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.

Until things change, metals, energy and utilities seem to be the places to be:

Charts courtesy of StockCharts.com

The market seems to have shrugged off the selloffs of last Monday and Friday, and today followed through on Friday’s rebound:

Bonds were near unchanged, with yields ticking up just slightly:
6-month: 5.03%   2-yr: 4.52%   5-yr: 4.38%    10-yr: 4.43%    30-yr: 4.54%.

Market internals were mostly positive, but volume came in below Friday’s levels. Advances/declines were about 3 to 1 on both exchanges, with up/down volume 7 to 3 on the NYSE and 4 to 1 on the Nasdaq. New highs/lows were 475/6 on the NYSE and 195/35 on the Nasdaq.

Most groups were higher, led by steel stocks (+5.8%), brokers (+2.6%), metals and mining (+2.5%), airlines (+2.1%), semiconductors (+2.0%), disk drives (+1.7%), banks (+1.7%), internet (+1.7%), software (+1.6%), defense (+1.5%) and telecom (+1.5%). The drug stocks were hurt by the big drop in Pfizer (PFE) stock, sending the drug index down 1.2%.

Energy prices saw some profit taking after last week’s gains. Crude oil fell to $62.44/barrel, gasoline to $1.66/gallon and natural gas dipped to $7.81/mmBTU. The dollar index held fairly steady at 82.51. Gold was flat at $646/ounce, but silver snuck up to $14.08/ounce.

BMB Note: A decent day for stocks, with the bears still unable to mount any sort of charge to send things lower. Last week’s action made it look like there might be a few chinks in the armor of this market, but today’s move sent the S&P and Russell back above their recent highs - the Dow and Nasdaq still lie short of their respective highs.

The metals were impressive again today, while the energies rested a bit after a big week last week, and the utilities moved out to new highs. For right now, those are the areas to be focused on.

Mike Swanson says that the stroke of midnight is fast approaching for the dollar. In looking at the chart of the dollar index, it’s hard to make a very strong case for the greenback at the present time.

The dollar has taken a plunge during the past two weeks. The US dollar index broke below its 85 support level and has been falling ever since. Its next support area is 80, which has been support for the dollar index for thirty years. It seems very likely that this level will be tested within the next few months. And if the dollar index stays below 80 for more than a few weeks a full blown dollar rout will be very likely.

The thing about currencies is when they get in a trend they tend to stay in that trend. The fundamentals behind currencies include economic growth rates, interest rates, and debt levels. The dollar topped out in 2000 and 2001 as the bubble in the Nasdaq burst and the US economy entered into a recession. It then fell until the Fed began to raise interest rates in 2005.

That cycle of interest rate hikes helped to put a bid underneath the dollar. That cycle came to an end this summer and it now appears that the Fed will actually start to lower interest rates next year. Fed funds futures contracts are now predicting a 60% chance of a rate cut in March as recent economic data points to signs of a slowing economy. A slowing economy and falling interest rates will bring with them a resumption of the dollar bear market.

I would expect an orderly drop in the dollar index down to the 80 level to occur in the first quarter of 2007. After that though, if the dollar stays below 80 for several weeks, a full blown dollar crisis will likely begin. Gold, of course, will move up ahead of that. I expect gold to go through the 700 level early next year as the US dollar index tests 80. A move below 80 in the dollar index however, will bring the price of gold above $1,000 an ounce.

This is the 24th hour. I’d say we are 15 minutes away from midnight on the dollar clock.

Another 6 years of Chavez, minimum. That’s assuming he doesn’t change the rules and stay as long as he wants, which isn’t out of the question.

More “radical socialism”. Just what this world needs.

Modest gains for the majors, but most groups are in the green and A/D lines are pretty positive at the moment. Leading the winners are steel stocks, semiconductors, banks, software and brokers, while drug stocks, oil services and oil stocks lead the downside. The drugs are being hurt by a 12% dip in Pfizer shares on the failure of a planned cholesterol drug, and the energies are pulling back along with oil prices. Bonds are slightly lower, yields up a bit.

Energy prices are lower, the dollar is fairly flat, gold down a bit with silver up slightly.

Larry Connors looks at the ‘tendency’ for stocks to move higher at the end-of-the-month:

Do money managers pile into the stocks at the end of the month in anticipation of 401k and savings money coming in? Well it looks like they do…big time!

***

We looked at over seven million trades going back to January 1995. We then broke these trades down to the day of the month, meaning we asked “if we bought every stock today, how would we have done over the next 5 trading days?”

We did this for every day of the month for every stock that was trading in a longer-term uptrend, meaning above its 200-day moving average.

Here are the some notes of our findings:

1. The average gain for all days (meaning you randomly bought a stock and held it for five days) when it was above its 200-day MA from January 1995-September 2006 was 0.27%.
2. Now, let’s look at what happens as we start approaching month end. The average gains rise…significantly. On the 23rd day of the month, the average gain for these stocks more than doubles. On the 24th it triples. On the 25th it almost quadruples! And this type of behavior holds through the end of the month.
3. Let’s go further. Let’s look what happens at the early part of the next month. In spite of a strong upward move in stock prices over the past 11 3/4 years, stocks on average have “lost money” for the six consecutive days from the 3rd through the 8th. Money spent is money spent, and it looks like the fund managers spent their money near the end of the previous month.
4. And now let’s go even further and look at something which is even more eye-opening. Let’s look at what happens after a stock drops the previous day. The returns for those stocks go up even more near months-end.
   
   And if the stock has dropped two days in a row, the gains become extreme. On the 25th and the 26th, the stocks which have dropped two days in a row have risen more than 1.5% on average over the next 5 trading days. Annualize that out. One can make a heck of a living with returns like this.
5. More to number 4. After a stock has dropped two days in a row going into the 25th, 26th and 27th day of the month, more than 60% of the stocks have closed higher five trading days later. Markets are efficient…uh huh.

The new, revamped CNBC.com goes live today.

Maybe they’ll finally have a web site worth visiting. And maybe not. We’ll see.