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.

11 new ETFs from PowerShares were launched on the Amex on Thursday:

Broad Market
PIQ - PowerShares Dynamic MagniQuant Portfolio

Industry
PJB - PowerShares Dynamic Banking Portfolio
PTJ - PowerShares Dynamic Healthcare Services Portfolio

Sector
PYZ - PowerShares Dynamic Basic Materials Sector Portfolio
PEZ - PowerShares Dynamic Consumer Discretionary Sector Portfolio
PSL - PowerShares Dynamic Consumer Staples Sector Portfolio
PXI - PowerShares Dynamic Energy Sector Portfolio
PFI - PowerShares Dynamic Financial Sector Portfolio
PRN - PowerShares Dynamic Industrials Sector Portfolio
PTH - PowerShares Dynamic Healthcare Sector Portfolio
PTF - PowerShares Dynamic Technology Sector Portfolio

Jim Rogers, author of “Hot Commodities” and “Adventure Capitalist”, answers readers’ questions on the commodity bull market at FT.com.

Hat tip to David at Finance Trends Matter.

With regard to the M3 money supply question in the Rogers interview, you can find an independent calculation of M3 at Now and the Future.

Ivan Martchev of At These Levels points out a rather curious divergence taking place in the commodity world, where futures-traded commodities are out of synch with those that trade only on spot markets:

That inflation is coming down soon is clearly the perception. But I have an interesting piece of reality to share with you.

The decline in oil and gold seems to be futures-driven. There’s been a lot of talk about the sharp breaks lower in commodity indexes that are investable through futures index funds. There’s been little discussion of the fact that spot commodity indexes–which represent various commodities that don’t have futures contracts–are at all-time highs.

For example, the Reuters/Jeffries CRB Commodity Price Index is down sharply in the past month; it’s based on liquid futures contracts in the commodities tracked. But the CRB/Reuters US Spot All Commodities Index hit an all-time high yesterday — technically, because the closing level for October 5 isn’t out yet, it’s at an all-time high as I write. Given that oil and gold have bounced after the recent shellacking, there’s a reasonable chance that the spot index makes a fresh high again today.

See what I mean about perception and reality when in comes to inflation expectations?

There’s no doubt that comparing futures and spot prices on two indexes that have different compositions is an apples/oranges situation. To see what’s in the spot index, click here. But this looks to be the largest divergence between the two since this particular spot index was introduced. They’ve tended to move in the same direction. This makes no sense if you believe the “inflation is coming down–fast” scenario. Perhaps margin calls on futures positions have created an illusion of lack of inflation.

Ivan wrote that on October 5th, and follows it up with a chart at his site that shows the CRB spot index hitting yet another all-time high last night.

It took most of the day, but by the close, the major indices had decided that the morning’s relatively weak retail sales numbers were nothing more than a speed bump on their relentless march higher, and all posted slight gains:

Bonds gave up more ground, sending yields to their highest levels in nearly three weeks. Is the bond market changing its mind about the economic outlook and/or inflation, or is money just fleeing bonds to join the party in stocks?
6-month: 5.13%   2-yr: 4.86%   5-yr: 4.76%    10-yr: 4.80%    30-yr: 4.94%.

Market internals were positive, and volume was about on par with the rest of this week. Advances/declines were near 3 to 2 on both exchanges, and up/down volume was 3 to 2 on the NYSE and 7 to 3 on the Nasdaq. New highs/lows were 310/10 on the NYSE and 225/35 on the Nasdaq.

Mostly winners in the groups, led by gold and silver stocks (2.9%), disk drives (+1.9%), paper stocks (+1.9%), commodity stocks (+1.8%), natural resources (+1.7%), oil stocks (+1.5%), oil services (+1.4%), computer hardware (+1.3%) and steel stocks (+1.2%). Losers were housing stocks (-2.0%), airlines (-1.8%) and HMOs (-1.6%).

Energy prices were mixed. Crude oil rose to $58.70/barrel and gasoline moved up to $1.47/gallon, but natural gas slipped to $5.66/mmBTU. The dollar index was higher, to 87.15. Gold rose by 10 bucks to $589/ounce, and silver gained more than a quarter to $11.57/ounce.

BMB Note: Ain’t no weak retail sales numbers gonna stand in the way of this train. The problem with the train is that it’s a pure momentum train at the moment, and is providing little in the way of good risk/reward entry points. If you want to just hold your nose and jump in, go for it. You just have to hope there’s still some water in the pool.

The homebuilders finally pulled back today, as interest rates won’t back down. The interest rates are helping the dollar, but with gold and silver rising at the same time, you wonder if there isn’t a hint of that inflation fear in the air again. Keep an eye on that bond market…

It’s starting to look like the energies and metals have bottomed for now. Those are some areas I’ll be watching for opportunities, since they’re about the only groups that haven’t already reached orbit. Have to spend some time over the weekend looking through the charts.

Next week could be a rather wild one, with boatloads of earnings coming out in combination with options expiration. But that’s not enough, so let’s add the PPI and CPI reports, along with housing starts, leading economic indicators and another Philly Fed report to the mix. Should be fun. Will the rally hit the brakes or the accelerator? Or maybe just shift to neutral? It might just do all of the above at different times in the week.

BMWife here.

Well, it has been a while since I’ve talked interest rates on cash. The reason? Interest rates haven’t gone up much, therefore there haven’t been a lot of new deals to talk about. In fact, for the past few months, the rates have wobbled…down. Those banks so interested in getting your deposits…well, they got a little less interested, apparently.

Their interest in your money (pun intended) is alive again, but not so well. We see the offers these days are hovering around 5 percent–but there are numerous catches. Many of these catches are so far hidden in the fine print, you actually have to start opening an account in order find them.

The old spoofee website lists the deals, but don’t believe first glance:

Savings Accounts ( Can Pull Out Money Anytime )
E-Loan - 5.50% APY ( no minimum )
OneUnited - 5.25% APY ( $10 minimum )
Emigrant Direct - 5.05% APY ( no minimum )
HSBC - 5.05% APY ( no minimum ) (Get $25 bestbuy gift card if you are BB card holder)
Citibank e-Savings - 5.00% APY ( no minimum )
ING Direct - 4.40% APY ( no minimum )

A bit of research (or a lot) will show that The E-Loan is probably an introductory rate only and it seems to require an initial deposit of 5k. I’m not sure where the no minimum rating came from in the spoof site because there appears to be one to me.

Citibank tries to hide their minimum quite hard–they advertise no minimum but when you start the application process you will be asked to open a checking account with a $1500 minimum. And you are informed the 5.05% is an introductory rate and can change at any time. You will not get this rate if you are an existing customer from what I understand, unless you jump through hoops that include large balances.

I didn’t exhaustively check each deal, but if you’re looking, don’t use the headlines to make a decision. Dig deep before opening an account.

Here’s a couple more:

Principle Bank offers 5.26%–but has a min of 25k.
CountryWide 5.25%–min of 10k

This last one is the biggest winner of spin:

e-trade-5.15% that goes to somewhere between 1.51% and 4.65% after 90 days depending on your balance. That would qualify as a minimum balance requirement by my standards. Not only that, the minimums are one of those complicated formulas that require if/then/else statements that include Monthly Fees just for having the account.

Bottom line? It isn’t easy to get good interest rates. It will take some research and you may not be happy after a few months, so shop carefully.

Mixed results so far this morning, with the Nasdaq and small cap indices holding up, the Dow Industrials and Utilities lagging a bit, and the others pretty flat. A/D lines are still positive. Leading the group movement on the upside are steel stocks, oil services and gold stocks, while homebuilders, airlines and HMOs are lower.

Bond yields are back up, with the 10-year now above 4.80%. Energy prices are mixed, with crude making a strong run, up more than a buck, and gasoline up a few cents, but natgas lower. The dollar is higher, along with gold and silver.

Kevin Haggerty points out today that, of the 63 point rise in the S&P (see chart) since Sept. 11, 54 of those points have come on 4 trading days:

NYSE volume was on the light side yesterday at 1.56 billion shares, relative to the SPX +0.9% day, but that is more a function of lack of sellers. The internals were one-sided with the volume ratio 83 and breadth +1934. That has been the case on each of the 4 days that the SPX has gained a total of about about 54 points, which is almost all of the 63 total points gained from that September 11th low.

That reminds me of the guy I used to work with, who would ask me if I wanted to bet on the games during the baseball playoffs. In each game, he would take the winning team’s two best innings against the losing team’s total runs. Look at a few baseball box scores and see how often that bet would win.

Larry McMillan, in this week’s Option Strategist Weekly Updater (sign up):

In general, there is a lot of complacency regarding the stock market. We see it in the low levels of $VIX, but mostly we see it in the media and analysts’ comments — no one is calling for a correction, and everyone is mentioning how positive the market is during the last two months of each year. Something will have to give, eventually, but until there is some confirmed deterioration in the technical indicators, we would not consider taking a bearish position. Rather, tighten trailing stops and enjoy the bullish ride…

…the intermediate term picture remains positive, according to the $SPX chart and the equity-only put-call ratios. It is our other two indicators that raise the possibility of complacency and a short-term overbought condition.

Market breadth has generally been positive for weeks now. — An occasional two or three days of consecutive negative breadth is all that the bears have been able to manage since July. As a result, breadth would generate sell signals the next time breadth is negative for two or three days in a row.

Finally, the volatility indices ($VIX and $VXO) remain at very low levels. $VXO has been below 11 for much of the past week. It is certainly true that the broad market can continue to rally as long as $VIX remains low. However, traders should be very aware of how $VIX is behaving. If it begins to trend upward, a correction is at hand. So far, $VIX has not been “fooled.” That is, it has refused to shoot upward when the market has its occasional down days. In that regard, $VIX has been a very accurate assessor of market conditions. So, watch $VIX especially on down days. If it’s not moving higher, then you can pretty much be assured that the downward market move is a short-lived one. However, if $VIX closes above 12.70, that would be our first alert to danger. A close above 14 would be a more major sell signal for $VIX.

In summary, stay with your long positions, tightening trailing stops and taking partial profits in deference to the short-term overbought condition. However, do not attempt to short this market or buy puts as long as $SPX is above 1340.

We’ve heard for weeks how lower gasoline prices were going to put money back in the pockets of consumers, who would, of course, spend it. Now we get the September retail sales figures, and they’re down. What’s to blame? Wouldn’t you know it: lower gasoline prices!!:

The sharp drop in gasoline prices drove the value of U.S. retail sales down by 0.4% in September, the Commerce Department reported Friday.

Sales at gasoline stations plunged by a record 9.3% in September, as the average price of a gallon fell by about 30 cents. Prices have continued to fall in October.

Auto sales were flat in September. Excluding motor vehicles, retail sales fell 0.5%, the biggest drop in three years. Elsewhere in the retail sector, sales were modestly higher in September. Excluding gasoline, retail sales rose 0.6%. Sales excluding both autos and gas rose 0.8%, the biggest rise since January.

Ultimately, lower prices at the pump should free up cash for other purposes, but the effect was limited in September.

C’mon gang, you can’t always have it both ways. If falling gasoline prices hurt the retail sales figures, shouldn’t I then assume they were helping the retail numbers on the way up? I didn’t hear you complaining about that…

Wall Street Journal online at WSJ.com is free today, compliments of Philips.