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.

Heavy selling in the Treasuries today, sending yields skyrocketing. But the bond market has played this game before over the past few months, and none of the moves seem to have stuck.

Some follow-through on the breakdown in the Transports today. And the biotechs look like they’re trying pretty hard to play along:

When it comes to the Transports, keep in mind that this move down is coming despite some high-flying airlines, like CAL and UAUA for example. So what’s breaking down? Everything else: railroads, truckers, shippers:

Charts courtesy of StockCharts.com

A little bit of up, a little bit of down, and it all added up to a big fat zero. At least it did in stocks - but the bond market had a rough day.

Treasuries sold off hard, sending yields up in their biggest jump in quite a while. But we’ve seen this happen before, and each time, the downtrend in yields has resumed.
6-month: 5.07%   2-yr: 4.70%   5-yr: 4.54%    10-yr: 4.57%    30-yr: 4.68%.

Market internals were slightly positive, but volume pulled back a bit from yesterday’s levels. Advances/declines were 4 to 5 on the NYSE and 7 to 12 on the Nasdaq, while up/down volume was 7 to 13 on the NYSE and 3 to 7 on the Nasdaq. New highs/lows were 274/23 on the NYSE and 113/47 on the Nasdaq.

Looking at the groups, the airlines got a bump from some of the merger talk flying around, and they were followed by the paper stocks (+1.8%), oil services (+1.4%) and steel stocks (+1.4%, bouncing a bit after yesterday’s drubbing). The hospitals fell 1.1%.

Energy prices moved higher - crude oil gained 35 cents to $61.37/barrel, gasoline added a couple of cents to $1.62/gallon and natural gas jumped 24 cents to $7.67/mmBTU. The dollar got a boost as interest rates rose, moving the dollar index up to 83.40. Gold and silver held their ground pretty well as the dollar rose: gold fell only a buck to $629/ounce and silver trickled back to $13.75/ounce.

BMB Note: Things looked strong out of the gate, but this market just isn’t being allowed to move higher - those gains faded quickly. On the plus side, there wasn’t any real strong selling either. So not much has changed. The indices have been unable to move to new highs. We need to see some movement to new highs to stay positive on things here.

The Transports followed through to the downside - that’s not good news - and the biotechs are looking shaky as well. On the good side, the commodities appear to holding up for now - like the energies and the precious metals - and the utilities still look good, as they held up very well in the face of a big move higher in interest rates today (BMB added a little to a utility position today). I’d stick with those groups on the long side until things either improve or start to break.

The move in the bond market was pretty interesting, but we’ve seen similar moves recently that haven’t stuck. Maybe one will stick someday - or maybe yields will just continue to fall again. Gotta wait to find out.

One of the problems with the ProShares inverse and “ultra-short” ETFs when they first came out was that they were not very liquid at all. Trading was very thin to start, resulting in quirky behavior when it came to tracking their respective indices and rather large bid/ask spreads (see here and here).

Well, at least one of those funds appears to have caught on. QID, the ultra-short (double inverse) fund that corresponds to the Nasdaq 100, now trades a 50-day average of more than 2 million shares a day, and spreads seem to be consistently in the 1-2 cent range. Much more reasonable, and the volume should make the ETF much more accurate in tracking the index.

Of course, the QID volume pales in comparison to the QQQQs, which trade over 100 million shares a day. But you can’t short QQQQ in your retirement account, so the QID is still a very good vehicle for going ’short’ the market in those accounts.

Also, investors seem to be have a greater attraction to the ‘double inverse’ idea than just the ’single inverse’ idea: trading in the inverse Nasdaq 100 fund (PSQ) is still only 85K shares a day. People apparently like the extra ‘kick’ that the double inverse exposure gives them.

The weekly oil inventory data from the EIA showed a bigger-than-expected drawdown in crude inventories, and slight draws in gasoline and distillates:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 4.3 million barrels compared to the previous week. However, at 335.4 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 inched lower by 0.1 million barrels last week, and are below the lower end of the average range. Distillate fuel inventories declined by 0.5 million barrels, and are in the lower half of the average range for this time of year.

Refineries are operating at 89.1% of capacity. On the demand side:

Total products supplied over the last four-week period has averaged 21.0 million barrels per day, or 0.7 percent more than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged over 9.3 million barrels per day, or 1.9 percent above the same period last year. Distillate fuel demand has averaged nearly 4.3 million barrels per day over the last four weeks, or 3.0 percent above the same period last year. Jet fuel demand is down 6.5 percent over the last four weeks compared to the same four-week period last year.

The strong retail sales number got the market going this morning, but the party didn’t last very long. The Dow reached to marginal new highs, only to give it all back. The major indices are now straddling the UNCH line, and A/D lines have pulled back considerably, with the Nasdaq A/D line pulling back into negative territory.

In the groups, the airlines all jumped on merger talk, and the homebuilders, paper stocks and oil services are showing gains as well. The hospitals lead the losers at the moment. The retail sales number didn’t seem to help retail stocks much, with the RLX showing just a quarter-percent gain.

Bonds took a dip, sending yields up once again.

Energy prices have moved higher following the morning oil inventory data. The dollar is slightly higher, with gold and silver lower.

A strong retail sales number for November - and an upward revision for October. The consumer will never die:

Showing surprising strength, seasonally adjusted U.S. retail sales increased by 1% in November, the largest gain since July, the Commerce Department reported Wednesday. Excluding the 0.9% gain in motor vehicle sales, retail sales rose 1.1%, the largest gain since January. The broad-based increase in sales was much stronger than the 0.2% gain expected by economists, who expected sales excluding autos to rise 0.3%. Chain stores and auto makers had reported weak sales in November than were not reflected in the government’s data. Sales in October were revised higher by three-tenths to a 0.1% decline. Auto sales rose 0.9%. Gasoline sales rose 2.3%. Appliance and electronics sales increased 4.6%.

If I remember right from CNBC, the number was +0.9% even excluding autos and gasoline.

The data has index futures up pre-open, bonds lower/yields higher, and a little boost in the dollar.