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.

Over at Finance Trends Matter, David’s got a nice rundown on the swift reversal of policy by the Thai government when their ‘capital controls’ idea prompted an extremely poor reaction in the marketplace.

	The REITs have been ramping up for it seems like forever, but have swooned lately. Will they bounce off the 50-day like they did back in November?
	Biotechs are rolling over pretty badly…
	…and the Transports have put in a big-time top.

Charts courtesy of StockCharts.com

At first it looked like yesterday’s weakness might carry over to today, but the market shook off some early selling and worked its way back to a flattish finish.

Yeah, yeah, I know, the Dow hit another closing high. So what. That just doesn’t matter much, especially with the Nasdaq and the Transports unable to get out of their own way:

Treasuries drifted today, and yields moved very little:
6-month: 5.07%   2-yr: 4.71%   5-yr: 4.56%    10-yr: 4.59%    30-yr: 4.72%.

Internals were mixed - much better on the NYSE than on the Nasdaq, with volume slightly above yesterday’s levels. Advances/declines were about 10 to 9 on the NYSE but 7 to 9 on the Nasdaq, with up/down volume nearly 3 to 2 on the NYSE but 2 to 3 on the Nasdaq. New highs/lows were 151/21 on the NYSE and 76/47 on the Nasdaq.

The group picture favored the winners, with the commodity areas bouncing back some after yesterday’s blowup. Gold and silver stocks (+2.5%) led the way, followed by metals & mining (+1.7%), oil stocks (+1.6%), oil services (+1.4%), natural resources (+1.4%), natural gas stocks (+1.2%), and HMOs (+1.2%). Semiconductors (-1.4%) and homebuilders (-1.1%) led the losers.

Energy prices also recovered some of yesterday’s losses. Crude oil got back nearly a buck to $63.15/barrel, gasoline moved to $1.71/gallon, and natural gas gained a penny to $7.08/mmBTU. The dollar gave back some ground, the dollar index falling to 83.45. Gold and silver bounced back, gold to $623/ounce, and silver to $12.61/ounce.

BMB Note: This market obviously isn’t going to go down without a fight, but today really was pretty much a wash. We can add the REITs to the groups of ‘concern’ (biotechs, transports, etc.), and the fact that the semiconductors can’t seem to get anything going at all remains a trouble spot. The Nasdaq floundered yet again, the Russell went absolutely nowhere. Maybe the new high in the Dow makes you feel good, but I’m not thrilled with the way things are acting.

Energies, commodities, metals, etc. are still a big question mark. Nice bounce today, but I’d like to watch and see what these things do for a while before getting interested. They seem to have topped out pretty strongly, and need to spend some time regrouping. The utilities are the one area that is still is holding up pretty well.

And today was one of those days that demonstrated the “never sell a weak open” idea, as the market hit its lows early and just kept rising as the day went on.

As Deron Wagner might say, I’m in “SOH” mode - sitting on hands.

Paul Van Eeden has an explanation for why the stock market has taken off in the face of a shaky-at-best economic outlook - it’s all about relative performance:

Perhaps Wall Street is just being optimistic, but there is another explanation for the soaring stock prices that we have seen lately, and it has to do with the fact that the majority of money being invested today is invested through mutual funds and professional fund managers.

The measure of a mutual fund manager’s success is how well he fares relative to the competition (other money managers) and the market as a whole. He is therefore most concerned with relative performance. It does not matter if he loses 20% in one year as long as other money managers lost more and the market segment that he invests in declined on average by at least that much. It also does not matter if he only makes 3% gains, as long as he is outperforming his peers and does at least as well as the market on average.

The one thing he cannot afford to do, is to under-perform either the market or his peers, for then he could lose his lucrative job.

Because performance is usually measured on a quarterly or annual basis, or both, the professional money manager has to concern himself with short-term performance. He cannot make longer term, contrarian investments that could pay off extremely well because he might get fired before his investments mature. Fund managers therefore often try to gauge the impact of current events on markets with a short-term (one month to one year) time horizon.

With the US economy slowing it is becoming more and more difficult to see how the Fed is going to justify raising interest rates in the near future. If economic activity slows sufficiently, the Fed may even cut rates, and lower interest rates are usually good for stocks. That is why professional money managers are pouring money into the stock market and why the stock market is in record high territory.

Of course, if you look at the bigger picture, it would make sense to do exactly the opposite. If the US economy is slowing down then it will ultimately start impacting corporate profits and stock prices. And if my thesis about the dollar falling while US interest rates rise is correct, we could have a really negative environment for stocks (see: “The Big Picture” http://www.paulvaneeden.com/pebble.asp?relid=543). But mutual fund managers cannot easily make that bet, because it requires them to act contrary to their peers and therefore represents great personal risk to them.

As an individual investor, having to answer to no one but yourself, you have the luxury of choosing between chasing short-term gains, betting instead on the longer-term, big picture outlook, or doing a little of both!! Choose the approach that best suits your situation and comfort level, and place your bets accordingly.

An initial wave of selling has subsided for the most part, though the major indices all still show a bit of red, and advance/decline figures remain negative as well. The groups show a bit of bounce-back in some of the commodity areas, led by the gold stocks. Losers include the homebuilders, semiconductors, retailers and networkers.

Bonds sold off on the PPI data, only to recover near the UNCH mark. Energy prices are near flat. The dollar is lower, gold and silver are higher.

Gary Kaltbaum isn’t ready to panic just yet:

Shorter-term, we do believe the market does have some issues…but these are only short-term issues so far. NEW HIGHS have started to lag the recent move. In other words, as the major indices continued higher over the past week or so, fewer stocks were hitting new highs…a short term divergence. On top of that, many leaders out of the box have been losing some of their sponsorship. The good news is other stocks have come to the front. On top of that, put/call figures are now a little too bullish for our tastes as the wrong-way crowd is becoming near-term bullish. But even with all this, we do not get worried unless the first line of support is broken…and with holiday trading just ahead…which is usually a positive, we are not so sure the market will give back too much here…but will let the market decide that.

Those short-term support levels are now Dow 12,243…S&P 1403…NASDAQ 2416…NDX 1767. Keep your eye on the NASDAQ and NDX because if there is going to be trouble, it will start there first as we are already seeing subtle distribution. We also make note that GOOGLE just rolled over as it broke $477…a not so unimportant stock.

But he does have a long list of worrisome signs that could be cause for concern. Read the whole thing to find out what they are.

Deron Wagner this morning:

In yesterday’s newsletter, we discussed how the S&P and Dow have been holding near their highs, but the Nasdaq, Russell 2000, and S&P Midcap 400 indices are stuck at resistance of their prior highs. Yesterday’s relative weakness in the latter three indices was further confirmation of the major divergence that is taking place. The jury is still out on how long the S&P and Dow will remain at their six-year highs, but it’s becoming increasingly likely that the Nasdaq, Russell, and S&P Midcap indices will soon fall to at least test support of their 50-day moving averages. Not only are these market leading indexes beginning to roll over, but leading stocks such as Google and Apple Computer have also begun to break down. If leadership by the top growth stocks continues to fade, the broad market will be hard pressed to move to the upside. For that reason, we have shifted our overall short-term market bias to the bearish side and the intermediate-term bias to neutral. Proceed with extreme caution on any new long entries, especially those that are correlated to the Nasdaq.

Circuit City joined Best Buy in the retail doghouse by reporting an unexpected loss in the third quarter.

So tell me again how well these retail sales are going?

Update: CC starting the day at new 52-week lows, down 17% to $18.80.

Thailand has put some capital controls in place - not sure what the longer-term effects of this will be…

Producer Price Index up big - you should hear the folks on CNBC questioning the validity of this number. But they didn’t blink at all when the CPI came in at zero last week…of course, I’m not sure any gov’t numbers can be trusted.

Housing starts up, but permits down.