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.

Courtesy of ETF Trends:

State Street launched two new exchange traded funds (ETFs) today focusing on Japan. These are the first single country ETFs State Street has launched and Polya Lesova of InvestmentNews reports they are working on a China ETF.

streetTRACKS Russell/Nomura Prime Japan (JPP) measures the performance of the 1,000 largest Japanese stocks and holdings include Toyota Motor Group, Mitsubishi UFJ Financial Group and Mizuho Financial Group.

streetTRACKS Russell/Nomura Small Cap Japan (JSC) tracks the smallest 15% of Japanese companies, including Elpida Memory Inc, Japan Steel Works and Sumitomo Titanium Corp.

From Barry at The Big Picture:

I’ve checked the grapevine, and have it on fairly good authority: Today’s explosion was caused by a covering (or unwinding of) a 122k emini SPX contracts.

That’s a notational value of $4B.

Someone’s stop loss got triggered big and ugly . . .

He’s got an intraday chart that shows the explosion pretty clearly - like I said in the wrap, somebody hit a big ‘buy’ button. It just happened to be in the futures market. Which, in turn, triggers the program trading arbitrageurs to sell the futures and buy the stocks…

And we might as well mention that it’s options expiration week. What the heck?

And damn the avalanches. From TheDOCument.com today:

So on one hand, we have stocks ramping higher because a tame inflation report indicates the Fed can start cutting rates sooner than later, yet on the other, we have metals prices down because lower inflation means lower metals prices… nevermind the part about the Fed cutting rates. As usual, we see the masses extracting only the favorable aspects of whatever news is on the boards.

For another example, observe the action in Intel today. The shares popped 4% on news that Intel was introducing the first quad-core processor. It doesn’t matter that PC and server sales are falling through the floor, leaving doubt as to how well these chips will actually sell. It also doesn’t concern traders what the introduction of these chip will mean to the remaining $4.7 billion of inventory on Intel’s books. Intel introduced a technology ahead of AMD, so full speed ahead.

With regard to Intel and equities in general, the total disregard for the risks posed by the unwinding of the housing bubble is just stunning. The old adage of stocks climbing a wall of worry has been flipped on its head. Stocks are climbing a wall of placation. One could equate this action to a mountain climber scaling a snow-covered, avalanche-prone slope and deciding to take another step higher simply because the avalanche hadn’t started, yet.

At least I’m not short this market. Yet.

	Bonds have been rallying, and have pushed yields back down to 8-month lows. The yield on the 30-year is now back at early March levels.
	The move down in yields / interest rates has helped save the homebuilding stocks, which were sinking fast over the past couple of weeks. Never mind - they got most of that back in the past three days.

Charts courtesy of StockCharts.com

Wasn’t it just yesterday that I said you couldn’t call a top here? Today looked, for most of the morning, like it was going to be another frustrating, grinding, go nowhere days. But sometime in the afternoon, somebody hit the big ‘buy’ button again, and everything shot higher, sending the Dow and S&P to new highs, joining the Nasdaq, and saving the Transports from some early big losses:

Bonds were also higher, pushing yields back down to at or near 8 month lows:
6-month: 5.14%   2-yr: 4.74%   5-yr: 4.57%    10-yr: 4.57%    30-yr: 4.66%.

Market internals were again positive. Volume was healthy on the NYSE, and increased on the Nasdaq, but still at relatively low levels. Advances/declines were 8 to 3 on the NYSE and 2 to 1 on the Nasdaq, with up/down volume 3 to 1 on the NYSE and 8 to 3 on the Nasdaq. New highs/lows were 321/24 on the NYSE and 231/62 on the Nasdaq.

The groups were led by housing stocks (+3.4%), semiconductors (+2.8%), disk drives (+2.5%), retailers (+2.4%), paper stocks (+2.0%), computer hardware (+1.5%), REITs (+1.4%), networking (+1.2%) and internets (+1.1%).

Another drop in crude oil, this one of 30 cents to $58.28/barrel, but gasoline was up a penny to $1.56/gallon and natural gas rose to $7.98/mmBTU. The dollar index was slightly lower at 85.29. Gold and silver continued their pullback, gold to $621/ounce and silver to $12.76/ounce.

BMB Note: This market isn’t dead yet. Today’s move pushed the S&P up through the recent resistance around 1289 and held into the close. Of the groups/indices that we were watching for breaks out of their ranges, the Dow, S&P and software $GSO have moved up and out, and most of the others have made strong moves and are teasing the top end.

I’ll be honest, I don’t understand why the market is doing what it’s doing. Maybe this is just what happens when the world is awash in liquidity. The bond market seems to be clearly betting on economic slowdown, yet the stock market seems to be completely oblivious and thinks life is just grand. One would think that somewhere down the road, one of these views will have to be proven wrong, and the two markets will work their way back into agreement again. But for now, this is what you’ve got to work with, whether you understand it or not.

And if you do understand it, leave a few comments to help me out - because I really don’t get it. But it is what it is - until it isn’t anymore.

Norfolk Southern (NSC) is taking a better-than 6% hit today, after saying that is sees rougher times ahead in the rest of ‘06 and into ‘07.

Some of the other railroads - BNI, UNP, CNX - are down in sympathy, and airlines are pulling back as well, with the $XAL down 1.3%. All of that adds up to a drop of more than 1% in the Dow Transports so far today.

It appears that the pre-market futures were a bit on the optimistic side. The open never got much going on the upside, and the majors have all drifted into the red, along with most of the groups. The NYSE A/D line is near flat, Nasdaq well below that. Looking at the groups, only the homebuilders are showing much movement to the upside, while airlines and gold stocks are slipping. Bonds are higher, yields lower.

Energy prices are fairly flat. The dollar started lower this morning but has recovered. Gold and silver each pulling back slightly.

By the numbers:
- The producer price index (PPI) showed a headline 1.6% drop in October, 0.9% ex-food and energy.
- Retail sales dropped 0.2%, with gasoline sales (i.e., lower gas prices) getting the blame for the fall again. It’s hard to get your arms around these numbers with all of these variables thrown in - or out, as the case may be:

Excluding gasoline, retail sales rose 0.4%.
Excluding autos, retail sales dropped 0.4% after a 1.2% decline in September.

So were the retail sales numbers good or bad? The number dropped, so that’s bad. But it dropped because gasoline sales fell, because prices were lower. If we exclude gasoline, sales were up. That’s good right? Maybe this will help a little bit:

Sales excluding both cars and gas rose 0.3% for the second straight month.

There. That’s a little better.

Reactions in the futures pre-market have been positive. We should see a stronger open, but the futures don’t tell us much about how the day will go.