said Wednesday that “endless hours” of talks with Iran about its nuclear program have failed to make any progress, while the Iranian president said U.N. sanctions would not stop Tehran from enriching uranium.

And in his continuing effort to teach others how to win friends and influence people, in a style all his own:

Iranian President Mahmoud Ahmadinejad warned the West that sanctions would not stop his government from uranium enrichment.

“You are mistaken if you assume that the Iranian nation will stop for even a moment from the path toward using nuclear energy due to your nagging,” he told supporters, drawing chants of “Death to America!” from a crowd in Hashtgerd, outside the Iranian capital, Tehran.

He’s such a joy, isn’t he? Guaranteed to break the ice at parties…

So tell me again why oil prices came down…

Story from Yahoo news.

What happened? BMB was out for a few hours. After returning, I see that the market took off in the middle of the day. Certainly, there had to be some news that got the fire lit.

Aha. This must be it. I forget Big Ben would be blabbing again today.

You know, the government reports these numbers every week, but I have a hard time believing that there is a crew of guys with big long dipsticks checking the levels in tanks all over the country. We need to get a little more info on how these numbers are obtained…

Anyway, inventories (supposedly) continue to build:

With crude oil refinery inputs dropping substantially last week, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 3.3 million barrels compared to the previous week. At 328.1 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 1.2 million barrels last week, and are above the upper end of the average range. Distillate fuel inventories inched up by 0.2 million barrels, and are well above the upper end of the average range for this time of year.

Refinery capacity dropped slightly to around 90 percent. But demand? I’m sure that with lower prices, we won’t be seeing demand falling off anytime soon. In the gasoline department, demand is up nearly 4 percent YOY:

Total products supplied over the last four-week period has averaged nearly 20.7 million barrels per day, or 2.8 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 over 9.2 million barrels per day, or 3.9 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 0.5 percent above the same period last year. Jet fuel demand is down 0.4 percent over the last four weeks compared to the same four-week period last year.

I can’t help but believe that this correction in oil prices will lead to a tremendous buying opportunity down the road…

Ok, so today, maybe it’s the not-all-that-early take…

The market did get off on a much more positive note today, with the indices holding on to gains and A/D lines more positive than we’ve seen the past few days. Energy and commodities are getting hit again, as oil prices fall further following the morning inventory report. Making gains off that news are the airlines and transports, followed by internets, biotechs and disk drives.

Bonds are higher as well, yields getting smushed back down. Energy prices are . The dollar is a little stronger, gold has broken below its mid-September low, and silver is lower as well.

Deron Wagner joins the chorus advising caution, even in the presence of a new high in the Dow:

It’s true that the Dow managed to close yesterday at a fresh all-time high, a few points above its January 2000 high, but don’t be deceived. Because the index is a popular gauge of the general public’s market sentiment, it is often discussed as a barometer of the market’s general health, but it’s important to realize that the other indices remain well below their record highs. The S&P 500 is still 14% off its March 2000 high, while we may never even live to see the Nasdaq recover back to its all-time high over the 5,000 level. The lagging index is still a whopping 56% off its March 2000 high. While it may be fun and exciting to talk about the merits of the Dow being at a record high, we’re simply cautioning you against distorting the reality of the “big picture.” History has shown that isolated rallies in the Dow are typically short-lived when the other indices are not in sync. Therefore, unless we suddenly start to see a lot of upward momentum in the Nasdaq, we believe your best bet is to remain positioned on both sides of the market by simultaneously being long the sectors with relative strength and short those with relative weakness.