Bear Mountain Bull

As long as we’re getting opinions on the Fed, we might as well hear from Jim Rogers:

“I’m extremely worried,” he says. “I have been for a while, but I just see things getting much worse this time around than I expected.” To Rogers, a longtime Fed critic, Bernanke’s decision to ride to the market’s rescue with a 75-basis-point cut in the Fed’s benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn’t willing to provide the fiscal discipline that he thinks the economy desperately needs.

“Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I’m afraid it’s going to be much worse,” he says. “Bernanke is printing huge amounts of money. He’s out of control and the Fed is out of control. We are probably going to have one of the worst recessions we’ve had since the Second World War. It’s not a good scene.”

Indeed. But Rogers remains bullish on China and commodities:

“I’m delighted to see what’s happening in Shanghai and Hong Kong,” he says. “As I’ve said, if things hadn’t cooled off, the Chinese market was in danger of turning into a bubble. I find this most encouraging. The government’s been doing its best to try and cool things off. Mainly they’ve been trying to deal with real estate but it’s having an effect on stocks, too. I would suspect the correction isn’t quite over in China. But I’m gearing up. I didn’t put in any orders for tomorrow but I’m starting to prepare my list of things to buy in China. Whether I buy this week or this month or this quarter, who knows. But I’m starting to think about buying new shares in China for the first time in a while. And I’m not thinking about buying in America.”

—

“Think about the story of gold in the ’70s,” he says. “Gold went up 600%, and then it started correcting. It went down nearly every month for two years, nearly 50% from the high point. And everybody said, ‘Well, that’s the end of the gold market. It was just a fluke. It’s over.’ It scared everybody out. And then gold turned around and went up 850% from that level. This is what happens in markets. But the fundamentals of the secular bull market in commodities are not over any more now than they were for gold in the ’70s.”

Hat tip to a BMB reader.

A few thoughts on the Fed’s recent moves from the profs at Minyanville.

Here’s Kevin Depew in today’s Five Things:

1.  Fed Post Mortem

First, a quick note on what happened yesterday with the Federal Reserve Open Market Committee’s 50 basis point Federal Funds and Discount Rate cuts.  Looking at the FOMC statement, there are two things to note:

1)  The Fed believes the housing contraction is “deepening.’
2)  the Fed believes credit markets remain under “considerable stress.”

This is not a surprise.  If there is a surprise, it’s in the hysteria coming from market pundits over the Fed’s actions.  Did anyone honestly expect the Federal Reserve to roll over and allow deflation to take root without using all means at the central bank’s disposal to try and stave it off?  Read Fed Chairman Ben Bernanke’s “Deflation: Making Sure “It” Doesn’t Happen Here” speech again.  Or, better yet, read the details of the Bernanke Put we outlined last May.   

The issue is not “whether” the central bank will act to fight deflation, but how aggressive they will be?  After 125 basis points in eight days, I think we have the answer to that question at least. 

The issue markets have not yet fully solved is will the Fed be successful in stopping deflation, or if it will, at what cost?  Chairman Bernanke has been very clear in why he believes the Fed can successfully stop deflation.  As he explained back in 2001, “[U]nder a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.”

And from Mike Shedlock:

…the market is rapidly pricing in yet another half point cut at the March FOMC meeting. That would bring rates down to 2.50%. Bernanke now appears hell bent on matching Japan’s ZIRP (Zero Interest Rate Policy) in a misguided attempt to prevent deflation, a deflation that I might add is badly needed. So much for anyone really wanting “affordable housing”.

I don’t think I like where this is headed, though I am not in the least bit surprised. I think I’ll stick with gold for a while yet.

And to top it off, the silly American voters think that the next president can ‘fix’ inflationary problems — when in reality, our government officials are doing everything in their power to keep the inflation going:

According to a new Associated Press-Yahoo! News survey, large majorities of voters believe the president has considerable sway on issues such as inflation, interest rates, the federal deficit, taxes and more. Fully three-quarters believe the president has at least some influence over health care costs. And 69 percent can see the president making gasoline prices go up or down.

I have a feeling those voters are going to be sorely disappointed. For if inflation does indeed stop, they won’t like that situation much better.

We know that the Fed doesn’t set rates, they merely follow the market. And it looks like they’ve got some more following to do, as the 3-month rate took a dive below 2 percent today.

Charts courtesy of StockCharts.com

This market is psycho.

The Dow dropped some 200 points out of the gate this morning, and then proceeded to ramp up – in a near perfectly straight line – some 450 points off that low, into the last ten minutes of the day. It then proceeded to get clocked for about 120 points in less than two minutes, then bounce back up into the close. That bounce even continued after the close: when the closing bell rang, my screen said the Dow was up 160+ points, but the close is posted up 200+. Ya got me.

“The Bounce” might be back after yesterday’s collapse, and it looks like the bulls might have their “follow-through” day:

In Treasuries, the market is forecasting more cuts, as yields on the short end took a dive, but longer yields went only slightly lower:
6-month: 2.07%    2-yr: 2.15%    5-yr: 2.80%    10-yr: 3.63%   30-yr: 4.34%.

Internals were positive, with volume finally picking up. Advances/declines were 3 to 1 on the NYSE and 11 to 5 on the Nasdaq, with up/down volume 4 to 1 on the NYSE and 7 to 2 on the Nasdaq. New lows from the morning dip outnumbered the new highs: highs/lows were 20/33 on the NYSE and 23/107 on the Nasdaq.

In the groups, mostly green with the laggards leading the bounce again: homebuilders (+8.4%), retail (+6.1%), transportation (+3.7%), banks (+3.6%), airlines (+3.3%), brokers (+3.3%), networkers (+2.8%), metals (+2.4%), internets (+2.1%) and utilities (+2.1%). Only the gold and silver stocks (-1.6%) and the oil services (-1.5%) gave up ground.

Energy prices were mostly lower, with crude oil dropping to $91.75/barrel and gasoline to $2.31/gallon, but natural gas picked up a couple of cents to $8.06/mmBTU. The dollar index rose just slightly to 75.17. Gold pulled back a few bucks to $926/ounce, but silver had another good day, rising to $16.91/ounce.

BMB Note:   Hope you’ve got a strong stomach for the rollercoaster.

Wild swings these last couple days, and I’m not quite sure what to make of it. Today’s follow-through day hardly instills a great deal of confidence in me, as I watch the worst groups in the market carrying the day. But that’s the way it goes.

Now we’ve got a supposedly ‘confirmed’ contra-trend rally up into the meat of resistance, off a ‘V’-shaped bottom, with the indices pinned up near yesterday’s highs, all in the longer-term context of an overall bear market. You decide what we should do from here. If I were still heavily long, I think I’d be thanking my lucky stars for what looks like a great time to lighten up on my holdings.

Me, I’ve been stopped out of a few shorts, but also grabbed a bit more profit on the new relative high in silver today. As far as new positions, I’ll probably be standing back and watching for a bit to see how this show develops. It will be interesting to see if the ‘follow-through’ holds up – we should know in a few more days.

The big jobs number is out in the morning, and we’ve got another major blow-up in the after-market. Not that it matters, as we saw Amazon recover all its after-hours losses in the regular trading session today, but Google is down some 50 bucks in trading after the close. Some horseman.

No one has ever called me a troglodyte before. It was only a matter of time:

The same message, from two different sources, on the difference between bull and bear markets.

First, from Gary Kaltbaum on his radio show yesterday:

“In bull markets, bad news is bought, and good news is bought with a fervor. In bear markets, good news is sold, and bad news is crushed.”

And today, from Fil Zucchi at Minyanville:

“…a textbook reflection of how stocks behave in bear markets: i.e., good news gets you a yawn, no news gets you a beating and bad news gets you decapitated.”

Which are we in now, bull or bear? I think that answer is pretty clear.

Ignore at your own risk.

An early dip didn’t last too long, and to this point, the damage to the indices has been minimal. A/D lines remain in the red. Leading groups, again, are the homebuilders and transports, while oils, metals and software lead the losers.

Treasuries rallied off the jobless claims numbers, pushing yields down. Energy prices are lower, the dollar is fairly flat, gold is down a few bucks, but silver is near flat.

The European indices look to be off to a rough start – much rougher than it was in Asia overnight.

Initial jobless claims jumped this week. That news isn’t helping the US index futures any, which were already struggling after yesterday’s close. Dow futures down 123.

Mike Shedlock on today’s Fed statement:

As you can see, the Fed did not really say much of anything other than risk was to the downside, something that any thinking person could figure out on their own accord. Fed actions however, are another matter. Cutting interest rates from 4.25 to 3.0 in less than two weeks tells the real story. This is what Fed actions say: “We are scared to death about a deflationary debt collapse”.

—

Heading into a consumer led recession there are simply not going to be many places to hide out. However, one would never know that listening to the analysts on Bloomberg after the FOMC announcement. Several analysts actually predicted the Fed will be hiking rates within a year and this is all going to blow over by the fourth quarter.

Faith in the Fed remains in bubble territory. That faith will eventually be shattered.

As for faith in the Fed, mine won’t be shattered. I never had any.

The S&P bounced hard off the 20-day moving average today, and now looks to have defined some limits for the time being.

A couple of groups are already getting into some serious trouble:

In that drug sector, there are some big names that could be in need of medication:

Charts courtesy of StockCharts.com

“The Bounce” may be in a bit of danger.

The bulls had their chance today, and let’s face it, they blew it. After some post-Fed maneuvering, they were able to run things up into the final hour, with the Dow up some 200 points. But then the air came rushing out of the balloon, and all of the major indices fell back to earth.

The Transports were able to hang onto some of their gains, and the Naz-100 held the flat line. But the Russell ended up well below the surface:

In Treasuries, yields moved lower on the short end, but edged upward on the long end as the curve steepens slightly:
6-month: 2.22%    2-yr: 2.22%    5-yr: 2.88%    10-yr: 3.70%   30-yr: 4.40%.

Internals slipped back over to the dark side, with volume picking up over the past two days’ low levels. Advances/declines were 3 to 4 on both exchanges, with up/down volume 4 to 7 and just below flat on the Nasdaq. New highs remain scarce, and we’re still finding a few new lows: highs/lows were 19/21 on the NYSE and 11/78 on the Nasdaq.

In the groups, very few were able to stay in the green: transportation (+2.6%) and gold and silver stocks (+1.1%) led that short list. A few big numbers rolled back over to the red side, led by the homebuilders (-5.4%), oil services (-2.7%), disk drives (-2.3%), REITs (-2.1%), hospitals (-1.7%), drugs (-1.5%), metals and mining (-1.5%) and biotechs (-1.5%).

Energy prices were mostly higher, with crude oil up to $92.33/barrel, gasoline flat at $2.33/gallon and natural gas up a nickel to $8.04/mmBTU. The dollar index took a tumble after the Fed slashed rates again, falling to 75.12. The precious metals got another little “Ben bump”, with gold up to $930/ounce, and silver to $16.80/ounce.

BMB Note:   As I said to the BMWife at the close: that was not a bullish development.

As I watched the jousting going on after the Fed speak, I was still amazed at the relative lack of volume. Going into the last hour, with the Dow up 200 points, NYSE volume was still well below yesterday’s already low levels. I thought to myself, “Even if this sticks, it’s going to be questionable.” Well, obviously, it didn’t stick.

So do you remember last week’s big reversal off the lows that marked a near-term ‘bottom’? That behavior works both ways, and today’s big reversal probably draws a hefty line in the sand on the upside for this bounce, which might prove tough to get across.

Let’s see how the next few days shake out. I’m not saying we’ll go straight down from here, but I think we’ll find some tough sledding on any attempts to move higher. And be on the lookout: if we start seeing distribution days show up, this market could easily get a little loose again.

Half-point cut in the Fed Funds target rate and a half-point cut in the discount rate.

Here’s the discussion of the move at MarketWatch, and a link to the complete text of the statement if you’re having trouble sleeping.

The market stills seems to be trying to decide whether this is a good thing, a bad thing, or nothing at all.

Not surprisingly, there isn’t much action ahead of the Fed. The indices haven’t wandered far from home, A/D lines are near flat, and volume is very light. That should change this afternoon.

Transports/airlines and brokers are higher, while disk drives, oil services, drugs and housing stocks are lower.

Bonds are dipping, and yields are higher. Energy prices are flattish, the dollar is back to flat after a morning dip, and gold and silver are fairly flat as well.

From Charlie ‘Gossip’arino at CNBC, via Calculated Risk:

Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA, even though New York state insurance regulars would like to get a postponement until the state can develop a bailout package, CNBC has learned.

Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients — and possibly forcing them out of business.

Barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday.

Insurer Ambac (ABK) has received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor’s and Moody’s. MBIA (MBI) hasn’t been downgraded.

The ratings agencies realize they’re walking a tight rope — if they downgrade the insurers, they could expedite their demise. On the other hand, if they follow New York’s request and don’t downgrade, they’re in essence violating their duty to downgrade bonds on objective criteria.

If the downgrades were to happen, that would sure stir up the pot a bit. But then again, why should we expect the ratings agencies to ‘do the right thing’, when they were clearly doing the wrong thing for the past X number of years?

ADP’s payroll numbers show an increase of 130,000 jobs in January, but the first stab at 4th quarter GDP came in at a measly +0.6 percent – that after the silly 4+ percent number they were trying to pass off in the 3rd quarter.

From Condoflip.com to Youwalkaway.com:

“Unshackle yourself today from a losing investment and use our proven method to Walk Away.”

It was inevitable.

Update:   Mike Shedlock has more, in “The Business of Walking Away”

The major indices are trying to make their way higher, but the move has been quite underwhelming to this point. The S&P and Nasdaq have yet to make contact with their declining 20-day moving average (blue line):

The “Horsemen” are no longer pulling the load:

Instead, the big moves are coming from the bottom of the barrel:

Charts courtesy of StockCharts.com

Creepy. Another day where the indices were a little mushy out of the gate, and then just crept higher over the course of the day. But the lack of conviction in the buying has been obvious, with volume coming in at very light levels again today.

The Transports are on a bit of a roll, while the Nasdaq lagged and the Utilities are still struggling, giving up much of their early gains on the day:

In the Treasuries, yields edged higher across the board:
6-month: 2.35%    2-yr: 2.27%    5-yr: 2.85%    10-yr: 3.66%   30-yr: 4.34%.

Internals stayed on the good side of the boat, but volume was again light – just lower on the NYSE and just higher on the Nasdaq. Advances/declines were 2 to 1 on the NYSE and 11 to 8 on the Nasdaq, with up/down volume nearly 7 to 3 on the NYSE and 7 to 4 on the Nasdaq. New highs and lows are battling it out, but with small numbers on each side: highs/lows were 21/13 on the NYSE and 15/51 on the Nasdaq.

In the groups, the green side won the day again, led by paper (+3.2%), housing (+2.9%), computer hardware (+2.9%), telecom (+2.4%), transportation (+2.3%), banks (+2.0%), oil stocks (+1.9%), networking (+1.9%), airlines (+1.7%) and brokers (+1.6%). Leading the losers list were the oil services (-1.2%) and the REITs (-1.0%).

Energy prices were mixed, as crude oil moved up to $91.64/barrel, gasoline was flat at $2.33/gallon and natural gas fell back to $7.99/mmBTU. The dollar index was flat at 75.58. Gold gave up a few bucks to $922/ounce, and silver dropped a few pennies to $16.67/ounce.

BMB Note:   Wedgies. That’s pretty much what we’ve been getting for the past two days in many stocks and in the indices – a slow, light volume wedging upward as the bulls try to disguise this bounce as something more substantial. But I’m not fooled. At least not yet.

But a lot could change tomorrow at 2:15 Eastern when the Fed finally makes their call. It’s guaranteed we’ll see more volume than we’ve seen the last few days, but there is absolutely no way to predict what’s going to happen.

I’ll continue to scan for opportunities on the short side until things change. But I’ll be waiting for triggers on the downside before I get in, and honoring my stops if need be.

And who knows? Maybe things will change here, and the market will hold up. From the way things stand right now, believe it or not, we could be on the lookout for long entries in the homebuilders, the transports and/or the financials!

That’s a scary thought. Maybe I’ll just let Ben keep pushing the price of gold up.

A story from Todd Harrison today. As he says, “Any trader worth his or her salt has been on the wrong end of a painful day.”

Indeed. Good story. And something to think about when you watch those flickers move around all day long. There’s a lot going on out there.

Another builder bites the dust:

Tousa Inc., the Florida homebuilder that lost 98 percent of its market value in the past year, sought bankruptcy protection from creditors and proposed a plan for exchanging bond and unsecured debt for new stock.

—

Tousa, now the largest builder in bankruptcy and at least the 14th to file since June, missed three interest payments this month as purchases of new homes in the U.S. fell to a 12-year low in December, ending the worst sales year since records began in 1963 and signaling little prospect for a recovery. Foreclosures almost doubled last month from a year earlier.

And according to Calculated Risk, this one’s a little higher on the ‘list’:

TOUSA was the #13 largest builder in 2006 according to BuilderOnline.

Stocks tried to take advantage of a morning move up in the futures, but the gains were short-lived as the indices have pulled back, and are mixed near the flat lines. The Utilities and Transports are faring better than the broad-based measures, holding onto gains of a percent or better. Advance/declines lines are mixed – still positive on the NYSE, but slightly negative on the Nasdaq.

The groups are split, but a few more on the green side than red at the moment. Leading the winners are the airlines, oil stocks, transports, paper, computer hardware, telecom, chemicals and networkers, while the homebuilders are taking a day off, followed down by the REITs, oil services, semiconductors and retailers.

Treasuries are a little lower, yields up. Energy prices are just a bit lower. The dollar is flat, gold and silver slightly lower.

Deron Wagner speculates on how this market might play out in the near future:

After stocks began rallying in the middle of last week, we suggested the likelihood of a pullback in the market to shake out the “weak hands” from the bounce, followed by an attempt to set “higher highs.”  So far, that’s how the scenario is playing out.  Yesterday’s rally quickly enabled both the S&P and Dow to recover all of last Friday’s losses, while the Nasdaq Composite nearly did the same.  With support of a “higher low” having been established, we could expect the major indices to test resistance of their January 25 highs within the next several days.  The market’s reaction to that test will determine our next short to overall moves in the market.  Again, we expect stocks to rally above last week’s highs, attract the attention of happy-go-lucky buyers, and then realize significant selling weakness.  As such, we remain lightly committed on the long side of the market.  Our only long position is the relatively strong XHB.  On the short side, we’ll be closely analyzing the market’s price action over the next several days, looking for clear signs of potential failure on the rally attempt.  The upcoming Fed meeting on economic policy should further create volatility.

Asian indices were only able to post minor gains, sandwiched between Australia’s two percent drop and the Nikkei’s three percent rise, but European indices are playing a bit of catch up this morning.

Here at home, the big news out is the jump in durable goods orders, mainly due to Boeing’s aircraft orders and our own government’s defense spending.

Dow component American Express (AXP) – closed at 47.40, trading around 46.

A big blowup in VMware (VMW) – closed at 83, trading at 61.60. Yikes. Hope you don’t own that one.

“Sales of new homes fell 4.7% to a seasonally adjusted annual rate of 604,000 in December, far below the 645,000 expected by economists surveyed by MarketWatch and the lowest sales pace since February 1995. December’s sales pace was down 40.7% compared with December 2006.” The market is not logical.

Charts courtesy of StockCharts.com