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.

Sentiment update: see here and here for recent discussion on these charts. Keep in mind that sentiment is a secondary indicator, and should not be used as a trading signal in and of itself. Price action is of primary importance. Despite the continued rise of the market - especially the Dow - the VIX refuses to move lower. Even with today’s strength, the VIX headed lower in the morning, then worked its way higher through the rest of the day.

Also despite today’s strong move in the indices, the equity-only put/call ratio edged higher for another day, and this brings the 10-day moving average up to meet the 20-day for the first time since late March. Could we be nearing a turning point? Update 9:55p: Corrected the CPCE chart. StockCharts seems to be a little slow getting their final numbers in on the put/call ratio. The chart now shows that the ratio did indeed fall today, so the upturn in the 10-day line is not as dramatic as was shown in the previous chart.

Charts courtesy of StockCharts.com

Obviously the market didn’t care one bit, but GMAC put up some pretty lousy numbers for their quarter:

General Motors Corp.’s (NYSE:GM) former finance arm, GMAC, posted a first-quarter loss on Wednesday as pressure on the U.S. mortgage market forced the company to take charges at its housing finance unit.

GMAC, in which GM retains a 49 percent stake, posted a net loss of $305 million, compared with a profit of $495 million a year earlier.

GMAC’s mortgage unit, ResCap, posted a quarterly loss of $910 million, more than offsetting gains from its insurance and auto finance divisions, which earned $605 million.

GMAC said it had taken steps to lower the risks for ResCap by selling off subprime mortgages at a loss, marking down the value of its remaining portfolio and curtailing new loans to borrowers with weaker credit.

Even so, the loss at ResCap prompted ratings agencies to cut their outlook on the GMAC unit, a day before GM was due to report its results for the first quarter.

The mortgage unit lost nearly a billion dollars in one quarter. Wow.

	While the Dow was continuing its amazing run…
	…the S&P was trying yet again to sneak above the 1500 mark - but couldn’t…quite…make it. I suspect it’ll get another chance.
	A couple of restaurants…
	…and a credit card company helped get things moving today.

Charts courtesy of StockCharts.com

The market fought back with all it had today, showing improved breadth and higher prices, getting the Nasdaq and Russell involved again - and running the Dow’s streak of ‘up days’ to an amazing 21 of 24. There were a few negatives, however, as volume lightened up and the market gave up ground in the last hour. But it seems that this market isn’t going to go down without a fight. As a matter of fact, it doesn’t even want to pull back without a fight:

Bonds didn’t move much - yields were higher by just a few bps:
6-month: 5.01%    2-yr: 4.65%    5-yr: 4.54%    10-yr: 4.64%   30-yr: 4.82%.

Market internals were pretty healthy for a change, with the exception of the lighter volume we mentioned earlier. Advances/declines were about 14 to 5 on the NYSE and 11 to 5 on the Nasdaq, with up/down volume near 4 to 1 on both exchanges. New highs/lows were 234/18 on the NYSE and 170/53 on the Nasdaq.

No losers today in the groups, as the movement was much better than we’d been getting: gold and silver stocks (+2.7%), metals and mining (+1.8%), HMOs (+1.8%), telecom (+1.6%), airlines (+1.6%), steel stocks (+1.5%), networking (+1.4%), brokers (+1.4%), oil services (+1.3%).

Energy prices were a little lower. Crude oil dropped almost another dollar to $63.49/barrel and gasoline slipped another couple of cents to $2.22/gallon, but natural gas was flat at $7.72/mmBTU. The dollar gained a little more ground, pushing the dollar index up to 81.76, but gold held firm at $673/ounce and silver only gave up a couple of cents to $13.19/ounce.

BMB Note: It wasn’t even two weeks ago when we talked a bit about discipline and risk vs. reward in this space.

I believe that two of an investor’s top priorities should be:

• Preservation of capital, and
• Management of risk.

So here we are now, with the Dow another 250 points higher, about 700 points above its 50-day moving average, and having moved up on 21 of the last 24 days - putting in only 3 down days in the last 5 weeks.

I think you know where I stand on this market. For now, I’m pretty content to watch the fun and games from the sidelines for the most part. Running and chasing just makes me tired, and besides — I still believe odds are very good that I’ll get a chance to buy stocks at lower prices somewhere down the road.

It’s just a matter of when, and I’ve got plenty of time to wait.

On this day, as the Dow rockets to a level 700 points above its 50-day moving average, and the other indices push back up to their recent highs that were given up so very easily just two days ago, these words from Jeffrey Cooper seem pretty appropriate:

On the heels of the burst of the technology bubble, 9/11, and corporate scandals, interest rates were not so much cut as they were chopped to historic low levels. Then, on the heels of the real estate bubble imploding and the sub-prime mortgage issue, money supply has exploded in recent months. This money creation, this Bernanke Bid, synchronous with the Yen Carry Trade is the wind beneath the wings of the locusts of liquidity. These locusts are feeding on a field of equity dreams where the only P/E that matters is Private Equity.
Socrates said that when the Muses first brought song to the world, the beauty so captivated some that they forgot to eat and drink until they died. The Muses turned these souls into locusts.

From my ledge it looks and sounds like once again the music of momentum for momentum’s sake is being chanted from the caverns of Wall Street by capitalist Hare Krishnas swarming before the sun like locusts of liquidity. Same asylum, different inmates.

Barry Ritholtz sees the April auto sales figures as just more evidence of the “slow motion slowdown” in the US economy:

When we mentioned automobiles, one of the common responses was that its GM/Ford specific, and Toyota was doing just fine in the US. The blame was that GM made lousy cars.

It turns out that glib answer was totally wrong. As the chart nearby shows, total car and light-truck sales fell 7.6%. This is an issue that is impacting just about ALL makes and manufacturers, not just GM. Even mighty Toyota sales dropped 4.3% in the U.S.

***

How did other automakers fare? Ford reported an April US sales decline of 13% y/y. Ford car sales declined 23.6%: truck sales declined nearly 6%. GM fared marginally better — sales declined only 9.5%. Daimler Chrysler sales actually increased 1.2% — and you can be sure the growth was MB (Mercedes Benz), not Chrysler. The vaunted Japanese automakers did not do much better: Toyota down -4.3% — their first monthly decline in 2 years; Honda slipped -9.1%; Nissan dropped a whopping -18%.

The weekly inventory report from the EIA shows mixed results, with gasoline being a problem spot:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 1.1 million barrels compared to the previous week. At 335.6 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories fell by 1.1 million barrels last week, and remain well below the lower end of the average range. Distillate fuel inventories inched lower by 0.2 million barrels per day, and are just below the upper end of the average range for this time of year.

Refineries operated at 88.3 percent of capacity, and demand isn’t exactly on the dive:

Total products supplied over the last four-week period has averaged nearly 20.9 million barrels per day, or 3.3 percent above the same period last year. Over the last four weeks, motor gasoline demand has averaged nearly 9.3 million barrels per day, or 1.6 percent above the same period last year. Distillate fuel demand has averaged over 4.3 million barrels per day over the last four weeks, up 5.4 percent compared to the same period last year. Jet fuel demand is down 2.1 percent over the last four weeks compared to the same four-week period last year.

A much healthier open for stocks than we’ve been seeing, with the major indices all sporting decent gains and A/D lines well into the green, although volume is a little on the light side at the moment. HMOs, metals, steel and chemicals lead the winning groups.

We’ll see how well this thing holds up through the day.

Bonds are only slightly lower. Crude oil and gasoline are slightly lower, with natgas up a couple of pennies. The dollar is higher, gold and silver a little lower.

Deron Wagner recognizes that it’s been all large-caps, all of the time. Nonetheless, he advises a bit of caution until the market picture becomes a little clearer (emphasis mine):

If you want to be long this market, the large-caps clearly remain the place to be. The Dow Jones Industrials Average keeps powering ahead to new all-time highs, while barely pulling back when the other indexes do. Only 3 losing days in the last 23 sessions proves its relative strength. How can one argue with that? Still, even the most ardent bulls would be wise to deploy caution at current levels. Over the years, we have learned that the sharpest market corrections occur when the picture seems incredibly rosy, not when everyone is expecting an obvious drop. Ideally, the Dow and the other major market indexes will gracefully ride out a “correction by time,” merely drifting sideways for the next week or two. But a break below yesterday’s low of 13,041 would call off all bets on the Dow, as that would correspond to a move below its recent price consolidation.

The big sign that a slowdown in the US economy is inevitable will be when jobs start to disappear. This morning, we see a few warning signs on that front.

First, the ADP jobs report show the weakest growth in four years:

U.S. private-sector jobs increased by 64,000 in April, the weakest job growth in nearly four years, according to the monthly ADP employment report released Wednesday.

Then, there’s this info on planned layoffs from Challenger Gray & Christmas:

Job reduction announcements by major U.S. corporations soared by 44% to 70,672 in April after falling to an eight-month low in March, according to a monthly report released Wednesday by outplacement firm Challenger Gray & Christmas.

Layoff plans were up 18% compared with April 2006. It’s the first time since September that layoffs rose on a year-over-year comparison.

Just a few things to keep in mind as we try to evaluate where things might be moving.