Bear Mountain Bull

	The Dow is doing its best Chinese market imitation, climbing higher in 17 of the last 19 trading days. Note how the angle of ascent just keeps getting steeper and steeper.
	Speaking of the Chinese market, here’s our friend the Shanghai composite, with a nifty string of its own, having risen 25 of the last 28 days. Think about it. That’s just 3 down days in nearly 6 weeks of trading. Yikes.
	I find it a little interesting that as the indices zoom higher, the VIX seems to have broken its downtrend, and has actually stair-stepped higher a bit in the last week-and-a-half. Despite the big jump in the indices today, the VIX actually moved higher. This tells us that option premiums are increasing, indicating that maybe folks are getting just a little bit edgy about where this market is at.
	One gets the same impression from looking at the equity only put/call ratio. Here we see that it looks as though both the 10 and 20-day moving averages of the $CPCE have just started to turn higher. If this trend continues, it would mark a transition point at which option players have begun to favor put options over call options – either betting that a stock will decline or maybe protecting themselves against a fall in a stock they already own. In either case, it reflects a slight change in sentiment from the bullish to the bearish side if the turn up continues – and the CPCE climbed slightly today along with the VIX, even though the market moved higher. We’ll keep an eye on this to see how it develops.

Charts courtesy of StockCharts.com

Yet another melt-up today, as the Dow blows through the 13,000 mark – and 13,100 – and runs to its 17th day of gains in the last 19 sessions.

I mean really. C’mon. And we’ve got the Transports up better than 2 percent on a day when gasoline prices hit their highest levels in more than 8 months.

Is anything ever going to make sense again? Sure doesn’t seem like it.

Bonds gave up a little ground, and yields got a small bump higher:
6-month: 5.02%    2-yr: 4.63%    5-yr: 4.54%    10-yr: 4.65%   30-yr: 4.83%.

Internals were positive, and volume finally increased on an up day. Advances/declines were 7 to 3 on the NYSE and 11 to 8 on the Nasdaq, with up/down volume 5 to 1 on the NYSE and 3 to 2 on the Nasdaq. New highs/lows were 393/16 on the NYSE and 201/51 on the Nasdaq.

The groups were a pretty deep green, led by oil services (+3.3%), transportation (+2.4%), metals and mining (+2.2%), commodities (+2.2%), natural resources (+2.1%), oil stocks (+2.1%), networking (+2.0%), internets (+1.8%), natural gas stocks (+1.8%), brokers (+1.8%), paper stocks (+1.6%), and chemicals (+1.5%).

Energy prices also higher: crude oil climbed back to $65.79/barrel, gasoline rose to $2.28/gallon and natural gas moved up to $7.69/mmBTU. The dollar index took a morning dive but bounced back to cut its losses and finish just slightly lower at 81.43. The precious metals held their ground, with Gold at $685/ounce and silver at $13.79/ounce.

BMB Note: Is it time for the “irrational exuberance” speech yet? This market’s starting to get a little spooky.

As I’ve said before, I don’t know how far this goes, or how long it goes on. But I don’t think it can be argued that things are getting stretched to the upside here, and bullishness is running at extreme levels. It’s up to you to recognize where risk levels increase, and it’s up to you to decide just how far you’re willing to stick your neck out on the chance that you could get your head chopped off. Part of a trading/investing discipline is having a plan for managing risk – being choosy about entry points when risk is elevated, having stops in place to control losses if you’re wrong, and deciding when it’s time to take some money off the table.

By definition, things always look the best at the top. Do they look the best they can be yet? I’m not sure what the ‘best’ looks like, but listening to all the noise, I guess they ‘look’ pretty darned good to a lot of people. That’s what leads me to believe that we’re much closer to a top than to a bottom.

Then again, I could be wrong.

Well, we finally got that 13K level taken out on the Dow with an initial thrust higher, and the indices have settled in the green after selling off a bit after the rush – the Nasdaq (and its A/D line) actually pulled all the way back into the red before recovering.

The Transports are getting a kick from a 12% jump in CHRW. Also gaining ground are the oils, metals and networkers. The HMOs, computer hardware, airlines and disk drives are losing ground.

Bonds are a little lower, propping yields up. Energy prices are slightly higher. The dollar continues to edge lower, and gold and silver are near flat.

March is generally when home sales start picking up, so it’s not a big surprise that new home sales rose above February’s levels. But the numbers were lighter than expected, marking a 23.5% drop YOY – and the Feb. numbers were revised lower:

Boosted by warmer weather in the Northeast and Midwest, sales of new homes increased by 2.6% in March to a seasonally adjusted annual rate of 858,000, the Commerce Department reported Wednesday.

Sales of new homes were off 23.5% compared with March 2006.

The inventory of unsold homes rose by 1,000 to 545,000 in March, representing a 7.8-month supply. The inventory is down 1.4% compared with a year earlier, the biggest year-over-year decline ever recorded.

The median sales price rose 6.4% year-over-year to $254,000, as luxury homes continued to increase their market share.

The March sales pace was weaker than the 895,000 expected by economists surveyed by MarketWatch. See Economic Calendar. Sales in the previous three months were revised lower as well. February’s revised annualized sales pace of 836,000 was the lowest since September 1999.

Of course, we never know how much we can trust these numbers:

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions, as in January, are common.

The standard error of 12.6% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell.

Update 9:40am: The charts are up over at Calculated Risk.

We finally got the Dow to 13K. Can we quit talking about it now?

From Minyanville’s Todd Harrison:

I’ve been quietly watching media coverage of the Dow’s 13K and will humbly offer that intelligent investing isn’t as simple as, “We’re going higher, so climb on board!” Advice like that is dangerous without the context of time, and it paints an incomplete picture of today’s market environment.

Jeff Saut, the chief market strategist at Raymond James who I believe is as good as they get, was on television the other day and asked a salient question that Minyanville has posed for years: “Are equities rallying, or is the measuring stick, AKA the dollar, weakening?” Indeed, since the beginning of 2002, the S&P is up 29% while the greenback is off 30%.

So, the question is naturally begged, Who’s zooming who?

To be sure, for those who earn, spend and owe dollars, the basis of currency matters very little. We, as a country, have been living beyond our means for quite some time, collectively owing $3.50 for every dollar of GDP. Discussing this immediate-gratification, ADD mindset isn’t a particularly popular topic and will likely fall on deaf ears for as long as the screens are green.

But for foreigners who invest in dollar-denominated assets, this chasm is front and center. And that, my friends, is planting seeds of isolationism and nationalization beneath this seemingly calm market surface. After all, we can’t claim that globalization was the catalyst on the front end of a bubble and feign indifference on the backside.

***

Finally, psychology, while not yet euphoric, is clearly getting a bit giddy. I’ve lived through a few bubbles and understand that markets can remain irrational longer than many can stay solvent. Still, when I start to hear pundits leapfrogging market milestones with reckless abandon, my antennae start to vibrate.

So, what’s my take for the here and now? The first fade (read: sale) of Dow 13K seems like the “easy” trade. Beyond that, our future path will evolve as a dynamic function of the elasticity of debt and the velocity of money. I’m watching the dollar as the key proxy for global markets and when it catches a sustainable bid, my sense is that it’ll come at the expense of the collective grin.

Who knows how long this will last or how we’ve come so far, so fast. But if I’ve learned anything over the years, it’s to stay humble or the market will do it for you.

And from what I’m smelling around the street, humility seems to be trading at a premium.

The volatile durable goods number comes in on the green side for March:

Demand for U.S.-made durable goods increased 3.4% in March, led by orders for aircraft and capital equipment, the Commerce Department reported Wednesday.

The increase was slightly higher than the 2.5% gain expected by economists surveyed by MarketWatch. February’s increase was revised higher as well, to 2.4% from 1.7%.

***

Boeing’s order book was one big story in the March report. Orders for civilian aircraft zoomed 37.6% higher in March after a 102% gain in February. The aircraft giant booked orders for 119 planes in March compared with 57 in February.

Excluding transportation goods, durable orders rose 1.5%.