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.

Chinese investors ask, “Where’s our ‘bailout’?”

From MarketWatch:

Repeated calls for China’s financial authorities to prop up the country’s sharply deflated stock market have gone largely unanswered as the government directs its focus on combating inflation. That’s a surprise to many Chinese investors, who are used to government control of everything from the price of gasoline to how many children they can have. To make matters worse, they’ve also seen the Federal Reserve cut interest rates and rescue Wall Street investment banks to keep the U.S. financial system running smoothly, which has perked up stocks.

“The U.S. government is intervening to boost the markets, why can’t China?” said Xu Xiaonian, professor of economics and finance at China Europe International Business School, in a telephone interview.

See? Everybody knows what our government is trying to do.

From today’s Buzz Bits:

If Wachovia has to sell its soul… - Bennet Sedacca - 10:33 a.m.

…What happens to other banks?

We got a sniff of this last week as Wachovia (WB) CDS started to widen.

But the real issue, obviously, as we move more and more down the path to contagion, is whether there’s enough to capital to bail out all of the bad banks, and not-so-good banks? My simple answer is no. If General Electric (GE) and WB, back to back, spit up these hairballs, what happens to the truly bad banks like National City (NCC) and Key Corp. (KEY) just to name a couple?

Rhetorical question, no? They’ll be forced to accept any terms the buyer or bailout firm proposes. Or close up shop. And we all know that can’t be allowed to happen.

The other issue is the huge amount of layoffs in the financial industry, many of which are rather highly compensated. So the ripple effect towards contagion continues.

Position in NCC options, WB debt

They are bound and determined to get your money. Somehow, someway…

Red-light cameras are often billed as a great way to improve traffic safety and prevent speeding. A few cities across America, however, have been caught short-timing their own yellow lights below legal levels, in what may be an attempt to boost ticket revenues by giving drivers less time to come to a stop.

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One city, Chatanooga, TN, has been forced to repay the $8,800 it collected in ticket revenue, while investigations in Dallas, Texas and Springfield, Missouri, have uncovered evidence of similar practices, although no charges have been filed.

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In Dallas, yellow lights at the city’s revenue generators camera-enforced intersections were timed for just 3.15 seconds, or 0.35 seconds less than the Texas Department of Transportation minimum. In this case, a third of a second may make a substantial difference in revenue—theNewspaper reports that most (80 percent) red light tickets are issued less than one second after the light has turned to red. Ironically, Dallas is now considering scrapping its ticket revenue program, after new legislation forced the city to post signs alerting drivers to the existence of the cameras as well as requiring all towns to send 50 percent of their camera-derived income to the state’s coffers.

The fertilizers just keep on rollin’:

The banks keep rollin’ too - downhill:

Charts courtesy of StockCharts.com

A pretty uninspiring day for both the bulls and the bears. Indices didn’t move a lot, but looking at the internals, things were obviously biased to the downside, although volume was a little lighter.

The Transports and Utilities held above the flat line, while the broader indices slipped just below:

Like stocks, Treasuries didn’t move a lot - yield were a bit lower on the short end, but a bit higher on the long end:
6-month: 1.39%    2-yr: 1.75%    5-yr: 2.59%    10-yr: 3.51%    30-yr: 4.35%.

Internals were a bit worse than the indices might show, but volume again slacked off a bit. Advances/declines were 2 to 2 on the NYSe and 7 to 12 on the Nasdaq, with up/down volume 2 to 3 on the NYSE and 1 to 2 on the Nasdaq. New lows picked up again, and are starting to mount on the Nasdaq - highs/lows were 42/82 on the NYSE and a lousy 14/154 on the Nasdaq.

The groups were mixed, with the big winners from the commodity space, while the financials led the losers. Leading the green team were the airlines (+2.9%), oil stocks (+2.8%), oil services (+2.4%) and natural gas stocks (+2.0%), while the banks (-4.2%), brokers (-2.8%), homebuilders (-2.7%), semiconductors (-1.7%), disk drives (-1.7%) and steel stocks (-1.1%) led the losers.

Energy prices continue to hover at record levels. Crude oil gained more than a dollar to $111.76/barrel and gasoline hit another new high at $2.82/gallon. Natural gas moved back above 10 bucks to $10.06/mmBTU. The dollar index spent the day getting back the ground it lost overnight, and finished near flat at 71.87. Gold and silver were flat as well, with gold at $924/ounce and silver up just a few cents to $17.75/ounce.

BMB Note:   Hmm. Not much to report after that. Not a lot has changed. Another decent day for the energies and the fertilizers, and a lousy day for the banks and brokers. But that’s not really new, is it?

If you’re going to play this game on the long side, at least you don’t have too big a menu to select from. There are only a few groups worth looking at, as Gary K. mentioned this morning. The problem is when there are only a few stocks that are still going up, those become very ‘crowded’ trades. And if the market should start to slide, you might see an awful lot of folks running for the door at the same time - so even those currently ’strong’ areas will be vulnerable to sharp selloffs.

This market still doesn’t seem to want to just fall apart, but the enthusiasm for this latest ‘rally’ up off the lows has waned considerably. And the financials are looking weaker by the day. If they really start to crumble, there will be other areas following along. Add to that mix the fact that we’ll have earnings rolling out every morning and afternoon for the next few weeks, and anything could happen.

Watch your step. The footing may be somewhat treacherous. You go first - I’ll watch.

Jeff Macke on the Blockbuster/Circuit City combo:

Hello from New York where I’d love to pretend I see the hidden logic of the Circuit City (CC) takeover by Blockbuster (BBI) but, candidly, I’m at a loss. “Synergies” doesn’t make a ton of sense. “Real Estate” is bizarre - CC is in the process of changing its store base and Blockbuster, until very recently, was trying to morph into not having stores at all. Add it all up and what’s my best guess? The thinking at CC and BBI is “Let’s hold hands and jump off the cliff together”.

The Big Picture passes along this headline:

“CircuitBuster Would Merge Failure With Fiasco”

We’ve got both, and it’s getting us nowhere. Here’s Gary Kaltbaum this morning:

You cannot be the CEO of any public company you want, let alone General Electric (GE). And then to tell the world on March 13th that your earnings are “in the bag” only to miss by a mile. Did anyone learn a lesson from the dude running Bear Stearns (BSC)?

In the past few reports, I noted how the market was acting better. As long as the market rallied on heavy volume and pulled back on light volume, I was good. As long as leadership held up and more leadership showed up, I was good. As long as I did not see a plethora of breakdowns, I was good. Well, a few pins but not all may have been pulled.

Let’s start off with something that has not changed… this remains a very tough market to navigate on a daily basis, and now we are headed right into earnings season. Major averages are now back to the March 20th follow through day… meaning no progress for the major averages since. Yummy! I must add that the all-important NASDAQ has already had a distribution day this week. This leads us to Friday’s action. The good news is that volume was light for such a big down day. The bad news is that too many are using that as a positive. I am not sure that such a large drop is positive whether there is heavy or light volume.

Other not-so-thrilling things:

The TRANSPORTS, which were actually leading a bit, were smacked with a big volume ugly on Wednesday.

It’s not good when a leading area gets smoked.

All other major averages are back below their respective 50 day averages. In bear markets, major averages spend most their time below the 50 day… which is always below longer-term moving averages. In bull markets, major averages spend most their time above the 50… which in turn is above long term moving averages. I also would make a note that the DOW and S&P hit a wall at what I call the “DUH, RESISTANCE!” It is normal to hit this resistance a few times before breaking above it… but with Friday’s action, it will be tougher to crack. Resistance on the DOW is around the 12,768 and S&P 1396.

WORLD MARKETS, while rallying a bit with our market, continue to lag. They led in the bull market…and by a wide margin.

The good news is that while there continues to be only a handful of good looking groups, these groups have not budged in the past week…nor did they budge on Friday. Those groups are COAL, STEEL, FERTILIZERS, AGRICULTURE, OIL & GAS-(EXPLORERS, PRODUCTION, DRILLING), RAILS and TRUCKERS. It may not be much but what is working is working well. Other groups that have been coming on and displaying better relative strength but pulled back this week are HOMEBUILDERS and SEMIS.

Get ready for earnings. Any more GE-like numbers and look for bear market lows to be retested. Remember, it will not be the news. It will be how things react to the news.

Advice for traders from Deron Wagner this morning:

Last Friday’s swift decline was a not so gentle reminder that stocks remain in a primary, long-term bear market. Although there have been decent, tradeable bounces since the broad market began its decline last October, each one has ended rather suddenly, eventually sending the major indices to new lows. Again, it’s too early to declare the intermediate-term rally as dead because the major indices only closed below their 50-day moving averages for one session. We’ve also yet to see heavy institutional distribution. Nevertheless, this is a time to be very nimble and cautious. We like the idea of a cash position right now, as it enables us to “wait and see” the market’s next move without any capital risk. Alternatively, throwing a short position or two into an existing portfolio of long positions would certainly be prudent and minimize risk.

Not a lot. Some of the Asian markets got smacked pretty good, Shanghai, Hong Kong and Japan’s Nikkei in particular. The government was out this morning with its version of the retail sales numbers, Blockbuster’s looking to make a bid for Circuit City, Wachovia reported earnings early - and cut their dividend - since they’re about to receive a cash infusion, and it looks like we might finally get the big airline merger.