Bear Mountain Bull

From The Big Picture:

The mortgage crisis is bad and getting worse. The latest evidence suggests that any bottom in real estate is some ways off in the future:

“Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing.

In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said. Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs.

Foreclosure filings surged 65 percent and bank seizures more than doubled in April compared with a year earlier as rates on adjustable mortgages increased, according to RealtyTrac Inc. Lawmakers and Federal Reserve officials are trying to ease the worst U.S. housing slump since the Great Depression through tax rebates, expanded federal mortgage insurance and other programs.”

According to RealtyTrac, one in every 519 U.S. households is in some stage of the foreclosure process.

There is some good news amongst the dire foreclosure data: In April, a 183,000 homeowners were able to work out new borrowing terms with lenders and avoid foreclosure filings. Thats a record, according to the Hope Now Alliance.

Sounds to me like Hope Now is going to have to Hope Harder.

If you’re not a techie/electronics geek, you can probably skip this one.

After attempting yet another soldering project where my 12-watt, tiny-tipped Weller iron just wasn’t enough and my who-knows-what-watt Radio Shack iron from a previous generation seemed like it might be a bit too much, I decided it might be time to move on to a better soldering tool, especially in these days of learning to solder/unsolder surface-mount devices - YIKES!

I used to do a LOT of soldering using a temperature-controlled iron (Metcal, Weller) in the electronics shop I worked at while in college, and I never had a complaint about the soldering equipment. I guess there was a reason for that - it was a lot better than what I have today (of course, back then everything was through-hole circuit design too, and you could actually see the parts you were working on without a microscope…).

So, off I went to the web to see what kind of a value I could find on a decent, temperature-controlled station, and I wound up here with the Xytronic 379. It gets great comments all over the web from people that own it, it seems like it might be nicer than the comparably-priced low-end Weller, and it’s cheaper than the low-end Hakko.

I ordered it using a ‘discount code’ I found in another forum (post #15). That gave me a slight discount - then when the order was actually processed and the invoice arrived via email, it turned out that Howard charged me even less, for whatever reason. I wasn’t going to complain - I got the whole thing for just over $51 shipped. Not bad at all.

So if you’re looking to feed your inner soldering geek, you probably can’t go wrong with this station. With the temp dial set at around the midpoint, about 650° F, the thing goes from power-off to melting solder in less than five seconds. Try that with your Radio Shack iron…

Incidentally, if you’re looking on info and/or help on soldering and desoldering SMD components, there’s a lot of good info and videos over at Curious Inventor. For desoldering, that Chip Quik stuff is particularly cool (see demo), and it’s available at Fry’s.

P.S. - I looked at the digital readout station that Radio Shack is selling for $40, but most of the commenters on the web complained that they couldn’t find replacement tips for it.

Update: I’d seen mentions on the web that Hakko tips would fit the 379 iron. That would be convenient, as it’s probably easier to find the Hakko tips than the Xytronic brand - for example, there are a lot more Hakko tips available on eBay (at decent prices), and places like Fry’s would be much more likely to have Hakko tips. Since the blurbs I’d seen hadn’t been specific as to which Hakko tips would fit the 379, I did a little bit of research to compare sizes and such, and determined that the Hakko 900M series of tips looked to be almost exactly the same as the tip on the Xytronic iron. I ordered a few of the 900M tips off eBay to give it a try, and they seem to fit the iron perfectly. So there ya go.

While stocks bounced a little bit this week, not much has changed in the bigger picture.

The charts of Energy and Materials still look the strongest:

Financials and Health Care are the weakest:

And the others are stuck in the middle somewhere:

Here are the numbers as the market tries to decide which way to go from here:

Charts courtesy of StockCharts.com

Interesting. Nudge things higher all day, hold ‘em there, hold ‘em there… and then dump ‘em in the last five minutes. I got the feeling there were a lot of games being played this week, and I doubt that today was any exception.

The indices finished mixed near the flat line, and volume was almost non-existent until the last 20-30 minutes:

Treasuries were slightly higher, yields edged lower:
6-month: 1.96%    2-yr: 2.64%    5-yr: 3.42%    10-yr: 4.05%    30-yr: 4.71.

Internals were positive, on very light volume until just before the closing bell. Advances/declines were 5 to 4 on both exchanges, with up/down volume 11 to 8 on the NYSE and 2 to 1 on the Nasdaq. New highs/lows went back to the same old game, at 52/24 on the NYSE but 53/69 on the Nasdaq.

The groups were split, with a mix of stuff on top today: metals and mining (+3.1%), steel (+2.8%), gold and silver (2.2%), semiconductors (+2.1%), networking (1.4%), HMOs (1.2%) and computer hardware (1.1%). On the losing side of the ledger were housing stocks (-2.0%), airlines (-1.4%) and banks (-1.3%).

Energy prices were mixed. Crude was up a bit to $127.35/barrel, gasoline dropped a penny to $3.39/gallon, and natural gas moved back up to $11.70/mmBTU. The dollar index pulled back to 72.88. Gold got back a bit of this week’s losses, to $887/ounce and silver gained to $16.85/ounce.

BMB Note:   The move up this week in the indices was a bit suspicious, especially coming in the shortened week at the end of the month. The indices edged higher every day, yet only the Nasdaq indices and the Russell were able to get back near their highs of last week - the Dow and S&P didn’t come close. And volume was tepid, at best - today it was downright pathetic.

The action in the groups was pretty back and forth as well - take the steels and metals, for instance. After getting dumped on last week and Tuesday, they ramped on Wednesday, got slammed again yesterday, but ran right back up today. Hard to get a handle on things with action like that.

Today’s morning spike up took me out of my small short positions, but I knew that I was just ‘testing’ the waters and might have been a bit early. That aside, the Dow still looks like a potential short (or long DXD) to me at the moment, having bounced pretty meekly off the lows of last week and, so far, has failed in its attempt to regain the 50-day average. Just something to keep an eye on.

On a day like today when I see the semiconductors run, I can’t help but think of the next-door-neighbor. He works for a company that supplies equipment to the semiconductor manufacturers, and he tells us that they’ve been working four-day weeks and taking a week off here and there to avoid having to lay people off. More food for thought.

I still believe we’re in the process of building a top to the Fed-financed runup off the March lows - it just might take a little bit more time.

Update:   Corrected energy, dollar and precious metals prices.

Regular BMB readers should know by now that they shouldn’t expect to get any help from Wall Street during rough times - Gary Kaltbaum has mentioned it many times on his radio show that “you’ll get no help”.

This morning Bill Cara passes along a publicity piece for a new book from a former Wall Street analyst titled “Full of Bull”. Here is the end of the piece - go here to read the whole thing:

In my book, Full of Bull, I spend several chapters decoding the array of misleading and detrimental Street directives that are so counter to sound investment strategy: Never take Wall Street literally. Professional insiders know better. The propaganda is evident in the nomenclature. A falling market is a correction. But a rising market is not termed a mistake. Declining GDP or employment is called negative growth. A recession is a contraction.

Stock investment ratings are similarly favorably skewed. Even in today’s bad market there are less than 10% Sell ratings, more than 90% Buys or Neutrals. Sometimes Outperform indicates a stock is expected to fall, just not quite as much as the other names in the sector. An opinion shift from Buy to Neutral is a strong negative signal to unload the stock, in Street code. Brokers rarely have the courage to use the gloomy “S” (Sell) word. Earnings estimates are no different, almost always too optimistic. In most cases, Street analysts take as their profit forecast the projection published by promotional, ebullient corporate executives.

Stock price targets, as published in research reports, are yet another overly positive bias. How many times do you see downside, worst-case stock price possibilities highlighted in a report? Never. The Street is all about how much money you can make, the upside, not how much you might lose.

Wall Street is never focused on risk. It is always about stock-price appreciation prospects, not about protecting capital, conservativeness — how much you might keep. Even amidst a precipitous stock-price decline, such as in financials and home builders over the last 12 months, the Street focuses on “catching a falling safe,” that is, guessing the bottom for a purchase recommendation rather than avoidance. Brokerage emphasis lists are all Buys, never Sell ideas.

No matter how negative the current market conditions or how uncertain the outlook, you cannot rely on Wall Street for objective advice on risk. In view of the tens of billions of dollars in losses incurred by the Street with bad sub-prime loans and other debt instruments, it is hardly in a credible position to address risk. Wall Street didn’t manage its own risk; don’t expect it to focus on yours.

Europeans are struggling with gas prices up near $10/gallon.

This guy says that, here in the US, $8/gallon gas would be ‘good’ news, in that we might finally change our ways.

The positive bias for the week continues, as the indices sport slight gains, with A/D lines slightly green as well. Leading the way today are yesterday’s villains, the steels and metals, along with the semiconductors, networking and gold and silver stocks. Giving up a little ground are the banks and homebuilders.

Treasuries are higher, and yields have come back down from their peaks of yesterday. Energy prices are fairly flat. The dollar index is flat, gold and silver slightly higher.

Larry McMillan doesn’t have real good news for either the bulls or the bears at the moment (click here to view column with accompanying charts):

After breaking down last week and generating sell signals on most of our indicators, the market has rallied all week this week. This week’s rally — built on several diverse factors such as a declining oil price, month end window dressing, and dollar rally — has, somewhat surprisingly, not been able to budge the technical indicators from their bearish stance.

The $SPX chart took on a negative tone with the breaking of the bullish trend line that had dated back to the March bottom. Also, the 20-day moving average rolled over and began trending downward. Even though the market has rallied this week (for 3 days), it has not yet overcome that moving average. In a broader sense, the May highs (near 1425) and the May lows (near 1375) are the two important levels to watch. A bullish close above 1425 or a bearish close below 1375 should clarify the picture, as far as the $SPX chart goes.

The equity-only put-call ratios are less ambiguous: they are bearish. After generating sell signals last week, they have not wavered. These intermediate-term indicators had been on buy signals since March, so the fact that they have rolled over to sell signals is meaningful. It is possible, I suppose, that a double sell signal could occur — similar to what happened in October, 2007, and in June-July, 2007, although it is certainly not necessary for that to be the case.

Market breadth remains weak, and the breadth oscillators continue to remain on the sell signals that they first issued last week. Admittedly, this is the fifth such signal since the March bottom, and none have been particularly rewarding. Typically, during a rally such as we saw from mid-March to mid-May, breadth would expand tremendously and the oscillators would get very overbought eventually leading to a strong sell signal. However, that was not the case. Breadth was so tepid during the advance that the oscillators have barely reach overbought territory before falling back again. The breadth sell signals would be canceled out, if advance exceed declines by 1,200 issues over the next two days.

The volatility indices — $VIX, in particular — did not confirm the sell signals issued by the other indicators. $VIX remains in the bullish downtrend that has existed since its March highs (i.e., the market’s lows). Yes, it did rise above its 20-day moving average briefly, but it did not overcome the 20 level — an area which it has not closed above in nearly a month.

Volatility derivatives remain in an overbought state, but have not issued outright sell signals, either. The term structure of the futures remains the same as it has for some time now: a relatively large premium on the front month futures, and much larger premiums on the next two months. This is normally a bearish setup, but the structure must begin to flatten out before the actual bearishness comes to fruition. The large premium on the July and August futures (3.94 and 4.46, respectively) is also a bearish setup as well — although it’s persisted for so long that one wonders if and when the premium will eventually shrink.

In summary, last week’s sell signals have not panned out. But this week’s rally hasn’t really been able to reverse them. Thus, neither the bullish nor the bearish case appears strong at this juncture. What we expect will happen — mostly because of the sell signals in the equity-only put-call ratios and the large premiums in the $VIX futures is that this current rally will top out without exceeding the May highs; then the 1375 level will be broken. That will establish a pattern of lower highs and lower lows, and a larger downward move will ensue. However, a move above the May highs would cause us to re-evaluate this scenario.

OMG. They’re taking over the world - or should I say, willing to collect the entire world’s trash:

The Federal Reserve is actively considering creation of a lending facility that would accept “very safe” foreign collateral from “sound” global banks in case of a widespread liquidity crisis, Fed Vice Chairman Donald Kohn said Thursday.

A new global discount window is “under active study,” Kohn said. “It is possible that over time, major central banks could perhaps agree to accept a common pool of very safe collateral, facilitating the liquidity management of global banks,” he said, stipulating that such loans only be made to sound institutions.

Somebody needs to throw a rope around these guys…

I’m still not feeling all that well, so I’m going to skip the wrap and charts for today. To get a good look at the final scores, all in one place, check out the Market Summary page at StockCharts.com.

From today’s Five Things:

1. Bernanke Like a Military Commander Applying Overwhelming Force…

Look, we didn’t just make that headline up. It comes directly from a quite flattering New York Times story that made the front page of that newspaper yesterday:

“Like a military commander applying overwhelming force, he took steps then and over the next two months that some at the central bank are now calling the Bernanke Doctrine.”

The Bernanke Doctrine? What, exactly, is this so-called “Bernanke Doctrine”? Well, in May of last year we described the “Bernanke Doctrine,” though we referred to it by the decidedly less catchy name: The Bernanke Put.

The “Bernanke Put” was based on a May 17 speech Bernanke delivered called, appropriately enough, “The Subprime Mortgage Market.”

The May 17 2007 speech is a fascinating read, especially In light of the Times article, which defines the “Bernanke Doctrine” as “the overpowering use of monetary policies and lending” to handle economic crises. Clearly, last year at this time the Fed Chairman had a much different doctrine.

“Having emerged more than two decades ago, subprime mortgage lending began to expand in earnest in the mid-1990s, the expansion spurred in large part by innovations that reduced the costs for lenders of assessing and pricing risks,” Bernanke said a little more than a year ago.  ”In addition, lenders developed new techniques for using [credit scoring] to determine underwriting standards, set interest rates, and manage their risks,” he added.

Well, it may have appeared that way to the Fed chairman a year ago, but we now know (actually, we knew then) that there wasn’t exactly a whole lot of “managing risk” going on. There appears to have not been any risk manging going on.

Bernanke concluded in his speech last year that, “[W]e believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”  

But, in the event that belief was wrong, and it was, his secondary conclusion in the speech was this: ”Markets can overshoot, but, ultimately, market forces also work to rein in excesses. For some, the self-correcting pullback may seem too late and too severe. But I believe that, in the long run, markets are better than regulators at allocating credit.”

Apparently, the long run has changed. Today, we have an ongoing alphabet soup of Bernanke Fed actions specifically designed to circumvent market pricing of devalued assets. Today, we have a Fed that single-handedly engineered the JP Morgan (JPM) “takeover” of Bear Stearns (BSC). In short, today we have the exact opposite of what Bernanke publicly advocated as the right medicine for allocating credit and reining in excesses.

What may be worse is that the “Bernanke Doctrine,” described in reverential terms by the Times as “bold steps,” and by fellow central bankers as “alter[ing] the framework for how central banks operate” in a crisis, is neither bold nor new, and hasn’t actually altered anything about how central banks operate.

Every step taken by the Fed over the past nine months has a precise analog and origin in 1930s banking policy. Every one. Meanwhile, even as today’s central bankers sit around patting themselves on the back for “averting the crisis,” it’s actually continuing. We’re reminded of something we once read, a quote many years ago, in the Times actually, about the Great Depression: “Just when we thought it was over, it was really only beginning.”

Speaking of the Fed, if the members keep resigning and Congress keeps holding off on confirmations, Bernanke might be flying his helicopter solo soon.

The market is playing its usual games as we move into the end of the month, with the indices trying to edge higher and a few of the leading names getting further pumps. A/D lines remain positive. In the groups, paper stocks, biotechs and HMOs lead the winners, while yesterday’s heroes, the steels and metals, are giving it right back today.

Treasuries are lower again, yields pushing to new multi-month highs. Energy prices are flat to lower. Not anymore. The weekly inventory report was just released, and showed big drawdowns in crude oil and gasoline. That has gasoline above $3.50/gallon.

The dollar index got another ‘midnight madness’ pop, and the precious metals are getting smacked down for a third day.

On another note, BMB isn’t at the top of his game today, so things will probably be pretty quiet around here.

	Steel stocks had another strong day, trying to resume their uptrend out of a pullback.
	But bond prices are slipping, pushing the 10-year yield back up to 4 percent for the first time since the beginning of the year. Not good news for an already struggling housing industry.

The banks are a mess:

Charts courtesy of StockCharts.com

The major indices don’t know which way to go, since we’ve got bull and bear markets going on side by side. Today, the commodity areas got a healthy pop back up, out of their recent pullback, but the financials are looking worse and worse, sending the banks to new closing lows.

The major indices bounced around in fairly narrow ranges, both above and below the flat line:

Treasuries moved lower again, pushing yields to new multi-month highs:
6-month: 1.96%    2-yr: 2.51%    5-yr: 3.23%    10-yr: 3.92%    30-yr: 4.65.

Internals finished a light green after spending much of the day in the red, and volume increased over yesterday’s low levels. Advances/declines were 10 to 9 on the NYSE and flat on the Nasdaq, with up/down volume near 3 to 2 on both exchanges. Still more new lows than new highs, however, as highs/lows came in at 35/41 on the NYSE and 38/76 on the Nasdaq.

In the groups, the commodity areas started to catch fire just before midday and took off. Steel stocks (+4.4%) led the way, followed by metals and mining (+4.2%), chemicals (+3.1%), paper (+2.5%), oil services (+2.5%), housing (+1.6%), natural gas (+1.5%) and transportation (+1.5%). The banks (-1.7%) were looking much worse going into the last hour, when the market rallied back a bit. Also giving up ground were the airlines (-1.1%).

Energy prices recovered all too strongly from their little pullback. Crude remained below record levels at $131.03/barrel. I don’t know about you, but I don’t buy crude - I buy gasoline. And gasoline hit new record highs at $3.44/gallon, while natural gas moved up to $11.91/mmBTU. The dollar got a pop at the open of European trading for the second morning in a row, and that pushed the dollar index up to 72.52. Gold dropped six bucks to $899/ounce and silver lost a nickel to $17.40/ounce.

BMB Note:   The market divergence continues. Bull markets still going on in commodities and the energy patch as they fire up out of their pullback today, while the financials - especially the banks - threaten another meltdown. It pays to know where to be - and where not to be.

As for the major indices, I think they’re stuck in the middle. They seem unable to make much progress in either direction. And I don’t know how long this market ‘dichotomy’ lasts. Eventually, one would think that the forces on one side or the other would win out and start pulling the rest of ‘the market’ either higher or lower, but for now, the struggle looks like it will go on. If was a raging bull, however, I think I’d be getting more and more concerned about the action in the financials. I’d be surprised if ‘the market’ were able to muster much on the upside if the banks continue to self-destruct.

As for me, I guess you could say I’m looking both ways. My positions in the metals and commodity areas are still holding up well, and I’m testing small positions on the short side in other areas as opportunities present themselves. If the market’s going to be a split beast, then maybe I can grow two heads too.

BMB was away for a few hours, but one of the things he noticed upon his return was that the bank stocks were getting ripped, many hitting multi-year lows.

This probably has something to do with it (via Calculated Risk):

From Bloomberg: KeyCorp Slide Foretells Losses at `Delusional’ Banks

KeyCorp … doubl[ed] its forecast for loans that won’t be repaid, prompting concern that regional banks have underestimated the cost of bad mortgages.

KeyCorp [said] debts may be as much as 1.3 percent of average total loans this year. The figure may rise even more, KeyCorp said, as the Cleveland-based company cuts holdings tied to homebuilders.

The revision by the Ohio bank, which last month quadrupled its provision for loan losses to $187 million, may foretell similar increases at U.S. commercial banks as home prices keep sliding, analysts said.

A fairly uncertain start to the day, as both the indices and the A/D lines straddle the flat line. Housing, transportation and retail lead the winners, while banks and gold and silver stocks are bringing up the rear.

Treasuries are lower, with yields edging up to test multi-month highs. Energy prices are flat. The dollar got another morning pop, gold is lower but silver is a bit higher.

It doesn’t sound like Deron Wagner was any more impressed with yesterday’s market action than BMB was:

Curiously, turnover declined across the board yesterday. Lighter volume could be expected ahead of the past holiday weekend, but trading activity usually picks up immediately after a holiday has passed. Not this time. Total volume in the NYSE eased 6%, while volume in the Nasdaq came in 2% below the previous day’s level. Higher turnover would have pointed to accumulation by mutual funds, hedge funds, and other institutions, but they stayed on the sidelines instead. Considering it was the first rally attempt following last week’s large losses, it’s bearish that institutions showed no signs of buying interest yesterday. Low-volume bounces within the context of a primary downtrend often come unraveled easily.

—

On the surface, yesterday’s gain in the Nasdaq may seem encouraging, but a closer look at yesterday’s action reveals unimpressive performance. Aside from the lighter overall volume, the biggest problem is that most leading individual stocks showed no signs of life yesterday. Instead, many of the top-gaining stocks were those with mediocre chart patterns, in industry sectors that were merely bouncing from positions of weakness. It was hardly the kind of leadership necessary to power the market higher. Although that situation could improve in the coming days, we trade what we see, not what we think. Based on what we saw yesterday, the absolute percentage gains of the major indices may have hinted at strength on the surface, but a look “under the hood” of the market shows a different picture altogether.

The break in the downtrend of the VIX would support the idea that last week’s action formed at least a near-term top.

A few “General” stocks that are, for now, headed in different directions:

Charts courtesy of StockCharts.com

Stocks got a bit of a bounce back today, but didn’t put in the type of performance that would convince us that much has changed, as the laggards led the way up and volume came in only a bit better than Friday’s pre-holiday levels.

Things ran up in the morning, sold back off into midday, then ran back up as the afternoon wore on. The Trasports got a boost from lower oil price, and the Nasdaq indices continued their outperformance (despite the zillionth day with more new lows than new highs…). But the NYSE Composite diverged from those indices, as it was only able to finish flat:

Treasuries moved lower, yields were higher:
6-month: 1.96%    2-yr: 2.51%    5-yr: 3.23%    10-yr: 3.92%    30-yr: 4.65.

Internals were positive, on light volume that just bettered Friday’s levels. Advances/declines were 3 to 2 on the NYSE and 12 to 7 on the Nasdaq, with up/down volume 11 to 8 on the NYSE and 3 to 1 on the Nasdaq. New highs/lows were in the red, weak, at 25/35 on the NYSE and 42/71 on the Nasdaq.

Most of the groups were green, but the ‘leaders’ for the day don’t instill a great deal of confidence when they’re the airlines and homebuilders - both of which just happened to be at the bottom of Friday’s heap: airlines (+3.9%), homebuilders (+3.0%), software (+2.2%), computer hardware (+2.1%), brokers (+2.0%), networking (+1.7%), semiconductors (+1.7%), transportation (+1.6%), REITs (+1.6%), internets (+1.5%).

Energy prices pulled back a bit, with crude oil down more than three bucks from Friday’s close at $128.85/barrel. Gasoline was only lower by two cents at $3.38/gallon, and natural gas dropped to $11.80/mmBTU. The dollar made another ‘run’, bouncing the dollar index back up to 72.31. That helped push the PMs back down, with gold sliding to $905/ounce and silver to $17.45/ounce.

BMB Note:   Not too much to get excited about here. The commodities continue to pull back, and tech tries to hold up. If the commodities can hold and turn back up and tech can push higher, maybe we get more of a bounce than today offered, but it’s going to take more than that to counter the effects of last week’s selling.

Not much of a reason to commit too strongly to either side of this market right now.

Gary Kaltbaum looks at some of the signs that could be telling us that the recent rally up off the lows is over:

First off, this is how I ended my last report:

“While we have not seen heavy volume in the market when it has moved up, we have not seen heavy selling when it moves down. Until I see the type of distribution I saw to get you out back in October, I am going to continue to play the good set ups. Let this all be a lesson to you that markets can move up on bad news. That is the definition of a better market. Bad markets leave bread crumbs on their trail. Until I see those markings (and as I said last time, that would be more than just one bad day) you should continue to have your eyes out on the long side. As always, if things change, you will know it.”

Well, we finally got some of those bread crumbs I have been telling you about as the market ran into a brick wall at very important longer-term resistance. As far as the major indices, a lot has changed. As far as the sectors, not much has changed.

As far as the major averages, if you look at the weeklies, we now have a major head and shoulders top for just about everything except the TRANSPORTS… with the added thrill of a failure at the 200 day moving average. This is a huge negative that indicates to me, notwithstanding oversold bounces, that the recent rally has ended. Before this week, I would have said that any pullback would be controlled. This was not a controlled pullback.

But for me, sectors are much more important because there are always bull and bear markets side by side. Not much has changed in my sector analysis.

OILS remain very strong for obvious reasons. They simply started pulling back from their ridiculously extended and overbought conditions. Remember, everything eventually reverts back to the norm…and that is what is happening here. The same goes for the STEEL, METALS, COAL, MINING and RAILS. These are the areas I am going to watch closest as they pull into logical support and or moving averages. If they start to roll over badly, look out. If they can show they can hold support areas, I will look to be probing.

SOLARS remain in good shape… just a normal pullback into support after some frothy action. Many, like FSLR are now coming off moving averages. Again, I will be watching how they act at these support levels.

Lastly on the positive front, I also wanted to mention that GOLD/SILVER look like they are now coming up the right side of new bases here… and could be looked at on any pullback.

On to the negative front…and it is simple. The stuff that led down in the first leg of the bear market… are leading down again.These areas have lagged the recent rally and started breaking again in the beginning of the week. I start with the FINANCIALS. Not sure you knew Bank of America (BAC) was at a closing low… Washington Mutual (WM) near a closing low… Lehman Brothers (LEH), Merrill Lynch (MER), Morgan Stanley (MS) all gagging… and even JP Morgan (JPM)… rolled over. BANKS, BROKERS, LENDERS, MORTGAGE, HOUSING, CRUISE LINES, HOTELS, RESTAURANTS, most RETAIL, AIR LINES, AIR FREIGHT, GAMING, and just about everything CONSUMER have also rolled over. I would continue to stay far away from these areas. And in the case of names like Lehman… beware! They are still pricing their crapola based on their own opinions…and not the markets.

Lastly, oil prices. I had the long term thoughts correct… but in the past several weeks, every short term top I would call, would last a couple of hours to a couple of days. In other words, I missed the unbelievable persistence of the OIL move. I am not so stupid to make another short term top call… but I make note of one important thing to watch. OIL is now noisy… noisy as can be. OIL is on the front cover of everything… internet, national, local and everything else under the sun. It is being discussed everywhere I go and by every one I speak to. Add in the fact that I am seeing ridiculous froth in some OIL names that have zero revenues like an MXC which moved from $10 to $56 in days. I have taught you that this type of froth and noise do not usually happen at bottoms. I will be looking for a day where OIL is up a few dollars and closes down on monstrous volume. This would be the clue that the market has sucked in all the dumb money it can right at the top. Stay tuned!

The headlines read that new home sales increased in April, but that’s due to two factors - very poor March sales and seasonal adjustments. As the charts at Calculated Risk show, the non-seasonally adjusted number for April was actually lower, and the usually strong spring season has just never gotten off the ground:

New home sales in April were the lowest April since 1991. This is what we call Cliff Diving! The graph shows monthly new home sales (NSA - Not Seasonally Adjusted). Notice the Red columns for 2008. This is the lowest sales for April since the recession of ‘91. As the graph indicates, the spring selling season has never really started.

So much for the Fed’s hopes of ‘containing’ inflation expectations. The genie is now out of the bottle, and is on a rampage. As this morning’s Conference Board report shows, consumer confidence is at a 16-year low, and “consumers’ inflation expectations” are at an all-time high:

“The Consumer Confidence Index now stands at a 16-year low (Oct. 1992, 54.6). Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers’ confidence in the overall state of the economy. Consumers’ inflation expectations, fueled by increasing prices at the pump, are now at an all-time high and are likely to rise further in the months ahead. As for the short-term outlook, the Expectations Index suggests little likelihood of a turnaround in the immediate months ahead.”

More on the Fed’s attempt to manage inflation “expectations” (NOT actual inflation, mind you), from Irwin Kellner at MarketWatch today.

Stocks are getting a bit of a bounce this morning after last week’s selloff, but the gains are unspectacular to this point. While the Nasdaq and Russell indices are trying to hold onto gains of a percent or better, the NYSE Composite is still slightly in the red. A/D lines remain well in the green, however, and most groups are green as well, with only the commodity areas hurting at the moment.

Treasuries are lower, yields up. Energy prices are mixed, with crude a little lower. The dollar index is higher, gold and silver are lower.

A few numbers out this morning that are pushing things around, namely house prices, consumer confidence and new home sales. We’ll get a little more info out on those a bit later.

Gary Kaltbaum said it quite well on his radio show Friday afternoon:

While you’re out barbecuing, having a great time, remember why you have the day off.

The veterans remember.

If you know one, if you see one, a “thank you” would do.

Notes on the latest moves in the industry groups:

• Probably the biggest concern for the markets right now: the original bear market areas - financials, housing and retail - are starting to roll over again. Housing/homebuilders have broken support, and the banks are back within a whisper of their spring lows.
• Aside from the hospitals and biotech, most of health care is looking very sickly.
• Airlines and paper stocks are in pretty sad shape as well.
• Though the commodities and energy are in pullback mode, they’re still the strongest areas for now.
• Those tech areas that had been trying to make a move up also suffered a bit a of setback this week.
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page., or the Industry Group Tracker at WSJ Online.