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.

So retail sales numbers were great earlier in the week, right? Somebody forgot to tell Black and Decker. BDK stock took a 10% drop on the news.

Not a real impressive follow through to yesterday’s little rally. Stocks started higher, but slipped all day long, and ended pretty mixed.

That, of course, is contrary to what the “Cheerleader Channel” will tell you. They can put notes on the screen saying things like “Stocks up on tame CPI”, simply because the major indices are in the green. But if they bothered to look, they’d see that the advance/declines lines are negative, so in reality, more stocks are down than up. Welcome to the world of the financial media. Isn’t it odd how in the financial media, all news is good news (and the economy is in wonderful shape) - but in the regular news media, nearly everything is bad news (and the economy sucks)? Quite the contradiction, isn’t it?

Anyway, back to today’s market. Truly mixed, with the three biggees up a little, but other indices down:

The bond market was an interesting place today, where Treasuries rallied big in the morning, but gave it all back, and yields ended nearly unchanged:
6-month: 5.05%   2-yr: 4.72%   5-yr: 4.57%    10-yr: 4.59%    30-yr: 4.72%.

Market internals were mixed, but leaned negative. Volume was strong, but that’s typical of these expiration days. Advances/declines were about 9 to 10 on both exchanges, with up/down volume was about 5 to 6 on the NYSE but a positive 13 to 7 on the Nasdaq. New highs/lows were 309/16 on the NYSE and 169/42 on the Nasdaq.

No groups posted strong gains today - the steel stocks (+0.8%) were the best. On the down side, gold and silver stocks (-1.5%) got hit, along with natural gas stocks (-1.2%) and natural resources (-1.0%).

Energy prices were also mixed. Crude oil rose nearly a dollar to its highest level in weeks at $63.43/barrel, and gasoline gained 3 cents to $1.70/gallon. Natural gas, however, fell 15 cents to $7.43/mmBTU. The dollar regained more lost territory, pushing the dollar index back up to 84.02. That came at the expense of gold and silver. Gold got smacked for about 10 bucks, down to $615/ounce and silver got clobbered for almost a dollar, dropping to $12.81/ounce.

BMB Note: Not a lot of follow through on yesterday’s moves, so not a lot has changed, except in the precious metals. The pullbacks there have become a little deep, so I’d be avoiding those areas for now. I was watching a couple of the gold stocks, but never pulled the trigger since they hadn’t resumed their move upward, so I was spared when the move down came today. I will be watching both gold and silver pretty carefully for possible entries now that they’ve dropped.

I’m hoping that the action stays somewhat interesting going into next week, but I’m not sure it will. As the holidays approach, volume will lighten up, and things will probably get pretty dull. Oh well - there’s always next year. And next year is bound to be interesting. I just have a feeling…

Treasuries mounted a strong rally early today after the tame CPI data, but have completely reversed course throughout the morning and have given back all of those gains. Yields are pretty much back up to where they ended the day yesterday.

What’s up with these big moves in the bond market the last few days?

The pullback in precious metals prices has turned into a bit more than a “pullback”, with gold and silver prices both diving today. Silver was flying pretty high, and a correction was likely to come sooner or later.

Is there any reason to believe the market picture will change much between now and the end of the year? Larry McMillan doesn’t think so. From this week’s Option Strategist Weekly Updater (sign up):

In summary, things remain much the same as they have for a long time now: intermediate-term bullish, with the possibility of a sharp, but short-lived correction (because of the overbought conditions). This view is supported by the fact that expiration has a bullish bias to it (see below) and the end of the year is traditionally a bullish, low-volatility period. That doesn’t give the bears much time to operate, even if they wanted to (next week, perhaps), so even if sell signals arise, they probably wouldn’t be able to generate substantially lower prices until next year.

The market is hanging on to early gains. The three majors are in the green, while the Transports and Utilities are flat. A/D lines are positive, though the move doesn’t quite have the enthusiasm of yesterday. In the groups, steel stocks, internets and airlines are higher, while some of the banks are pulling back.

Bonds rallied strongly on the tame inflation data, sending yields down - what did we say the other day about the big jumps in yields not sticking lately? Energy prices are mixed, but crude oil is dancing around the $63 mark. The dollar is flat, gold and silver slightly lower.

As a trader/investor, it’s up to you to decide what your version of “reality” is, and invest accordingly. Is “reality” the government statistics? Is “reality” what’s happening in your own life and experience? Or is “reality” what’s going on in the markets? Most certainly, not all “realities” are the same.

Here’s Barry Ritholtz today at The Big Picture:

But is that a Reality Check? Is accepting the Wall Street and Mutual Fund Buy & Hold sales pitch all that real? Do we really take Government Statistics at face — and call that a true gauge of reality? Has our reality simply become the 200 day moving average of the markets?

Take today’s benign CPI data. Futures exploded on the release, and given this is the 2006’s last quadruple witch, the bias will be strongly to the upside (although we should expect a lot of volatility in individual names). The best short term advice remains “Don’t Fight the Tape.”

But the official data continues to be at odds with reality (not that Traders care a whit about that). The CPI release claims there is almost no inflation, with core CPI up 2.6% (consensus 2.7%). But consider what the BLS told us today:

• Food prices fell, as orange juice went to record highs, and corn is up 70% since August, while wheat is near 10 yr highs.
• Medical care rose only 0.2% — apparently, the recent 20% annual increase has been halted.
• Education prices went down 0.2% — despite widely reported tuition increases — primarily caused by a decline in long distance phone service prices (WTF?)
• Commodities ex-food and energy fell 0.4%, just as the CRB industrial metals index went to a record high.

(Thanks to Peter Boockvar of Miller Tabak + Co for much of the data here)

Bottom line remains that the headline numbers look great — expect markets to respond positively — but the reality check is this: These Government BLS numbers simply do not square with reality.

While Investors can recognize this, Traders have no choice but to “ignore reality” and go for the ride. A turret-bound buddy wrote me:

“I don’t care about the numbers, the economic data, whether Iraq is in a Civil war, if the President gets impeached, who controls congress, what a company does, whether we fall into a recession or if China buys Europe and turns it into a Disney theme park. My world is defined by what I see on my four 20 inch monitors in front of me. Everything else is noise.”

That’s what is driving the markets. And that’s your reality check for the day.

Zip. Zero. Nada. None. I told you there was no way they were going to print a bad number, but this might be over the line.

The article starts with a good line: “U.S. consumer prices were unexpectedly flat in November”. Unexpectedly flat. You can say that again.

Stock futures, of course, jumped on the news. So answer me this: if “zero” inflation is such great news, why is “deflation” such a dirty word?