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.

For those of you looking for pullback in uptrends (Dave Landry style?), here are a few I found tonight: BDX FFIV RVSN.

Of course, Dave would tell you to wait for a ‘trigger’ - enter on resumption of the uptrend, above today’s highs, for example (and don’t forget Dave’s tag line: protective stops on every trade). As always, these are observations, not recommendations.

More scary stuff from the front lines of the housing market, from Mish and his friend Mike Morgan. Mr. Morgan has a few more ‘war’ stories - but this war sounds like it’s far from being over:

Do you remember my analogy of housing to donuts? A year ago I said this was like the room of 1,000 donuts. Even if they are warm Krispy Kremes, how many can you eat? Three? Maybe four? And even if you come back the next day, and the donuts are now half price, how many can you eat? Same thing with housing. We only have so many people in the US. But builders built houses like donuts. They sold houses to non-users. They sold houses to the greedy masses that bought multiple houses to flip. Now we have the inventory, but there are not enough people to occupy these homes. Moreover, with interest rates rising and mortgages becoming tougher to obtain, we have less and less people that can buy these homes, even if they want to.

Since my recent article in Barron’s, I have received dozens of calls from builders, bankers, buyers and investment groups perched like vultures. Let me give you a sampling of a few calls:

Townhome Developer - Asked me to resell 132 units that they had sold a year ago for an average of $400,000 a unit. All of their buyers have notified them that they will not close. Unfortunately, even a year ago in the heated market these units were only worth about $250,000. Now, the units will not command more than $175,000 . . . if they’re lucky.

Real Estate Agent - She sold 10 of the 132 units I just mentioned to her friends, family, banker and co-workers. They’re all going to walk away from their $40,000 deposits, so they don’t lose $250,000. The developer will be stuck with 132 units that are not worth what it cost to build them.

The Third Wave - This massive tidal wave will effect all aspects of our economy. Some banks will fail. Other banks will suffer the worst liquidity crisis since the Depression. And there is no way to stop this wave. This wave not only effects current mortgage holders who can no longer afford to live in their homes, but it devastates the new home market. Buyers with contracts are finding it tougher to qualify for mortgages. We can’t forget that rates are also up about 18% from a year ago, so buyers cannot afford the same home they could have a year ago.

Go read the whole thing.

In the end, will things really be as bad as some think they will be? I can’t answer that. Only time will tell. But like I’ve said before, when things are taken to the extreme, there will be some pain coming down the other side. Remember Nasdaq 5000?

The metals are running. Chase ‘em if you want.

	Looks like the water is running too. The PowerShares Water Resources ETF has finally made a nice move out of about a 6-week base.
	Despite the runup in a lot of stocks, it looks as though Apple has been sitting this one out. The stock is obviously still in good shape, but it hasn’t done much in the last month or so.

Charts courtesy of StockCharts.com

Short-term interest rates are following longer term rates higher. At today’s auction, the 3-month fetched an investment yield of 5.072%, back above 5% for the first time since the end of August. And the 6-month yielded 5.132%, up from 5.084% a week ago.

Makes you wonder how the banks can get away with paying you 0.2% in your checking account, doesn’t it?

Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000. Dow 12000.

It’s all I’ve seen and heard all day. You just have suffer along with me.

The Dow didn’t quite make the magic number today, but it wasn’t for lack of trying on CNBC’s part - hey, they got it within less than 3 points. And the push in stocks continued, this time with the small-caps and Transports leading the way in the major indices:

Not all of the indices were playing the game today - the Nasdaq 100 was apparently on the inactive list, and it finished flat.

Bonds gained back a bit of lost ground - but only a real little bit. Yields moved just slightly lower:
6-month: 5.12%   2-yr: 4.85%   5-yr: 4.74%    10-yr: 4.78%    30-yr: 4.91%.

Market internals remained strong, but volume backed off slightly from last week’s levels. Advances/declines were 11 to 5 on the NYSE and 12 to 7 on the Nasdaq, with up/down volume near 7 to 3 on both exchanges. New highs/lows were 335/12 on the NYSE and 243/27 on the Nasdaq.

In the groups, the winners were dominated by energy and commodity related stocks: oil services (+2.9%), natural gas stocks (+2.5%), disk drives (+2.5%), natural resources (+2.3%), steel stocks (+2.3%), oil stocks (+2.0%), commodity stocks (+1.9%), transportation (+1.3%), and networking (+1.1%). A short list of losers was led by the paper stocks, which fell 1.6%.

Since the media’s attention was focused solely on Dow 12K, they completely missed the fact that energy prices took a big jump today. Crude oil was higher by a buck-and-a-quarter to $59.94, snugging up to that $60 mark once again. Gasoline moved up a couple of cents to $1.49/gallon, and natural gas jumped almost 80 cents to $6.44/mmBTU. The dollar index fell to 86.98. Gold rose 7 bucks to $596/ounce and silver gained almost a quarter to $11.81/ounce.

BMB Note: I gotta start looking for better ‘logic pills’. The Dow Transports just continue to amaze me by moving in the same direction as oil prices. All the while oil prices were coming down, the Trannies were in the dumper right along with them. Today, we get a big jump in oil prices, which normally would hurt the Transports, and what happens? The Transport lead the major indices. There is just no doubt that we’re living in ‘opposite land’.

Stocks, of course, moved higher. Why should they do anything else? Since they’re never going down again, we should be at Dow 20,000 by the middle of next year, don’t you think?? At least the energy stocks went up along with oil prices today, instead of going down. At least something made a little bit of sense.

When the commodity market started to crumble back in May, it looked as though the Fed was getting what it wanted. Energy and metals prices came down - and stocks along with them, and the housing market had been cooling off. But it seems that today, we’re sneaking right back to where the Fed doesn’t (supposedly) want us to go. Longer-term interest rates are still low, commodity prices are moving back up - with base metals and grains hitting new highs - and the stock market is pretty much in ‘irrational exuberance’ mode again. At least the housing market still seems to be lazy, but that could be still on the way down a long, slippery slope. Remains to be seen. Seems to me that this isn’t the setup for the nice, quiet, soft landing that they were hoping for. It’s more apt to be more of a moonshot that doesn’t quite escape gravity, and burns up on re-entry.

Well, as I’ve said before, I’m not chasing stocks at these high levels. The risk/reward ratio keeps moving higher each and every day. But I am keeping close watch on things like the energies and metals, which have made strong moves off the lows - the last groups to do so, and am considering a bet or two on a bottom in crude here. Nonetheless, I won’t be chasing those stocks just yet either, but will be waiting for the inevitable pullbacks to provide better entries.

Then again, we may never, ever see another pullback as long as we live.

How important is the 60 level starting to look in GLD (or $600/ounce in gold)? That area marks the intersection of the downtrend off the highs, the 50-day and 200-day moving averages, the summer support and the autumn resistance. Keep an eye on it.

We’re already hearing the happy talk about how the November-December period is typically a strong one for stocks. This is true. However, this comes from the same people who warned us that September-October is a seasonally weak period for stocks. Also true - but certainly not this year.

“Typically” shouldn’t be mistaken for “always”. Maybe Santa showed up a little early this year… Let the market dictate, not the calendar.

Another first-hour move higher has pulled back, leaving the major indices straddling the flat line, small and mid-caps doing a little better than that, and A/D figures still in the green. Looking at the groups, we find the winners being led by disk drives, metals stocks, and oil services, while paper stocks are lower. Bonds have bounced slightly, pulling yields back a bit.

Crude and gasoline are flat, but natural gas is higher. The dollar is down slightly, gold and silver higher.

China working to build fence on border with N. Korea.

Lights out - N. Korea goes dark at night.