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.

As Mish reports, in the subprime lending fiasco, the “blame game” is in full swing.

In my opinion, there’s plenty of blame to go around. But the bottom line is that as long as everyone was making money, no one cared at all how it was being done. Does anyone bother with oversight and/or regulation when things are going well? Of course not. No one is going to step in and take away the punch bowl when the party is in full swing. It’s only when things start falling apart that people act surprised.

Same thing happened back in the dotcom days, same thing happened with Enron, Worldcom, etc. Same thing will happen over and over again, because when it comes to a choice between stepping up to real responsibility and the appearance of economic prosperity, those appearances win out every time - especially when it comes to Wall Street, our politicians and the Fed.

And everytime it happens, we’ll pay a significant price in the aftermath. This time will be no different. But they’ll never learn.

	The S&P took out last week’s lows, but then rebounded to close above them. Will a new trading range start to form here? Whatever happens, there is some overhead resistance between 1390-1410 that will have to be overcome in order to work back above this week’s highs.
	Everyone’s former darling, Google, spent four months putting in a big top above last October’s gap, is now spending time filling in that gap, and has spent all of February and March below the 50-day moving average.

Charts courtesy of StockCharts.com

Stop the boat. I wanna get off - I think I’m getting seasick.

A pretty wild ride for stocks today. An early bump up, a huge move down, taking out last week’s lows, then a sharp rally up, a droop in the last half-hour, and a bump up into the close. All of that bouncing around left most of the major indices with a slight recovery from yesterday’s washout:

Bonds fell slightly, bumping yields up:
6-month: 5.09%    2-yr: 4.55%    5-yr: 4.44%    10-yr: 4.53%   30-yr: 4.69%.

Market internals were positive, a huge improvement over yesterday’s disaster. Volume increased over yesterday’s levels, but since we had both a market swoon and a slapback rally in the same day, I’m not sure what the volume is telling us, especially since the rate seemed to be pretty steady throughout the day. Advances/declines were 11 to 8 on the NYSE and 10 to 9 on the Nasdaq, with up/down volume 13 to 7 on the NYSE and 8 to 3 on the Nasdaq. New highs/lows were 48/94 on the NYSE and 48/174 on the Nasdaq. Notice how the poor market action of the past couple of weeks is now producing more new lows than new highs.

Most groups finished in the green, and some put in decent numbers: steel stocks (+2.9%), homebuilders (+2.5%), metals and mining (+2.2%), networking (+1.7%), computer hardware (+1.4%), natural gas (+1.4%), brokers (+1.3%), computer tech (+1.3%), paper stocks (+1.3%), biotechs (+1.2%) and oil stocks (+1.2%). The airlines (-0.7%) led a short list of losers.

Energy prices were mostly higher, with crude oil up to $58.16/barrel, gasoline holding at $1.93/gallon, and natural gas up to $7.08/mmBTU. The dollar index bounced around and finished a little lower at 83.66. Gold is still holding firm near $645/ounce and silver recovered a bit to $12.81/ounce.

BMB Note: Wow, that was a wild one. I guess you’d have to say that volatility has picked up, eh?

I’m not surprised that the market bounced back a bit after the wipeout yesterday, but the manner in which it happened was anything but predictable. The majors took out the lows of last week pretty convincingly, but then rallied right back, closing back above those lows. Maybe the market will dig in its heels here, maybe not. But there’s an awful lot of work to do to make me start feeling good about it. Maybe today’s reversal will mark a short term low, maybe a longer term low - who knows? But I’ll remain on the extreme defensive for now.

Hold onto your seats. The ride might continue to be a bit bumpy. The PPI and Philly Fed reports come out tomorrow, with CPI on Friday, and it’s options expiration week. Sometimes expiration tends to quiet things down into the end of the week - we’ll see if that holds true this month.

Watching today’s action, it’s no wonder that people speculate on the activities of the “Plunge Protection Team”. Less than an hour ago, the major indices took out last week’s lows with vigor, sending the Dow down about 140 points on the day. But then the Dow rallied up more than 100 points off those lows in probably less than 20 minutes.

You tell me how that happens.

A mixed report from the DOE on petroleum inventories, with a build in crude oil but a decline in gasoline and distillates:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.1 million barrels compared to the previous week. At 325.3 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 dropped by 2.5 million barrels last week, and are in the upper half of the average range. Distillate fuel inventories declined by 2.8 million barrels, and are also in the upper half of the average range for this time of year.

Refineries operated at 85.6 percent of capacity, and demand shows no signs of slowing:

Total products supplied over the last four-week period has averaged 21.5 million barrels per day, or 5.3 percent above the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.2 million barrels per day, or 2.8 percent above the same period last year. Distillate fuel demand has averaged 4.6 million barrels per day over the last four weeks, or 5.5 percent above the same period last year. Jet fuel demand is up 4.7 percent over the last four weeks compared to the same four-week period last year.

A rather lackluster as the market remains a little battered and bruised. The majors have been bouncing around above and below the flat line - currently above, but with A/D lines slightly in the red. More groups are showing gains than losses, with the bigger winners being in the commodity areas - steel, metals and oil services. Retailers lead the losers at the moment.

Bonds are just slightly lower, yields up a few bps. Energy prices are slightly higher following the weekly inventory report. The dollar is fairly flat, gold and silver a little higher.

Today’s Dilbert cartoon.

Gary Kaltbaum thanks everyone for all their “help” when it comes to the crumbling housing/lending market:

US House panel’s Barney Frank says he plans legislation to restrict subprime mortgages. That’s great. What great timing! The market itself has already put the business into a coma…and now let a politician pull the plug. Barney Frank…aka Herbert Hoover may just cause a severe dislocation if he moves forward with this.

Senator Dodd says Senate weighing aid to 2.2 million subprime borrowers. That’s great. 2.2 million subprime borrowers take loans they should never have taken…and now let’s turn them into victims.

I just love when our politicians get involved after problems already have occurred. Where was Greenspan, Bernanke and the rest of the regulators while all this lax lending was going on?

“U.S. Mortgage delinquencies, foreclosures rise in Q4 2006 vs prior quarter and year ago”, according to MBA…hey thanks.

“Late payments rise for all loan types but driven mainly by subprime and FHA loans”…hey thanks.

MBA says “delinquency rates rose in 49 states in Q4; foreclosure inventory rates grew in 44 states”…hey thanks.

MBA says to “push back forecast for housing market to regain footing to end of 2007 vs middle of year”…hey thanks.

MBA says “subprime borrowers more vulnerable to higher interest rates, slower home price gains or price drops”…hey thanks.

MBA says “U.S. mortgage delinquency rate 4.95% in Q4, up from 4.67% in Q3 and from 4.70%P in Q4 2005″…hey thanks.

Isn’t it great to know there are now problems after things have already cracked wide open?

And if I hear one more bottom call for the HOUSING market, my head will explode.

Gary, you should probably grab some of Glenn Beck’s duct tape for that head of yours.

On yesterday’s move down in the markets, Gary isn’t sugar coating the message:

The market has voted. A high volume drop and a low volume bounce has led to another high volume drop. This is a classic MARKET TOP that will lead to lower prices. Do not be confused. You will get zero help from Wall Street as they will remain in “don’t worry…everything is ok” mode. Everything is not ok. This is classic bear action of unknown price and duration. Please keep in mind that the top was only 2 weeks ago. It has amazed me how we have already heard many cries of a market bottom after only 2 weeks. In my studies of tops, bear phases last months…not weeks. I expect lower prices…at a minimum, major indices will go down to their longer term moving averages…which is just a few percent away. A break below…and who knows…we then get into bear market no man’s land. Just remember, bear phases do happen. Most will tell you to sit. I don’t believe in sitting as we all know what type of damage bear markets do to your wallets.

We all hope you’re listening.

This morning, Deron Wagner looks at support and resistance levels on the three major indices. On yesterday’s action, he has this to say:

Yesterday’s market action was a clear example of what we have been warning about since the beginning of last week’s bounce. When a market that has broken major support eventually attempts to bounce, its “up” days must also coincide with increasing volume in order for the gains to hold. But when the “up” days exhibit successively lighter volume every single day, we cautioned that a single day or two of higher volume selling (”institutional distribution”) can erase the entire short-term uptrend. This is what occurred yesterday.

When it comes to looking forward, Deron tells you what he thinks, but reminds you that his opinion does not matter:

Personally, I think the market still feels quite heavy and could easily collapse below its March lows. HOWEVER, don’t forget that the stock market doesn’t care, nor has it ever cared, what I, or any other trader, thinks it will do. In other words, remember to trade what you see, not what you think! Continue trading on the short side, following the current trend, until the market gives us a reason not to. If you’re not comfortable with short selling, we suggest you wait patiently on the sidelines, preserving capital, locked and loaded with cash reserves.

Good advice.

Follow-through in global markets to the selloff here in the US yesterday - many Asian markets down 2-3%, European indices down 1.5-2% today as well.