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.

One of the more sane things I’ve ever heard come out the mouth of a Fed-head. Here’s a bite from a speech by Dallas Fed-guy Fisher:

The subprime situation may well be a blessing in disguise. It reminds us that history does have the capacity to repeat itself. The old financial axioms—levelheaded notions such as “know your customer” (or your counterparty) and “there is a difference between price and value”—remain valid. I expect market discipline to reassert itself, swiftly punishing those who pressed the limits of imprudence or suffered selective amnesia, hopefully doing so in a way that staves off the impulse for lawmakers and regulators to interfere disproportionately.

However, I doubt that Congress is listening. I’m sure they won’t be able to stop themselves from interfering ‘disproportionately’.

From Calculated Risk.

	The major indices have moved above recent resistance - but are the big boys backing the move?
	The mid-cap 400 index is now just 10 points off its February highs.
	The biotechs have moved from in the dumpster to new highs in just three weeks. Is that an uptrend or a missile launch?
	China watch: the Shanghai composite chalks up yet another win. That makes it 13 out of 14, and 20 out of the last 23. How will Chinese stocks react to the latest move from their central bank, raising reserve requirements for their banks yet again?

Charts courtesy of StockCharts.com

Just as we suspected would happen, the market just worked its way higher all throughout the day, and the major indices have now nudged up above those resistance levels - but the move comes on the lightest volume trading day of the year:

As stocks edged higher, bonds fell and yields moved up, sending the 30-year to its highest level since Valentine’s Day:
6-month: 5.06%    2-yr: 4.62%    5-yr: 4.57%    10-yr: 4.68%   30-yr: 4.87%.

Market internals were quite positive - but as we mentioned, trading was the lightest it has been YTD. Advances/declines were 3 to 2 on the NYSE and 5 to 4 on the Nasdaq, with up/down volume 13 to 7 on the NYSE and nearly 3 to 1 on the Nasdaq. New highs/lows were 242/19 on the NYSE and 154/49 on the Nasdaq.

Groups were nearly all green, but only a few big numbers: biotechs (+1.5%), which have been on a tear lately, led the way, followed by bounces in the beaten-down homebuilders (+1.3%) and airlines (+1.2%).

Energy prices were mixed for another day. Crude oil dipped to $64.02/barrel, but gasoline moved up a penny to $2.12/gallon and natural gas was up to $7.61/mmBTU. The dollar is finding few friends these days, with the dollar index dropping to 82.72. its lowest level since early December. Gold snuck up another buck to $675/ounce and silver gained 8 cents to $13.67/ounce.

BMB Note: So - is it “make or break” time? The major indices have worked their way up above those mid-March highs, so its all clear for the bulls, right?

It would feel better if there were more volume to the move. Last time we were in this position - post Fed meeting - we had a big rally day followed by two light volume days leaking upward, and gave it all back in a few days.

Hard to say if we’re bound for a retest of the February highs now or not. It could happen. But I wouldn’t be too anxious to be diving into this market head first - I think I’d be wading in on my tip-toes instead. There is still plenty of ugly out there - along with some good too. You have to be choosy, and careful - and it might be wise to “dance close to the door” as they say…

Next week traders should return, and we’ll see what happens. Earnings season gets off to a quasi-official start on Tuesday I think, and we get the Fed minutes on Wed. and PPI on Friday. And don’t forget tomorrow morning is the big jobs report - but there won’t be any markets open for a reaction. Talk about throwing a party and having nobody show up.

Have a great weekend.

The Big Picture ponders the end of double-digit earnings growth. But by the way things have gone since mid-March, the stock market doesn’t believe it.

David Weidner says it’s time for the SEC to crack down on insider trading of M&A deals. On the Compass deal back in February:

The share price of the regional bank at one point topped $66, more than $5 above its already record high. By the end of the day shares were up 7.4% to an adjusted close of $65.96. Compass (CBSS) had a volume of 3.9 million shares - eight times its recent daily volume.

Wire reports in the U.S. said money managers and traders were “hearing” that the company was about to be sold. Sure enough, the next day Compass announced it accepted a $9.6 billion buyout from Spain’s Banco Bilbao Vizcaya Argentaria.

The trading at Compass in mid February underscores an obvious truth on Wall Street. In the world of mergers and acquisitions there are two kinds of people: Those who know and us.

I would agree. But it never seems to stop.

The central bank in China is trying to cool things down a bit and mop up excess liquidity. But that announcement came after the market closed overnight - the Shanghai composite started lower, but finished higher by 0.8%. That’s 20 out of 23…

CNBC is running a segment, and the banner on the bottom of the screen asks the question: “Bad economy good for markets?”

Just remember: in the eyes of Wall Street and the financial media, there is nothing that is ever bad for stocks. They will never tell you to sell your stocks and hold cash or other assets.