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.

Mike Shedlock says that there was ‘near panic’ in the Fed statement today. And we finally get a clear admission from a central banker (not a US one - I’m not sure you’ll ever get that, not even in Uncle Al’s memoirs) that these bubbles are created intentionally:

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee “did not have much of a choice” as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to “sort out” the problems he had caused.

I’m not sure at what point in time it was decided that recessions, or even simple economic slowdowns, had to be banished from the earth. The way I see it is that you might be able to avoid a severe recession if you’d just allow a slowdown to take place now and then. You know how earthquakes are worse after the pressure on the fault builds for a long time? You get the picture.

Remember “economic cycles”?? They’re not bad things - they’re normal!! Let them happen, just like you have to let the weather happen. As Mish concludes:

Heaven forbid! “A recession?” The lengths that central banks are going to avoid a recession are staggering. And each attempt to prevent said recession adds more and more and more to consumer debt. The hangover from this long running party is going to be the worst since the great depression. But who cares now? For now, the only discernible message from the Fed was “Party On Dudes”. No one could hear the panic in their voices when they said it.

That’s assuming that the party ever stops. With fiat currencies running rampant, who knows how many asset bubbles can be created, and for how long?

Mish gives his own interpretation of the Fed statement. And Barry joins in and gives us his take on what they really wanted to say over at The Big Picture.

	While everybody else was buying up stocks following the Fed release, currency traders were selling dollars, big time. This is a 15-minute chart of the US Dollar index, with today’s action on the far right. Can you tell when the Fed announcement came out? Yup, the Fed sure has got these guys convinced they’ll hike rates and ‘fight inflation’. You betcha.
	Not so fast. Motorola stock got a nice little pop yesterday, but I’m not sure that party is going to last. Today after the bell, Motorola warned of a loss of 7-9 cents/share in the coming quarter, compared to expectations of a 17 cent profit. Ouch. Stock is trading back down near 17.70 in after-hours.

Charts courtesy of StockCharts.com

BMB offered this comment in an earlier post, but it sounded so good to him that he demanded it get a post of its own:

The Fed has some big problems when it comes to inflation: 1) They’re the main cause of inflation via their money printing presses. They know it, and everyone else knows it - and we all know that they’re not going to stop printing money and let the economy slide into the dumper if they can help it. 2) When it comes to their ‘inflation fighting’, they’re all talk and no action - and everybody knows that too. For years, the market has been taking advantage of the fact that if anything in the economy so much as even burps, the Fed will come running to try and clean it up with more money and lower rates. And until the Fed stops that cycle, it will have more inflation, more asset bubbles to deal with, and zero credibility.

All of the markets just basically laughed right in the Fed’s face today - stocks, bonds and currencies. All of them.

	Both the S&P and Nasdaq blasted back above their 50-day moving averages today…
	…but the Dow bounced off its 50-day and closed just below it.
	Volume picked up on the Nasdaq. Was it better than average? You be the judge.
	And in all honesty, I would have expected a better-than-lukewarm reception on the NYSE for a 160-point up day in the Dow. But it is what it is.

Charts courtesy of StockCharts.com

Somebody help me out here: two meetings in a row, the Fed does nothing, doesn’t surprise much with their statement - as a matter of fact, today’s statement was much more hawkish on inflation than everybody expected - but the market takes off like they said they were going to mail everybody a check for 50 grand.

Sometimes I just don’t understand what makes things tick around here. I wonder if I’ll ever figure it out:

I guess the bond market didn’t take the Fed’s inflation worries very seriously, as bonds turned around midday and moved higher, pushing yields down:
6-month: 5.07%    2-yr: 4.53%    5-yr: 4.43%    10-yr: 4.54%   30-yr: 4.72%.

Market internals were, of course, positive. Volume was much better than it has been - not exactly impressive, in my opinion, but more in line with recent averages. Advances/declines were 4 to 1 on the NYSE and 14 to 5 on the Nasdaq, with up/down volume 9 to 1 on the NYSE and 17 to 2 on the Nasdaq. New highs/lows were 239/19 on the NYSE and 131/50 on the Nasdaq.

No losers today. The brokers (+3.6%) led the train, followed by the homebuilders (+3.4%), airlines (+3.0%), gold stocks (+2.8%), steel stocks (+2.7%), biotech (+2.7%), computer hardware (+2.6%), metals and mining (+2.4%), software (+2.4%), banks (+2.4%) and disk drives (+2.2%).

Energy prices were mixed: the new front-month crude oil contract finished the day at $59.61/ounce - that’s nearly 3 bucks higher than the April contract close yesterday. Gasoline fell a couple of cents to $1.93/gallon, and natural gas was higher by almost a quarter to $7.16/mmBTU. Currency traders also weren’t threatened by the Fed, and the dollar got smashed, sending the dollar index down to 82.79. That sent gold up to $664/ounce and silver to $13.33/ounce.

BMB Note: Well, is this the ‘follow-through day’ we’ve been waiting for? Probably. The price movement was likely large enough that I would imagine that the rather average volume performance will be overlooked by the IBD folks.

So where do we stand now? Just a week ago we were saying things were very oversold. I’m afraid I have to look at things now and say they’re very overbought, at least in the near term. Maybe the huge volatility we’ve seen over the last few weeks will settle down and we’ll see some leadership emerge to take us back to new highs. Who knows? Then again, this could end up just being a big retracement of the initial move down, only to fizzle out in the weeks ahead.

I don’t know what I’ll do. But I’m pretty sure that I’ll sit back and see if things don’t calm down a bit - maybe the picture will get a little clearer. Ok, probably not.

No change in rates from the Fed, but the statement clearly focused in on inflation issues. Of course, the Fed can look in the mirror to find out what’s responsible for the continued rise in inflation, but they make believe they don’t know that.

Stocks have popped higher following the announcement. I think stocks were ready to pop no matter what the Fed said.

Geez, I wrote this about an hour after the market opened, and forgot to hit the ‘publish’ button. Oh well - it still isn’t that far from the truth - the markets are just a tad bit more positive than they were early this morning, but still seem awfully ‘on edge’ going into the Fed announcement. I’m not sure why that would be, since I don’t think there’s much doubt about what will happen, but that’s the sense I get:

A lot of dancing around before the Fed meeting, but nobody is getting very far - although the market feels just a little bit ‘heavier’ than it has the last few days. Major indices are all huddled around the UNCH mark, with A/D lines straddling the flat line and groups split between winners and losers. Oil services and the metals lead the winners, with paper stocks leading the losers.

Bonds are slightly lower, yields up. Energy prices are near flat - but just as we told you, crude oil is back above $59 as the ‘front-month’ contract rolls over. The dollar is flat to higher, gold and silver near flat as well.

Deron Wagner is still on the fence as to which way the market is headed, and he’s watching the major indices as they approach their 20-day moving averages. On the lack of volume:

Can you guess what was once again missing from yesterday’s rally? Disappointing turnover once again failed to confirm the gains. Total volume in the NYSE only declined by 1%, but remember that the previous day’s level was already the second lightest day of the year. Volume in the Nasdaq increased 3% over the previous day’s level, though it was still well below average. Most likely, we will begin to see the return of institutional trading activity after this afternoon’s Fed announcement on interest rates. However, the big question is whether they will join the party and run stocks higher or sell into the strength of the short-term bounce.

He’s watching the action near the moving averages pretty closely - check the column for the charts:

It’s common for stocks and indices to close above their 20 or 50-day moving averages (in a downtrend) or below them (in an uptrend) for one or two days before reversing. Often, the resumption of the primary trend (down in this case) comes only after many investors are fooled into believing a trend reversal has occurred. Causing enough buying pressure for an index like the S&P to close above its 20-day MA for a day or two usually does the trick. As you might recall, this is what occurred during the broad market’s last substantial correction from May - July of 2006…the S&P 500 closed above its 20-day MA for exactly one day (June 2) before swiftly reversing and subsequently taking out its prior low. Obviously, it’s impossible to know if this same scenario will occur again. However, the continuation of bearish price to volume patterns have increased the likelihood of another move lower before going much higher. Today should be very interesting because the major indices have run into their 20-day moving averages at the same time the Federal Reserve Board will be releasing their highly anticipated update on economic policy. We expect a strong and immediate reaction either way, as current levels are just too pivotal for there not to be.