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.

Martin Goldberg tonight:

Finally, if I was Warren Buffett, a value investor in a market where there is very little value, I’d think about buying stocks in a somewhat illiquid index such as in transportation stocks, and then put a lot of buzz into the press about what I was doing. When the stocks went up based on the much-ballyhooed Buffett “investment” I’d sell. I’d do the same thing if I were Kirk Kerkorian too. Why not make money on a sure thing? If it’s the type of market that supports such (herd) thinking, then why wouldn’t a capitalist do the capitalist thing in a market that supports such behavior? It’s only logical.

A new face keyboard at Minyanville. Professor Jeffrey Cooper begins his tenure with a flourish in his column “Perception Trumps Reality”:

If you go on the assumption that perception trumps reality your decision making can be derived from the idea that it is the state of mind of the crowd that determines the fundamentals rather than the other way around.

For me, because psychology drives the game I see the market as the ultimate arena of self discovery. The most important trading weapon you own lies not in any book or Holy Grail Strategy or Black Box system but within yourself: it is, simply put, the power to refuse to allow small losses to turn into large losses. Fundamental rationalizations are meaningless to understanding the psychological nature of the game. There’s always a favorite Auntie Rationale of why you should hold on when a stock is going against you. But respecting your Uncle Point keeps you in the game.

Good stuff. Go read the whole thing.

That reminds me, I don’t think we’ve recited the BMB mantra in a while. That would be: Never Lose Big.

The Philly Fed report was out today, and it doesn’t sound as though things are going gangbusters just yet:

The Philly Fed’s diffusion index was unchanged at 0.2 in April after 0.2 in March, indicating that a bare plurality of firms surveyed by the bank were expanding in April.

New orders, shipments and employment were relatively unchanged in April.

Manufacturing firms were a bit more optimistic about prospects for business improvement, however.

The Philly Fed’s future index rose to 25.8, the highest reading in a year, from March’s 17.4. Firms also expect growth in new orders, shipments, employees and prices. However, they downgraded their expectations for their own capital spending.

“The industrial malaise seems to be continuing, if not yet intensifying,” wrote Ian Shepherdson, chief economist for High Frequency Economics, in an e-mail. “We reckon this survey is consistent with an ISM at 50.”

And it isn’t often that we get to hear a chief economist use a phrase like “we reckon”.

This news from D.R. Horton must have been what caused the homebuilders to turn tail and head lower this morning - after they tried to follow through on yesterday’s big advance.

Thanks goes to Calculated Risk.

	Drugs and Biotechs seem to be getting pretty stretched out these days.
	The pullback in the energy groups, like the oil services shown here, has been pretty orderly thus far…
	…but the pullback in the gold and silver stocks accelerated a bit today.

Charts courtesy of StockCharts.com

GOOG - closed at 471.65, trading at 475.75 483.00.
AMD - reported a larger than expected loss, I have no quote data. closed at 14.28, trading at 13.25 13.95
COF - closed at 77.34, trading at 73.56

Another weird day, though I’m not sure this one was quite as weird as yesterday. The major indices survived an opening gap down after poor market action in Asia overnight, but the indices don’t reflect the weakness underneath the surface that never really went away, with about 2 stocks down for every 1 that was up. And continuing the pattern we’ve been seeing, volume increased again on what would have to be considered a weak day for the overall market.

Here are the final scores for the majors, which don’t tell you all that much, when all you’ll hear about on the news is the new record high close for the Dow:

Bonds pulled back just slightly, and yields inched higher:
6-month: 5.03%    2-yr: 4.64%    5-yr: 4.57%    10-yr: 4.67%   30-yr: 4.83%.

Internals were as negative as we’ve seen in a while, and as we mentioned volume ticked up again. Advances/declines were 1 to 2 on both exchanges, and up/down volume ran about 2 to 3 on each. New highs/lows were 174/24 on the NYSE and 104/59 on the Nasdaq.

The groups showed more losers than winners, with the steel stocks (+1.0%) the only gang to add a percent or more. Most of the losers came from the commodity side of things, but not all: gold and silver stocks (-2.7%), airlines (-2.2%), HMOs (-1.3%), natural resources (-1.2%), oil services (-1.2%), natural gas stocks (-1.1%) and disk drives (-1.1%).

Energy prices were mixed, as crude oil fell more than a buck to $61.83/barrel, gasoline snuck up a penny to $2.09/gallon and natural gas fell a penny to $7.49/mmBTU. The dollar index was flat at 81.65, but gold slipped to $683/ounce, and silver dove to $13.61/ounce.

BMB Note: Another strange day. 14 out of 15 for the Dow, but it wasn’t a very impressive performance for the market as a whole. The major indices were unable to move above the highs of yesterday afternoon, and for the second day in a row, we saw more stocks down than up. Obviously things are a little weaker under the surface than the major indices would indicate, and volume patterns remain a concern.

As was mentioned in the comments earlier today, it was a little surprising that things bounced back as well as they did from the opening gap down, considering the depth of the selling in Asia. Maybe things will level off here - and maybe not. The weak internals lead me to believe that there has to be at least something of a pullback in the cards. I don’t think the Dow can run higher every day for three weeks without having to stop and rest now and then. And the Nasdaq looks a bit weaker than the big-cap indices - not sure how much that means.

Keep an eye on the Asian markets. More selling there could spell some trouble here - I don’t think our markets could ignore it for too long. Not to mention that a lot of areas in our markets are getting pretty stretched, and some to the point of being ridiculous. You can only stretch things so far before they snap back, even if they don’t break altogether. And some of the ’stretching’ seems to be bordering on reckless.

We’ll see what happens - Asian market action tonight will be key, and we’ve got option expiration here tomorrow. In the groups, we’re monitoring the pullbacks in the commodity areas - metals, energies - to see what opportunities, if any, might arise there. In other areas, I have no desire to go chasing things off into the stratosphere.

The morning drop woke up the dip buyers once again, and the major indices were forced back above water, but advance/decline lines remain submerged - there are still more stocks lower than higher. The groups still appear pretty split, with the surging biotech index leading the way, followed by drugs and health care products. Gold stocks, airlines, oil services and HMOs lead the losers.

A bit of a rough start for stocks this morning, as was expected with the troubles in Asia overnight. The major indices are showing only slight losses, but A/D lines are still pretty deep in the red. Groups hit the hardest thus far are the gold stocks, HMOs, metals and mining, oil services and natural resources, while drug stocks are holding up on the green side of the page.

Bonds are at or near the flat line. Energy prices are lower, the dollar index is near flat, gold and silver are lower.

Asian markets stumbled last night, as China reported a 3.3% increase in consumer prices. In addition, an 11% increase in GDP was reported after the bell. That news has investors worried that further tightening measures are on the way.

The Shanghai composite fell 4.5%, Hong Kong’s Hang Seng index fell 2.3%, and in Japan, the Nikkei 225 fell 1.7%.

BMB believes that action in the Asia markets will be key in determining the future direction of the US markets - keep your eyes and ears open.