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.

From Kevin Depew’s Five Things at Minyanville today:

Thanks to an unexpected surge in inflation Bank of England Governor Mervyn King (their equivalent to our Federal Reserve Chairman) will be forced to write a public letter of explanation.

• Consumer prices in England are now rising at a 3.1% year-over-year clip, the highest since 1997.
• This takes the inflation reading more than 1% above the Bank of England’s stated target of 2% - remember the BOE is an inflation targeter.
• This surge in inflation will now force Bank of England Governor Mervyn King to write a public letter to Chancellor of the Exchequer Gordon Brown to explain the rise and outline plans to stop it.
• This letter business sounds crazy to us here in the U.S. where the Federal Reserve responds to outsized inflationary (or deflationary) pressures with a parade of speakers spouting gibberish and nonsense about this and that and inflation expectations accompanied by an endless string of ifs, ands, or buts and woulda-coulda-shouldas about one thing or another.
• The BOE left its benchmark rate unchanged for a third consecutive month in April.
• It begins its next two-day meeting on May 9.
• Meanwhile, expect more fireworks surrounding the minutes of the April decision, which will be released tomorrow at 9:30 a.m.

As Gary Kaltbaum likes to say, the topping of a market is a process, not an event. It sounds like Frank Barbera believes that process is well underway:

Do you know which way is up? Such is the nature of a major market engaged in a primary trend ‘topping process.’ The idea is to create confusion and to keep investors off balance. For the large cap institutional monies that are exiting long positions and raising cash, the distribution process is an example of the classic merchandising exercise of creating panic, picking up stock on the cheap, and then selling it out into strength later on. Odds are high that we are in a Distribution Top, meaning the latest round of new highs simply provides enough psychological confidence to create the right backdrop for retail investors ‘to feel good’ about buying back in, in the process facilitating a repositioning of investment portfolios for larger institutional investors. Ah, the poor unsuspecting and confused ‘retail investor’ always trying to find the peanut under the wrong shell.

From Ron Sen at Technically Speaking:

I find it incredible that Congress is talking about bailing out high risk borrowers who speculated with high risk loans, often misrepresenting their income. Who pays for this?

If I make a speculative trade, for whatever reason, and it fails, am I entitled to be made whole, for my judgement?

Update: On topic, from today’s Buzz Bits:

The ‘free market’ part of me says people that buy houses they can’t afford and take equity lines to buy plasma TV’s and boats should be allowed/forced to go bankrupt.

Social Darwinism at its finest.

And corporations, LBO firms, etc. that do deals just to do deals and lever up perfectly good companies just to generate fees should eventually suffer the same fate.

	The S&P has moved above its February highs…
	…the Dow is in the doorway…
	…and the Nasdaq is on the top step.
	So where’s all the excitement - the big rush to get on the train before it’s too far gone from the station? Since the ‘follow-through’ day on Fed day, March 21st, Nasdaq volume has been at or below the 50-day moving average.
	Ditto the NYSE. Matter of fact, the NYSE barely made it on the 21st!

Charts courtesy of StockCharts.com

IBM - closed at 97.12, trading around 99.00
INTC - closed at 20.98, trading around 21.30
YHOO - closed at 32.09, trading around 29.80

A rather curious day in stocks today, with volume picking up on a very split tape as the S&P extends to new relative highs, the Dow threatens to set new highs, and the Nasdaq, which lagged all day long, is still just hoping:

Bonds rallied on the ‘tame’ CPI report this morning, and smacked yields back down to the lowest levels in more than a week:
6-month: 5.05%    2-yr: 4.67%    5-yr: 4.60%    10-yr: 4.68%   30-yr: 4.84%.

Internals were mixed, and volume picked up on this rather ‘iffy’ day. Advances/declines were around flat on the NYSE but 8 to 11 on the Nasdaq, with up/down volume flat on both exchanges. New highs/lows were 321/19 on the NYSE and 201/43 on the Nasdaq.

The groups were pretty much split down the middle, and the big movers were few. The homebuilders (+1.3%) and REITs (+1.2%) got a bounce, but the brokers (-1.5%) gave back some of yesterdays gains, and the steel stocks (-1.1%) and metals and mining stocks (-1.1%) pulled back as well.

Energy prices were lower, as crude oil fell to $63.10/barrel, gasoline to $2.06/gallon and natural gas to $7.42/mmBTU. The dollar index, at 81.80, continues to languish at its lowest levels in some time. Gold pulled back to $686/ounce, and silver slipped to $13.88/ounce.

BMB Note: Day 12 out of 13 for the Dow - I don’t have any stats on how rare a run like that is, but I’m sure it doesn’t happen real often. But away from the Dow, things were pretty ordinary, with the Nasdaq dragging most of the day.

We said yesterday that the homies and REITs, being the laggards, would get a bounce sooner or later, and some of that happened today after the morning’s housing data. Recent winners, like the metals, backed off a bit, and on the financial side, the brokers got hurt by a big drop on AMTD.

Interesting that volume picked up today, when the action was not poor by any stretch, but certainly less than stellar.

Lots of earnings out - a few biggees after the bell tonight like IBM, and Intel, though I’m not sure a lot of folks believe the numbers that come out of either one of those companies. Yahoo joins the party as well. Nothing in the way of econ. numbers out tomorrow, so we’ll see if anything else comes along to push things around. And of course, we’ve got expiration awaiting us at the end of this week.

The British Pound breaks the $2.00 mark.

A bit of a mixed bag this morning, as the Dow and S&P show gains, but the Nasdaq has been hanging right around or below the zero line most of the morning. CNBC flashed the banner that says “stocks mostly higher”, but that is not exactly true as the Nasdaq advance-decline percentage sits at a minus-14. Russell and small-cap indices are also off a bit.

In the groups, they’re pretty much evenly split between winners and losers. The homebuilders are leading the winners with a bit of a bounce off the housing starts data, while metals and disk drives lead the red side.

Bonds are higher, yields are lower. The dollar index has cracked the 82 mark, sitting at 81.80. Energy prices are higher, and gold and silver are wobbling around UNCH for now.

Deron Wagner is watching IPOs, software and gold, but still advises a bit of caution on the overall market. One reason is the continuing lack of volume:

Higher volume in the NYSE confirmed the S&P’s breakout to a fresh multi-year high, but despite its strong gain, turnover in the Nasdaq continued to decline. A 9% rise in the total volume of the NYSE caused the exchange to register a bullish “accumulation day.” However, the increase was not enough to push volume back above its 50-day average level. Yesterday was the sixteenth consecutive session of lighter than average volume in the NYSE. In the Nasdaq, total volume was 7% lower than the previous day’s level. The Nasdaq has gained in each of the past three days, advancing 2.4% in the process, but each of the three days have occurred on successively lighter volume. As such, one could infer that the Nasdaq’s recent gains have been more the result of a scarcity of sellers as opposed to an abundance of buyers. Normal pullbacks in the stock market tend to be more orderly and less severe when stocks are being supported by institutional demand. Conversely, gains that accumulated on steadily declining volume can disappear much more easily during a correction.

Another reason might be the lack of bases to buy off of:

Numerous sectors and ETFs broke out to new highs along with the S&P 500 yesterday, but most of them lacked a significant base of prior consolidation. When a stock or ETF breaks out, the longer the preceding consolidation, the more likely the breakout will hold. This is because a prior base of consolidation subsequently acts as the new support level. Conversely, break outs to new highs that have already been trending steadily higher are more likely to fail when the market pulls back.

All in all, try to keep your feet on the ground:

It’s certainly impressive that the S&P 500 has not only recovered all of its losses from the late February sell-off, but has rallied all the way back to a new multi-year high in such a short period of time. Admittedly, we’re quite surprised it happened in just a five-week period, but we must respect the bullishness and trade what we see, not what we think. Nevertheless, a one day close at a new high is not enough to unequivocally confirm a breakout. Further, both the Nasdaq and Dow remain below their February highs. Ride out the uptrend as long as it remains in effect, but we humbly suggest you avoid complacency and maintain a degree of caution.

An interesting breakdown by region in this morning’s data on housing starts:
Northeast: -6.1%, Midwest: +44.5%, South: -2.7%, West: -7.7%.

I think the headline number of +0.8% would have looked quite different if it weren’t for a rather bizarre boost from the Midwest numbers. Did they not count any housing starts in the Midwest for like six months before this, and they’re trying to catch up or what?

• March CPI up 0.6%, but only up 0.1% ex-food and energy (considering where metals prices are, I wonder how long it will be before they start excluding everything that contains any metal). The YOY picture isn’t that great, though, with CPI up 2.8%, and 2.5% on the ‘core’. No doubt that the current market ‘happiness’ will be focused on the 0.1% figure.
• March housing starts and building permits up 0.8%. Those numbers are also down 23% and 26% from March of ‘06. Keep in mind the amount of error in these numbers. According to the official release, the housing starts were +0.8 percent (±11.3% - that’s convincing! - bmb) and the permits were +0.8 percent (±1.0%).

The index futures reacted positively to the above numbers.