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.

A bit of crude oil trivia, courtesy of Ticker Sense.

On a side note, here’s a little history lesson from your friends at Ticker Sense. You might have noticed long ago that the official abbreviation for barrels (when referencing a barrel of crude oil) is “BBL,” despite the obvious fact that the word “barrel” lacks a second “b.” What are the origins of this mysterious “b”? The answer, courtesy of the Energy Information Administration:

In the early 1860’s, when oil production began, there was no standard container for oil, so oil and petroleum products were stored and transported in barrels of all different shapes and sizes (beer barrels, fish barrels, molasses barrels, turpentine barrels, etc.). By the early 1870’s, the 42-gallon barrel had been adopted as the standard for oil trade. This was 2 gallons per barrel more than the 40-gallon standard used by many other industries at the time. The extra 2 gallons was to allow for evaporation and leaking during transport (most barrels were made of wood). Standard Oil began manufacturing 42 gallon barrels that were blue to be used for transporting petroleum. The use of a blue barrel, abbreviated “bbl”, guaranteed a buyer that this was a 42-gallon barrel.

Please note that we do not advise reciting this fact to show off at your next cocktail party.

	Which is the bigger head-scratcher, AutoZone or Jack In The Box?
	The hospitals are one of the few groups that is having a rough time of it.
	The semis have been range bound for about a month, and yesterday were rejected at the 200-day MA.

Charts courtesy of StockCharts.com

IBM - closed at 86.95, trading at 90.65. There’s more than 20 Dow points tomorrow if it holds.
INTC - closed at 20.90, trading at 21.41.
MOT - closed at 24.85, trading at 22.80.
YHOO - closed at 24.15, trading at 23.75

Today was a good example of why you can’t be short this market, at least not yet. A big downdraft early, but persistent buying throughout the day almost got things back to even. Here are the scores, with the Utils being the only winners, and the Transports giving back all of yesterday’s gains:

Bonds rallied early, but fell back leaving yields only slightly lower again:
6-month: 5.13%   2-yr: 4.84%   5-yr: 4.73%    10-yr: 4.77%    30-yr: 4.90%.

With the indices lower and volume picking up, today would qualify as a distribution day in the market. Internals were on the negative side as well, with advances trailing declines by about 7 to 12 on each exchange, and up down volume 3 to 7 on the NYSE and 7 to 13 on the Nasdaq. New highs/lows were 189/14 on the NYSE and 126/29 on the Nasdaq.

Groups were mostly lower - the main exception being the biotech index (+2.4%), but the $BTK was skewed by the news we talked about earlier today. On the down side were transportation stocks (-2.5%), semiconductors (-2.5%0, networking (-1.7%), disk drives (-1.7%), brokers (-1.7%), hospitals (-1.4%) and housing stocks (-1.3%).

Energy prices pulled back after yesterday’s big move. Crude oil dropped about a buck to $58.93/barrel, and gasoline dropped a few cents to $1.46/gallon. Natural gas gave back early gains to finish flat at $6.43/mmBTU. The dollar index slipped to 86.81. Gold and silver also pulled back, gold to $590/ounce and silver to $11.67.

BMB Note: Interesting day today, as the market sold off early, then almost managed to rally the Dow back to even before pulling back in the last half-hour. Considering the Dow was down more than 90 points at one time, it certainly could have been worse.

The initial reaction to the PPI report from the bond market was a bit curious, as they sent yields lower. But as the day wore on, the little rally in bonds also lost a little steam, and yields finished much closer to unchanged.

In stocks, not a lot has changed. Some pullback here, even more than we got today, would be welcome for those looking for better entry points. Tech was under pressure today, but as long as trendlines and support levels hold, there isn’t too much to be overly concerned with at this point. Most groups are in still in good shape, with the exception of maybe the hospitals. The semiconductors can’t seem to get much of a push higher from these levels either, and they were hurt today by an Intel downgrade. The semis have gone sideways for a little over a month now, and a breakdown out of that trading range would be a bit worrisome, so we’ll keep an eye out there.

CPI and housing starts data tomorrow, guaranteed to make some sort of a reaction, as well as earnings reports tonight - big tech earnings after the bell, from IBM, Intel, Yahoo, Motorola. All of these things, of course, have the potential to change the playing field.

Update: Oops. MOT missed on revenue and it looks like they’re guiding a little lower.

Van Eck Global has added two new industry ETFs to go along with their Gold Miners ETF (GDX):

The Market Vectors - Environmental Services ETF (EVX) seeks to track a new Amex Environmental Services Index that is made up of 24 companies involved in waste management, recycling, environmental management or consulting.

The Market Vectors - Steel ETF (SLX) seeks to track a new Amex Steel index which consists of 39 companies involved in steel manufacturing, mill operation, or extraction and reduction of iron ore.

More information on the new ETFs can be found on Van Eck’s site. Info on the EVX is here, and on the SLX here.

As happens very often in the biotech world, today’s big move in the $BTK ($BTK chart) is really news driven, and only for a couple of companies.

ICOS - up 16% on a buyout by Eli Lilly
ITMN - up 29% on a collaboration with Roche

The morning PPI release seems to have been a bit of a trigger for a selloff today, sending all of major indices into the red, led by the Transports and the Nasdaq. Advance/declines are also well into the red. Leading the groups down are the semiconductors, transportation, gold stocks, networking, hospitals, disk drives, metals and brokers. However, biotechs are enjoying move higher.

Bonds, amazingly enough, reacted positively to the PPI report, and have sent yields lower - that’s not what I would have expected. Energy prices are flat to modestly higher. Gold and silver are lower, as is the dollar.

Well, sort of. At least they ‘feel’ richer.

I got a pointer to this article, “The Last Days of the Dollar”, from two different BMB readers this morning - I figured it must be pretty good:

In 1971, President Richard Nixon changed everything by removing the U.S. dollar from the gold standard. Suddenly, the dollar was still the world’s currency, but now it was backed by nothing. The United States was free to print as much money as it wanted, and the world went along.

Because of this change, understanding foreign exchange became a bit more complex. Today, to understand the world of currency, you need to think a little differently — essentially because things don’t make sense.

For example, today, the United States is perceived to be the richest country in the world. In reality, though, we’re the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China.

Some day, the countries of the world may decide once again that money must be backed by something real to be worth something. I doubt that I’ll live to see it though. But that won’t stop me from investing in gold and silver.

Gary Kaltbaum today:

We don’t believe the market is going to have a down day ever again. Despite extended, stretched and overbought conditions, the market keeps rolling on. In fact, we believe it is nothing but bullish when a market can continue on its merry way despite these conditions. Normally, markets stairstep both up and down…but there is nothing normal about the recent action. Shorter-term, like a broken record, the market remains extended and due to pull back at any time…but we’ve gone there before. Just keep in mind, eventually, the market will go back to the norm…

Here are the first support levels to be aware of…if the market ever decides to have a down day again…DOW 11794…S&P 1343…NASDAQ 2289. We would tell you intermediate and longer-term support but they are so far away, there is no need right now since markets are so stretched.

We could yap more but don’t want to confuse the issue. Until we see distribution in the market…it is what it is. Do not fight it. Just keep in mind….it is now earning’s season where a lot of playing fields are going to change.

This morning’s PPI release showed a headline drop in producer prices of 1.3%, but the ol’ ‘core’ rate came back to bite ‘em, showing an increase of 0.6% in September.

Of course, economists were surprised - they always are:

Meanwhile, the core producer price index, which excludes food and energy costs, rose a surprising 0.6%, the most since January 2005, as the price of motor vehicles jumped at the fastest rate in more than 15 years.

Economists were taken by surprise. They expected a smaller 0.7% decline in the headline PPI, and also expected a smaller 0.2% gain in the core PPI.

Producer prices are up 0.9% in the past year, while core prices are up 1.2%.

And now that it looks like energy prices are headed back up…

The market’s initial reaction hasn’t been favorable, with the Dow futures down 30 points. We’ll see how the day goes. Tomorrow we get CPI and housing starts. Could be interesting.