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.

Some good stuff on Gary K’s radio show today (too much for a sound bite) - notes from the IBD / O’Neil folks on yesterday’s follow-through, including some caution that not every follow-through day leads to a bull phase, and that this follow-through came a little soon after the initial drop. Gary also comments on some poor technical action in today’s market - in tech, housing, the brokers, etc. - that isn’t all that reassuring the day after a big move, and that you should take your time trying to wade back into this market.

Here is the link to the MP3 file of today’s show.

We mentioned this last week: Blackstone, the big “private equity” firm, filing to go public.

Are their credit lines drying up or what? If you ask me, I think the whole thing pretty much stinks. This guy says it’s all about ego.

Of course it is. I can understand that. Every time I need an ego boost, that’s what I do - file to go public. Hey, not a bad idea - I could use the extra cash.

	The bond market did a complete about-face today, sending prices lower and yields higher. From these charts, it looks like longer term rates want to move higher.

If you’re looking to be long stocks in this market, these groups look like some of the better places to be:

Charts courtesy of StockCharts.com

Well, that was interesting. The bulls and bears slugged it out pretty much all day, but I’m not sure either side won much of anything. The major indices finished mixed right around the break even point, and advance/declines were just better than flat:

In what was a rather surprising move, to me at least, the bond market completely reversed its gains from yesterday, and sent yields higher than they were before the Fed’s announcement yesterday afternoon. I found that to be somewhat interesting, and I’m not quite sure what was responsible for the move:
6-month: 5.08%    2-yr: 4.58%    5-yr: 4.48%    10-yr: 4.59%   30-yr: 4.78%.

Market internals were mixed, with a lean to the negative side. Volume was about the same as yesterday on the NYSE, but dropped off on the Nasdaq. Advances/declines were flat on the NYSE and 15 to 14 on the Nasdaq, with up/down volume 5 to 6 on the NYSE and 2 to 3 on the Nasdaq. New highs/lows were 221/16 on the NYSE and 154/33 on the Nasdaq.

The groups were split, with the winners confined to the energy space: oil stocks (+1.6%), oil services (+1.5%), natural gas stocks (+1.4%) and natural resources (+1.2%). On the losing side we find the airlines (-2.8%), computer hardware (-1.7%), semiconductors (-1.3%), homebuilders (-1.2%) and networkers (-1.1%).

Energy prices were higher, which is what boosted the energy stocks. Crude oil rose by more than 2 bucks to $61.69/barrel. Gasoline moved back up to $1.96/gallon, and natural gas rose to $7.32/mmBTU. The dollar index bounced back, probably helped by the rise in Treasury yields, rising to 83. Gold held steady at $664/ounce and silver snuck up to $13.40/ounce.

BMB Note: Not a lot to be gleaned from today’s action. Early profit taking was met with buying around lunchtime, and the indices made a run at yesterday’s highs, only to be turned back, but the sellers never got much momentum going in the down direction either.

The ‘rally’ off the lows is still intact, though I still think the indices look a little stretched, having come so far so fast. If you’re looking for strong groups, take a browse through the energies, the metals and the utilities, which are all holding up pretty well.

Tomorrow morning we get the existing home sales numbers - not too sure whether that will be a market mover or not. Have to wait and see.

Some profit taking going on after the big runup of the last few days. The indices are all showing slight losses, A/D lines have turned from green to red, and most groups are in the red as well. Computer hardware, airlines, semiconductors and networkers lead the losers, while energy stocks are still sporting gains. A bit of a concern for some of the bulls has to be that some stocks have already given back all of yesterday’s post-Fed pop, and the indices are hitting new lows for the day as I type this.

Bonds are lower as well, pushing yields back up. Energy prices are higher, crude oil up more than $1.50. The dollar is fairly flat, gold and silver up just slightly.

Deron Wagner says that when it came to the market’s behavior post-Fed yesterday, he was “just plain wrong”:

Fed days are a lot like earnings announcements on individual stocks, only the reaction occurs intraday instead of overnight. No matter how well one might know a company’s fundamentals, the actual reaction to the quarterly earnings releases are difficult to predict. Worse is that high probability chart patterns are often ignored when a stock is reacting to big news such as earnings. Unfortunately, technical analysis also gets thrown out the window on Fed days. Despite the S&P, Nasdaq, and Dow facing a plethora of resistance levels going into the day, the aggressive post-Fed buying spree paid no attention to the technicals. Both the S&P and Nasdaq violently broke out above their 20-day MAs, 50-day MAs, and prior highs from March. The Dow was the only index that closed below its 50-day MA, although it is still well above its prior high from March 12.

With the major indices bumping into key resistance levels from a low-volume rally, we figured yesterday’s Fed meeting would provide the perfect excuse for institutions to resume their selling activities. Obviously, we just plain figured wrong!

So what now?

Now that stocks have followed through on their reversals off the March lows, aggressive short selling is probably a bad plan of action. Conversely, 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. If the market consolidates near yesterday’s highs for the next two to three days or retraces only modestly, we will begin looking for new buying opportunities next week. If stocks can prove that yesterday’s action was not just an aberration, we will certainly respect and participate in the bullishness. But until then, take it easy with new trade entries and don’t attempt to quickly recover any substantial losses you might have sustained by “revenge trading.”