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.

Mike Shedlock on this week’s unusual activity in the bond market, from today’s wrap at Financial Sense:

While there is nothing unusual about treasury spreads widening, it is unusual for yields on the two year to soar in relation to yields on the 30 year long bond. A four standard deviation event occurred on Monday (see Treasury Curve Steepening Bet Blows Sky High) and there was a continuation on Tuesday. So this makes the third occurrence this week of the yield curve flattening at a higher level.

Such action is not good for financial companies that tend to borrow short and lend long. In fact, it’s not good for the stock market on the whole.

There was interesting commentary today about yields on Minyanville between Todd Harrison (Toddo) and Mr. Practical.

Oh that smell. Can’t you smell that smell?

I was just pinging with Mr. Practical and we had the following exchange. We share it with ye faithful in the spirit of community.

Mr. Practical: Yields are upticking. Fed Fund Futures are implying a rate hike in September.

Toddo: Yeesh, talk about a death knell. That has “foreign influence” written all over it.

Mr. Practical: Central banks may have given notice to Ben that if he doesn’t raise rates, the dollar is toast. We should remind Minyans to read The Pin Prick. It’s as relevant today as it was then. Instead of foreign central banks abandoning the auction, they’re giving him fair warning.

There is no breathing room for the box Bernanke is in. Several Fed governors are in open revolt calling for higher rates, and others are openly questioning the Term Auction Facility (TAF), and Primary Dealer Credit Facility (PDCF). US consumers are getting smoked by rising prices, banks are getting smoked by falling margins, rising defaults, and the need to raise capital. Housing will be further smoked if Bernanke is forced to raise rates and the dollar may be further smoked if he does not.

Economic Checkmate!

A pretty rough day for a couple of well-known tech names:

Charts courtesy of StockCharts.com

That was really lame.

It’s worse than we thought. The market can’t even hold a ‘bounce’ for more than an hour or two.

Stocks charged out of the gate this morning - the Dow was up 180 early - but spent the rest of the day retreating. The weakest sectors started out with a bang as the shorts scrambled for cover, but the buying dried up quickly, and things just deteriorated over the course of the day.

The Naz-100 backed into the red first, rather early in the afternoon, and the rest of the majors tagged the red zone with about a half-hour left to play - before the ‘powers’ stepped in and popped things back up into the green for a prettier close.

Move along. Nothin’ to see here folks:

Treasuries fell, and yields moved to new multi-month highs - apparently the ’stronger’ dollar isn’t convincing too many investors to buy up our bonds:
6-month: 2.22%    2-yr: 3.01%    5-yr: 3.67%    10-yr: 4.21%    30-yr: 4.77%.

Internals edged positive, volume was a little lighter on the NYSE but a tad heavier on the Nasdaq. Advances/declines were just better than flat on the NYSE and 10 to 9 on the Nasdaq, with up/down volume 5 to 4 on the NYSE and flat on the Nasdaq. New highs/lows weren’t much better, at 23/138 on the NYSE and 21/148 on the Nasdaq.

Some of the worst groups were at the front of the line today, but the numbers came down quite a bit from early highs: hospitals (+2.8%), retail (+1.6%), brokers (+1.2%), homebuilders (+1.2%), banks (+1.0%), disk drives (+1.0%) and computer hardware (+1.0%). Leading the losers were the commodity groups: gold and silver stocks (-2.4%), airlines (-2.4%), metals and mining (-1.9%), oil services (-1.9%), steel (-1.6%), oil stocks (-1.5%) and natural gas stocks (-1.3%).

Energy prices didn’t help stocks any. Crude rallied back from a morning dip to finish just a bit higher at $136.74/barrel, gasoline added six cents to $3.53/gallon, and natural gas gained 16 cents to $12.81/mmBTU. The dollar index continued it’s “surge”, up to 73.86. The PMs got another morning smash, but came off their lows, with spot gold now at $869/ounce and silver at $16.48/ounce.

BMB Note:   Not very impressive. If that’s the best they can do for a bounce, then things are really in trouble.

Obviously today’s action doesn’t change much in my view. If anything else, it makes things look a little worse, especially when you see a big name like AAPL break near-term support and the 50-day on no news (that I know of). The stock was down more than 10 bucks at one point, finishing down 7 and change.

Maybe today’s feeble ‘bounce’ will help set up some better short entry points, maybe not. If it does, maybe I’ll add. We’ll see. But no reason to change the defensive posture for sure.

The hoax-of-a-CPI report is due out tomorrow morning. They’re in their offices right now, generating the numbers with a used ping-pong-ball type dispenser, purchased from the Powerball lottery folks. And you already know that all of the balls with big numbers on them have been removed.

The government reported an increase in retail sales this morning. But that number isn’t adjusted for the increases in prices. Calculated Risk has the story on ‘real’ vs. nominal retail sales:

U.S. retail and food services sales for May were $385.4 billion, up from $381.6 billion in April. That is an increase of $3.8 billion - a small amount compared to the $48 billion in stimulus checks. This graph shows the year-over-year change in nominal and real retail sales since 1993. To calculate the real change, the monthly PCE price index from the BEA was used (May PCE prices were estimated based on the increases for the last 3 months). Although the Census Bureau reported that nominal retail sales increased 2.1% year-over-year (retail and food services increased 2.5%), real retail sales declined 0.8% (on a YoY basis). So despite the strong sales in May, the YoY change in real retail sales is still negative.

They say numbers don’t lie. But they certainly can mislead.

From Todd Harrison this morning:

• I’m being told that the Lowry’s Buying Power Index is at the lowest level since 1982. That shows a lack of demand for stocks. In a new bull market, demand explodes higher. We’re not seeing that right now.
• To add spice to that mix, never in the 75-year history of that fabled firm did the Buying Power Index make new lows eight to ten weeks after an important market bottom.
• This fits nicely into the “risk reduction” mindset that we’ve been monitoring in Minyanville. Social mood and risk appetites shape the tape.

Stocks rushed out of the gate this morning, with the indices reaching up to try to take back yesterday’s losses. A/D lines are well into the green for a change - the Nasdaq A/D line is green for the first time in four days. But looking at the groups, it appears as though short covering is the order of the day, as the weakest groups in the market are the strongest so far this morning: brokers, retail, homebuilders, banks, airlines, hospitals, paper.

Treasuries are lower, yields up, with the 10-year yield hitting its highest levels in almost six months - not sure if that’s what Ben had in mind with all his ‘tough talk’. It seems that not everyone is buying into his ’strong dollar’ idea - they’re clearly still selling bonds.

Speaking of the dollar, the dollar index edged up to a new relative high this morning. Gold and silver are suffering from yet another overnight smackdown, and energy prices are also lower.