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.

Lots of discussion about the ideas being floated by Congress (and why is Chuck Schumer always front-and-center on everything? That guy gives me the creeps…) to bail out those that didn’t bother to read or understand the fine print on their mortgage applications - like this post at Mish’s site and this one at The Mess That Greenspan Made.

And there’s the website campaign to “Stop the Subprime Bailout”. I can’t say I disagree with this paragraph from the sample letter to be sent to your representative/senator:

I appreciate the goal of helping people to have access to housing, but the proposed subprime bailout will only reward people who acted irresponsibly, and it will punish people who work hard and diligently manage their finances by not buying houses which they cannot afford.

Seen on Minyanville’s Buzz Bits today:

More and more of us are talking… - John Succo - 1:57 PM

It’s not just me now. Some of the best traders I talk to are noticing the same thing: stocks are heavy and illiquid, yet indexes are well bid and liquid.

The bids I see in index ETF’s are ridiculous for anyone trying to actually buy them intelligently (at the best price). I routinely (like today) am seeing massive bids advertised in the ETF as if the “buyer” wanted to buy them at the worst price possible. In other words, to drive the market up.

Eventually the weak stocks are dragged up kicking and screaming by index arbs.

I can only speculate as to why this is happening. Either “buyers” want overall exposure to the U.S. stock market and they do not care what price they pay, or some non-economic buyer is showing massive bids for some other reason.

As deflationary forces build and central banks run out of inflationary bullets, I can at least wonder at those charged with stimulating sluggish economies understand that if stock prices go down the game is up.

All this week at USNews.com, the Capital Commerce debate, featuring Barry Ritholtz (host of The Big Picture) and Don Luskin (host of The Conspiracy to Keep You Poor and Stupid, and member of Larry Kudlow’s RCGG - Rose Colored Glasses Gang).

You decide who’s right and who’s wrong.

	The Nasdaq has met minor resistance at the 2480 level as it attempts to move back up and fill the gap created back on Feb 27th.
	If this was a stock, you would have sold it long ago. The US Dollar index moved to a low not seen in over 2 years today. Hard to believe that the dollar index was in the 120 range a little more than 5 years ago. That’s a 30 percent devaluation of your dollar against other major currencies - a 30 percent ‘inflation’ that government statistics will not show.

Charts courtesy of StockCharts.com

When I was saying I wanted to see some movement in the market, perhaps I should have been more specific: I did not mean that I wanted the market to go down one day and right back up the next. Ok? I thought that was implied…

Dip buyers, short coverers, the Plunge Protection Team, or ‘whoever’ came right back in and bought up the market this morning after it started to slide. The Dow was down 50+ points early, but bottomed sharply and moved higher throughout the day, trading in a wide 129 point range, though the Industrials came up short of recovering all of yesterday’s losses. The Nasdaq, however, got back everything, and continues to bump up against that 2480 mark in an effort to break through. The Transports got a lot of help from a secondary Buffett Bid in the railroads.

Bonds were pretty flat, and interest rates held their positions:
6-month: 5.09%    2-yr: 4.73%    5-yr: 4.65%    10-yr: 4.74%   30-yr: 4.91%.

Internals were as positive today as they were negative yesterday, but volume came in a little below yesterday’s levels. Advances/declines were just shy of 2 to 1 on both exchanges, with up/down volume near 3 to 1 on both. New highs/lows were 168/31 on the NYSE and 124/65 on the Nasdaq.

Most of the groups hit the green today, led by the homebuilders (+2.7%), biotechs (+2.5%), oil services (+1.9%), oil stocks (+1.6%), natural resources (+1.6%), health care products (+1.6%), chemicals (+1.4%) and metals and mining (+1.3%). Airlines fell 1.2%.

Energy prices moved higher again. Crude oil gained well over a dollar to $63.84/barrel, and gasoline was up another 4 cents to $2.19/gallon. Natural gas gained 11 cents to $7.94/mmBTU. The dollar index fell to its lowest level in over two years, at 82.34. Gold held steady again at $676/ounce, and silver ticked up a few cents to $13.84/ounce.

BMB Note:So, today had a little something for everybody. A nice morning selloff, and a nice rally upward for the rest of the day. Nothing like a market that tries to please both bulls and bears alike - or tries to just plain confuse everyone, whichever way you want to see it.

The O’Neil folks will tell you we’re still in a ‘confirmed rally’, but even they are pretty leery of it - especially after yesterday’s “distribution day”, already the second one after the ‘follow-through’ day of 3/21.

Energy stocks remain very strong - helped by higher oil and gas prices - but if you’re not already in there, I’d be waiting for pullbacks as a lot of those charts are starting to look a little stretched to me. A little scary for my tastes at this point. On the flip side, it sure does look like the REITs are thinking about joining the housing stocks in an all-out real estate meltdown. Despite a big bounce in the homebuilders and a positive market today, the REITs still couldn’t get going.

As for the market as a whole, I haven’t a clue. The Dow has put in 9 up days out of 10, but yesterday’s down day was a doozy. In that stretch, the major indices really haven’t gained a lot of ground, and volume has been light on the way up. I remain pretty cautious, skeptical and careful — managing a few small open positions, but pretty uncertain about where to go next.

Tomorrow morning is PPI. Could move the market either way, or could be ignored. That’s how these numbers go.

The transportation indices are getting a bump from the railroads again today. After a little pullback from the initial Buffett excitement, apparently the train bug is back. CSX, UNP, NSC and BNI all up 3-5% today.

The dip buyers have stepped in to scoop up an initial move lower, and that leaves the major indices right around the flat line, and A/D lines are trying to sneak back up to the zero line as well. Steel stocks, biotechs and metals are leading the winners, while paper stocks and the banks are losing ground.

Bonds are slightly higher. Energy prices are mixed, crude oil up a buck. The dollar is headed lower this morning, but gold and silver are hanging around unchanged.

Gary Kaltbaum didn’t think too highly of yesterday’s distribution day:

The market experienced its second distribution day since the follow through on March 21. Any more distribution could put an end to this fledgling rally. We say this because studies have shown that distribution soon after a rally starts…usually ends the rally…and quickly.

The fact is this rally has come with warts since day one…specifically the weak FINANCIALS. As you know, we believe FINANCIALS are an important proxy for the market.

***

Tops take time. They do not happen in a day. We are now thinking that first day down on Feb 27th could turn out to be the shot across the bow. We would keep things on a short leash. Nothing wrong with being cautious. At the very least, there are very few bases to buy off of…and now we get to enter earning’s season with the market showing some distribution.

Now to our best friend…the Fed. The Fed released their minutes yesterday. In those minutes, we found out that they finally admitted that they think the economy has issues to deal with and at the same time, inflation is worrisome. We found out that they are thinking more on the side of raising rates than lowering rates. This is the first time they have told us there are issues…in plain English. We need to let you know that in the past, slower growth and higher inflation was not a great recipe for equities. We all know markets are due for a good correction…if not more. Time will tell.

Deron Wagner tells us to watch out for some choppy action:

…in our April 10 commentary, we cautioned that “it only takes one day of institutional selling (aka “distribution day”) to undo a week’s worth of gains that occurred on declining volume.” This is exactly what happened yesterday, except that “only” four days of gains in the S&P and Dow were wiped out. Obviously, yesterday’s session was decisively bearish and reversed the short-term trends of the major market indexes from “up” to “down.” However, the major indices have quite a bit of technical support below yesterday’s closing prices that may make it difficult for them to go much lower without continued institutional selling pressure…

Yesterday’s bearish action combined with the numerous levels of support could lead to a volatile tug-of-war between the bulls and bears, so be prepared for erratic and indecisive action over the next few days. The bulls may still be in control, but a firm close below the 2,441 level (on the Nasdaq) would tip the balance of power back to the bears.

A couple of tidbits that could influence early trading: March import prices rose 1.7%, and this week’s initial jobless claims hit a two-month high.

Some Asian markets were lower last night, with Japan and Hong Kong indexes posting losses.

But never fear, China has markets that never go down. The Shanghai composite posted another one percent gain. That makes 9 in a row, 18 of 19, and 25 of 28.

Someday…