Bear Mountain Bull

	Here we go again. Can the breakout hold this time?
	The steel stocks have been on a tear.
	Today’s move puts the Dow Transports within 100 points of their May highs. A move above 5014 would confirm the new highs in the Industrials for the Dow theorists.

Charts courtesy of StockCharts.com

Dell warns on Q4 earnings and revenue, and CEO Kevin Rollins gets the boot.

And there was much rejoicing. If the move in the stock after-hours is any indication.

Don’t ask me where that came from. I have absolutely no idea.

The market was wandering around pretty aimlessly, as it does leading up to most of the Fed announcements. And then the Fed release came out mid-afternoon, with absolutely no surprises whatsoever, that I could tell. But apparently, for whatever reason, the ‘no surprise’ wasn’t priced into the market. At least not today, because after the Fed statement, the market lit up like a Christmas tree. That pushed the Dow, S&P and the Russell to new highs, but all three slid back, and left only the Russell to set new closing highs. The Dow missed it by just a fraction of a point. The Transports had a big day, but some of that result was skewed by a better than 20% move in CHRW:

Bonds got a bounce, and yields were sent down for a change:
6-month: 5.14%    2-yr: 4.92%    5-yr: 4.81%    10-yr: 4.81%   30-yr: 4.91%.

Market internals were positive, and volume moved higher on both exchanges. Advances/declines were 11 to 5 on the NYSE and 17 to 13 on the Nasdaq. Up/down volume was 7 to 3 on the NYSE and 21 to 11 on the Nasdaq. New highs/lows were 286/18 on the NYSE and 161/48 on the Nasdaq.

The group picture was a bright green, with homebuilders (+3.6% – I still don’t get that one) leading the way, followed by transportation (+3.6%), retail (+1.7%), brokers (+1.6%), steel stocks (+1.6%), gold and silver stocks (+1.4%), HMOs (+1.3%) and defense stocks (+1.2%). Many tech stocks continue to struggle, however. The disk drives were dragged down by SNDK, and the networking stocks also gave up more ground.

Energy prices were mixed, with crude oil running up to $58.14/barrel, but gasoline pulled back a couple of cents to $1.50/gallon, and natural gas slipped to $7.67/mmBTU. The dollar index got smacked down to 84.60. That helped gold and silver to move higher, gold to $653/ounce, and silver to $13.48/ounce.

BMB Note: I don’t have a clue what that was all about. Why in the world the market didn’t act as though the Fed news – no surprise at all – was priced in is beyond me. But the market does what it does, whether I understand it or not. And most of the time, I don’t.

Today could change things to the bullish side, if the move can hold. As Dave Landry is wont to say “follow-through is key.” The moves mean nothing if they don’t stick. Just last week we had a nice breakout move, and gave it all back the next day. So before we get too excited, let’s wait and see how the market acts from here.

Longer term, it still seems to me that there’s a lot more risk to the downside than to the upside, but that doesn’t mean this market doesn’t keep climbing higher and completely blow itself up like a supernova. Obviously there is still some upside momentum lurking, and the bulls always seem to be able to snatch control back from the bears. So we’ll keep watching for opportunities. For now, the metals (and maybe the REITs) seem like the best bets, but they probably need to relax and pull back a bit first. But there is still one big question to be answered, and that involves the tech stocks. How much higher can the market go without the techs? My thinking is not very – so I think the techs are key here. If the techs can get moving, then the move up should be able to continue. If not, I think the upside has to be somewhat limited.

For me, the next few days of posting will likely be sparse and unpredictable, as there will be guests visiting the BMB household – and I suspect they’ll be interested in doing something other than sitting around watching the markets all day…

After market, everyone was chomping at the bit for Google’s earnings. I don’t know what the numbers were, but GOOG closed at 501.50, and is trading around 488 485.

The Fed holds the Fed funds rate at 5.25%. No big surprise there. At all.

The market seems happy with the decision, and the statement, for now, although I have no idea what the excitement would be about. Not much changed, although the vote was unanimous since the lone dissenter in the past is not a voting member at this time.

We’ll see if this little bump in the indices holds into the close.

The weekly inventory data released by the EIA show a build in both crude and gasoline inventories, but a drawdown in distillates:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 2.7 million barrels compared to the previous week. At 324.9 million barrels, U.S. crude oil inventories are above the upper end of the average range for this time of year. Total motor gasoline inventories jumped by 3.8 million barrels last week, and remain above the upper end of the average range. Distillate fuel inventories declined by 2.6 million barrels, but remain above the upper end of the average range for this time of year.

Refineries are operating at 87.1 of capacity. The demand picture looks like this:

Total products supplied over the last four-week period has averaged nearly 20.3 million barrels per day, or roughly the same as averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.1 million barrels per day, or 3.4 percent above the same period last year. Distillate fuel demand has averaged nearly 4.2 million barrels per day over the last four weeks, or 0.7 percent below the same period last year. Jet fuel demand is up 3.6 percent over the last four weeks compared to the same four-week period last year.

A mess. The indices started off a little weak, then got a big jump right around 10:30 ET – the oil inventories, perhaps? Don’t know. The GDP number seeemed good, but the Chicago PMI was not. We’ve got the indices hanging right around the UNCH mark, and A/D lines flat to slightly in the red. The groups are split, with transportation, metals and homebuilders leading the winners, while networkers and disk drives lead to the downside.

Bonds are getting a slight bounce, with yields lower. Energy prices are pulling back from yesterday’s lofty levels. The dollar has tumbled back to flat after gaining a bit overnight. Gold and silver are both higher.

This is rather interesting, and may serve to counteract the seemingly strong GDP number this morning:

A gauge of U.S. business activity in January pointed to a contraction for the first time since April 2003 as orders fell.

The National Association of Purchasing Management-Chicago said today its business barometer fell to 48.8 this month from 51.6 in December. A reading lower than 50 signals contraction.

Chinese markets suffered overnight, when they got their own version of the “irrational exuberance” warning:

China’s leading share index tumbled Wednesday, staging its biggest single-day decline since June, after a senior legislator warned that the market may be overheating after a stunning 130% gain in 2006.

The comments by Cheng Siwei, vice-chairman of the standing committee of the National People’s Congress, in an interview with the Financial Times, raised concerns the Chinese government may take official action to cool speculation after the market hit a record high last week.

The Shanghai Composite closed down 144 points, or 4.9%, at 2,786.33.

The FT cited Cheng as saying he was concerned the stock market was overheating.

“There is a bubble going on, investors should be concerned about the risks… .But in every bull market people will invest relatively irrationally,” he said.

130% gain in a year. Overheating?? Nahhh…

GDP rose at a 3.5% annual rate in the fourth quarter, according to the first stab at the number released by the Commerce Dept. today.

Reaction in stock index futures has been rather muted, but bonds didn’t like the number a lot, moving lower and pushing yields back up. If the stock market had been hoping for a rate cut in the near future, I think that dream is a goner for a while.

Some interesting stuff from “Mr. Practical” at Minyanville today:

The Bank of Japan is a laughing stock. They are inflationists that would make any central banker proud; a country naively being used by others, especially the U.S., to dump liquidity into markets. Yes folks, there is rampant inflation in asset prices. Not only do central bankers of all stripes understate the cost of living, but asset prices like stocks and houses are now in hyper-inflationary territory. Being long assets that are in such a state is like taking a picture of an egg at the height of its toss: it looks fine unless one ponders the inevitable state of it being splattered on the sidewalk. The egg has been going up and up and up and it may go up further, but gravity is doing its work and it will not fail.

In normal times a good deal of market liquidity comes from income and thus savings. Economic production produces excess in certain societies and that excess is saved and invested. A little debt thrown in makes some of those investments happen a little sooner and with a little more return. But that debt is used prudently by those with the brains to have accumulated the necessary capital. Money is precious to them.

But these are not normal times. With GDP growing at 2-3% (I believe this to be overstated) and M3 (broad money) growing at an astounding 13% for the world’s largest economy, we have our first clue that things are not normal. Money is free to any who want to take the risk. When money supply grows you can by definition be sure that debt is growing commensurately. Debt is not used prudently because it is created easily for anyone and everyone out of thin air by central banks. Almost all of the current liquidity is coming from debt creation. This is the definition of inflation.

Go read the whole thing. And thanks to Mish’s Global Economic Trend Analysis – there’s more on the topic over there, including credit expansion and the belief by the global financial elite that it can just go on forever. But we all know that nothing goes on forever…

Update: How timely. Frank Barbera’s wrap column over at FSO today is entitled “The Great Credit Bubble – What Could Go Wrong?” Kinda fits in nicely with this theme, doesn’t it?

And to add to the discussion in the comments section, he says:

Despite all of the imbalances, there is nothing we are more blissfully unaware of than the Great Credit Bubble. Going back over the last few decades, it was the US Dollar and the Federal Reserve Bank that controlled the supply of credit. However in recent years, the emergence of the non-bank financial sectors and the ascent to power by giant Wall Street investment banks has led to a credit boom of unimaginable proportions taking place outside the confines of the traditional banking system. According to the Bank of International Settlements, Total Notional Derivatives grew nearly $72 Trillion dollars in the first six months of 2006. Only a few years ago, that number was less than a few trillion. Similar unrestrained credit booms have also transpired in the markets for Credit Default Swaps, Agency Debt, and Mortgage Back Debt. What used to take several years to accumulate in terms of debt growth, the “system” now tacks on in only a few months. The implications of even “a slowing” in this type of runaway credit growth could imply the potential for a massive financial crisis, the likes of which no country in world history has ever seen.

	It’s hard for me to get too excited about the market as a whole. On the one hand, we’ve got the small-mid cap Russell 2000 teasing new highs (for the fifth time in two months)…
	…but the Nasdaq 100 is still stuck below its flattening 50-day moving average.
	A lot can change in a couple of weeks. Just ask the airlines – from hitting new highs to below the 50-day in 8 days.

Charts courtesy of StockCharts.com

I’m not sure whether today was good or bad. The indices hung onto gains, but the gains came on light volume, and most of the gains were concentrated in the energy/commodity groups as the price of crude oil jumped nearly three bucks.

Is that good news?

Bonds finally eased off the brakes, and yields were nudged back down a few clicks:
6-month: 5.16%    2-yr: 4.96%    5-yr: 4.86%    10-yr: 4.87%   30-yr: 4.98%.

Market internals were positive, with the exception being that volume was a little light on the Nasdaq. Advances/declines were 2 to 1 on the NYSE and 11 to 8 on the Nasdaq. Up/down volume was 7 to 3 on the NYSE and 7 to 4 on the Nasdaq. New highs/lows were 193/18 on the NYSE and 158/37 on the Nasdaq.

Most of the groups were in the green, but the big winners were concentrated in the commodity areas: oil services (3.2%), natural gas stocks (+2.6%), steel stocks (+2.4%), natural resources (+2.0%), oil stocks (+1.9%), commodities (+1.8%), HMOs (+1.5%), telecom (+1.5%) and gold and silver stocks (+1.3%). Airlines (-2.1%) were the big losers.

Energy prices took off, with crude oil jumping more than a buck to $54.01/barrel. Gasoline also jumped 8 cents to $1.52/gallon, and natural gas rocketed to $7.74/mmBTU. The dollar index fell to 84.99. Gold moved up a few bucks to $647/ounce, and silver jumped to $13.32/ounce.

BMB Note: Maybe it does to you, but that big jump in energy prices doesn’t sound like good news to me. The energy stocks might be able to help hold the market up in the near term, but longer term, it’s bad news if prices start cruising higher again.

Today doesn’t change my view much. Light volume action, and there could be a little bit of end-of-month propping up going on. Like the transports today – oil’s up almost three bucks, the airlines are down 2 percent, but the Dow Trannies are up a half-percent? What’s up with that? Not to mention that there aren’t groups breaking out of their ranges yet that are going to look attractive on the long side, although the metals have been very strong. Maybe they’ll look good on a pullback. I’ll wait and see.

Fed day tomorrow. Lots could change. Or we could be tortured by trading ranges from now until kingdom come.

The indices have pulled back from their best levels, as we see another little morning rally start to fizzle. Maybe the $2 jump in oil prices has something to do with that. It certainly has something to do with the outperformance of the energy and commodity stocks today.

Maybe folks are sitting on their hands, waiting for the Fed – but I doubt that the Fed will do or say anything different. So then what?

BMB has talked before about how long this market has gone without a meaningful correction, or even any large moves at all in either direction (and if the early action is any indication, it won’t be happening today, either…).

Barry takes up that discussion at The Big Picture today:

Instructive chart via Tickersense: It Has Been 928 930 days since the S&P 500 had a one-day 2% Decline. They also note that “the Dow Industrials have not had a 2% one-day rally in more than 500 trading days, either.”

Jim Bianco adds: “Not only has the S&P 500 gone almost four years without a 2% down day, it has been seven months since it has corrected 2% at all! This is the second-longest such period in 53 years.”

As Barry says: “These are indeed interesting times . . .”

Once again, not a heckuva lot to talk about. The indices are currrently sporting minor gains, but nothing to write home about. A/D lines are in the green as well. Most groups are also slightly in positive territory for now. Leading the groups up are the metals and energies, while airlines lead a short list of losers.

Bonds are flat to slightly higher. Energy prices are higher, with the dollar flat, gold flat, and silver a little higher.

Not a lot going on. The market looks to be in snooze mode, maybe until the GDP and Fed blabber comes out tomorrow. Who knows?

Check out the chart of homeowner vacancy rates at Interest Rate Roundup:

The Census Bureau just released Q4 data on homeownership and home vacancy rates. The nationwide homeownership rate ticked down to 68.9% from 69% in both Q3 2006 and Q4 2005. Not a big deal, frankly.

What IS a big deal, however, is the ongoing spike in the vacancy rate. A whopping 2.7% of all U.S. homes were vacant as of Q4. That’s up from 2.5% in Q3 2006 and 2% in Q4 2005. Moreover, it’s the highest vacancy rate in U.S. history (the data goes back to 1960).

The homeowner vacancy rate is the proportion of the homeowner inventory that is vacant for sale. The fact so many homes are sitting empty is a testament to the fact that we overbuilt like crazy during the boom.

Thanks to Calculated Risk.

Update: More on the vacancies and tightening lending standards.

	The S&P still has an ‘uptrendy’ look to it. But it has lost a lot of momentum, not gaining any ground since mid-December. Important support is still at that 1405 area.
	A few weeks ago, it looked as though there was no way the market could get into trouble here – after all, look how well the brokers are doing! Well, the picture has changed a little for the brokers since then.

Charts courtesy of StockCharts.com

Oh boy. Another messy, choppy, go-nowhere, tell-us-nothing day for the most part. Oh well. If we always got what we wanted, this trading stuff wouldn’t be much of a challenge now, would it?

The small-cap indices did a little better than the big boys today, and the Trannies got a little help from another drop in oil prices:

Bonds didn’t sell off hard, but were weak enough to spook the market a bit midday, to bump yields up to new multi-month closing highs, with the 30-year bond hitting 5 percent:
6-month: 5.17%   2-yr: 4.98%   5-yr: 4.88    10-yr: 4.89%    30-yr: 5.00%.

Market internals were mixed, but again a little more positive than the indices might indicate, and volume was a mixed bag, ticking up on the NYSE but lower on the Nasdaq. Advances/declines were 5 to 4 on the NYSE and 11 to 8 on the Nasdaq. Up/down volume was 4 to 5 on the NYSE and 4 to 3 on the Nasdaq. New highs/lows were 181/16 on the NYSE and 164/41 on the Nasdaq.

The groups were split between winners and losers. The paper stocks (+2.6%) got a bump on some merger news, and they were followed up by the airlines (+2.1%) and transportation stocks (+1.1%). The losers were led by the gold and silver stocks (-1.8%) and the brokers (-1.1%).

Energy prices were lower, with crude oil dumping more than a buck to $54.01/barrel. Gasoline slid 4 cents to $1.44/gallon, and natural gas fell back to $6.92/mmBTU. The dollar index was pretty flat at 85.21. Gold was steady at $644/ounce, but silver slid 13 cents to $13.13/ounce.

BMB Note: If this is all they can do for an end-of-month markup, then maybe the market really is in a bit of a snit here.

The messy action continues. I don’t like the way the market feels here, but obviously what I “feel” about it doesn’t mean a thing. Technically, support levels are still intact, and until that changes, you can’t count this market out. But you also can’t be betting big on it at this point either – there is a definite trading range that needs to be resolved, one way or the other. Then we can start looking to see where the opportunities might be.

And no, I have no idea when that resolution will take place. Maybe we’ll get a little movement this week, what with earnings news and all. If nothing else, Wednesday might be a little bit interesting with the first look at Q4 GDP in the morning and the Fed statement out in the afternoon. Then again, maybe not!

Anybody have any idea what happened about 45 minutes to an hour ago? A Dow that was up more than 50 points is now in the red, along with the S&P and Nasdaq. A/D lines that were solidly in the green have turned back to flat or slightly red.

I don’t know of any news or anything that prompted the turn. At least, not yet.

That’s where our government is headed. And I don’t think you can count on any of the current crew to try to do anything about it – they’re all busy launching their presidential campaigns, and likely promising even more spending that will make the problem even worse.

If you or I managed our money the way that U.S. government manages our money, we’d be headed for bankruptcy.

Imagine if someone you knew:

• Took on a mountain of debt — to buy a house, say — at a floating interest rate and never bothered to ask if the future payments would be affordable. That’s exactly what the U.S. government does.
• Used his annual bonus to make the down payment on a Porsche Cayenne and never worried that his current spending had created a huge future obligation for years of high payouts. That’s exactly what the U.S. government does.
• Ran up big credit card debt because the money he was saving for his kids’ college education easily balanced out that debt. That’s exactly what the U.S. government does.
• Just kept on spending not only every bit of the monthly paycheck but every dollar that credit card companies and banks would lend, despite knowing that he would have to pay for college and retirement one day. That’s exactly what the U.S. government does.

And then, of course, just like most deadbeats, what does the government do after mismanaging our money? It lies about how bad the problem is and clings to the hope that money will fall from the trees to bail it out.

***

The problem is that the United States has dug itself a huge future hole, one big enough to swallow the entire U.S. government budget by 2030 or so, by piling on future obligations for retirement and health care while hiding from the true costs. By 2030, if you assume that discretionary spending (on things like student loans and aircraft carriers) grows at the same rate as the economy and the Bush tax cuts are made permanent, (comptroller general) Walker testified, government spending on interest on the national debt, Social Security, Medicare and Medicaid would eat up all — yes, 100% — government revenue.

It makes you wonder – just how bad will the crisis have to get before something is done to ‘fix’ it?

So far, a pretty unconvincing nudge higher, but that’s about it. A/D lines are in the green, but volume is very light. In the groups, paper stocks are getting a big bump up (must be some news there somewhere…), with airlines and steel stocks also up. Gold stocks and bank lead the groups slightly in the red.

Bonds are flat, energy prices are mixed, but near flat. The dollar is flat, gold and silver each slightly lower.

Update: Here’s the news that’s driving the paper stocks.

Bill Fleckenstein sees a lot of fluff, and not much substance, behind the ‘forecasts’ coming from some tech companies these days. But he’s not buying the hype (no big surprise there!). On the Texas Instruments recent earnings release:

One would think that when a company such as Texas Instruments misses forecasts badly enough to continue to pile up inventories (as happened throughout last year, as the company failed to anticipate the downturn that’s occurred thus far), that company might have to offer some evidence of why it expects future forecasts to be more accurate.

But that was not the case on its recent conference call. Management, which shocked me at their midquarter update with an accurate assessment of their prospects — what some might call honesty — was back to its usual tactic: fabricating future demand out of thin air. They said: “This thing will turn around quickly,” without offering any data to support their claim. Of course, they weren’t held to any details by the dead-fish community, where some in fact upgraded the stock.

Want to earn 6 percent on your cash? Well, there’s a catch–but HSBC is trying to reel in new money and to do it, they will pay 6 percent.

Their latest deal temporarily gives 6 percent on your cash–through April.

I’m not big on these types of games–those that aleady have an account deserve some kind of “bonus” and they shouldn’t have to put new money in the account to get it. I’m also not big on “temporary” rates–but telling you upfront beats advertising the rate and then dropping it in 3 months.

So if you’ve been looking for a high yield online saving account anyway, this might not be a bad place to start.

	The charts are rarely this obvious. On the Nasdaq, important support at 2390, resistance at 2470.
	On the Russell, support at 768, resistance at 800.

Charts courtesy of StockCharts.com

Do you have what it takes to be a trader? No, not just when times are good – but can you handle the pressure when times aren’t so good?

Paul Farrell tells us that the day-trading frenzy has returned, and that’s not a big surprise considering the rise in margin debt levels we’ve been seeing:

The Los Angeles Times reports that Schwab “averaged 242,300 trades a day the first nine months of 2006. That was up 29% from the same period a year earlier, and a click above its 242,000 peak in 2000!”

Yikes! We’re back above the manic level that pushed us over the edge of the 2000-2002 bear market! Interestingly, the Times’ profiled a guy who quit podiatry school to get rich day trading. Which reminded me of a late-’90s story in Fortune magazine profiling a dentist in his high-tech trading “war-room” next to his dental offices, armed with the three computers and eight monitors he needed to make 200 trades a month.

Déjà vu: This feels like a top, a flashing red neon signal warning us that the insanity of the stock market bubble is back to haunt us. And yet we’re blind to the fact that this is the second longest running bull since 1929. Translation? Statistically it’s time for a correction, folks! Yet we continue living in denial, ignoring history’s lessons!

Farrell goes on to present a 10-question quiz, to see if you’ve got ‘the right stuff’ to be a trader – go check out the article to get the lowdown on his ten points:

In bull markets, like the current four-year run, investors begin thinking they’re “financial geniuses.” Meanwhile, memories of the last bear fade, we forget we lost $8 trillion. In fact, we’re just boats floating in the rising tide of a bull. That’s dangerous because our egos also tell us we can make even more money if we take control. Overconfidence grows near the end of a bull, luring many from the latest crop of “geniuses” into the trading game.

But before you jump on the trading bandwagon, take this psychological test to determine if you’re really got the steely guts of a day trader shorting a collapsing bear market, like 2000-2002. Please, take it before quit your day job and gamble with your family’s retirement portfolio. Give yourself 10 points for every one of the statements you agree with:

1. I have lots of time to track the market and trade.
2. I am very disciplined under pressure.
3. Markets are volatile, but I can handle uncertainty.
4. Breaking news doesn’t distract me.
5. Yes, it’s OK if I lose money.
6. I can even handle losing streaks.
7. I never buy high nor sell low.
8. I can make quick decisions, with no regrets.
9. No, I’m not overly optimistic nor in denial.
10. I can live comfortably on $50,000 a year.

Good stuff. Thanks to Barry at The Big Picture for the tip.