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.

Gary Kaltbaum’s column from this morning says there are some things to like about this market. But he remains concerned about the financials:

Many are already saying last week’s better action had all to do with ligh volume pre-holiday trading. To me, it does not matter when something occurs…just that something does occur. There is no law that states markets can’t go down before a holiday.

That all said, do not for a second think we are out of the woods and that we are off to the races. FINANCIALS are still acting poorly…and I promise you that they will need to lift for the market to really get going. This is not out of the question but want to see the evidence. I also want to make note there are still a good many stocks in poor technical shape. This market is far past the point where you can throw a dart at anything. Right now, I am using the 50 day average as support with old highs as resistance. We are going to find out soon which way the market wants to go…and then we get to deal with earning’s season. Can’t wait.

	Bond prices have been falling, and interest rates have been on a steady march higher since early March. Sooner or later, someone is going to start to care - like maybe those that are looking to borrow money?
	Normally, rising yields have been able to help prop the dollar up. But not so this time around, at least not yet. That doesn’t seem like real good news for the greenback, does it?

Charts courtesy of StockCharts.com

Dullsvillle. I had to double check to make sure the holiday week was over, because you couldn’t tell it by watching the market. The majors hung around ground level on wimpy volume and weak advance/declines, while the Transports rode a Buffett bump and a drop in oil prices, and the Utilities continue to ignore rising interest rates:

The bond market is still a story that stocks are trying to ignore. Bonds got dumped today, and sent yields back to early February levels in the case of the 30-year:
6-month: 5.09%    2-yr: 4.73%    5-yr: 4.66%    10-yr: 4.75%   30-yr: 4.92%.

Market internals were mixed up, with weak A/D lines but positive up/down volume - and overall volume barely better than last Thursday basement levels. Advances/declines were just below flat on the NYSE and 4 to 5 on the Nasdaq, with up/down volume 5 to 4 on the NYSE and nearly 3 to 2 on the Nasdaq. New highs/lows were 295/21 on the NYSE and 168/63 on the Nasdaq.

In the groups, metals and mining (+1.5%) just keep rolling, the chemicals (+1.3%) got a boost from Dow buyout talk, and steel stocks (+1.1%) and paper (+1.0%) followed. Banks (-0.4%) remain a sore spot, even as the market tries to hold a slightly positive bias.

Energy prices were lower, with crude oil getting slammed by more than 2 bucks to $61.63/barrel. Gasoline fell a couple of cents to $2.10/gallon, and natural gas slipped just over a nickel to $7.55/mmBTU. The dollar index held onto gains from Friday’s job report at 83.08. Gold slipped back after rising early, finishing near $671/ounce and silver picked up a few cents to $13.70/ounce.

BMB Note: Not a lot of change. The market’s performance was hardly spectacular today, and volume was pretty unimpressive. Hard to get real excited about the broader market, but the metals have been pretty impressive - are they ripe for a pullback?

The bond market still looks like a trouble spot to me. The housing industry has enough problems, and at least for now, it doesn’t look like there will be any assistance on the interest rate front. The 10-year is pushing 4.75% again, and the 30-year is above 4.91%.

For now, stocks are holding up here after last week’s drive higher. But we’re still waiting for some volume to start supporting the move.

No numbers to speak of in the next few days - the next big ‘event’ will be the release of the Fed minutes on Wednesday. That should be mildly interesting - we’ll find out if the market’s interpretation of the Fed’s statement was correct. I figure that part was right and part was wrong. And earnings season gets rolling this week, with the floodgates starting to open up next week. There has been lots of talk about earnings expectations having to be rolled back - we’ll see if that talk is valid or not.

Stock insist on going pretty much nowhere so far today - the major indices are hanging right around unchanged, while advance/decline lines dangle in the red. As we mentioned earlier, the Dow Transports got a bump on the back of the railroads. In the groups, we again find metals and steels leading the way higher, along with the chemicals, which are getting a little help from Dow Chemical buyout talk. Airlines are lower, along with the banks.

Bonds gapped lower, sending yields up once again. Energy prices are flat to lower, the dollar is fairly flat, and gold and silver are higher.

You can thank Warren Buffett for the big pop in the Dow Transports this morning, as it looks like Berkshire Hathaway is ridin’ the rails.

On the downside, you can look at bonds. Friday’s jobs number hasn’t done much for stocks yet today, but it put a pretty big hurt in the bond market, and yields gapped up big this morning. Those rising yields are going to be a thorn in the side of the stock market if they don’t slow down soon.

A big move in the Shanghai composite last night - the index jumped another 2.3%. The $SSEC is now up 15 of the last 16 sessions, and 22 of the last 25.

Many have been warning that China looks a bit like a disaster waiting to happen. Here are Paul van Eeden’s latest comments on the subject:

In the US the question is whether the fallout from the real estate sector is going to materially hurt economic growth or not. Meanwhile, in China, the government is seriously trying to curb speculation and liquidity.

China will raise its banks’ reserve requirements for the third time this year on April 16th. The latest 0.5% increase brings the reserve requirement to 10.5% and comes on top of repeated increases in interest rates as well as curbs on investments in real estate, auto manufacturing and other industries during the past year. Apparently the Chinese government’s efforts to curtail investment growth and speculation have had very little impact.

No wonder. Monetary growth in China, as measured by M2, is running at 17.8% and I bet that M3 growth is even higher. Essentially that means the yuan is losing about 20% of its buying power every year so the only rational thing to do is to spend the money as fast as possible. If you hold onto the currency you lose 20%. If you buy something useful you’ll at least have something useful and if you gamble with the money you still come out ahead as long as you don’t lose more than 20% a year. That is why monetary inflation leads to an increase in the velocity of money and a tendency towards ever more speculation.

Regardless of the rhetoric about prudent monetary policy, management of liquidity and monitoring of debt levels, the bottom line is that the Chinese banking industry is skating on thin ice. Excessive loans for ill-conceived capital projects and an astounding large percentage of non-performing loans simply means extra-ordinary systemic risk for China’s financial system. With its centrally planned government and huge foreign exchange reserves the government could always intervene, and I fully expect it to, but that does not mean the country can withstand an economic downturn and financial meltdown unscathed.

Deron Wagner wraps up his position in few words this morning: “Long Gold, Short REITs, Avoiding Semis”. He has this to say about the major indices:

As for the broad market, we are curious to see how stocks perform when volume returns over the next few days. We simply cannot help but be suspicious of last week’s gains that were attained without the support of institutional buying activity. The S&P 500, for example, has posted gains in each of the past six days, but only two of those sessions were on higher volume. Further, the NYSE volume was below its 50-day average level in each of those six sessions. It’s a similar situation with the Nasdaq. Each of the major indices closed last Friday above their “swing highs” from March that we focused on last week, but not by a wide margin. Stay on your toes!