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.

On commercial real estate and housing, from today’s Buzz Bits:

• The iShares REIT’s (IYR), highlighted yesterday, continues to get hit; Vornado (VNO) is today’s primary culprit as its results were less than “en fuego.” Earlier this morning a guest on CNBC was arguing for a continued boom in commercial real estate based on the fact that buildings are still changing hands for under “replacement” cost. I may be old fashioned (or just plain old), but “replacement cost” is the dirty little excuse big boys use to justify dumb deals with “other people’s money.” To hear that being used on national TV as a presumably thought out reason for investing in CRE borders on lunacy.
• Pending home sales dropped 5% MoM for the first month of the peak selling season. Homies are shrugging it off and Centex (CTX) despite dismal numbers. I am sticking to my view that one of these days some out-of-left-field statistic will catch people’s attention, the panic phase of the homies debacle will start, it won’t end until even the staunchest bear will be in awe of how far things will have plunged.

	Here’s a follow up to last week’s check on the equity-only put/call ratio. That slight upturn in the moving averages of the CPCE didn’t follow through, and that brings us to today, where we see a recent sharp upturn in the 10-day average, but still only a hint of a move up in the 20-day.
	Looking at the individual data points, however, we see that in the past 5 days, the CPCE has registered the two highest readings since the end of March.

Charts courtesy of StockCharts.com

BMB has been noting that it has been a very Dow-centric market lately, that indices such as the Russell 2000 and the Nasdaq have been lagging, and Nasdaq breadth has been poor.

So what’s it all mean? To sum it up, despite the trumpets from the financial media, it’s not necessarily good news. Here’s Gary Kaltbaum, on his radio show earlier today (clip runs 1 min, 16 sec, click arrow to play):

	The Dow was unable to move above yesterday’s intra-day high, but did set a new closing high. But while that’s going on…
	…the Russell has got some resistance to work through to get back to its recent highs…
	…and Nasdaq advance-declines have been below zero for four days in a row, and 9 of the last 11.
	The Transports have been unimpressive after reaching new highs just last week…
	…and the REITs, which have been unable to get much moving to the upside for some time now, are looking pretty vulnerable.

Charts courtesy of StockCharts.com

The streaking Dow was able to recover all of its losses of from yesterday (prompting the return of that horrid orange bar on CNBC’s ticker). But the rest of the major indices were nowhere near as energetic, as divergences continue to build:

Bonds were a little weaker on the short end, so that’s where yields ticked up slightly:
6-month: 5.01%    2-yr: 4.63%    5-yr: 4.54%    10-yr: 4.64%   30-yr: 4.81%.

Market internals were mixed - not what you’d necessarily expect on a 70+ point Dow gain. Volume increased on both exchanges from yesterdays’ levels. Advances/declines were about 10 to 9 on the NYSE but 9 to 10 on the Nasdaq, and up/down volume looked similar, at 5 to 4 on the NYSE and 4 to 5 on the Nasdaq. New highs/lows were 110/41 on the NYSE, but an even 107/108 on the Nasdaq.

Movement in the groups was muted. The utilities bounced back for a gain of 1.1%, and the homebuilders (go figure) added 0.9%. On the losing side, metals and mining stocks dropped 1.1%.

Energy prices were lower. Crude oil fell more than a buck to $64.40/barrel. Gasoline price dropped back to $2.24/gallon due to a contract rollover, which might have been helping to boost the price the past few days. Natural gas fell 13 cents to $7.72/mmBTU. The dollar index finally made a move up to 81.63. Gold slipped to $673/ounce and silver dropped to $13.21/ounce.

BMB Note: The Dow party continues, but if CNBC could take its attention off the Dow scores for a few minutes, maybe it could point out that the rest of the market isn’t looking as good. But we all know that ain’t gonna happen.

The Nasdaq continues to lag, with advances trailing declines again today. Both the Naz and Russell gained back only a few points of their big losses from yesterday - some work needs to be done to get those indices back together if they’re going to make another push higher.

In the groups, the Utilities are still looking pretty strong, even after their big run, and have pulled back here. That’s one area to keep an eye on, as well as the energies as they have paused here as well. The metals are sagging a bit - you might want to watch that area to see what happens - there could be some rollovers coming out of that mess.

On the down side, I have no explanation for why the homebuilders bounced today, but the REITs did follow through on yesterday’s dive, and they look like they could get into some big trouble if they don’t get saved - and they have a long, long way to fall. They’ve been lounging on a sideways path while the rest of the market moved higher, and if the market starts to weaken, as it looks like it could, I think the REITs could make another leg down (disclosure: short REITs).

The numbers train brings in factory orders and oil inventories tomorrow.

Some comments from The Big Picture on Rupert Murdoch’s offer to buy Dow Jones, wondering if GE might get involved for the sake of CNBC:

This is potentially very bad news for CNBC — they are a joint venture owned by both NBC and WSJ. I would think that some senior people at CNBC are asking pleading with GE execs to make a run at Dow Jones — if for no other reason than to keep the WSJ out of Rupert Murdoch’s hands.

***

Murdoch’s obvious interest is using the Dow Jones infrastructure to power the News Corp Business channel which will be competing with CNBC sometime in the coming year. Once he owns Dow Jones, I would expect that CNBC as a joint WSJ/NBC product would be going bye-bye.

Dr. Joe Duarte says that we may be looking at a “new higher plateau” for gasoline prices, due to problems with US refineries:

U.S. refineries are facing significant long term problems beyond the usualy reported lack of capacity, suggesting that gasoline prices may have reached a new higher plateau.

According to the Wall Street Journal: “Oil refining’s perception problem has taken a new, unflattering turn: Not only are there not enough U.S. refineries, they don’t run right.”

The situation is not likely to improve anytime soon, either, according to some in the sector: ‘”The problem is we have an antiquated refining system that continues to fall apart and is having significant problems coping” at utilization rates normally seen at this time of year, said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.’

And the situation is widespread, affecting operations of all sizes, and geographical distribution, with a combination of both internal and external factors contributing. “The operational problems have affected refineries of all sizes, all types of processing units, all regions and were caused by all kinds of events, including fires, severe storms, crane accidents, human error and rodents’ unfortunate contact with electrical substations.”

The market has been bouncing around a bit this morning, as the dip-buyers haven’t given up yet. With the exception of the Dow, the major indices are slightly in the red, but advance/decline figures aren’t real encouraging at this point. Leading the groups down are the metals, airlines and REITs.

Bonds are lower, yields are bouncing up. Energy prices are fairly flat. The dollar is right near flat as well, with gold and silver lower.

The ISM index came in a little better than expected, but the pending home sales figures weren’t quite up to snuff.

Gary Kaltbaum follows up on yesterday’s radio show in his column this morning:

…the market is now REALLY reminding me of last April…right before a correction occurred. Why?

From my studies of the market, when the DOW leads by a wide margin, it is close to a top of some sort. Add in the fact that the DOW is 600 points above even short-term moving averages, and you have the makings of a pullback. This pullback did not start Monday. It started a few days ago when the A/D topped out.

Other evidence:

Small-cap indices haven’t been close to keeping up with the DOW. It should be the opposite. The RUSSELL 2000 is gagging already…on the first meaningful down day. This is a negative.

***

Many RETAIL names are rolling over after the first day down. I do not like the charts in FD, TGT, LOW, HD, CHIC, SKX, JCP, BBY, CC, SPLS, KSS.

FINANCIALS never caught fire in this recent move.

The end of the world is not at hand. I am just letting you know that the market has now started some corrective work. The job now is to see if any pullback turns into something worse. This market has been feast or famine with no in-between…and yes…May has now arrived.

Deron Wagner on yesterday’s market action:

The broad-based losses on higher volume caused both the S&P and Nasdaq to register bearish “distribution days.” It was the fourth such day for the Nasdaq within the past four weeks, but only the second for the S&P and Dow. Rarely can a healthy uptrend sustain more than four days of institutional selling within a rolling four-week period, so be cautious in the Nasdaq. The volume patterns in the S&P and Dow, however, have been stronger. Even though the Dow has had two “distribution days” within the past month, it has had only 3 losing days within the past 22 sessions! Nasty market internals confirmed yesterday’s broad-based weakness. Declining volume in the NYSE exceeded advancing volume by a margin of 4 to 1. The Nasdaq ratio was negative by 5 to 1. All the major industry sectors we follow closed in the red as well…

The appearance of more “distribution days” could signal that institutions are rushing for the exit doors. In such a scenario, the stock market will most likely enter an intermediate-term correction, rather than merely a short-term retracement to the uptrend lines and 20-day EMAs. On the other hand, it would be bullish if stocks gradually slide down to support on declining volume from current levels. We would then look for new long entries in strong ETFs as they rise above their short-term hourly downtrend lines. As for selling short, it remains risky as long as the S&P, Nasdaq, and Dow are each above their uptrend lines and 20-day EMAs. We’re pleased that we have been flat since the middle of last week, as yesterday’s weakness would have stopped us out of any late-stage long entries. Some of the best traders we know are out of the markets more than they are in the markets. The present seems to be one of those great times to be in cash, at least in the near-term.