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.

That sure was dull. Yeah, the day ended with a majority of stocks higher, but there just wasn’t much energy to the move. We didn’t get a big volume push into expiration. Even in the commodity areas, which bounced nicely, there wasn’t a great deal of volume. So we’ll just say another expiration day has gone by the wayside. Let’s take the weekend off, and hopefully there will be a little more of interest on Monday:

Bonds dribbled lower, holding yield up near their multi-month highs:
6-month: 5.16%   2-yr: 4.92%   5-yr: 4.78    10-yr: 4.78%    30-yr: 4.86%.

Market internals improved considerably from yesterday. Advances/declines were 11 to 5 on the NYSE and 3 to 2 on the Nasdaq, with up/down volume 11 to 5 on the NYSE and 12 to 7 on the Nasdaq. New highs/lows were 188/16 on the NYSE and 73/57 on the Nasdaq.

Most groups finished in the green, with the energies, metal and commodities leading the pack: oil services (+3.0%), metals and mining (+2.7%), steel (+2.4%), natural resources (+2.4%), natural gas (+2.4%), commodities (+2.1%), oil stocks (+2.1%), gold stocks (+1.5%) and homebuilders (+1.3%). The move down in IBM dragged the computer hardware index down 1.0% to lead the short list of losers.

Energy prices were higher, as crude bounced back to $51.99/barrel, gasoline gained 4 cents to $1.40/gallon and natural gas rose to $6.89/mmBTU. The dollar index dropped slightly, to 84.88. Gold moved higher, to $636/ounce and silver gained 21 cents to $12.81/ounce.

BMB Note: On the surface, today doesn’t look like too bad of a day, but it isn’t exactly a solid recovery from yesterday’s mess, especially in the Nasdaq. Most groups were higher, but volume dropped off quite a bit on the Nasdaq, though it edged higher on the NYSE. It seems that the positive bias is still holding up the Dow and S&P stocks, but the Nasdaq still feels a little shaky.

Even so, we haven’t seen any support levels and/or moving averages taken out, so we continue to wait to see if this market is going to make a statement as to its next direction. In the groups, not much change. The energies still look weak, though they did bounce well today. Is that a start to a bottom being put in, or just a pullback setting up more short opportunities? Only time will tell.

The VIX is headed down the stairs to the basement again, and it hasn’t shown a habit of lingering near 10 for long. Either it will establish a new habit, or we’ll see things get mixed up a bit more next week. I’m inclined to think it will be the latter - maybe that’s just my inner being hoping to see things get a little more interesting.

Snooze-a-rooni.

It appears we’re getting what we feared we might get today - a lot of nothing. The commodity stocks are getting a decent bounce, but that’s about it. The drop in the Dow is all IBM - and the Nasdaq and S&P aren’t budging. Nasdaq A/D line right back to zero.

Come back Monday.

So far, a somewhat typical options expiration Friday. Very little movement in the indices, although A/D lines have climbed into the green and the majors are starting to get off the zero pad. The groups are also easing upward, but not a great deal of movement so far there either. The energies/commodities are getting a bit of a bounce, along with networkers and semis, and IBM is holding the computer hardware index down.

Bonds are lower, pushing yields back up. Energy prices are higher, the dollar is a little higher, but gold and silver are slightly higher as well.

In today’s column, Deron Wagner explains how “technical analysis is nothing more than a way of charting human psychology and emotions”, using yesterday’s breakdown in the SOX as an example.

On the notable weakness in the Nasdaq, and its possible effect on the rest of the market, he has this to say:

Yesterday was the Nasdaq’s third day of institutional selling within the past four weeks, which should serve as a warning to astute traders. As mentioned yesterday, uptrends can reverse in a fast and furious manner when an index sees four or more “distribution days” within a one-month period. Remember that institutional trading accounts for approximately two-thirds of the stock market’s volume on any given day. Therefore, the market will always follow the trend of institutional trading activity. That’s why we pay so much attention to the days in which the market rises or falls on higher volume. “Accumulation days” and “distribution days” are the footprints of institutional activity.

Needless to say, the Nasdaq’s valiant start to the new year is now in jeopardy. The index closed well below the 2,470 support level that we illustrated yesterday, and is once again in danger of breaking below its 50-day MA. The Nasdaq Composite closed only 11 points above its 50-day MA, so keep an eye on that important level today. Downward momentum is likely to be substantial if the index breaks below that level today. So far, the Nasdaq is positioned for a classic failed breakout to a new high. Obviously, the S&P and Dow are holding up much better, but a breakdown in the Nasdaq would inevitably become a major drag on the other indices as well. Remember that the Nasdaq was the only one of the major indices that had broken out to a new six-year high, but now all the indices are back below their December highs (January 3 high for the Dow). The Russell 2000 also closed below its 50-day MA yesterday, which is a negative sign for the broad market as well.

If you’ve been heeding our warnings against aggressively trading during earnings season, you have probably averted substantial losses. But if you are still fully positioned, now is not the time to be a hero. Continue to tread lightly over the next few weeks because a shaky market is more susceptible to news, and there is plenty of that on tap!