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.

At Chart Swing trader, Mac has a few comments on today’s action - and he wasn’t totally thrilled with what he saw:

I also saw very few “new” stocks breaking out in what should have been a seemingly great day to do so. Looking at IBD’s “Stocks on the Move”, I see a lot of lagging stocks (RICK, EXM, AMZN, CMI, CHL) or the typical energy/ag plays that are super extended. I would have loved to see some newer, small-cap stocks like CSIQ make big moves today, but that didn’t happen. I’ve mentioned the past few nights that new, nice-looking charts just haven’t popped up too often in my scans this week. These observations tells me that this is still not a totally healthy market, and one that is still difficult to navigate successfully. Hardly any of the stocks that were in my watchlist did anything significant today – not a good sign.

In addition to some poor action on individual charts, I see a few other things that have me questioning if we are about to run out of steam in this rally. One is the T2108 indicator from Telechart – it is closing in on the 80 level which typically signals a very overbought market. I am also seeing high numbers on the Market Monitor in terms of stocks up over 50% in a month, which typically signifies unsustainable momentum. These, along with most of the indexes being right at resistance, has me expecting a pullback early next week. The way we pullback will be key to determining if we continue higher or just reverse right around this area. A low volume pullback in which the market holds its short-term moving averages would be very nice to see and is what bulls should be hoping for. However, if the pullback is sharp and volume is heavy, then this rally may be over right around here.

One other possible outcome I could see happening is that because just like selling, buying often feeds on itself, the market shows no concern about being overbought and retail traders, along with short covering, just continue to push us higher. If this happens, some of these ag, steel, and energy stocks that are very extended right now put in climax runs, and when they fail, that will signify the start of the second major leg down for this bear market. Based on the way we drifted lower in the afternoon today, I don’t see this happening. But it could. Those are my thoughts and what I am looking for. Bottom line – I really don’t think I will be buying stocks right at this point. Seems very risky to me right here.

That’s “more on”, not “moron”…

We touched on the Dow/Gold ratio in this post yesterday. Adrian Ash takes a longer term look:

…gold was a raging sell (in hindsight at least) when the Dow/Gold ratio touched 1.0 at the start of the 1980s. Stocks scarcely looked back for the next 20 years. But by the end of the ’90s, the real value had shifted again. And gold surged as the Dow sank after the Tech Stock Crash of 2000.

That slump in stock prices compared with Gold pushed the Dow/Gold ratio down from its all-time top above 42.2 to just 12.6 in March of this year.

That’s pretty much exactly the Dow/Gold average of the last eighty years. So which way will the ratio go now?

The Fed’s new “reflationary melt-up” is clearly designed to keep stock prices buoyant. But it’s only adding to the Case for Gold, too. “I would be very surprised if the Dow Jones Industrials/Gold Ratio didn’t decline to between 5 and 10 within the next three years,” said Marc Faber of the Gloom, Boom & Doom Report recently.

This and tons more for your weekend reading in the Features of the Week, compliments of Finance Trends Matter.

	Some of the major indices were able to edge out of their trading range today - can they hold it?
	Longer term, the S&P seems to be at a rather critical juncture.
	Chinese investors are not nearly as giddy as the hosts on CNBC are these days. The Shanghai Composite has registered a complete round trip over the past year.

Will skyrocketing oil and gas prices ever be seen as an ‘issue’?

Charts courtesy of StockCharts.com

No snoozer today.

Jolted by options expiration and earnings reports, the recent positive tone accelerated. Stocks leapt up at the starting bell and never looked back, squeezing the juice out of as many shorts as they could in the process.

Treasuries fell hard at the start, pushing yields up, but things reversed midday, and yields finished just slightly higher:
6-month: 1.66%    2-yr: 2.15%    5-yr: 2.92%    10-yr: 3.73%    30-yr: 4.50%.

Internals were predictably positive, with volume a bit higher than we’ve been getting, typical of an expiration day. Advances/declines were about 3 to 1 on the NYSE and 7 to 3 on the Nasdaq, with up/down volume 7 to 2 on the NYSE and 5 to 1 on the Nasdaq. New highs/lows were a healthy 112/11 on the NYSE, but despite a 3+ percent move in the Nasdaq 100, new highs/lows on the Nasdaq were only 57/53.

The groups were mostly green. Leading the way were the Googles internets (+4.3%), oil services (+4.2%), computer tech (+3.9%), networking (+3.2%), disk drives (+3.0%), brokers (+2.8%), transportation (+2.8%), retail (+2.6%), semiconductors (+2.5%), airlines (+2.5%), computer hardware (+2.4%) and defense (+2.1%). Only the gold and silver stocks (-2.0%) lost significant ground.

The rise in energy prices shows no sign of stopping. Crude oil rebounded from an early dip to run to new record highs, finishing the session up almost two bucks to $116.69/barrel. Gasoline ran up another four cents to $2.99/gallon, and natural gas gained ground to $10.57/mmBTU. The dollar index made a strong move up overnight but slipped back as the day wore on to finish around 71.98. Gold and silver did the opposite but still gave up ground on the day, with gold falling back to $917/ounce and silver to $17.79/ounce.

BMB Note:   Well, the bulls came out of the woodwork for the second day in three, finishing off a strong week for stocks as they continue to move up off the March lows.

While I haven’t exactly embraced this rally with open arms, I haven’t tried to fight it either. The market has no doubt been acting stronger over the last few weeks, and though I don’t believe it has the ability to last, I know enough not going to stand in its way and get run over. For now, the market wants to go higher more than it wants to go lower - it’s as simple as that. On the other hand, as I mentioned in the comments today: if I were still holding stocks from much higher levels, I would consider lightening up into this move.

The stronger areas, like the oils and fertilizers, continue to get stretched, and I’d be a little careful about jumping in there at this point. Aside from those areas, the groups that led the move up today were anything but ‘leaders’, coming from the financials, tech and retail, and those groups have some work to do before they’re in shape to ‘lead’ anywhere.

So we’ll see where it takes us. Since some of the major indices were able to sneak out of their trading ranges today, it will be important to see if they can hold those levels - or will they tuck right back in? There still exists plenty of overhead resistance, so it will continue to be a difficult task to get things to move meaningfully higher from this point. If the breakouts get a little air under them and hold though, I might look for trading opportunities on the pullbacks. That’s a big ‘if’.

Expiration is now over for another month, but there should be a pretty full slate of earnings reports up next week, and the Fed will roll into town with more pixie dust rate cuts on the 30th. I think that combo could keep some air under this market for a while longer. We’ll see.

Isn’t anyone else bothered by the fact that crude oil is at $116, and gasoline futures are at 3 bucks? Just what does it take to freak people out anymore? Gee whiz!

Minyanville on Google:

Google is the ultimate bandwagon stock. Right before its shares peaked last fall, analysts were tossing out price targets of almost $1000 per share. Meanwhile, as the stock was bottoming this March, many were sure the end was near. It looks like the only easy trade on Google is to ignore anyone claiming to be an expert on the stock.

I often wonder if there are any ‘experts’ on anything anymore…

Stocks rushed out of the gate into expiration this morning, and so far, a lot of the early gains have stuck. The indices are all showing gains, but have now run right back up into that stubborn area of resistance, so we’ll have to wait and see how things pan out.

A/D lines remain well into the green end of the field, and nearly all of the groups are higher as well, led by GOOG and the internets (a new singing group?), computer tech, brokers, retail, banks and networking. The gold and silver stocks are taking a hit as commodities pull back again.

Treasuries are lower, yields higher. Energy prices are flat to slightly lower. The dollar got another big bounce overnight, and that helped push gold and silver lower this morning.

Larry McMillan tells us what his indicators are saying right now (click here for column with charts):

The market staged a strong rally on Wednesday of this week, using Intel’s (INTC) earnings as a catalyst, but really spurred by strong gains in oil stocks. This rally has shown that the 1330 level is support for $SPX. We already know that 1380-1400 is resistance. So, right now, $SPX continues to be range-bound between those numbers. Any breakout to the upside would be bullish, of course, and would likely be accompanied by massive short covering.

The equity-only put-call ratios continue to be bullish, and have been one of the stalwart bullish indicators since the March bottom. However, there has really been very little progress made by $SPX in several weeks, yet these ratios continue to fall. It is possible that, with enough relatively sideways action in $SPX, these ratios could fall to the point where they would no longer be on buy signals. But that is speculation; the reality is that they are currently bullish.

Market breadth correctly gave a sell signal in late March, the last time $SPX was near the 1390 level. On the subsequent decline to 1330, breadth never got oversold and thus never gave buy signals. That was a bit strange, but it’s happened before. Now that $SPX is approaching 1390 again, breadth is expanding. Another round of breadth oscillators sell signals could easily set up if there are few more days of advancing issues — perhaps as $SPX pokes up towards resistance again.

The volatility indices ($VIX and $VXO) — especially $VIX have fallen sharply of late. That is bullish, at face value. As long as $VIX is trending lower, the broad market should be able to work its magic

In summary, everyone is trying to jump on the bullish bandwagon. Once again, the market seems to be expending a great deal of energy just to get back to resistance. And, if the past is any guide, we expect that resistance to hold. If it doesn’t (i.e., if there is an upside breakout), then we’d turn bullish, but not before.

When I went to bed last night, the Dow futures were down 11. Now they’re up 126. Go figure.

MarketWatch says it’s Citi and Cat. Did I read that right: “Citigroup posts $5 bln loss on more than $10 bln writedown”? They also announced an increase in the number of layoffs coming. Oh yeah, I’d be jumping in to buy that stock too.

It’s also options expiration Friday. Looks like it’s going to be an interesting open at least.