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.

	The Nasdaq 100, after looking a little sickly a couple of weeks ago, has had a nice run. But that still hasn’t taken it up and out of its 2-month trading range.
	The small-caps still don’t look so good.
	The brokers have been looking pretty strong, with AGE, BSC, GS, LEH and MER all reaching to new highs.
	With oil prices dropping to new 19-month lows, and the airlines stocks doing well, why can’t the Transports get going?

Charts courtesy of StockCharts.com

The schizoid market continues. Things may be going well for you, things may be going horribly - it all depends upon where you’re sitting. The market started off somewhat poorly again, but some areas firmed up and led the market back in to positive territory - well, about half of it, anyway:

If we look at how a few of the other major indices fared, we get a pretty mixed picture of the action, with the NYSE Composite losing 0.23%, and the S&P 100 and Small Cap 600 both flat.

Treasuries were lower, and yields nudged upward:
6-month: 5.12%   2-yr: 4.81%   5-yr: 4.67%    10-yr: 4.69%    30-yr: 4.77%.

Market internals sent mixed signals again, as did volume: volume picked up slightly on the Nasdaq, but backed off a bit on the NYSE. Advances/declines were fairly flat on both exchanges, but up/down volume ran 7 to 5 on NYSE and almost 3 to 1 on the Nasdaq - indicating that much of the activity was concentrated in a small number of stocks. New highs/lows were 146/25 on the NYSE and 91/66 on the Nasdaq.

The groups saw more winners than losers. Airlines led the way (+2.7%, more buyout talk, in combo with lower oil prices), followed by semiconductors (+1.8%, riding the 2-day iPhone wave), computer hardware (+1.6%), REITs (+1.3%), metals and mining (+1.2%, helped by Alcoa’s earnings) and brokers (+1.1%). Energy and commodities led the losers again: oil stocks (-1.7%), oil services (-1.3%), natural resources (-1.1%) and gold and silver stocks (-1.1%).

Energy prices continue their divergent ways. Crude oil is still sliding, dipping to $54.02/barrel, and gasoline dropped 4 cents to $1.43/gallon, but natural gas was higher again, up to $6.76/mmBTU. The dollar index continued its rebound, moving up to 85.10. Gold slipped a couple of bucks to $611/ounce, and silver dropped about a dime to $12.32/ounce.

BMB Note: Good market? Bad market? I think we’ve got a little of both. The meltdown in energy stocks continues, but the metals caught a bit of a break today on the Alcoa news. The techheads had another happy day today, driving up a few stocks alongside Apple, but how far can one phone announcement carry a market? Brokers and gaming stocks hit new highs, but the tape remains pretty split. Note: advance/decline lines finished right near the zero mark. Granted, it’s good news that the A/D lines came up from being deep in the red, but not everybody is participating. As a matter of fact, with the energies in their own private bear market, you almost have to think that there is less participation than there was before.

The major indices remain pretty entrenched in their trading ranges, and the Nasdaq / Nasdaq-100 have worked their way back toward the top of their ranges after peeking through the floor recently - but the small-caps aren’t playing along. In the groups, while a few groups are sneaking higher and the energy/commodity groups are getting crushed, many groups remain stuck in their sideways patterns.

BMB got some nice follow-through on his short positions in the energies today - we’ll see how far that goes. As for longs, I’ll have to see what I see, but I think I’d rather see a little more convincing breakout action and then examine pullbacks from there. I don’t like to get too excited when the A/D lines can’t get above zero. And so we take it one day at a time.

Oh yeah, we’re getting into earnings season, and next week is options expiration. Just to keep things interesting.

At the Finance Trends Matter site, David’s got another announcement of changes in a commodity index, this time the Dow Jones-AIG index. He quotes from the Financial Times:

Base metal prices extended their slide, with nickel and zinc prices falling after an announcement by Dow Jones that it is adjusting the weightings of the 19 futures contracts in its Dow Jones-AIG Commodity Index. It said nickel would be cut to 2.7 per cent from 5.7 per cent and zinc would be cut to 2.8 per cent from 4.9 per cent.

Dow Jones said it would boost the weighting of US natural gas to 13 per cent from 7.3 per cent. The company rebalances its benchmark commodity index at the start of each year. Historically it reduces the weighting of the best performing commodities from the previous year, and increases the weighting of underperforming commodities.

According to the weekly data provided by the DOE, crude oil inventories dropped last week while gasoline and distillate inventories increased:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 5.0 million barrels compared to the previous week. However, at 314.7 million barrels, U.S. crude oil inventories remain above the upper end of the average range for this time of year. Total motor gasoline inventories rose by 3.8 million barrels last week, and are near the upper end of the average range. Distillate fuel inventories rose by 5.4 million barrels, and are above the upper end of the average range for this time of year.

Refineries were operating at 91.5% of their capacity. Demand seems to have lightened up a bit, at least in the YOY comparisons:

Total products supplied over the last four-week period has averaged 20.4 million barrels per day, or 4.2 percent less than averaged over the same period last year. Over the last four weeks, motor gasoline demand has averaged 9.3 million barrels per day, or 0.8 percent above the same period last year. Distillate fuel demand has averaged 4.2 million barrels per day over the last four weeks, or 2.6 percent below the same period last year. Jet fuel demand is down 8.8 percent over the last four weeks compared to the same four-week period last year.

Crude oil prices were already tumbling this morning, so I’m not sure how much this data has affected prices. Crude dipped well below $55/barrel once again, but has now snuck back up to right around that level.

Another rather mixed opening, with the majors all hovering right around the UNCH line. Advance/decline figures remain solidly in the red, however, and there are more groups down than up. Airlines lead the upside on a further drop in oil prices, while, as you might expect, the energies lead the losers.

Bonds are slightly lower, yields up. Energy prices are lower, with crude oil leading the way. The dollar is slightly higher, gold and silver lower.

Deron Wagner recognizes the choppy trading environment of the new year thus far:

If you’re a trend trader who has been actively trading the markets over the past week, I’m confident you would agree that profiting from either side of the market has been challenging. Since the new year began, there has been a whole lot of intraday volatility, but little price movement by day’s end. The S&P 500, for example, has whipped around in a 1.8% range over the past five days, but is only showing a price movement of 0.4% (lower) since the start of January. This erratic action has resulted in many traders getting stopped out of both long and short positions, only to see their stocks and ETFs reverse in the proper direction a few hours later.

And he’s expecting some movement to take place soon. The question remains: which way?

We expect both the S&P and Nasdaq to make substantial, momentum-driven moves over the next several days. A break of their 50-day MAs (which converge with their January lows) would probably result in a rapid downward thrust. On the other hand, an intraday probe below the 50-day MAs could just as easily trigger a wave of institutional buying. Because of these indices sitting at “make it or break it” levels, we continue to recommend caution and reduced share size with all new positions. Now that earnings season is underway, the reaction to the numerous corporate report cards will be the driving factor that determines which direction the broad market goes. Be careful out there and remember to always trade what you see, not what you think!