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.

	The major indices wobbled today, but found support at the recent breakout point.
	China watch — Shanghai composite index up yet again overnight. That’s 17 of the last 18, and 24 of the last 27. It will be pretty interesting to see how the Asian markets react to a little selling here in the U.S.

Back here at home, the banks are still a nasty bruise on the market’s skin. This is not pretty stuff, so if you get queasy when you see ugly charts, you might want to look away (and you’d better avoid RIMM’s after-market chart as well):

Charts courtesy of StockCharts.com

RIMM, one of the current market ‘leaders’, reported earnings after the bell, and looks to have come up light on revenue and a penny short on earnings.

The stock is getting plastered in after-hours trading - at 136.20, after a 146.02 close.

Ouch.

We wanted a little movement, and we got it. Ok, so it maybe wasn’t in the direction the bulls may have wanted it, but it was movement nonetheless. And the Dow blew its chance to put in 9 straight up days for the first time in over 10 years (I think, if I read CNBC’s stats right). Oh well.

The market started out weak, bounced back a little by lunchtime, then sold off pretty well after the Fed minutes were released, and recovered off the worst levels by the close. But that left all the major indices in the red, and gave back 3-4 days worth of gains:

Bonds were getting a bit of a bid in the morning, but turned lower after the Fed minutes were released, and yields moved higher:
6-month: 5.09%    2-yr: 4.72%    5-yr: 4.65%    10-yr: 4.73%   30-yr: 4.91%.

Internals were negative, and an uptick in volume gave us our first ‘distribution day’ in a while. Advances/declines were 1 to 2 on both exchanges, with up/down volume 1 to 2 on the NYSE and 3 to 8 on the Nasdaq. New highs/lows were 182/28 on the NYSE and 109/73 on the Nasdaq.

Not much green to be found in the groups today: airlines (+0.5%) managed to hold up fairly well. The losers were led by the homebuilders (-1.8%), REITs (-1.6%), semiconductors (-1.1%), internets (-1.1%), metals and mining (-1.1%), and defense stocks (-1.0%).

Energy prices were mixed. Crude oil gained another 20-odd cents to $62.05/barrel, and gasoline ticked up to $2.15/gallon, but natural gas slipped 7 cents to $7.83/mmBTU. The dollar index was flat at 82.65. Gold was also steady at $677/ounce but silver slid a few cents to $13.80/ounce.

BMB Note: The morning started off weak, so I wasn’t shocked to see the market sell off further once the Fed minutes were out. What does frustrate me is times like these when the market “acts” surprised by something.

C’mon gang. The Fed’s worried about inflation (or at least, they want you to think they are). Surprised? They tried pretty hard to tell everyone that in the last statement - the market just didn’t want it to be true. And is anyone really surprised to hear that they’re concerned about economic growth? Everyone and their mother knows that growth has been slowing, and the leading economic indicators have been down, what, 6-7 months in a row now? No playing dumb.

So, since all of this was known, the real question isn’t ‘why did the market fall today’, but rather, ‘why has the market been going up in spite of this’? I guess it goes back to “the market will do the obvious thing in the most un-obvious manner…”

The bad news is that stocks fell rather hard today - the good news is that the major indices held support at the recent little ‘breakout’ levels of last week. We’ll see how things hold up as we move forward, with PPI coming up Friday, CPI next week, and tons of earnings reports flowing in.

In the groups, real estate remains a total mess. The homebuilders continue to dive, and today the REITs fell back again, making it look like they’re going to have a very difficult time making a comeback. Most groups gave some back today, including the energies and the metals. A lot of stocks in those groups had gotten a little stretched - the question for now is whether a pullback is underway or whether tops will start to form in those areas. Only time will tell us that answer.

Bottom line is that you must remain very careful around this market. If you’re riding winners, stick with them, but you’ll need to be pretty choosy about entering new positions. Certainly not everything is working at this point, and some of the things that are working could stop working at any time.

The minutes of the last meeting are out, and don’t offer a lot of help to either side, as the Fed recognizes the risk of higher inflation as well as risks of lower growth.

As Steve Liesman said on CNBC: “I don’t know how you trade lower growth and higher inflation.”

Neither do I. The market’s initial reaction was to head lower.

The early weakness has increased a bit - higher volume on the ‘down’ day so far, a sign of a little distribution taking place.

Keep an eye out this afternoon when the Fed minutes are released at 2:00 ET. A bad reaction to the content of those minutes could increase the selling pressure.

The weekly report from the DOE shows a slight build in both crude oil and distillate inventories, but a larger-than-expected drawdown in gasoline stocks:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.7 million barrels compared to the previous week. At 333.4 million barrels, U.S. crude oil inventories are just above the upper end of the average range for this time of year. Total motor gasoline inventories fell by 5.5 million barrels last week, and are just below the lower end of the average range. Distillate fuel inventories inched higher by 0.1 million barrels, and are slightly above the upper end of the average range for this time of year.

Refineries are operating at 88.4% of capacity, and on the demand side:

Total products supplied over the last four-week period has averaged over 20.9 million barrels per day, or 1.6 percent above the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.4 million barrels per day, or 2.5 percent above the same period last year. Distillate fuel demand has averaged nearly 4.4 million barrels per day over the last four weeks, down 1.3 percent compared to the same period last year. Jet fuel demand is down 0.8 percent over the last four weeks compared to the same four-week period last year.

An initial dip has yet to be bought up, leaving the majors with slight losses and A/D lines still in the red. The biggest losers thus far are the homebuilders, biotechs, internets and HMOs, while oil stocks and gold stocks lead the winners.

Bonds are slightly higher again, keeping yields down. Energy prices are higher, as another big drawdown in gasoline inventories was reported this week. The dollar is fairly flat, gold and silver flat to a little lower.

Barry “The Big Picture” Ritholtz describes a recent discussion with his realtor:

Now that the Spring home buying season is in full swing, I spoke with our real estate agent to see how the “surge” was going. She’s one of the good ones — charming, helpful, knowledgable, honest, a pleasure to work with.

“Horrible.”

That was her initial response. “Depressing” was the second word out of her mouth.

What seems to be the problem? I asked her. “Sellers haven’t gotten realistic yet. They are still pricing things as if it were 2005.”

Granted, this is one agent, in NY, on the toney Gold Coast of Long Island. She mostly sells houses from half a million up to quite a few million, but I would guess her sweet spot is from $500k to $800k. But her comments echo what we have heard from Home Builder CEOs recently, and I daresay they are probably typical across many areas.

Deron Wagner this morning:

Not a whole lot has changed in the technical picture of the market. The short-term trends remain moderately bullish, although the power of institutional buying has been lacking. Overhead supply from late February means we’re not out of the woods yet. If stocks consolidate here for aa few weeks, that would really enable the market to build a base of support from which to break out to new highs. However, a steep retracement could change the market’s sentiment rather quickly. Most likely, the direction of the market from here will all come down to the market’s reaction to the plethora of earnings reports on tap over the next several weeks. Alcoa, which reported after yesterday’s close, was the first major company to announce their quarterly results. Let’s see how the market reacts to this and others over the next few days before placing too much new money into action.