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.

BMWife here with your now-and-again technology update. I’m not too sure about this one. I’m hoping there are technical details that someone left out–like the manure is well-composted and compressed into polite, manageable, non-smelling pellets or something. But if anyone does use one of these furnaces to heat their home, do let us know how it works out.

Adding to its equal-weighted S&P 500 ETF (symbol RSP), Rydex adds equal-weighted sector based ETFs:

The nine equal-weighted ETFs are based on the S&P Equal Weight Sector Indexes. Stocks are divided equally, not by market cap, so no one stock dominates and smaller cap stocks have the same weight as larger cap stocks.

Unfortunately, the ‘profiles’ pages for the Rydex funds don’t list the holdings of each ETF. I wonder if we can assume that the holdings are the same as the Sector SPDRs, but with equal weighting? One would think…

I never understood the runup in the homebuilding stocks off the July lows. The odds just seemed to be stacked so strongly against them. It looks as if cold reality may be setting in once again:

Charts courtesy of StockCharts.com

Stocks started lower, but worked their way higher throughout the day, only to see the major indices bounce off their highs of yesterday late in the session and end the day with modest gains. The utilities had a good day, grabbing back a couple of days worth of losses in the process:

Bonds picked up the pace a little after a quiet morning, and pushed yields slightly lower:
6-month: 5.15%   2-yr: 4.75%   5-yr: 4.60%    10-yr: 4.63%    30-yr: 4.73%.

Market internals were again positive, with volume coming in at or above yesterday’s levels. Advances/declines were 12 to 7 on the NYSE and 7 to 5 on the Nasdaq, with up/down volume 5 to 4 on the NYSE and 2 to 1 on the Nasdaq. New highs/lows were 251/20 on the NYSE and 143/45 on the Nasdaq.

Groups were split, with oil services (+2.2%), oil stocks (+1.4%), natural gas stocks (+1.3%) and natural resources (+1.3%) leading the winners, while HMOs (-3.5%), drug stocks (-1.6%), health care (-1.5%), airlines (-1.5%), gold and silver stocks (-1.1%) and health care products (-1.0%) led the losers.

Energy prices were higher across the board, with crude oil up 90 cents to $59.83/barrel, gasoline up to $1.56/gallon and natural gas to $7.82/mmBTU. The dollar index gave back early gains to finish only a bit higher at 85.48. Gold and silver were both lower, at $615/ounce and $12.43/ounce, respectively.

BMB Note: Certainly not a very strong reaction to the election in either direction, and I’m a little surprised by that. And so it goes. So far so good. Things keep working their way higher - though I would prefer to see some acceleration in an area or two, rather than these days of oozing higher. For one, the grinding is boring, and it’s somewhat unconvincing due to the lack of ‘power’. For two, some acceleration and the succeeding pullbacks provide for more obvious entry points.

That said, most areas are still hanging in there. Some are doing better than others - energies and commodities are still doing well, and the internets, biotechs and networking stocks are still leading the Nasdaq. I’ll also be keeping a close eye on gold and silver, as they may have begun a bit of a pullback today. Many other areas remain rangebound.

Areas to avoid right now would include the drug and health care area (and HMOs) - suffering even more today - as well as the REITs and the homebuilders. It looks like the little party up off the lows for the homebuilders might be coming to a close.

The homebuilders aren’t getting much help from this refi news. Instead, it looks like they’re getting hurt by HOV’s warning of a quarterly loss.

A few winners in the energy sector, as the oil index and natural gas index are each up about one percent. Still more losers than winners, with the airlines and homebuilders now joining the health care stocks at the top (or bottom) of the red list.

Crude oil up about a buck, back near $60.

This week’s data shows a small build in crude, a small draw in gasoline, but a larger than expected drawdown in distillate inventories:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.4 million barrels compared to the previous week. At 334.7 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 declined by 0.6 million barrels last week, and are in the upper end of the average range. Distillate fuel inventories dropped by 2.7 million barrels, but are just above the upper end of the average range for this time of year.

Refineries operated at 88.1% of capacity. And the government is still trying to play on the Katrina aftermath to explain away the increased demand:

Total products supplied over the last four-week period has averaged nearly 21.4 million barrels per day, or 5.4 percent more than averaged over the same period last year (when Hurricanes Katrina and Rita lowered demand levels). Over the last four weeks, motor gasoline demand has averaged nearly 9.4 million barrels per day, or 3.9 percent above the same period last year. Distillate fuel demand has averaged over 4.4 million barrels per day over the last four weeks, or 8.9 percent above the same period last year. Jet fuel demand is up 1.2 percent over the last four weeks compared to the same four-week period last year.

Deron Wagner is taking action on the recent weakness in the REITs.

On the broader market:

Yesterday, both the Nasdaq Composite and Nasdaq 100 traded at new multi-year highs on an intraday basis, but the afternoon selloff caused them both to close back within the range. If yesterday’s lows are violated, this could lead to a rapid selloff that often accompanies failed breakouts at pivotal highs. A break below yesterday’s low in today’s session should at least send the Nasdaq brothers down to test support of their November 3 lows. Beyond that, the 50-day moving average would be the next major area of support. The S&P 500 and Dow Jones Industrial Average, both of which bounced off support of their multi-month uptrend lines yesterday, are poised to reverse back down to test the lower channel support of their trendlines.

We expect a re-test of the November 3 low in the coming days. If that doesn’t hold, be prepared for a move down to the 50-day moving averages in those indices as well.

Not a huge reaction to the election results in the markets today. The biggest damage being done is to the health care sector, where HMOs and drug stocks are getting hit. The major indices took an initial dive, but have worked their way back up to near the zero line for now. Bonds are flat.

The dollar is a little stronger, with gold and silver slightly lower. Energy prices are higher for now, but crude inventories are due out in 20 minutes, so that could easily change.

Looks like the Dems will take control of the House, and the Senate is still up for grabs. If nothing else, it looks like things will be a little different in the near future. Except for the bickering and squabbling, of course.

Let’s see what the market thinks of the results.