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.

	The second huge move up in yields in less than a month - but that just brings the 10-year back to the middle of its range. Where do rates go from here?
	Oil services, along with oil stocks ($XOI chart) and natural gas stocks ($XNG chart), made nice moves out of their pullbacks.
	On the down side, REITs moved below the 50-day moving average for the first time since June.
	The retailers look like the rally up off the lows is done, at least for now.
	The weak move up in the homebuilders is looking a little tired as well.
	And the semiconductors remain an area of concern, unable to get moving for a couple of months now.

Charts courtesy of StockCharts.com

Another struggle for stocks today, holding the major indices just in the red, with the small and mid caps doing just a bit better. The scoreboard looked like this at the end of the day:

Bonds experienced a huge selloff following the morning jobs report, and that sent yields jumping back up:
6-month: 5.17%   2-yr: 4.82%   5-yr: 4.69%    10-yr: 4.72%    30-yr: 4.81%.

Internals were mixed, and volume came in just below the levels of the past couple of days. Advances/declines were 9 to 10 on the NYSE but 11 to 8 on the Nasdaq, with up/down volume 5 to 6 on the NYSE and 4 to 5 on the Nasdaq. New highs/lows were 119/27 on the NYSE and 82/48 on the Nasdaq.

Groups were mixed, with the energy/commodities leading the winners: oil services (+3.0%), oil stocks (+1.8%), natural resources (+1.8%), natural gas (+1.5%), gold and silver stocks (+1.0%) and disk drives (+1.0%). On the opposite side of the page were paper stocks (-2.0%), HMOs (-1.5%), REITs (-1.2%) and homebuilders (-1.1%).

Energy prices were higher today, helping to boost energy stocks. Crude oil moved up move than a dollar to $59.14/barrel. Gasoline was higher by 6 cents, to $1.51/gallon, and natural gas gained 7 cents to $7.88/mmBTU. The dollar index got a boost to 85.72 as yields moved up. Gold and silver posted slight gains, to $627/ounce and $12.55/ounce.

BMB Note:The morning jobs report didn’t have a huge impact on the stock market, or so it seemed, but the bond market sold off pretty heavily, and that seemed to hold stocks down.

The strength remains in the energy and commodity areas. Oil service, oil stocks, natural gas, natural resources and gold stocks all had decent days today. The energies made a move out of their pullbacks today. Keep watching those areas for opportunities.

Other areas are showing some softness - we’ll take a look at a few charts later. The REITs, which have done nothing but go up for what seems like forever, may have finally cracked. The homebuilders are struggling, and retail and restaurants have backed off. The semis can’t get going at all. Hard to say at this point how far these moves go, or what effect they will have on the market overall.

Earlier we posted one opinion on oil reaching $100. As long as we’re on the commodity topic, how about the arguments for gold reaching $1000 an ounce sometime in the next couple of years?

Here is one man’s opinion - oil is headed for $100/barrel. It’s only a matter of time - “It is not a matter of will oil reach $100 a barrel, but when.”

As far as the future of oil industry is concerned, we can be assured of two things. The first is that the long-term demand for oil will increase. We have already seen how global economic and population growth have both fueled the astronomical thirst for this vital commodity.

On top of the general global increase in demand, the U.S. and China continue to gobble up more and more oil in order to satisfy their respective populations’ growing use of oil and petroleum based products.

The U.S. with 4.6% of the world population uses 25% of the world’s oil output and the consumer shows little sign of abandoning large gas-guzzlers. While oil at $70 a barrel for a short period last summer reduced petroleum consumption, by September of 2006 it was on the rise again.

China’s oil imports in September of 2006 were 24% more than September 2005 and 2.4% more than the previous record in the middle of January.

The second, and most unfortunate, certainty we can predict is that the many significant factors other than increased demand, such as geopolitical instabilities, natural disasters, and other supply hindrances will undoubtedly occur. In particular, we hold our collective breath as the largest repository of oil, Saudi Arabia, may be experiencing precarious and uncertain events that will cause oil prices to climb to record levels.

The morning jobs report gave things a very slight bump at the open, but stocks have fallen back to the flat line so far this morning. Advance/declines are near flat as well.

Bonds, however, are falling in reaction to the relatively strong jobs data, and yields are recovering for the second straight day.

Energy prices are slightly higher, the dollar is higher, and gold and silver are slightly lower.

Those are the words used to describe the market by Larry McMillan in this week’s Option Strategist Weekly Updater (sign up):

The broad market acts tired. After basically advancing in a straight-line fashion for weeks, the market is taking a rest. There hasn’t been any serious damage, so the intermediate-term bullish case is still intact. But the overbought conditions need to be worked off — and that’s what’s happening.

$SPX has pulled back, but its chart is still bullish. There are several factors offering support in the general area of 1355-1370. First is the 1360-1370 range that was one of the stairsteps to higher prices in mid-October. Then there is the 20-day moving average of $SPX, which is near 1365. Finally, the bottom of the channel that has defined this bull market since the July bottom is near 1355. As long as $SPX is within that channel, the bullish case is intact.

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Separately, it doesn’t really seem that the market has spent much time discounting the upcoming election (Tuesday) — unless you think the October rally was doing that. The only logic for that would be that a Democratic house and a Republican Senate would be gridlocked, and that would be good for Wall Street. However, there are other scenarios as well, and a nasty surprise could cause the market to react badly.

In summary, we would only turn bearish if $SPX violated the lower end of its trend on a closing basis, and that were accompanied by $VIX rising above 14. Otherwise, there may be a bit more to go in this short- term correction, but the intermediate-term bullish outlook is still intact.

The October non-farm payroll figures are out, and show an increase of 92,000 jobs, but bring large upward revisions to the August and September numbers.

The unemployment rate dipped to 4.4%.

September’s weak report of +51K jobs was revised upward to +148K. Isn’t is amazing that all these jobs are being newly ‘discovered’? These revisions come on the heels of the ‘discovery’ of nearly a million jobs that apparently had been ‘misplaced’ in the 12 months ending in March ‘06.

This whole business of the government reporting any sort of numbers is pretty much a joke.