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.

For all those Marc Faber fans out there, he did another phone-in spot on Bloomberg. David’s got the link at Finance Trends Matter - #5 in “Monday’s Notes”.

BMB said this morning, re: the Lehman news: “What’s amazing to me is that these companies continue to find buyers for their stock.”

Mish quotes Professor Sedacca:

We have been hearing about Lehman (LEH) for a year now and that has intensified of late. I’ve been asked what I think about the capital raise and the firm’s loss announced this morning.

I will say this. LEH is raising capital because it needs to. Just like everyone else. Why it continues to pay a dividend is beyond me. This deal is highly dilutive and is rather necessary.

The greatest description of all, however comes from none other than David Einhorn. Einhorn says ‘Lehman is raising capital it said it didn’t need to replace losses it said it didn’t have’.

LEH is not an isolated event, folks. There will be many more of these deals. And at some point, the buyers will walk away. that’s when the real fun starts.

Indeed.

The banks and homebuilders remain areas to avoid like the plague. And the rest of real estate looks like it might be ready to join the homies in a downward dance. The breakdown in the DJ Real Estate index brings into play the double-inverse real estate ETF, symbol SRS, as it makes a move off its lows (disclosure: long SRS):

The coals won’t stop going up:

But those banks - those banks! - just won’t stop going down:

Charts courtesy of StockCharts.com

Another roller coaster - but stocks didn’t get much of a bounce out of Friday’s big dive. The Dow and S&P started out in the green and went up and down from there, but the Nasdaq just never got going, melting down pretty good right after lunch (-45 points), and again going into the final hour before the angels stepped in for yet another day and floated things up into the close.

Things didn’t really go quite as ‘well’ as the indices might show, as A/D lines spent most of the day pretty deep in the red, and most groups finished red as well.

The Utilities led the major index list, and the Transports got a boost as energy prices pulled back from their record day on Friday:

Treasuries had a rough day and yield jumped up, especially in the 2-5 year range:
6-month: 2.06%    2-yr: 2.74%    5-yr: 3.41%    10-yr: 4.01%    30-yr: 4.64%.

Though the indices were mixed, internals were convincingly negative, and volume increased over Friday’s levels. Advances/declines were 11 to 20 on the NYSE and 6 to 13 on the Nasdaq, with up/down volume 4 to 7 on the NYSE and 5 to 11 on the Nasdaq. New lows have started to pick up, with highs/lows at 52/116 on the NYSE and 27/116 on the Nasdaq.

The groups were led by the commodity areas once again: metals and mining (+2.7%), natural gas stocks (+2.7%), oil services (+2.6%), steel stocks (+1.9%), oil stocks (+1.9%), commodities (+1.8%), utilities (+1.5%) and chemicals (+1.1%). On the down side, the banks (-3.2%) continue their meltdown, followed by paper (-2.7%), brokers (-2.3%), REITs (-2.2%), airlines (-1.4%), homebuilders (-1.5%), biotechs (-1.3%), disk drives (-1.3%) and HMOs (-1.2%).

Energy prices took a break after their frantic run at the end of last week. Crude oil fell more than 4 bucks to $134.35/barrel, and gasoline lost 15 cents to $3.40/gallon. Natural gas also fell, dropping to $12.61/mmBTU. The dollar index recovered up to 72.94. Gold gave up a few bucks to $893/ounce while silver gave back all of Friday’s gains, slipping back to $17.12/ounce.

BMB Note:   The themes remain the same - the energies, coals, fertilizers, metals, etc. are hanging in there, but the financials, housing and others are a mess (see Gary K’s summary of the situation from this morning).

The indices were getting bounced around today, but the Nasdaq, which had been the strongest of the three majors, was clearly the weakest today, and things were looking pretty shabby midday when many of the big-name Nasdaq stocks were getting hit pretty hard -along with some of the other ‘leaders’. Maybe it’s just a pullback, but I’d be wary, considering the weakness in the rest of the market. Just after lunch we saw names like AAPL, BIDU, GOOG, MA, PCLN and FSLR all down big, but they got saved to a degree along with the rest when the afternoon ramps took effect.

Banks and housing, forget about ‘em. And today the REITs started their breakdown to go join them - retail isn’t looking that strong either, and the brokers still look questionable at best. On the good side, the coals were jumping again today, and the fertilizers hit new highs early, then pulled back. I say again - if the market ever loses the energies, coals and those fertilizers, look out - there won’t be anything left. If those groups start to go, I don’t think those tech stocks are going to hold the market up.

Not too sure what to make of this. It’s a bit odd to see the Dow up a hundred points but the Nasdaq down 11, and both the NYSE and Nasdaq advance-decline lines in the red, with the Naz at minus-20 percent.

New highs are concentrated in the energies, coals and fertilizers. How much longer can those things run all by themselves?

Mixed up mess.

Gary Kaltbaum on the market’s latest gyrations:

After scanning the market, I started to think of the best way to explain where markets are and the potential for the future when I realized that if you just look at my last report, it covers just about everything. The point is that I do not think much has changed except the DOW and S&P are now breaking down… and possibly badly. In my last report, I told you that the DOW and S&P were now lagging badly with the DOW tracing out a negative inverted cup and handle. Well, the DOW blew up with the S&P going along for the ride. The DOW broke below near term support… same for the S&P which broke back below the 50-day average. I also told you that small and mid-caps had the relative bid for the first time in a long time. I do not believe that has changed. I will be looking more to these areas when markets stabilize as they were hitting new highs on Thursday while the DOW/S&P were still gross.

It is pretty simple what is going on here. All the bearish areas I have told you about for months are now leading down again… and in nasty fashion. A lot of that is the FINANCIAL imploding again. I have been debating with many who have called the FINANCIALS cheap, a bargain, value, buy of the decade and all the other nonsense. The bottom line for me has not changed. How do you touch an area of the market where the companies have lied, where the companies have not disclosed, where the companies have cheated and where the companies have absolutely no idea what their earnings are? All it takes is one glance at many of the financials and you will see exactly what I have told you… made up accounting. These companies continue to just move a zero, a decimal, a loss, a gain and anything under the sun in the place that benefits them most. It is almost laughable at this point in time. Frankly, you do not need my opinion on it. Just look at what the market is saying. I have covered Lehman Brothers (LEH) for you but I must tell you… when you have a chance, take a glance at Bank of America (BAC). The market is really voicing some concern there.

On top of these financials, I repeat the bear market areas. Financials includes BANKS, BROKERS, LENDERS, MORTGAGE, INSURANCE, S&Ls, and REGIONALS BANKS.

Everything CONSUMER continues in a bear market including AIRLINES, AIR FREIGHT, AUTOS, CRUISE LINES, GAMING, HOTELS, HOUSING, RESTAURANTS and many RETAIL areas.

I also think you can put the REITs back into the bearish camp. They had rallied up into resistance where they sat for the past couple of months. It looks to me they are about to roll over again.

The bullish areas remain the same. For starters, just about everything COMMODITY is still in fine shape notwithstanding a few names that have not kept up. This includes STEEL, COAL, OILS, FERTILIZERS, MINING, RAILS. I suspect if markets continue to come in, they will pull in also… but I will be looking for proper support areas to probe if volume is low on the pullback. I also make note that GOLD and SILVER may have put in good lows on Friday as the dollar is now renewing its bear market after showing recent relative strength. Europe has recognized first that there is an inflation problem… thus trumping Uncle Ben’s comments earlier in the week. All of a sudden Uncle Ben has seen the dollar gods and realized his loose policy has been a contributing factor for the slumping dollar which in turn has caused commodities to spike. Again, Uncle Ben joins the party after the cows are already out of the barn. That leads me into the OIL PRICE moves.

In the past 2-3 months, I have called a few near-term tops in OILS. Each time, oil prices pulled back… but amazingly, each pullback lasted only days before it ramped right back up. In recent days, I have told you OIL was getting about as noisy as an investment area can become as every magazine, newspaper, and TV show is covering the move. Oil was working on another pullback when it went into overdrive on Thursday… jumping over $16 in less than 2 days. The volume on USO came in the highest ever on Friday. There is now a chance oil prices could be going climactic here. Many legs of bull markets end with climax runs where after a big move, the move then becomes vertical. This move usually sucks everyone in at the most inopportune moment… reverses and then heads straight back down… ending that leg of the bull. I am just outlining the chance of this. Nevertheless, this move is now getting legs… and let me be clear, nothing good happens when oil prices keep going up.

A mixed bag this morning, as they’ve been able to prop the Dow and S&P up a bit after Friday’s disaster, but the Nasdaq isn’t responding quite as well. The indices remain mixed, as do the A/D lines, with the NYSE showing a few more winners and losers, but the opposite is true for the Nasdaq.

Looking at the groups, we find them split as well, with the commodity/energy stocks leading the winners, while paper, disk drives, computer hardware and biotech lead the red train.

Treasuries are lower, yields higher. Energy prices are lower. The dollar index is a bit higher, gold and silver a little lower.

Lehman posts a loss of nearly $3 billion, and they’re going to sell stock to the tune of $6 billion to raise capital. This really isn’t a surprise at all. What’s amazing to me is that these companies continue to find buyers for their stock.

And not to worry - they’re only leveraged up 25x now, compared to the 32x they were…

Update:   More from Barry at The Big Picture:

Charlie Gasparino on CNBC is reporting that he does not expect Lehman to exist as an independent company 6 months from now.

Einhorn comment: “Lehman is raising capital it said it didn’t need to replace losses it said it didn’t have.”

—

Secondary is priced at $28.00.

LEH closed at 32.29 on Friday.