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.

Bennet Sedacca is feeling a little “stupid” for missing out on the recent stock runup. Apparently, he doesn’t quite understand this market either:

Why do I feel stupid? Well, I have been underweight equities since SPX 1365 (not short, just cautious) and the economic fundamentals have played out exactly as I suspected. So I guess I am not really stupid–but Mr. Market is having his way with me.

Much of why I feel humbled at present is the way the market (perception) is diverging with economic stats (reality). And the chasm is widening for those watching. So, while not stubborn, I keep getting more data to support my view. Curve inversion, deflation, slowing housing, credit contraction, etc.

We all know the move up in equities has been coordinated. All countries, all asset classes, sans health care. So I decided to look at yield curves around the world to see if they were also inverted and if so, I probably have company in the stupid category. And lo and behold! Most of the civilized world (ex emerging markets) is inverted as well.

To be honest, I have never in my 27 years seen stocks and bonds and economic statistics and valuations at such odds. So, what to do? We stay the course. It is unpopular and I may need some anti-stupid pills with my iced tea this morning, but hey, that’s cool. I have felt stupid before, like in 1999. I am a disciplined guy that is a protector of wealth.

Check out his yield curve charts from Canada, France, Germany and the U.K. (particularly nasty looking, that one).

Looks like KBR and Hertz will hit the street tomorrow, and the NYMEX will debut on Friday.

Have you ever seen such a steady, straight line move? Amazing. So much for the idea that “nothing ever goes straight up.”

Chart courtesy of StockCharts.com

Hmm. Looked like it was going to be another bang-up day, and things were going pretty well until the release of the Fed minutes at 2 PM ET. The supposed inflation concerns by the Fed - and fear that they may not be done with rate hikes - put a bit of a damper on the party and things pulled back, but the majors still managed to add on to yesterday’s gains:

Bonds fell, bumping yields back up off their multi-month lows:
6-month: 5.15%   2-yr: 4.81%   5-yr: 4.63%    10-yr: 4.62%    30-yr: 4.70%.

Market internals were again positive, and volume picked up from yesterday’s levels. Advances/declines were 5 to 3 on the NYSE and 3 to 2 on the Nasdaq, with up/down volume 19 to 9 on the NYSE and 13 to 7 on the Nasdaq. New highs/lows were 362/16 on the NYSE and 320/49 on the Nasdaq.

Most groups finished in the green, with the airlines (+5.2%) flying high, followed by oil services (+1.7%), transportation (+1.5%), defense stocks (+1.4%), HMOs (+1.2%) and natural gas stocks (+1.1%). Paper stocks (-0.9%) led a short list of losers.

Energy prices were higher across the board. Crude oil got back nearly 50 cents to $58.76/barrel, gasoline gained 3 cents to $1.59/gallon and natural gas added 14 cents to $8.12/mmBTU. The dollar went up, and the dollar came back down, leaving the dollar index near UNCH at 85.33. Gold picked up a couple of bucks to $623/ounce and silver was higher by 11 cents at $12.87/ounce.

BMB Note: Runnin’ and runnin’. The market move just keeps on going. Oh yeah, a little tough inflation talk from the Fed’s last meeting put a little speed bump in the road, but that first dip was bought up before giving it back later. Still, the positive momentum continues. Lotsa good moves going on, and lotsa breakouts. Will they hold?

The uneasiness about the Fed could carry into tomorrow if the morning CPI report were to come in a little hot. Inflation is running a little high for the Fed’s tastes (of course, most of that is their own fault, but we’ve been down that road before), so if the CPI data is too high, the market could start to think rate hikes are back in play. We’ll see.

The minutes from the October Fed meeting show that “nearly all FOMC members viewed the current rates of core inflation as uncomfortably high and stressed the importance of further moderation”.

Well, then perhaps they should then stop doing so much to cause that inflation, eh?

I’ll believe they’re concerned about inflation when I see them stop printing money until the wee hours of every morning, start to drain liquidity from the system and tighten credit. Until then, I don’t believe them, and neither does the stock market as it cruises higher.

Irrational exuberance, anyone?

Things are still in pretty good shape, with indices moving higher and A/D lines in the green. The energy and commodity stocks have moved higher to join some of the other groups. Now we see airlines still atop the pack, followed by oil service, HMOs, natural gas stocks, metals & steel, gold stocks, natural resources, transportation, defense, homebuilders and semiconductors.

Not all ETFs are created equal, as Deron Wagner demonstrates by comparing the chart of the well-known Semiconductor HOLDRs (SMH) to that of the lesser-known StreetTRACKS SPDR Semiconductor (XSD):

In the first chart, it is bullish that SMH broke out above its 200-day moving average, but notice that it still remains below its prior high from October 16. Both the iShares Semiconductor (IGW) and the PowerShares Semiconductor (PSI) also failed to break out above their prior highs from last month. Conversely, XSD (the second chart) is the only one of the semiconductor ETFs that has already broken out above resistance of its prior high. The relative strength in XSD is, of course, the result of a different composition of the underlying stocks that comprise the ETF. Before entering a new trade in any sector, you should always be sure the ETF family you are considering is the strongest one in the sector because its gains will usually outperform on the “up” days, while its losses should be less on the “down” days. If you have not already done so, please download the free Morpheus ETF Roundup guide, which groups all the ETFs by sector and subsector for easy reference.

So far, a minor move to the upside. But we all know how minor moves can turn into major ones. Airlines - again - are leading the winners, boosted by the bid for Delta by US Airways. Also moving higher are the homebuilders - again - and oil services.

Bonds are lower, yields up. Energy prices are higher following the morning inventory report. The dollar is slightly higher. Gold and silver are lower.

Here’s the skinny on the latest oil data from the EIA - a pretty-much-expected build in crude, but unexpected drawdowns in gasoline and distillate inventories:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 1.3 million barrels compared to the previous week. At 336.0 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 dropped by 3.7 million barrels last week, and are now in the lower half of the average range. Distillate fuel inventories fell by 3.6 million barrels, and are in the upper half of the average range for this time of year.

Refineries operated at 87.3% of capacity, and YOY demand remains healthy:

Total products supplied over the last four-week period has averaged over 21.3 million barrels per day, or 4.8 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 over 9.3 million barrels per day, or 3.1 percent above the same period last year. Distillate fuel demand has averaged nearly 4.5 million barrels per day over the last four weeks, or 9.5 percent above the same period last year. Jet fuel demand is up 4.1 percent over the last four weeks compared to the same four-week period last year.

Not to worry. There’s plenty of oil out there. So go ahead and get yourself that Hummer for Christmas. And while you’re at it, get one for each of your kids too.

This reminds me of the statement from the Saudi Aramco guy a couple of months ago. “There’s plenty of oil. Um, no, we’re not going to tell you where it is (maybe we would - if we knew). Um, no, we’re not exactly sure how we’re going to get to it. But we’re pretty sure it’s out there.”

This line struck me as somewhat funny:

The sheer size and variety of the oil-producing world, 35,000 fields in more than 70 countries, makes it difficult to apply “peak oil” analysis everywhere,” Jackson said. Hubbert initially looked at only part of the United States.

What they fail to mention is that Hubbert was right! U.S. oil production peaked around 1970, exactly as he said it would.

And so the peak oil debate rages on.