Bear Mountain Bull

	The Financials and Transports have made strong bounces up off the lows, but still face significant overhead resistance, and are still well below their moving averages.
	The Nasdaq-100 opened strong, above the 50-day, but was rejected — and instead gave back almost all of yesterday’s gains.

Charts courtesy of StockCharts.com

The dynamic duo of Bernanke and Paulson tried to give the market another goose this morning, but the early pop never caught fire. The indices hit their highs early, then reversed throughout the day, hitting their lows going into the last hour. Things improved into the close, but the day didn’t turn out to be another big move up like it was threatening to be at the opening bell.

The Transports were the big winners as oil prices pulled back further, but the Nasdaq and Nasdaq-100 were laggards most of the day:

Treasuries slipped a bit on the short end, but were mixed across the curve:
6-month: 3.35%    2-yr: 3.01%    5-yr: 3.39%    10-yr: 3.94%   30-yr: 4.38%.

Internals were mixed on heavier volume. Advances/declines were 2 to 1 on the NYSE and 10 to 9 on the Nasdaq, but up/down volume was a positive 7 to 3 on the NYSE and a negative 3 to 5 on the Nasdaq. Still a few more new lows than new highs - highs/lows were 63/47 on the NYSE and 56/88 on the Nasdaq.

The groups were split. More big bounces in the laggards: homebuilders (+7.0%), banks (+3.9%), airlines (+3.6%), transportation (+2.9%), paper (+2.9%), REITs (+1.8%), retail (+1.5%) and steel (+1.2%). Losers on the day include computer hardware (-2.2%), semiconductors (-1.3%), computer tech (-1.1%), disk drives (-1.0%) and gold and silver stocks (-1.0%).

Falling commodity prices are helping to give the Fed some cover for another rate cut. Crude oil dropped below $90 to $88.71/barrel, gasoline slipped a few cents to $2.24/gallon, and natural gas lost 16 cents to $7.30/mmBTU. The dollar continues to bounce, with the dollar index reaching 76.17. The pullback in gold and silver continues, with gold falling to $783/ounce and silver to $13.98/ounce.

BMB Note:   The market had a chance to really frustrate the bears this morning, but was unable to take advantage of it, and quickly stalled and fell back. Early afternoon saw some selling, with some of that relaxing into the close.

For now, I don’t think a great deal has changed. I’m still not convinced, to any significant degree, that we are seeing anything more than a temporary bounce out of oversold conditions, although I understand that this could very easily be dragged on into the holidays. Then again, with the Fed meeting less than two weeks away, we could run smack into a ’sell the news’ scenario.

One interesting note about today’s action was the poor performance of many of the leading Nasdaq-100 names. Some were hurt by downgrades, but that didn’t explain the intra-day reversals in some of the others. Not sure if this is significant or not, but it’s something to be watched. If the market really were to make a run here, those names would almost certainly have to play along, and they stayed on the sidelines today.

Commodity stocks aren’t helping the cause much either, as commodity prices have been knocked down. So without the leading tech names and the commodity areas, the market would have to find some sort of leaders amongst the multitude of broken-down areas, and right now, those areas are really only bouncing up after being beaten to a pulp.

It should be an interesting few weeks ahead. Stay tuned.

Todd Harrison, on today’s Bernanke-Paulson breakfast bump:

We awake this morning to find a one-two punch from the dynamic duo.

While Ben Bernanke officially opened the door for a rate cut on December 11th, Hank Paulson was in the back of the bar banging out a deal with banks.

“If only we could freeze the rates on loans to sub-prime borrowers,” he must be thinking, “we could stem the surge in foreclosures and sidestep the coming storm of adjustable-rate mortgages.”

The reaction on the Street, at least out of the gate, is happy, shining people.

Perception is reality and the knee-jerk reaction is to buy first and ask questions later. That could spur the herd for a bit, particularly as year-end performance anxiety manifests, but these actions are troubling on a few levels.

First and foremost, you can’t arbitrarily freeze select components of the market machination without affecting derivative markets. There are two sides to every trade and someone will be left holding the bag.

Details are still being ironed out, from what I understand, but I don’t foresee this going through without government subsidy. I have the same view regarding the proposed super-conduit rescue plan. We never heard particulars on who was providing the funds but I would lay odds that Mr. Paulson and his deep pockets are involved at some level.

This is yet another step towards the socialization of our markets. Mr. Practical and I had dinner last night as we spoke about what we both believe to be the most interesting juncture in financial history.

I posed a question to him. “Why did the government nix the CNOOC (CEO) bid for Unocal and the UAE run at the ports but we haven’t heard a peep as China nibbles on Bear Stearns (BSC) and Abu Dhabi takes some Citigroup (C)?”

His response, which I suspected, was one word. “Desperation.”

Time for the government to step in and interfere in the markets again:

Federal authorities and major U.S. banks are close to an agreement under which interest rates on adjustable-rate loans will be frozen, a plan that would allow stretched homeowners to potentially avoid foreclosure, The Wall Street Journal reported Friday.

The newspaper said that such an accord could reassure both investors and homeowners, helping to support home prices and provide liquidity for lenders. Moreover, the plan could help ease criticism aimed at the Bush administration over its handling of the mortgage crisis heading into an election year, according to the report.

While details still are being worked out, the heart of the plan is an agreement to extend so-called “teaser” introductory rates on loans for people who would default if their mortgage rates “reset” at much higher levels.

—

Tony Crescenzi, chief bond market strategist for Miller Tabak & Co., cautioned that it won’t be an easy agreement to forge. “Blanket solutions can’t work for a situation that needs case-by-case attention.” he said in an email Friday morning.
The key to the success or failure of any agreement will be the response of investors, according to Crescenzi.

Another analyst, Richard Bove of Punk Ziegel & Co., was more critical.

“The government has come up with yet another idea to drive funds away from the markets,” Bove wrote in a research note Friday. “The concept of forcing banks to keep bad loans on their books violates every precept of regulation in American banking.”

Here is the article in the WSJ, along with a few comments from Calculated Risk on the subject.

Update:   I figured that Mike Shedlock would weigh in on this one:

So now the lenders all get together and decide who can afford to pay what. I have a counter proposal. Why don’t grocery stores all get together and decide how much customers can afford to pay for a loaf of bread? Seriously, that is what is being discussed here.

But let’s get one thing straight right up front. This has nothing whatsoever to do with “saving people’s homes”. This is about saving financial institutions from collapse. And the plan will fail. It rewards those who cannot afford to pay. The details are not in yet but I suspect one measure of the ability to pay will be whether or not one is current on their loans.

Anyone who wants a freeze should stop paying their mortgage now. It’s clear that lending institutions do not want those homes back.

—

Lending institutions are in a panic about the possibility of taking on more REOs. (Real Estate Owned, in this case by foreclosure).

I am not opposed to the free market working out these kinds of solutions, but the free market would not have come up with this solution. That in and of itself is another reason it will fail. In fact, had we not had a Fed lowering interest rates to 1% to foster this credit bubble, the bubble would never have gotten this big in the first place.

How those collective minds think this plan will work is beyond me. Here are three simple reasons the plan will fail:

• This plan will encourage those on the edge to fall behind just to get a freeze.
• This plan will foster resentment from those not being bailed out.
• This plan is a transparent attempt to make people debt slaves forever.

That’s the way Larry McMillan is viewing things, for now (see the linked column for charts):

The market staged a huge oversold rally this week, and now it remains to be seen if it is anything more than that. Wednesday’s big rally seemingly came out of nowhere. At Monday’s close, we had a number of overbought readings which argued well for an up day on Tuesday, and it was, with the Dow gaining 215 points. But, in recent history, that’s it. Big days are not generally followed by another big day. This time is was, with the Dow registering its biggest daily gain of the year on Wednesday — up 354 points more. Needless to say, this has alleviated the oversold condition, but has it generated buy signals? Let’s review the indicators.

First, the chart of $SPX remains in a downtrend. The big rally merely brought it back to its declining 20-day moving average. In a bearish trend it is fairly typical that the average would have sharp rallies back to its declining moving average. But 50 $SPX points in one day — really! Moreover, the resistance at 1490 remains in place. We will not turn bullish unless $SPX can close above that area for at least 2 days.

The equity-only put-call ratios remain bearish, as they continue to rise on their charts. They are beginning to reach what we’d classify as “oversold” territory, for they have climbed to fairly high levels. But still, they won’t generated buy signals until they roll over and begin to trend downward.

Market breadth has been extremely oversold. The last time that happened was at the August 16 bottom. The two big up days this week generated breadth buy signals. However, we would not take a position based on breadth alone.

Finally, the volatility indices ($VIX and $VXO) present a somewhat mixed picture. They did not collapse as one might have thought they would (should?) have when the big rally occurred on Wednesday. Thus, they continue to remain in uptrends, which is bearish. However, both are now below their 20-day moving averages, and any further lower closes would begin to change that bearish trend.

In summary, the only confirmed buy signal we have is breadth. That’s not enough to classify this as a true intermediate-term bottom. So for now, and until the resistance at 1490 is overcome, we are viewing this rally as nothing more than an oversold rally in an overall bearish phase. We would alter our opinion if $SPX closes above 1490 for two consecutive days.

The initial push higher at the open lost steam pretty early. Things haven’t pulled back a great deal from those levels, but they have stalled and volume is quieting down. The Dow and S&P are holding up better than say, the Nasdaq-100, which is only up .13 percent at this point. A/D lines are still well in the green for now.

Leading the groups higher are the homebuilders, banks, airlines, steel stocks, transports and REITs.

Treasuries are lower, yields higher. Energy prices are lower, with crude pulling back below $90. The dollar is edging higher, gold and silver are lower.

Gary Kaltbaum wonders why the market is acting surprised about the possibility of another rate cut:

As you know, I follow the strict rules and disciplines espoused by the great William O’Neil when it comes to the stock market. In fact, almost every time I have argued with their thoughts, they have been right and I have been wrong. Well…surprise…surprise…surprise. They are calling an end to the bear phase as of Wednesday’s action…so I am calling an end to the bear phase…for now! Very simply…2 of their own proprietary indices followed through on Wednesday. Instead of me explaining and confusing you, go spend $1 and pick up today’s Investors Business Daily and read the BIG PICTURE.

Now…very simply. Every bull move this market has ever had has been preceded by a follow through day…but not every follow through day has worked. You need to know this. Normally, if one does not work, it will fail quickly. I give this one a better chance because of what I have told you recently…IT IS END OF YEAR…AND THE S&P is up nominally. The boys need to make their year. I have no idea how long a rally lasts or how far it goes. But I will be continually looking for signs things could be petering out.

This does not change the fact that 70% of the market is gross…but the gross will bounce with a follow through. You know the sectors I am talking about…mainly everything FINANCIAL, RETAIL and all the other stuff I have listed here. I will have no interest in the lagging groups. I will have interest in the narrow leadership that held up best and only pulled back to support areas in the recent down move. I have listed those names here in previous reports.

That leads me to this morning. The market is having another one of those big gaps off the back of Bernanke comments last night. He all but said the Fed is going to cut rates again. DUH! Is this a surprise to any one of you? Why is the market acting so surprised? I am not. The day the Fed cut rates the first time I told you that they will now cut…cut…cut and keep cutting. Why? Because Bernanke, while professing to care about inflation and the dollar…couldn’t care less about inflation or the dollar. He is and always has been what his nickname states…”Helicopter Ben!” Not only will he drop money from helicopters, he will drop money from the blimp…from airplanes…from balloons and the space shuttle. Just think, we just had a 4.9% GDP growth rate, employment at 4.7%…and the market has only corrected…yet he has been raining trillions onto the economy. It has not just been rate cuts…but repos…and check out the money supply growing at double digit rates. Is it no wonder the dollar has been crushed?

In any case, this remains one of the the toughest market I have ever seen to navigate…and I think I am decent at this. The constant gaps and reversals…are nauseating. Take your time…be disciplined in your pivots…be doubly disciplined in your stops.

The futures are again all ga-ga this morning, supposedly over Big Ben’s speech last night, and never mind - again - any bad news that might be out.

Just remember how ‘great’ the last Fed cut, on October 31st, was. The Dow fell 362 points the next day, and another 750 points over the next three weeks. Just try to keep your head on straight.

Well, not really. John Crudele at the NY Post has been writing about the President’s Working Group on Financial Markets, known to many as the Plunge Protection Team (or PPT), for some time now, and has been requesting information on their meetings and activities via the Freedom of Information act.

He finally got the info he’s been after. Ok, sort of.

After a year and a half of stalling, the US Treasury finally complied with The Post’s requests for information about The President’s Working Group on Financial Markets - by delivering 177 pages of crap.

In essence, the Treasury’s Freedom of Information officials said that the Working Group - affectionately nicknamed the Plunge Protection Team - doesn’t keep records of its meetings.

How interesting and convenient!

Included in the 177 pages that the Treasury said responded to our request on the actions of The President’s Working Group were 53 pages on which something was redacted - blacked out so that the discussion was unreadable.

Many of those 53 pages contained no words at all - just a big black blob.

Thanks to a commenter at The Big Picture.

I found this article mildly amusing: “Top 10 Tech Train Wrecks of 2007″

	One gauge that calls into question the validity of this recent market ‘bottom’ is the relative lack of fear registered in the VIX. The August low was accompanied by a huge spike in the VIX, while the low of a couple of days ago saw nothing of the sort. As a matter of fact, the VIX actually showed a minor peak nearly two weeks before Monday’s market lows.

Charts courtesy of StockCharts.com

That certainly didn’t help to clear things up any.

After the big rally of the past couple of days, we need some sort of clue as to whether the next move will be up or down, and we got no hint whatsoever today as the market hugged the flat line all day:

Treasuries moved slightly higher, pulling yields down across the curve:
6-month: 3.29%    2-yr: 3.06%    5-yr: 3.42%    10-yr: 3.96%   30-yr: 4.36%.

Internals were mixed, on lighter volume. Advances/declines were 4 to 5 on both exchanges, with up/down volume 9 to 10 on the NYSE and just above flat on the Nasdaq. Yet again, there were more new lows than new highs - highs/lows were 43/77 on the NYSE and 50/109 on the Nasdaq.

The groups were fairly split, with a few more losers than winners. On the upside, we find the steel stocks (+2.0%) and oil services (+1.6%), while airlines (-2.2%), homebuilders (-1.9%), brokers (-1.6%) and networkers (-1.0%) led the losing side.

Energy prices were mostly higher. Crude gave up much of its early gains, but still finished higher at $91.01/barrel, gasoline dropped a penny to $2.27/gallon, and natural gas rose to $7.46/mmBTU. The dollar finally held a bounce, bringing the dollar index up to 75.62. That contributed to more slippage in the precious metals, with gold falling to $793/ounce and silver to $14.19/ounce.

BMB Note:   Maybe someone smarter than me can glean some information from today’s action, but it didn’t tell me much. The bulls can be happy that the market didn’t just crap out after a couple of big up days, and the bears can be happy that we didn’t get another big gap up.

So we wait. We wait to see if we get that follow-through on the big two-day move, and if we do, we’ll certainly have to back off our bearish stance, at least for the time being. That said, the market is still in a downtrend and if we don’t get that follow-through, this recent move up will prove to be nothing more than a normal bounce out of oversold conditions that will eventually lose steam and head lower.

It’s up to the market to decide.

At The Big Picture this morning, Barry follows up his post on the joke-of-a-GDP report this morning…

This 4.9% number is one of the more “fanciful” government releases you will see in your lifetime, (outside of the state run media that exist only within totalitarian dictatorships).

Did this past quarter feel like the strongest growth quarter in 4 years?

—

Question: How can Q3 GDP be 4.9% with corporate earnings, housing and retail sales so awful? Forget Goldilocks, this fairy tale sounds more like Cinderella . . .

…with his take on the consistently misleading government data, saying it’s not a conspiracy — the data is there for all to see, but very few ever bother to look:

In fact, the Truth is actually much worse than any conspiracy: Its as if the government is saying:

“Conspiracy theory? Ha! We don’t need to bother fabricating anything — we dump ALL of the data to the web each month, and that site gets less traffic than a dog’s blog in Kuala Lumpur.

We just think you couch potatoes are too lazy, too dumb, too easily distracted by other nonsense to really look at the actual data. Heavy lifting? Actual thinking? Working to figure out what is really going on? Don’t make us laugh!”

And you know what? They’d be right.

Even most conspiracy theories are just a lazy approach to the data . . .

The numbers are out, and the charts are up over at Calculated Risk:

This is another VERY weak report for New Home sales. The stunning - but not surprising - downward revision to the August and September sales numbers was extremely ugly. This is the third report after the start of the credit turmoil, and, as expected, the sales numbers are very poor.

I expect these numbers to be revised down too - perhaps below 700K. More later today on New Home Sales.

I doubt that we’re looking at the ‘last’ shoe to drop, since our economy and financial system has many more than two feet. It’s more like an octopus…

But there have been tremors shaking the commercial real estate market for a while now, and the foundation there may be starting to crumble. Finance Trends Matter takes a look:

Commercial property may be headed for trouble, at least as far as the bond market is concerned.

Bloomberg reports that action in the derivatives market for commercial mortgage securities is reflecting increased worries of default risk and investor skepticism over the sector’s strength.

Excerpt from, “Deadbeat Developers signaled by Property Derivatives”.

In the bond market, commercial property investors are about as creditworthy as U.S. homeowners with subprime mortgages.

“Commercial real estate is a full-blown bubble that feels very much at a bursting point,” said Christian Stracke, an analyst in London at CreditSights Inc., a fixed-income research firm.

Go check it out.

A much quieter day that we’ve been seeing, with indices just in the red, and A/D lines in the red for now as well. Oil services and oil stocks are getting a bit of a bounce, while some of the recent winners are giving some back, like the homebuilders, airlines, brokers, banks and retail.

Treasuries are higher, yields lower. Energy prices are mixed, with crude getting a little bounce after sliding the past couple of days. The dollar is higher, gold and silver lower.

Gary Kaltbaum has some thoughts on why the market has gone up the past couple of days, despite the continued flow of bad news:

CITI gets 7.5 billion at junk bond rates.

Housing numbers continue to plummet.

So what do we get? 550 DOW points in 2 days. So…if the news is all bad, how is the market in a romp all of a sudden? Simple. It had dropped very far…very fast…and ended up extended and oversold to the downside. I have been bearish since the highs and even I told you in my last two reports that the DOW and S&P were due to bounce back into their long term moving averages at 13,200 and 1480 respectively. Little did I know that it would happen in just 2 days. Welcome to hot money city. Now what? How about some facts?

Everyone is saying that Wednesday’s rally was because of some dovish comments by a fedhead. Well…the last two times the Fed cut rates, the stock market popped. But the market has given everything back.

The NASDAQ’s price gain on Wednesday was one of the biggest of the year…but I have told you many times that one big day doesn’t do it for me unless it comes in the 4th through 10th day off a low. Wednesday was day 2. But here is a very important fact. The Nasdaq’s nine biggest up days of all time all occurred during the bear market of 2000 to 2003…and the Nasdaq’s biggest up day of this year came on Nov. 13 — the market yonked the day after.

Why do I look for a confirmation starting in the 4th day off a low and not the 2nd day? Simple…IT IS WHAT WORKS. Studies of bull and bear markets since the beginning of time show that confirming follow through days work best on the 4th day or after…preferably through the 10th day. Occasionally, a follow through occurs as early as the third day of the rally. In such a case, the first, second and third day must all be very powerful, with major averages up 1 to 2% or more each session on heavy volume.

Just follow the characteristics of bull and bear markets, of tops and bottoms and you are way ahead of the crowd. It was these characteristics that had this report get you out of HOUSING, BANKS, BROKERS, LENDERS, MORTGAGE, INSURANCE, S&Ls, RETAIL, SEMICONDUCTORS, REITS, HOTELS, RESTAURANTS, AIRLINES, AUTOS, AIR FREIGHT, TRUCKING and all the bear market areas before the masses caught on to the problem. It was these characteristics that had me tell you overweight large caps over small caps the past 9 months. So simply put, I stick with what works. The next few days could be very important.

On the news out of Wells Fargo, from today’s Five Things:

Speaking of credit contraction…

Wells Fargo (WFC) this morning announced a $1.4 bln loan loss. After listening to the company’s conference call I wanted to go through what I think are some important takeaways.

The stock is trading up nearly 5% on the news, and this may be confusing to some people. Why, after reporting a $1.4 billion loss, would the stock be trading higher? Ironically, what looks like bad news for WFC is actually good news for WFC, but bad news for others in the sector. Let me explain what I mean by that.

First, WFC does not make markets in subprime mortgages or securities, they have no sponsored structured investment vehicles (SIVs) housing off balance sheet assets, the company has little exposure to hedge funds and minimal exposure to collateralized debt obligations and asset-backed commercial paper.

So, why the $1.4 bln loss? Where did it occur? The loss occurred in WFC’s warehouse pipeline, mostly indirect home equity loans which were predominantly prime. Simply put, deterioration in the real estate market (not subprime) resulted in higher losses on home equity loans.

WFC said it will continue to tighten what were already disciplined underwriting standards, at least compared to peers. This is a hallmark of credit contraction, plain and simple. It is a smart way for WFC to manage their business; good news for WFC and for long-term shareholders. But it is bad news from a macroeconomic standpoint because tighter credit conditions beget tighter credit conditions.

But what about the Fed rate cuts? Again, this is why LIBOR is so important. (See Five Things Primer on LIBOR here, and yesterday’s update here.) LIBOR remains 50 basis points above the Fed Funds rate and has actually risen 20 basis point since the October rate cut. This is evidence that Fed “liquidity” is being absorbed by banks - they are hoarding cash - and isn’t flowing into the economy as it did during the 2001-2003 rate slashing spree.

Remember, the economic story is not about liquidity, liquidity, liquidity the way it is so often presented. It’s about liquidity plus velocity, velocity, velocity.

Overall, WFC has avoided much of the exotic and, frankly, bizarre businesses their competitors have engaged in, so the writedown, although it is indicative of credit contagion (the bad news), also looks like a cleansing event for WFC (the good news).

Ironically, it is precisely because WFC has avoided some of the more exotic lines of business that makes it possible for the company to come clean with a $1.4 bln loss. Many of WFC’s peers would probably like nothing more than to come clean with their losses.

	The 1480-1500 area remains an important level to watch on the S&P, going back quite a few months now.
	The Russell made a big, 3-plus percent move today, but two up-days haven’t really put this chart in good shape yet.

Charts courtesy of StockCharts.com

Yesterday, we said we were “on the lookout for bounces, and maybe we’re seeing the start of one here.” Today, we found out for sure that we were seeing the start of a bounce, as it continued in a big way. The Russell and the Transports got the biggest pop:

Treasuries were a mixed bag. Yields on the short end moved lower, probably in anticipation of further Fed cuts, but the long end saw yields move higher:
6-month: 3.36%    2-yr: 3.18%    5-yr: 3.48%    10-yr: 4.02%   30-yr: 4.41%.

Internals were very positive, and volume increased from yesterday’s levels. Advances/declines were nearly 7 to 1 on the NYSE and 3 to 1 on the Nasdaq, with up/down volume 19 to 1 on the NYSE and 8 to 1 on the Nasdaq. Still more new lows than new highs though - highs/lows were 48/76 on the NYSE and 39/122 on the Nasdaq.

Green, green and more green in the groups, as many of the worst get their turn to be first: banks (+6.1%), steel stocks (+5.1%), chemicals (+4.8%), transportation (+4.7%), retail (+4.6%), computer hardware (+4.6%), airlines (+4.1%), REITs (+3.8%), networkers (+3.7%).

Another drop in energy prices didn’t hurt matters any. Crude oil fell nearly 4 bucks to $90.62/barrel, gasoline was down 9 cents to $2.28/gallon, and natural gas fell to $7.20/mmBTU. The dollar got a big morning bounce, but gave it all back to keep the dollar index flat at 75.16. That helped the PMs get back some of their early dip, and gold finished down about 7 bucks at $805/ounce, with silver losing only 3 cents to $14.40/ounce.

BMB Note:   Today was one of those days where the direction for the market was pretty clearly laid overnight, and there was no stopping it, news or no news. The Dow futures were down around 33 last night, and when I looked this morning they were up over 100. I thought to myself, “here we go…”.

So we got a big bounce. Now what?

Well, hard to say at this point. The big question is, have we seen the lows for now, and does the last two days start some big push up into the end of the year? Or is this just one of those sharp, short covering, ‘bear market rallies’?

I wish I knew. For now, until proven otherwise, I have to assume this is merely a bounce/retracement of the big thrust down, and that would be perfectly normal. Nothing in the big picture, especially fundamentally, has changed significantly - maybe except for the deep pullback in oil prices today. But they’re still above 90 bucks!!

I would imagine that the O’Neil folks will have to call this a ‘follow-through’ day, even if it is on the second day up off the lows. I will play it by ear. If this is the start of a meaningful move higher, I’d like to see things sit around for a few days, and then follow-through again in the next week. If we get that, maybe we’ll start considering that a near-term low could be in and start looking at things a little differently. For now, we’ll still consider this a bounce, and see how it acts once when/if it encounters some resistance.

But when you back off from the last two days of market action, all the indications are still there that we are in the early stages of a longer-term bearish phase - it’s the logical conclusion to the multi-year credit expansion, which has now run into many severe roadblocks. I’ll be pretty stubborn and cautious, and I will force the market to convince me that I’m wrong.

No doubt, this is the “good news” driving the huge move up in stocks today:

The economic slowdown has begun, according to the Federal Reserve’s latest report on conditions across the country released Wednesday. The economy continued to grow, but at a reduced pace, according to the report, known informally as the Beige Book. The glut of available homes for sale is keeping downward pressure on house prices and construction activity. No turnaround is on the horizon until well into 2008, contacts said.

I told you this morning that it looked like the push higher, news or no news, was underway. I guess it was time to start squeezing the shorts again…

No surprise that the morning’s existing home sales report didn’t hold much great news:

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – eased by 1.2 percent to a seasonally adjusted annual rate of 4.97 million units in October from a downwardly revised level of 5.03 million in September, and are 20.7 percent below the 6.27 million-unit pace in September 2006.

Calculated Risk has the story and the updated charts.

Bounce away. As we suspected earlier, the futures were indeed indicating another push higher today. Indices are showing gains of 1-2%, with strong A/D lines.

Groups are mainly green, again led by the losers: banks, brokers, homebuilders, retail, computer hardware and transports.

Interestingly enough, yields are lower on the short end, but higher further out. Energy prices are lower, the dollar is bouncing along with stocks, gold and silver are lower.

Gary Kaltbaum offers his “two cents” on the Citi news:

I had to put my two cents in on this CITI thing. So many are saying how positive the news was. What is positive about:

A company who has been buying billions of its own stock back at higher prices…now selling at much lower prices.

A company that has to pay higher than junk rates to obtain the cash. In a sad irony, who is the subprime borrower now?

The 11% interest rate is not even tax-deductible. And are they raising this money just to pay the dividend?

Very simply, it is my opinion that this was a sheer act of desperation and urgency. This move telegraphs that there is billions more to go for CITI…and that Meredith Whitney was right while CITI lied about their situation. For me, there is nothing bullish about this news. If you feel differently, I would love to hear from you.

By the way, I am not saying it will be a repeat but just remember what happened to the BAC/Countrypuke Financial disaster.

I am still in the camp we can bounce here back into the longer term 200 day moving averages for the major indices. That would be DOW 13,200 and S&P 1480. Again, this is not a bullish call…but a call based on the fact there is only 22 days left in the year for the boys to make things better. The S&P just went back above positive for the year on Tuesday…and am sure that will not be good enough for them. Any bounce is a bounce in a bear phase though. Until I see a follow through day, the market remains in a downtrend. If one occurs, I will deal with it. My bigger interest now is January. Markets top in January. If the internals do not improve markedly…look out.

Futures are up, and the pundits are crediting one of the Fed folks for the bump. I’m not sure if we need a reason or not - it seems like there’s going to be an effort to bounce this market higher here, and the news probably doesn’t matter.

Like this morning’s lousy durable goods report - it doesn’t matter, at least as far as the futures are indicating.