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.

What does hyperinflation look like?

A lot like this - where a mineral water sets you back some 95 million bucks, and ‘Dinner B’ runs a cool $956 million (click on image to be transported over to The Big Picture):

	The oil stocks have been hit hardest by the pullback in energy prices.
	The banks can find no friends.
	While the Dow and S&P 500 fight with their 50-day moving averages, the Nasdaq-100 holds up…
	…even as the Nasdaq registers more new lows than new highs nearly every single day.

Charts courtesy of StockCharts.com

Another ‘bounce-around’ day for the Dow, moving from +90 in the morning to -60 in the afternoon, before getting saved back up to finish near flat. Tech stocks helped hold the Nasdaq indices well above ground, while the rest of the indices put in mixed performances:

Treasuries were lower, yields a bit higher:
6-month: 1.92%    2-yr: 2.45%    5-yr: 3.26%    10-yr: 3.97%    30-yr: 4.69.

Internals were mixed, as the two exchanges diverged considerably, and volume matched up pretty well with yesterday’s levels. Advances/declines were 4 to 5 on the NYSE but 11 to 8 on the Nasdaq, with up/down volume 4 to 5 on the NYSE but 7 to 3 on the Nasdaq. New highs/lows did NOT diverge, however, at 33/44 on the NYSE and 49/114 on the Nasdaq.

The groups were split, with transports (on lower gas prices) and techs (on no reason at all) leading the winners: transportation (+2.1%), airlines (+2.0%), internets (+1.4%), paper (+1.3%), semiconductors (+1.3%) and utilities (+1.3%). Leading the losers were the oil stocks (-3.1%), metals (-2.7%), homebuilders (-2.3%), gold and silver stocks (-1.9%), steel stocks (-1.7%) and banks (-1.5%).

Some energy prices are finally backing off to give the consumer just a bit of relief. Though crude dropped only a couple of bucks to $122.30/barrel, gasoline tumbled down to $3.16/gallon. But natural gas is still holding up, today gaining ground to $12.40/mmBTU. The dollar index inched higher again, up to 73.47, but the precious metals didn’t budge. Spot gold held at $879/ounce and silver was up a few cents $16.79/ounce.

BMB Note:   If it wasn’t for tech, I’m not sure what today would have looked like. As the banks continue to melt down and the commodity/energy areas pull back, traders are running to the only areas left holding up, and that’s tech. For now. I hope they’re not planning on piling into tech as a ‘defensive’ strategy. We heard that joke back before the October top, and guess what? Tech didn’t hold up. It won’t this time either, if things start to fall apart.

It doesn’t make a lot of sense to me to see the Nasdaq-100 up more than a percent while the NYSE Comp is down a half-percent, the Dow is flat on the day and cowering below the 50-day, and the S&P is struggling to hold at that same benchmark. This divergence will not last. It will be resolved, one way or the other, and bring the major indices back into agreement. If it were to resolve to the upside, so be it. That’s just not the way I’m leaning right now.

As for me, I’m not chasing tech. Or much else, for that matter. I’m edging into short side trades - if indeed there are bull and bear markets going on side-by-side, there are no rules saying that I have to play the ‘bull’ side.

One of these days, the afternoon ‘jam jobs’ are going to start coming on the down side, and there are going to be a lot of folks that won’t know what hit them. Don’t be one of them. Watch your backside, and protect your capital.

Despite the little bump up in the indices today, the divergences remain: the Nasdaq and Nasdaq-100 are outperforming the other indices, with gains of more than one-percent, yet the NYSE Composite is flat, and the Nasdaq shows more new lows than new highs. Again. Just about every single day.

If you’re pickin’ stocks, you’d better be pickin’ the right ones.

The market was rolling happily along this morning, but it shuddered quite a bit when this news came out:

Moody’s Investors Service said Wednesday it may downgrade the Aaa insurance financial strength ratings of MBIA Inc.’s (MBI) and Ambac Inc.’s (ABK) insurance units. Also, Moody’s said it may downgrade Ambac Financial Group’s Aa3 debt ratings, and the Aa2 surplus note rating of MBIA Insurance Corp. and the Aa3 ratings of MBIA Inc. The moves reflect Moody’s growing concern that MBIA’s and Ambac’s credit profile may no longer be consistent with current ratings given the diminished new business prospects and financial flexibility of the companies.

Remember all that angst about these bond insurers a while back? Well, just like everything else, all these issues never got ‘fixed’, they just got papered over for a while. A lot of this stuff is going to come back to haunt, given enough time.

Rust never sleeps.

A wishy-washy start to the day, with most of the indices hovering just above the flat line, and the A/D lines straddling the zero line as well. The groups are split - airlines, brokers, internets, semis and trasportation higher, and metals, oils and homebuilders lower.

Treasuries are fairly flat. Energy prices are also pretty flat, after the weekly inventory report showed mixed readings. The dollar index is flat, gold and silver both near flat as well.

Minyanville’s Todd Harrison on the Lehman rumblings:

We don’t “do” rumors in the ‘Ville but we’d be remiss if we didn’t pass along our ears to ye faithful. 

The chatta–and it’s just that, unconfirmed chatta–is that counter-parties are “pulling a Bear” on Lehman Brothers (LEH). In other words, the “rumor becomes reality” scenario is making it’s way around the trading wires. 

I have no insight to the legitimacy of these stories but I’ll say the same thing I said about Bear Stearns (BSC) in March. If rumors alone can bring down a franchise, how strong can that franchise be? This speaks to the fragility of a globally interwoven banking system in a finance-based economy built on more than $500 trillion of derivatives. 

The conditional elements for meltage are in place–we’ve been warning about the wobbling wheels since last summer and speaking of the conditional elements for years.

I’m not smart enough to know if the comeuppance has arrived–there are huge agendas and proactive initiatives in play–but I’ll humbly note that the recipe for slippage that we’ve spoke of–BKX 75, a stronger dollar and slippage in commodities–is quietly in place.

A quick check of the major indices from Deron Wagner:

Taking a quick, updated look at the major indices, the most notable change is that the S&P 500 closed below its 50-day MA yesterday. It was the first time it has done so since April 15. Just as importantly, the Dow closed below its May low. Continuing to show the most relative weakness, it was the first of the broad-based indexes to do so. The Nasdaq Composite is still desperately clinging to support of both its 20-day EMA and intermediate-term uptrend line from its March low. However, a close below yesterday’s low would cause both of those support levels to break, causing the Nasdaq to follow-through on its “head and shoulders” pattern an join the bear party as well. Our near-term bias remains bearish overall, the intermediate-term bias is neutral (until the rest of the major indices form a significant “lower low” like the Dow), and the long-term bias is bearish.