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.

In today’s wrap: “…the big money crowd is not buying with both hands - so it has to be a game of some sort. After all, the Fed has been fronting them money to play with for a couple of months now.”

Game on, with the Fed as the sugar daddy. From Calculated Risk:

From Bloomberg: Fed’s Direct Loans to Banks Climb to Record Level

The Federal Reserve’s direct loans of cash to commercial banks climbed to the highest level on record in the past week, a sign of continued stress in financial markets that threatens to curtail credit for households and companies.

Funds provided through the so-called discount window for banks rose by $2.8 billion to a daily average of $14.4 billion in the week to May 14, the central bank said today in Washington. Separately, the Fed’s loans to Wall Street bond dealers rose by $75 million to $16.6 billion.

The increase indicates financial firms’ emergency needs for cash haven’t receded.

“Needs” in some cases, and probably “wants” in others. Certainly not all of that money is just sitting in a drawer somewhere.

	That volume on the NYSE has been below the 50-day moving average on the entire move up off the March lows?
	That despite all of the noise surrounding the market rally up off the lows - including today’s 90+ point gain - the Dow has gained less than 150 points in the last 19 sessions - nearly 4 weeks of trading?
	That even though the Nasdaq indices have made nice moves up since March, the Nasdaq has recorded more new lows than new highs on nearly every trading day since October?

Charts courtesy of StockCharts.com

Set ‘em up, knock ‘em down, and set ‘em back up again.

After a morning dip, the market just ground its way higher and higher throughout the day, in preparation for options expiration tomorrow. And again, volume was very light until the last few minutes - but prices keep moving higher.

The Nasdaq indices, yesterday’s laggards, turned leaders today and moved to new multi-month highs:

Some money moved back into Treasuries, and yields were lower across the board:
6-month: 1.87%    2-yr: 2.44%    5-yr: 3.10%    10-yr: 3.82%    30-yr: 4.55%.

Internals were positive. Volume was quite light until the last hour, as expiration approaches. Advances/declines were 7 to 3 on the NYSE and 3 to 2 on the Nasdaq, with up/down volume 7 to 2 on the NYSE and 4 to 1 on the Nasdaq. New highs/low played the same ol’ game, at 83/20 on the NYSE but 45/77 on the Nasdaq.

Nearly all of the groups were green, with the commodities moving back to the front of the line: gold and silver (+3.9%), metals and mining (+3.9%), oil services (+2.9%), steel (+2.8%), internets (+2.3%), computer hardware (+2.1%), semiconductors (+2.1%), brokers (+2.0%), retail (+1.9%) and paper (+1.9%).

Energy prices took a morning dip, but didn’t stay down much. Crude dropped a whole dime to $124.12/barrel and gasoline lost a penny to $3.16/gallon. Natural gas was lower by 19 cents, to $11.40/mmBTU. The dollar index was down just a few ticks at 73.30. Gold had a decent day for a change, moving up to $881/ounce and silver rose to $16.70/ounce.

BMB Note:   As stocks have been grinding higher for almost two months, as the VIX gets driven back into the ground, as volume continues to be pathetic and as the Nasdaq can’t seem to conjure up more new highs than new lows on a single day no matter what the reason, I just can’t get one vision out of my head - that being one of the big-money crowd standing there with mallets in hand, playing ‘whack-a-mole’ with the retail investors. Keep teasing him with ever-higher prices, and then when Joe Retail investor sticks his head up through the hole and jumps in, the big money whacks him on the head and takes his money. The evidence doesn’t indicate that we’re at the top of this run yet, but that’s usually what happens at tops.

Many stocks are still behaving quite well, but the fact remains: as the lack of volume has demonstrated, the big money crowd is not buying with both hands - so it has to be a game of some sort. After all, the Fed has been fronting them money to play with for a couple of months now. Just watch your step.

Well, they’ve been wanting to get the speculators out of the futures markets. So who cut the power to Intercontinental Exchange?

From Bill Cara this morning:

…traders cannot be fooled by the US government’s inflation data that reported yesterday that the core rate, ie, ex-food and energy, lifted by just +0.1% this past month. The government’s own people, including teachers and emergency workers as well as civil servants, know that their budgets increased by more than +0.1%, or an annualized rate of just +1.2%. And with energy and food included, everybody knows that the annualized growth rate of +2.4% is absurd.

International banking is also out of control, attested by the hundreds of billions in write-downs and the recapitalizations, mergers, government bail-outs and government takeovers this quarter and last in the banking industry.

The main difference between the consumer inflation crisis and the international banking crisis is that only bankers know how bad the latter is. Just like the government, bankers are saying there is no longer a problem, and just like the government during inflationary times, the public is skeptical.

Confidence from the public or from independent traders will come only when there is a blueprint, the same for governments and banks in crisis as it is for business. Business, by the way, in case you haven’t noticed, is doing ok under the circumstances.

So, the question ought not to be whether inflation is this number or that, or bankers’ losses are this number or that, or the cycle bottom for the housing market is this quarter or that; it should be when do governments in the form of G-7 ministers and bankers in the form of central bankers give the world a blueprint, a prospectus if you will, that we can all invest in?

For the life of me, I cannot see solutions being offered; I see only symptoms being addressed, like 1-800-HELP and the government hand-outs to the public and loans to bankers. That is not a blueprint or plan. Either because the powers that be don’t want one or are incapable of delivering one, we don’t have one.

That’s a shame because, without one, I expect the equity market to drift and slide.

A little waffling going on as we work into expiration Friday. Both the indices and the A/D lines dipped into the red early, but have edged back up just into positive territory since that time, but nothing to get too excited about just yet. Commodities have moved back to the front of the train for the day, led by gold and silver stocks, metals, steel, oil services, paper and oil stocks. Utilities are leading the red team.

Treasuries are higher, yields lower. Energy prices are higher. The dollar index is fairly flat, gold and silver are higher.

There’s more to what goes on in the market than just what the anchors tell you on the evening news. Here’s Deron Wagner this morning:

Novice traders and investors who only looked at yesterday’s closing prices, not the details of what happened “under the hood,” might have been fooled into thinking yesterday’s session was mildly positive. On the contrary, we found yesterday’s price to volume relationship in the Nasdaq to be quite bearish and indicative of “churning.” When you step on the accelerator of a powerful car too quickly, the wheels will spin, but the car goes nowhere. This is similar to what happened in the Nasdaq; trading activity picked up, but prices were little changed.

Churning like stocks experienced yesterday typically occurs when institutions stealthily sell into strength of a rally. By waiting for an intraday gain to sell into, mutual funds, hedge funds, and other institutional players are able to disguise their actions from those who don’t know any better. Fortunately, however, volume is one of the few technical indicators that never lies. Observing the relationship between the stock market’s closing prices and its changes in day-to-day volume is the best way to detect the footprints of institutional activity. It’s critical to know what the “smart money” is doing on a daily basis because a vast majority of the stock market’s average daily volume is the result of institutional trading. Just as water flowing down a hill will always follow the path of least resistance, so will the stock market.

—

Yesterday’s churning that led to inverted hammer candlesticks on a plethora of stocks, ETFs, and indexes is a warning sign to astute traders. Further, the timing was such that the S&P and Dow both stalled near resistance of their prior highs. Though the stock market has not yet proven it has formed an intermediate-term top, the bears have been regaining more control since last week’s correction began. A clear break of last week’s lows in any of the major indices could be the nail in the coffin that leads to an end of the counter-trend bounce off the March lows. A resumption of the long-term downtrends that began in October 2007 could follow. Remember the big picture; the major indices remain in primary downtrends until they prove otherwise. Professional traders who “trade what they see, not what they think” should consider trailing tighter stops to protect their gains on open long positions.