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.

From today’s Five Things One Thing.

Go read all of it.

The first delivery from Bunning, a former Hall of Fame pitcher, came screaming hard at Bernanke, like a stray slider, boring up and in, seeking one of two things: either a human jawbone to splinter, or the dead space between the batter’s head and the backstop.

“[T]he Fed wants to be the systemic risk regulator. But the Fed is the systemic risk,” Bunning said. “Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed.”

It was an awful scene. Bernanke visibly flinched. How could this be happening? How could something so simple, so right, so scripted, go so wrong? Behind the scenes, some Senate staffers fainted and others vomited into trash cans while the more seasoned veterans lobbed angry accusations at one another, “Who forgot Bunning! Why is Bunning not on board!”

But it was too late. By this time, Bunning was already deep into Fannie Mae (FNM) and Freddie Mac (FRE). ““[L]et me say a few words about the GSE bailout plan,” Bunning continued. “When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.”

“There. He said it. God help us now,” a dazed staffer muttered. By this time the chaos had given way to quiet sobs. Yes, the cat was now out of the bag. This is the risk we take when The Fix goes wrong.

Here’s the Bunning video at CNBC.

From Calculated Risk:

From the WSJ Real Time Economics blog: Bernanke: About That Housing Crisis Being Contained …

Fed Chairman Ben Bernanke may never be allowed to forget his onetime expectation about how the subprime housing mess would affect the broader economy.

Sen. Robert Menendez (D., N.J.), asking about the housing crisis during a Senate hearing Tuesday, cited Mr. Bernanke’s March 2007 comment that “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

Replied Mr. Bernanke wryly, invoking Capitol Hill terminology: “Of course, I would like to revise and extend my remarks.”

	The S&P bounced off the 1200 level almost to the penny.
	The Nasdaq is trying to hold above the March lows.
	Ditto for the Russell.

Those groups formerly known as ‘leaders’ are no longer doing much leading:

Biotechs have been strong of late, and maybe, just maybe, some of the other health care stocks are trying to crawl out of the dungeon:

Charts courtesy of StockCharts.com

This market is starting to act a lot like the weather. You know - if you don’t like it, just wait 20 minutes. It’ll change.

A big opening dive took the Dow down some 200+ points, but a sudden drop in oil prices helped turn things around. That prompted quite a bit of short covering in the weak areas and some buying in Nasdaq-land, and the indices pushed higher throughout the day, reaching their highs with about an hour to go. But the wind shifted, the sails deflated, and things drooped into the close, with the Dow dumping about 160 points in the last hour of business.

The Nasdaq indices led throughout the day, and managed to stay a very pale green, while the drop in oil and gas prices did almost nothing to help out the Transports:

Treasuries rallied, and rates came down, with the 3-month touching a low of 1.25% in the morning:
6-month: 1.86%    2-yr: 2.37%    5-yr: 3.10%    10-yr: 3.83%    30-yr: 4.46%.

Internals started off deep in the red, but improved as stocks moved up off the morning lows. But even while the Nasdaq A/D line was able to touch the green for a few short periods, the NYSE A/D line did not. Volume was the highest we’ve seen in quite a few days. Advances/declines were 1 to 3 on the NYSE and 2 to 3 on the Nasdaq, but up/down volume was mixed at 3 to 7 on the NYSE but a positive 5 to 4 on the Nasdaq. Another horrendous day of new lows - highs/lows were 11/1142 on the NYSE and 22/520 on the Nasdaq.

The group picture had also improved throughout the session, leaving only the commodities to wallow in the red most of the day, but that changed by closing time as more groups fell back below the flat line. Winners included the biotechs (+2.9%), health care products (+1.8%), homebuilders (+1.5%), software (+1.4%), health care (+1.3%), semiconductors (+1.3%) and drug stocks (+1.1%). Commodities were hurt the worst, but even the downtrodden banks couldn’t hold the green, and took it on the chin for yet another day: metals and mining (-4.8%), natural gas stocks (-4.3%), oil services (-3.8%), oil stocks (-3.7%), banks (-3.1%), gold and silver stocks (-2.6%) and steel stocks (-2.3%).

Energy prices took a dive, for no real reason that I could come up with (is the PPT having to reach into the energy markets and sell oil futures now??). Crude fell more than seven bucks to $138.74, gasoline dropped to $3.38/gallon (go fill up!) and natural gas got thumped for more than fifty cents, down to $11.45/mmBTU. The dollar index recovered after an overnight drop, and ended just slightly lower at 71.80. The precious metals were split, with gold adding a few bucks to $976/ounce but silver slipping back to $18.89/ounce.

BMB Note:   Another up and down wild day, with the big move down in the morning turning around as oil prices came down. This morning looked like it had some of the panicky moments we’ve been waiting for, but it seemed as though the drop in oil short-circuited the decline before it really had a chance to get teeth.

The commodity areas are looking vulnerable again, and it remains to be seen whether they’re simply in corrective mode or if a serious decline is underway. There are a few bright spots - if I had to be long this market, I’d be looking closely at the biotechs and the health care areas. The biotechs have been on a tear, and some of the health-care names are trying to make their way out of the soup they’ve been in for months.

I’m sure that the ‘bottom-callers’ were putting the finishing touches on their speeches with about an hour to go, but the bloom came off the rose pretty suddenly, and many of the day’s buyers were buried. As Gary K. has been saying on his radio show - despite all of the negative sentiment, and despite the extremely oversold conditions, the fact that this market still can’t hold a rally may be an indication of just how weak things are. No need to be a hero here.

CPI number out tomorrow. Does anyone really care?

Someday.

Andrew Jeffery quotes Todd Harrison:

“The big picture blues will lead to an unfortunate destination, but that’s necessary to rebuild the foundation for sustainable economic growth. Once we get there, those with capital will be in a fantastic position to prosper.”

And that’s why we try to preserve capital as much as possible during these rough times.

For those traders out there trying to ‘feel’ out a short-term bottom (I emphasize ’short term’ here), Deron Wagner has some advice on how to recognize it and play it - assuming we ever see one again:

Over the past two weeks, one could have easily justified the statement that stocks are “oversold,” but placing aggressive buy orders purely on that assessment would have been a costly proposition. As we’ve warned about a few times over the past month, “oversold” markets often continue to become more “oversold” before buyers eventually step in. Price action since mid-June has been a perfect example of this. Blindly trying to guess where that reversal point will come, without first having some type of confirmation that a bottom is forming, can be very dangerous if strict risk parameters are not adhered to.

If you’re worried about missing the tradeable bounce off the lows that will eventually come, but still want to respect risk, there is an easy way to put the odds in your favor. After a string of losing days, wait for the first session in which the major indices rally to close above the previous day’s high. Then, wait for the first pullback to support of the 20-period moving average on the hourly chart. A protective stop is then placed below the intraday low of the “up” day that triggered the reversal of momentum. Historically, we’ve found this setup has a high percentage of accuracy for profitable trades, and also carries a positive reward/risk ratio.

A pretty rough start for stocks this morning, as sellers started to push their way through the doors in the first hour. Things have calmed down a bit at this point, but the numbers haven’t improved much, with the indices all down between 1 and 2 percent, and already 1400 new lows on the day.

Biotech stocks are the only real winners thus far, with airlines, banks, metals, homebuilders, steel, brokers and retailers leading the decline.

Treasuries are higher, yields lower - the 3-month T-Bill is now back down to 1.26%. Energy prices are lower. The dollar is getting smacked down, gold and silver are higher again.

PPI the worst in 27 years, and retail sales disappoint.

Euro hits $1.60.

GM making more cuts, suspends dividend.

Big losses overnight in Asia, and Europe is playing the same tune.

US index futures indicating a lower open here.