Bear Mountain Bull

I’m going to go out on a limb here, and predict that a lot of the catastrophes presented in this article aren’t going to happen.

I’m sick and tired of all the global warming propaganda - and it’s a relatively new fad. Take a look at this article from Newsweek, vintage 1975. Sounds pretty familiar, doesn’t it? Yeah, it sure does. Could’ve been written last week, right? Sure - until you get to the lines that I highlighted:

There are ominous signs that the Earth’s weather patterns have begun to change dramatically and that these changes may portend a drastic decline in food production – with serious political implications for just about every nation on Earth. The drop in food output could begin quite soon, perhaps only 10 years from now. The regions destined to feel its impact are the great wheat-producing lands of Canada and the U.S.S.R. in the North, along with a number of marginally self-sufficient tropical areas – parts of India, Pakistan, Bangladesh, Indochina and Indonesia – where the growing season is dependent upon the rains brought by the monsoon.

The evidence in support of these predictions has now begun to accumulate so massively that meteorologists are hard-pressed to keep up with it. In England, farmers have seen their growing season decline by about two weeks since 1950, with a resultant overall loss in grain production estimated at up to 100,000 tons annually. During the same time, the average temperature around the equator has risen by a fraction of a degree – a fraction that in some areas can mean drought and desolation. Last April, in the most devastating outbreak of tornadoes ever recorded, 148 twisters killed more than 300 people and caused half a billion dollars’ worth of damage in 13 U.S. states.

To scientists, these seemingly disparate incidents represent the advance signs of fundamental changes in the world’s weather. The central fact is that after three quarters of a century of extraordinarily mild conditions, the earth’s climate seems to be cooling down. Meteorologists disagree about the cause and extent of the cooling trend, as well as over its specific impact on local weather conditions. But they are almost unanimous in the view that the trend will reduce agricultural productivity for the rest of the century. If the climatic change is as profound as some of the pessimists fear, the resulting famines could be catastrophic. “A major climatic change would force economic and social adjustments on a worldwide scale,” warns a recent report by the National Academy of Sciences, “because the global patterns of food production and population that have evolved are implicitly dependent on the climate of the present century.”

I wish the propagandists would make up their mind. Was Al Gore in on this one too??

Looking at a slightly longer term view - these are 6-month charts, with the 20-day moving average in blue and the 50-day in red - the picture seems pretty clear. The strongest areas of the market are the Utilities and the Materials…

…with the Energies hanging tough, and having some success in recent weeks.

Looking at the other sectors, it’s obvious that the February selloff did some serious damage, which has yet to be repaired:

The numbers as a rather turbulent first quarter comes to a close:

Charts courtesy of StockCharts.com

The S&P is now ’stuck in the middle’ after an up and down ‘outside’ day - a higher high and lower low than yesterday - but with no progress in either direction by day’s end. The resistance of recent highs is overhead at 1440, and the support of the ‘Fed day’ breakout point is down around 1410, an area which was successfully tested today.

Charts courtesy of StockCharts.com

You just never know what you’re going to get when you combine light volume trading with the end of the quarter. Most likely, you’ll get a pretty confusing mess. I think today - and yesterday - would qualify as such. Stocks started higher this morning, sending the Dow up 70+ points. Things trickled lower, then sold off very hard for about a half-hour, before working their way back up to unchanged - as though none of that had ever happened. I’m not sure what to think when the Dow swings in a range of 174 points, only to finish flat:

Bonds, like stocks, were all over the map today, but finished just slightly lower, moving yields up a few ticks:
6-month: 5.06%    2-yr: 4.58%    5-yr: 4.54%    10-yr: 4.64%   30-yr: 4.84%.

Market internals followed the pattern, first up, then down, finishing mixed. Volume spiked in the last few minutes of trading to move above yesterday’s levels. Advances/declines were about 10 to 9 on both exchanges, with up/down volume was 8 to 11 on the NYSE but 3 to 2 on the Nasdaq. New highs/lows were 147/17 on the NYSE and 116/64 on the Nasdaq.

Even with all the gyrations, group movement was limited and evenly split. Winners were the paper stocks (+1.3%) on the China import duty news) and the REITs (+1.3%). Losers were led by the oil services (-1.3%), oil stocks (-1.3%) and natural resources (-1.0%).

Crude oil backed off after spending much of the morning above $66, finishing down 16 cents at $65.87/barrel. Gasoline fell back a couple of cents to $2.12/gallon, but natural gas was higher, to $7.73/mmBTU. The dollar was sold off on the China trade news, and the dollar index ended lower at 82.93. Gold and silver each edged higher, to $664/ounce and $13.32/ounce.

BMB Note: Not much change today. The ease and velocity of the midday selloff was quite disconcerting (a hint of things to come?), but the market came right back - an indicator of underlying strength, or just some propping up into the end of the quarter?? I guess we’ll find out more over the next couple of weeks, and then we’ll start rolling into earnings season once again. Can’t beat fun.

A bit of pullback in the stronger areas today, namely the energies and utilities. Maybe that will set up some entries in those areas, presuming the moves higher continue despite the weakness in the overall market. In energy, a lot probably depends on what happens with oil prices. If this Iran mess gets cleaned up quickly (who am I kidding?), oil prices will no doubt pull back. But if it doesn’t…well, who knows?

So much for “free trade”:

The U.S. Commerce Department said on Friday it was slapping duties on imports of coated paper from China, reversing a decades-old policy of not applying duties to subsidized goods from non-market economies.

The market is showing its vulnerability again, with the Dow having just sold off more than 100 points in about 10 minutes, before being rescued by the quarter-end tape painters. I wouldn’t be surprised to see today end up back near flat or even in the green, but the next couple of weeks could get interesting.

A rather bizarre turnaround in the Chicago PMI number:

The Chicago purchasing managers index rose to 61.7% from 47.9% in February, the NAPM-Chicago reported Friday.

It was the largest month-to-month gain in the 39-year history of the index. It’s the highest reading since April 2005.

Economists were expecting an increase in the Chicago PMI to about 50%, according to a survey conducted by MarketWatch.

What? Did somebody have a ‘fat-finger’ moment during the data entry?

“We are at a loss to explain this,” wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics. “It is completely inconsistent with other surveys and is most unlikely to be reflected in the national ISM.” He noted that the Milwaukee purchasing managers’ index fell to a four-year low of 52.

Mixed signals abound these days.

Major indices are holding onto slight gains, and A/D lines are holding in the green for now. Not much movement in the groups, however, with the HMOs leading the way, bouncing back a bit from yesterday’s losses.

Bonds are lower, yields continuing to creep higher. Energy prices are fairly flat, the dollar is a little stronger, gold and silver slightly higher as well.

The author of this column at Marketwatch apparently didn’t think the government’s numbers on personal income and spending were all that impressive:

The Fed’s stagflation dilemma is getting tougher. Core consumer prices increased at the fastest pace in six months during February, even as consumer spending slowed to the weakest in six months, according to government data released Friday.

The Fed’s preferred measure of core inflation — the core personal consumption price index — rose 0.3% in February, the biggest gain since August, the Commerce Department reported Friday. Core inflation matched economists’ expectations. January’s gain was revised from 0.3% to 0.2%, softening the blow to some extent.

On a year-over-year basis, core inflation ticked up to 2.4% from 2.2%, moving further away from the Fed’s comfort zone of around 2%. It’s the highest since September.

Overall consumer inflation increased 0.4% in February and is up 2.3% in the past year.

If the inflation news weren’t bad enough, the report also showed that real (inflation-adjusted) consumer spending growth slowed to 0.2%, the weakest gain since August. Spending had risen 0.3% in January.

Consumer spending accounted for almost all the growth in the fourth quarter, but has slowed in the first quarter.

I’m sure there are others who have an entirely different take on the numbers.

Martin Goldberg presents an examination of price and volume over the past few months:

In an ever more sophisticated and complicated universe of technical analysis indicators and models, it sometimes pays to take a step back and utilize the oldest and most effective method of technically analyzing the market. Simply stated, this is an analysis of price and volume. Such an analysis can keep the analyst firmly planted with their mind focused on the cold reality of what is actually taking place in the market. The cold reality of the present is that there is deteriorating action in the S&P 500 in recent weeks and for this reason, traders should probably look for selling opportunities until and unless the current price and volume relationships change.

Dell finds evidence of misconduct in their accounting probe, and Beazer Homes receives a grand jury subpoena regarding mortgage origination.

Techland wasn’t a very happy place this morning, as the disk drives, internets, semiconductors and software all sold off pretty hard before recovering late:

Charts courtesy of StockCharts.com

Some mixed messages today. And it was one of those days where you don’t quite get the whole story by looking at the final numbers. Things looked good out of the gate, then deteriorated throughout the morning, and were looking pretty weak just after lunchtime. But a late afternoon rally pulled the Dow back up into the green, and saved the Nasdaq from finishing in the red. The major indices finished flat to slightly higher:

Bonds were mixed to lower, yields a little higher. Word on CNBC was that the 5-year auction today received a pretty lukewarm reception - weak demand for bonds would keep interest rates propped up:
6-month: 5.06%    2-yr: 4.58%    5-yr: 4.53%    10-yr: 4.64%   30-yr: 4.84%.

Market internals started off strong, looked negative midday, and finished mixed - with the Nasdaq dragging. Volume came in slightly above yesterday’s levels. Advances/declines were 3 to 2 on the NYSE but just below flat on the Nasdaq, while up/down volume was 3 to 2 on the NYSE but 2 to 3 on the Nasdaq. New highs/lows were 148/25 on the NYSE and 88/72 on the Nasdaq.

In the groups, the winners were led by the steel stocks (+2.8%) on merger news and the telecoms (+1.6%) on a big government contract. Also higher were metals and mining (+1.5%) and oil services (1.0%). Leading the losers were the HMOs (-1.5%).

Crude oil prices gained nearly two bucks as the Iran situation lingers on, cruising to $66.03/barrel. Gasoline tagged along for the ride, rising to $2.14/gallon. Natural gas was higher by about a nickel, at $7.61/mmBTU. The dollar index was flat at 83.07. Gold fell a few bucks to $662/ounce and silver slid a few cents to $13.26/ounce.

BMB Note: A pretty back and forth day, but it sure didn’t fix any of the problems that are out there. Today saw considerable weakness in the tech areas, though it didn’t look quite as bad by the end of the day after the late rally (gotta keep things up so they look good at the end of the quarter, you know).

I believe the market remains a pretty dangerous place to be, though we could see a little bounce here after some pretty ugly days. As for me, I’m not sure what action I’ll be taking, if any. On the long side, the metals, energies and utilities remain strong, but I might wait for pullbacks there. Or I may look to probe a little further on the short side, especially if we see a little bounce here. I’ll have to see what the charts look like to see where any opportunities might lie.

Right now, I’m happy to nurse the few positions I have open - and be thankful I didn’t chase last week’s now-all-but-failed ‘rally’…

A bunch of numbers coming in tomorrow, but none of the biggees. We get personal income and spending, Chicago PMI, construction spending and U Mich. consumer sentiment.

Much of the morning’s rally attempt has fallen back, at least from an overall market perspective. Major indices heading back to flat, Nasdaq lower. The NYSE A/D line is still in the green, but the Nasdaq’s has gone negative. The groups have split up, with metals and oil services still higher, but HMOs, disk drives, semis and transports lower.

I’m guessing that oil at $65.69, up $1.60, isn’t helping matters.

Update: Added link to oil story at Marketwatch.com.

Not a lot more than a light volume bounce so far this morning. Indices are showing around a half-percent gain, and A/D lines are well into positive territory. Leading the move are the steel stocks, with the help of the X/LSS merger, metals, telecom and banks. The HMOs are lower.

Bonds are flat. Energy prices are mostly higher - gasoline at $2.09 - the dollar is flat, with gold and silver a little lower.

The last few days of action have done quite a bit to undo the good following last week’s Fed rally. Here’s Gary Kaltbaum on the market’s current ‘condition’:

The market had its first bout of professional selling just five days after a valid follow through. I am afraid this is starting to play out like the other failures…and that’s not good. One day does not kill…but this is after Tuesday’s ugly. I believe any more action like Wednesday kills the rally try. Most major averages have now broke below moving averages but more importantly, I cant begin to tell you how many stocks are in such poor technical shape. When so many stocks are broken, it is very tough for the market to get going. I do need to make note of several things I am seeing underneath the surface.

FINANCIALS continue to act horrid. I do not think the market has any chance when the BANKS, LENDERS, S&Ls and BROKERS are acting so poorly…the BROKERS especially. There is no doubt the BROKERS are a terrific proxy for the market.

RETAIL is now starting to roll over…with many poor individual charts.

Seeing lower tops in many world markets.

The TRANSPORTS ramp and give it all back in 3 days…not good.

Most DOW stocks now topped, toppy or topping.

I suspect we are going to see markets head towards recent lows. At the very least, you should be very wary of the action and stay on the defensive unless we start to see accumulation as well as a plethora of stocks breaking out of bases…which they are not many of.

Deron Wagner is watching some of the commodity ETFs for possible breakouts.

Before buying commodity ETFs like DBC and USO, be aware that dealing with them at tax time is different than it is with ordinary stock trades - I speak from experience. DBC is handled as a trust, and USO is a partnership - both involve Section 1256 contracts (futures) that are entered on form 6781.

DBC sent a pretty clear package with explanation on how and where to put the various data on the tax forms - USO was a little less helpful. They sent just the data and the IRS’s guidelines for dealing with K1 forms, which is about as clear as mud and has microscopic print. You have been warned.

Anyway, back to Deron’s take on recent market movement:

Not only did we see institutional distribution in the market yesterday, but both the Nasdaq and Dow gave back all of their gains from the post-Fed rally that began on March 21. The S&P 500 retraced “only” 85% of its post-Fed gains. In the March 22 issue of The Wagner Daily, I wrote the following: “. . .it may be risky to buy heavily at current levels without first seeing if yesterday’s Fed bonanza was merely an unsustainable knee-jerk reaction.” Usually, a gut reaction to an FOMC meeting will undo itself within two to three days. This time, it took a few days longer. Nevertheless, for all practical purposes, consider the broad market to be back where it was before the Fed fired everyone up. All the major market indices except the S&P Midcap 400 are back below their 50-day moving averages. This has caused the short-term trends to switch from “up” to “down,” which now coincides with the intermediate-term trends as well. The next week should be interesting.

Indeed.

We finally get the last reading on Q4 GDP (until the revisions come out), and the number has ticked up to +2.5%. There are a few clunkers in the report though, that you won’t see in the headlines:

Meanwhile, corporate profits declined for the first time in five quarters, falling $4.9 billion, or a 0.3% quarterly rate, in the fourth quarter, after rising $61.5 billion, or 3.9% in the third quarter.

The pre-market futures were already forecasting a bounce in stocks for today before the number was released, and the GDP plus the initial jobless claims have helped the bullish case for today. Global markets also seemed to hold up fairly well overnight. We’ll see how things play out.

On the GDP front, it will certainly be interesting when the Q1 numbers start rolling in, but we don’t get the first peek until the end of April.

The S&P today joined the Dow and Nasdaq in closing back below its 50-day moving average. This week is both end-of-month AND end-of-quarter - is this the best they can do for “window dressing”?

The brokers were hinting of trouble even before the big drop on Feb 27th. Looking at these charts, prospects certainly don’t look any rosier than they did back then.

Charts courtesy of StockCharts.com

Eeewww. Chalk up another one in the ‘ugly’ column. The bulls tried to rally the market back about 3 times throughout the course of the today, and were turned back each time. The major indices took another hit, and the Transports registered their third straight one-percent-plus down day:

Bonds were mixed, and so were yields - a tad lower on the short end, but higher on the long end:
6-month: 5.07%    2-yr: 4.56%    5-yr: 4.49%    10-yr: 4.62%   30-yr: 4.83%.

Market internals were pretty ugly, and volume picked up from the low levels of the past three days - not something the bulls are happy to see - a clear-cut ‘distribution day’. Advances/declines were near 1 to 2 on both exchanges, with up/down volume near 1 to 3 on both as well. New highs/lows were 113/36 on the NYSE and 95/55 on the Nasdaq.

Poor action in nearly all of the groups, with the homebuilders (-2.9%) leading the way once again. Also rolling downhill were the computer hardware stocks (-1.7%), brokers (-1.4%), semiconductors (-1.4%), banks (-1.3%), retailers (-1.3%), steel stocks (-1.2%), disk drives (-1.2%), internets (-1.1%), HMOs (-1.1%) and transportation (-1.1%).

Crude oil prices gained more than a dollar, and held above the $64 mark at $64.08/barrel. Gasoline slipped by only a penny to $2.06/gallon. Natural gas was higher by more than a nickel, at $7.56/mmBTU. The dollar fell in the morning, then rebounded in the afternoon, sending the dollar index up slightly to 83.08. That didn’t stop the precious metals from gaining, however, as gold moved up a few bucks to $666/ounce and silver gained more than a dime to $13.32/ounce.

BMB Note: We told you we didn’t like the looks of things yesterday, and they certainly look no better today. More weakness in the financial areas, and the real estate areas are a total mess. Another bad day for the retailers - basically, the groups we told you looked bad yesterday all followed through to the downside today. Transports have completely fallen apart over the past three days - I’m sure $64 oil isn’t helping their cause any. And those groups, especially the financials, are not groups that the market can afford to have come apart.

Utilities have held up, and the energy complex still looks fairly strong. Other than that, there is plenty of ugliness to go around out there. The market looks pretty shaky at the moment - enter at your own risk.

By the numbers: tomorrow we get the final reading on Q4 GDP - that was over three months ago, so I’m not sure how much the number means at this point. It sure doesn’t mean a heckuva lot to me. I think the market is indicating pretty well that things are not necessarily in tip-top shape.

Since CNBC ignored the oil inventory numbers this morning, here they are - slight drawdowns across the board:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 0.9 million barrels compared to the previous week. At 328.4 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 declined by 0.3 million barrels last week, and are in the upper half of the average range. Distillate fuel inventories decreased by 0.7 million barrels, and are near the upper end of the average range for this time of year.

Refineries operated at 87.0 of capacity, and demand remains strong:

Total products supplied over the last four-week period has averaged 21.1 million barrels per day, or 2.4 percent above the same period last year. Over the last four weeks, motor gasoline demand has averaged 9.2 million barrels per day, or 1.6 percent above the same period last year. Distillate fuel demand has averaged above 4.4 million barrels per day over the last four weeks, unchanged compared to the same period last year. Jet fuel demand is up 3.8 percent over the last four weeks compared to the same four-week period last year.

You can read plenty of coverage of Bernanke’s testimony - for instance, here’s some discussion at The Big Picture and here are a few excerpts on his comments on housing and his economic forecast at Calculated Risk.

Bottom line? It doesn’t really matter what he says, or who he says it to. What matters to you and your money is what the market is doing, and today (so far) we’re getting some follow-through to the downside after yesterday’s poor action. You’d best stay on your toes.

Another weak start to the day, with the major indices down a half-percent and Transports down a percent, with A/D lines again well into the red. Leading the train down the hill are the homebuilders, airline, retailers, brokers, transports and semiconductors. Bonds are just slightly higher, keeping yields down.

The dollar has been getting smacked down this morning, energy prices are higher, and gold and silver are higher.

And Big Ben begins his testimony on Capitol Hill - his prepared testimony has been released, and the markets don’t seem to like it very much. Lotsa stuff goin’ on…

The headline number on Feb. durable goods is up 2.5%, but you can’t really say that the move is much of a sign of how the “consumer-driven” economy might be doing - ex-transportation, the number was down 0.1%, and here are the items that pushed the number up:

The rise in orders for durable goods was mostly powered by an 88.4% increase in orders for non-defense aircraft, eclipsing a big drop of 60.4% in January. In a similar vein, orders for defense aircraft and parts rose by 29.2% in February after falling by 58.8% in January.

The lousy number for January was revised even lower as well. It’s really hard to get much of a read from this number - as you can see from the numbers above, they can be quite volatile from month-to-month.

Crude oil futures jumped above $68/barrel in electronic trading after the close of regular trading today, on rumors of increased activity in the Gulf region:

Crude touched a high of $68.09 a barrel in electronic trade, more than $5 above its regular-session closing price of $62.93 a barrel. Crude futures were last quoted at $64.48 a barrel.

Phil Flynn, senior market analyst at vice president of Alaron Trading, said a rumor had swept through the market after the close that Iran had attacked a U.S. ship that was engaged in war games in the Persian Gulf. “The U.S. and the U.K. are engaged in war games in those waters so there’s a lot of tension,” said Flynn.

A Pentagon spokesman would not discuss the matter.

“We don’t have anything on that,” said spokesman James Turner. The U.S. has two aircraft carriers in the Persian Gulf, but there have been no reports of hostilities, he said.

As of this writing, crude has settled down, but is still trading just under $64, up from a $62.95 close.