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.

Deric at TheDOCument.com takes up the Apple iPhone discussion that we started in today’s Chart Chatter:

Research in Motion, on the other hand, set off fireworks by plunging 8%. The slippage was sparked by news that Apple released its new iPhone. The same news sent Apple shares soaring 8% as enthusiasts of the company view the product as the next iPod. The news, in my view, provides opportunity to short both companies. There is no doubt that RIMM’s best days are behind it. Competition has been a long time coming, and the future of RIMM’s financials will be chock full of margin squeezes and write-offs.

Apple is entering the cell phone fray at the market’s peak. A saturated market is evidenced by the troubles recently revealed in earnings calls from Motorola and Nokia. Therefore, it is highly unlikely that the iPhone will provide the same bang to their balance sheet as the novel iPod, and the ensuing disappointment will cause investors to flee. The run-up in AAPL shares is simply a bonus to short sellers… at least those who were not already short!

	Apple stock had a big day on the back of CNBC’s shameless promotion their new product announcements, particularly a new $600 cell phone. Why anyone would pay that much for a phone when most providers just about give phones away is beyond me…
	Apple’s big gain was RIMM’s big loss.
	The telecoms have been one of the stronger groups out there, but have had a rough few days, hurt especially by warnings from Motorola (MOT) and Sprint Nextel (S). (So if MOT and S are having problems selling phones, why should we believe that Apple’s phone will do so well - just because it has an apple logo on it?)

Charts courtesy of StockCharts.com

This market is starting to remind me of a “Weeble” - you know, it wobbles, but it won’t fall down. Of course, it’s not exactly getting up and scampering off either:

Bonds barely budged for another day, and yields were stuck:
6-month: 5.11%   2-yr: 4.79%   5-yr: 4.65%    10-yr: 4.65%    30-yr: 4.74%.

Market internals were pretty mixed up - volume picked up slightly from yesterday’s levels. Advances/declines were about 5 to 4 on the NYSE and just below flat on the Nasdaq, with up/down volume 4 to 5 on the NYSE but 5 to 4 on the Nasdaq. New highs/lows were 153/32 on the NYSE and 87/60 on the Nasdaq.

Group movement was pretty limited, and was split down the middle between winners and losers. The lone ‘big’ winners were the REITs, with a 1.2% gain. On the down side, telecoms (-1.6%), oil stocks (-1.6%), metals and mining (-1.1%) and natural resources (-1.1%) led the way.

Energy prices were mixed once again. Crude oil bounced all over the place, finishing down about a half-buck at $55.64/barrel. Gasoline held steady at $1.47/gallon, while natural gas moved higher, up to $6.63/mmBTU. The dollar index was up slightly to 84.76. Gold was up a few bucks to $613/ounce, and silver had another good day, gaining ground to $12.43/ounce.

BMB Note: Well, it was hard to get much from CNBC today, since they were spending most of their time running Apple infomercials. I swear the SEC needs to do an investigation into the ties between those two organizations…

Not a lot has changed. The market, as a whole, isn’t doing much of anything. Most of the strong stocks have remained strong - in the Dow, we’re still seeing IBM and HPQ hitting new highs. On the down side, the energies and commodities remain weak. So rather than try to trade ‘the market’, you’re better off looking toward those areas that are moving. I got some triggers on a few of the shorts I’ve been looking at (see comments here), so I took a few of those positions today, and will continue scanning for both longs and shorts, although I still feel like the market wants to move a little lower here. But until it does so, you just can’t count on it. We have been seeing morning weakness strengthen as the day goes on, so obviously there aren’t a lot of folks desperate to sell out there. At least not yet.

Weebles wobble…but they don’t fall down.

Gary Kaltbaum, on the rather split action we’re seeing in the market right now:

Wow…loads of crosscurrents to start the year.

Until the DOW, S&P, NASDAQ and NASDAQ 100 break just short-term support or moving averages, these areas keep the benefit of the doubt. We are just continuing to see UNDERNEATH THE SURFACE action that gives us a wake-up call. By itself, an index breaking support is no big deal but when you see a few things happen at the same time…

The UTILITY index broke the 50 day average as well as near -term support.

The RUSSELL 2000, MIDCAP 400 and SMALLCAP 600 broke the 50 day average as well as near-term support…though they did hold nicely on Monday.

HOUSING stocks have all but ended their rally off the lows. They had a series of higher lows going for them…but that is now over and done. As we have told you, we believe the HOUSING problem lasts a lot longer than all the pundits think…including Alan Greenspan who continue to call for a bottom. They have obviously not studied past HOUSING cycles.

WORLD MARKETS were in dire need of a pullback. Not only did they pull back but many markets were hit hard…and a few markets completed what we believe were climax runs…which usually ends a move. A glance at many foreign ETFs show tops and some are already showing breakdowns.

Read the column to find out more about what isn’t working - if you’ve been paying attention, you’ve already got a pretty good idea. But maybe all is not lost:

That’s what is not working…but plenty is still working. In fact, we are seeing good action in a slew of leading growth names. We always like when leading stocks are in gear.

There is more good news in that the NASDAQ/NDX are setting up in a new base. A break above resistance and another leg up ensues. We could not say that at 3 pm last Wednesday as both were in big trouble until the market received a late bounce led by TECHNOLOGY…specifically BIG CAP TECH. There have been times in the past where the “market” got into some trouble…and TECH moved by itself or just outperformed. We believe, until things change, some of these BIG-CAP names can be exploited if they break out of proper bases. Look for a move above 2471 on the NASDAQ and 1825 on the NDX. Despite underlying weakness elsewhere, these breakouts are a distinct possibility.

More discussion on the recent drop-off in commodity prices, particularly crude oil, via WSJ’s MarketBeat blog:

Crude has dropped through what analysts say were key levels around $55 a barrel and sellers have turned up the heat, with the price likely headed to $52 a barrel or lower in the next few days. Of late, crude was already down $1.97 a barrel to $54.12.

The weather isn’t the only reason – although last week’s balmy temperatures in the Northeast, the area of the country that has the most demand for heating oil, certainly didn’t help. Analysts say reduced interest in commodities, in part from fund managers who track key indexes like the Goldman Sachs Commodity Index and others, have pulled back on positions after that index fell 15% last year, the first time since 2001.

***

Despite this, speculation remains very high, according to Merrill Lynch. The firm notes that last year, a basket of commodities that trade on futures markets were priced about 60% higher than commodities that don’t have futures contracts. That difference is down to 43%, “but these data continue to suggest that the speculation in commodities remains quite high relative to history.”

Well, it’s being reduced today. Sell orders increased after oil fell through $55.10 a barrel, according to John Kilduff, analyst at Fimat USA. “There’s no discernable support for several dollars down to $52, $50 a barrel or even $46 a barrel,” he says. By that time, the Organization of Petroleum Exporting Countries may step in with additional cuts in production, as members have frequently stated their preference for oil prices around $50 a barrel. But the oil cartel’s December cuts of 500,000 barrels per day in production does not even take effect until February 1.

Part of the problem, as the Wall Street Journal wrote this morning, is that investors are losing money on every contract right now because future-dated contracts are more expensive than the front-month contract. Speculators are now losing money just by letting oil roll into the next futures contract. With demand not really a problem now, it’s hard to say how far oil will fall before it stabilizes.

Hat tip to Barry at The Big Picture.

Over at ETFTrends.com, Tom Lydon has put together a piece on what to expect from the ETF world in 2007, including the continued outperformance of global ETFs and the emergence of more commodity ETFs and bear market funds.

One the points I found particularly interesting was his description of investors’ likely response to ‘actively managed’ ETFs:

2) Actively managed ETFs hit the marketplace with a thud.

What was billed as the next generation for ETFs will go over like a lead balloon with investors. Active managers have taken a run at actively managed ETFs—and why not? The enormous success of ETFs has active managers scrambling to entice investors back to active management and big expenses. It won’t happen. Why? The whole point of an ETF is to avoid active management and their expenses. ETF investors have come too far—they have stepped out of the frying pan and they’re not treading back into the fire. They may lure some up-until-now active manager devotees, but there’s no staying power. ETFs have their roots in sectors and sub-sectors of indexes.

As such, investors will look to indexes for the benchmarks, not active management. Actively managed ETFs have no track record—no benchmark. There is no guarantee a mutual fund manager can provide performance results with an ETF. And, two-thirds of ETF assets come from institutional investors who are looking to find allocations to specific asset classes that also include targeted industry groups and specific global regions. These institutions know what they’re looking for, and where to find it. They don’t need a manager to do their research.

The folks at ETF Trends do a great job of keeping on top of new developments in the ever-changing world of ETFs. Be sure to check out the site on a regular basis if you’re an ETF investor.

Another rather lackluster open for the market. The majors are showing slight gains, with the Nasdaq and Nasdaq-100 leading the way, but A/D lines are still hovering around the flat line, if not beneath it. The airlines are the only big winners so far, getting another kick from a further drop in oil prices. As for the losers, it’s back down for the energies and commodities at the moment.

Bonds are floating right near the UNCH mark. Energy prices are lower, with oil down below $55/barrel. The dollar is slightly higher, gold a little lower and silver a little higher.