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.

From Marketwatch.com:

Centex reported a 28% drop in orders and slashed its fiscal second-quarter profit forecast late Thursday as the home builder suffered from a record level of cancellations.

Net orders for the quarter were 6,828, 28% lower than last year’s second quarter, the Dallas-based company said.

The results reflect “current record levels of home sales contract cancellations,” which have been driven by buyers’ inability to sell their existing homes, Centex explained.

“The housing market continues to adjust rapidly,” Tim Eller, Centex’s chief executive, said in a statement. “Cancellation rates that were well outside of historical levels diminished our earnings visibility this quarter.”

And the homebuilders continue to rally…

From Trader Tim today:

…the power of the bulls has been something to behold. I wish I could show you some great bullish charts with terrific breakout patterns, but I can’t. This is a momentum market. Things are super high, and they are going super-higher.

This is where risk picks up - after the big move. Don’t be the last one in.

Charts courtesy of StockCharts.com

The unexplained becomes even more unexplainable. Market moves higher. Again. Reasons? None.

I must have missed something - I know I don’t watch a lot of news. Is everyone celebrating the record trade deficit? Oh, that’s right - no one cares about deficits anymore. They don’t matter. Silly me.

Did McDonald’s change their name to “McDonald’s.com”?

Bonds rallied a bit early, but pulled back to finish the day pretty flat:
6-month: 5.11%   2-yr: 4.83%   5-yr: 4.73%    10-yr: 4.77%    30-yr: 4.91%.

Market internals were strong. Volume was a little lighter than the past couple of days on the NYSE, but stronger on the Nasdaq. Advances/declines were about 3 to 1 on each exchange, with up/down volume about 5 to 1. New highs/lows were 285/14 on the NYSE and 200/33 on the Nasdaq.

Groups? Up, every single one of them. Leading the way were metals and mining (+3.2%), airlines (+2.9%), steel stocks (+2.6%), gold and silver stocks (+2.6%), oil services (+2.5%), gold stocks (+2.5%), housing stocks (+2.1%), oil stocks (+1.9%), software (+1.9%), natural resources (+1.9%), computer hardware (+1.8%), brokers (+1.8%) and transportation (+1.8%).

Energy prices were mixed: crude up slightly to $57.86/barrel, gasoline flat at $1.45/gallon and natural gas lower, to $5.78/mmBTU. The dollar index fell to 86.87. Gold rose to $579/ounce, and silver moved up to $11.31/ounce.

BMB Note: Well, what do you say? The market just keeps ramping higher, and I can see no real reason for it. Full speed ahead, and damn the torpedoes. It seems like there are plenty of torpedoes out there, but for now, all eyes are closed to them.

So as the Dow closes in on the 12,000 mark, just be careful. There is probably more risk in this market now than there was back in May. Understand the market situation, and if you’re buying, be careful what you’re buying and where you’re buying it. As for me, most things I see are just too extended to jump in. I will maintain my discipline, and wait for attractive pullback opportunities if/when they occur. And right now, it doesn’t look like many stocks know the meaning of the word pullback.

I don’t know what’s propping this market up right now, but it’s working pretty well. And some day, it will stop working. Your job is to recognize when that time comes.

It seems that Ron Sen, MD, at Technically Speaking, Market Analysis and Theory, is having a difficult time coming to grips with this latest ramp up in the stock market. I can’t say that I blame him - I’m pretty leery of it myself. But like he says, it is what it is. That is, until it isn’t anymore.

Here are a few of his recent comments:

It doesn’t matter whether it’s election year politics, energy, warm weather, sunspots or phases of the moon, but the powers that be aren’t selling. Call it mania, manipulation, or whatever you like, but shorting into it gets you heartburn and losses.

If the global economy ‘ramps’, then energy won’t disappoint longer term, because spare capacity is small. Debt and deficits ultimately impact the dollar, but who knows when ‘ultimately’ is. If you had ‘infinite’ capacity to print currency, everything goes up in price, as the money supply determines inflation, which secondarily causes prices to rise…except if you’re the Federal Reserve, because you simply deny it. Having spent ten years in Washington, remember the two most important words in Washington…PLAUSIBLE DENIABILITY. Think about it.

Call it what you like, extended rally, absent selling, ‘pre-election’ activity, but day after day it’s slight open down, chop, and then buyers come in, often with heavy buy programs (TICK greater than 1000, 1200, or even 1500) and no meaningful TICK activity below -400. It is what it is.

Also, if we put on our Federal Reserve Governor miter, we can make some pronouncements:

• The housing slowdown will reduce gross domestic product
• The housing effects will act unevenly across the country
• However, the general economy remains strong
• Reduced energy prices provides additional liquidity for the consumer
• The consumer remains a strong part of the economic framework
• Inflation remains a concern for the economy
• Previous rate cuts take time to work their way through the system
• The Federal Reserve remains committed to price stability
• “Praise me and worship my words, for I am a god of money.”

Please, deign to bless me with your scepter, oh, lord Fed. Okay, so maybe the final statement wasn’t in the usual Fed governor blather, but you get the point. You try to jawbone down ‘inflation’, print money until your fingers turn green, and make sure you pass go and collect 200 dollars.

The latest data from the EIA was pretty much as expected, showing a build in crude and gasoline inventories, but a drop in distillates:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 2.4 million barrels compared to the previous week. At 330.5 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 0.3 million barrels last week, and are above the upper end of the average range. Distillate fuel inventories dropped up by 1.6 million barrels, but remain well above the upper end of the average range for this time of year.

Refineries are operating at 89.2 percent capacity.

And demand seems as healthy as ever. With the recent drop in prices, I don’t see demand slacking off at all. But if demand continues to be strong, how long can prices stay down?

Total products supplied over the last four-week period has averaged nearly 20.7 million barrels per day, or 2.7 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 9.2 million barrels per day, or 3.3 percent above the same period last year. Distillate fuel demand has averaged 4.2 million barrels per day over the last four weeks, or 2.4 percent above the same period last year. Jet fuel demand is up 1.6 percent over the last four weeks compared to the same four-week period last year.

With the CNBC banner proclaiming “Best of Times”, the market jumped this morning, sending the Dow to yet another new high level. The major indices are all showing gains of a half-percent or so, and A/D lines are solidly in the green. Nearly all groups are positive as well, led by homebuilders, oil services, brokers, oil stocks, natural resources and networking.

Bonds have strengthened a bit, and yields are backing off. Energy prices are mixed but near flat, and the weekly inventory data hasn’t done much to move prices in either direction. The dollar is lower, gold and silver slightly higher.

No, not on the Dow. This would be a new record US trade deficit.