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.

Let’s add a little perspective to the ‘biggest gains ever’ for the airline and banking indexes:

Charts courtesy of StockCharts.com

After weeks of throwing ‘oversold’ up against the wall, over and over, they finally got it to stick.

The most bearish areas of the market jumped off their lows and ran out all the shorts, pushing stocks higher in the big bounce that everyone has been waiting for. And that everyone will be calling “the bottom”.

The Trannies got the biggest lift as oil prices came down further, with the Russell and the Nasdaq the best of the broad-based indices:

Treasuries were mixed, falling on the long end and pushing rates higher:
6-month: 1.83%    2-yr: 2.44%    5-yr: 3.20%    10-yr: 3.95%    30-yr: 4.59%.

Internals turned around to the positive side, and even got a little extreme on the Nasdaq, but volume was lighter than yesterday. Advances/declines were about 3 to 1 on both exchanges, with up/down volume 7 to 2 on the NYSE and 9 to 1 on the Nasdaq. New highs didn’t improve much, though - highs/lows were 12/265 on the NYSE and 31/196 on the Nasdaq.

The groups were mostly green, with the biggest gains in history in the airlines and banking indices (the biggest rallies happen in bear markets, remember?). Leading the winners were the airlines (+18.1%), banks (+17.3%), brokers (+13.1%), homebuilders (+9.1%), transportation (+6.9%), REITs (+6.6%), retail (+5.5%), insurance (+4.3%), semiconductors (+3.7%) and internets (+3.5%). Despite the big bounce in stocks, there were some losers: gold and silver stocks (-2.6%), natural gas (-2.2%), oil stocks (-2.1%), utilities (-1.9%), oil services (-1.1%) and HMOs (-1.1%).

Wherever the push down in energy prices got started, it’s worked for a couple of days in a row now, aided today by the inventory report. Crude dropped another four bucks to $134.60, gasoline fell another dime to $3.28/gallon (go fill up again!) and natural gas only lost a nickel to $11.40/mmBTU. The dollar rebounded throughout the day and pushed the dollar index back up to 72.09. The precious metals have started on their pullback, with gold slipping to $959/ounce and silver to $18.74/ounce.

BMB Note:   Well, after days and days of talk of an imminent bounce, it looks like they finally got one to stick for more than an hour or two. And of course, the move was led by the worst bear market areas. But c’mon - we didn’t really expect airlines, banks and brokers to go down every single day until the end of time, did we? Sooner or later, we knew they’d bounce.

But is it more than just a bounce? Not yet it isn’t. It’s hard to be too impressed with the ’strength’ of the market when the indices still have a way to go on the upside just to make contact with their severely declining 20-day moving averages - and on a day when the Dow was up more than 200 points, we still got only 43 new highs. There’s a lot of work yet to be done to really turn things around. Maybe this is a start, but I wouldn’t be betting the house on it just yet.

Since we already know that the biggest rallies usually take place in the context of a bear market, I’m actually a little surprised that we haven’t seen some bigger moves, you know, of the 350-400 point, or ‘top 10′ variety. Today’s move was actually rather weak in comparison to some of those big bear-market rallies.

We’ll probably see more teasing to the upside here - after all, this is options expiration and earnings season. But as you know, BMB believes we need to see a climactic washout before this decline can be declared ‘over’ for any time period longer than a few days. And maybe I’m wrong - but I’ll need to see more proof.

I have no doubt that the ‘bottom-callers’ will be out in droves today. Just remember that these people will call ‘bottoms’ early and often - but they have never once told you the market has reached a ‘top’, have they?

So, we’ve got a bounce in progress. But to me, at the very least, we’ll need to see some downward trendlines broken and some moving averages turn up before we can even begin to talk about ‘a bottom’ being in.

Follow-through is key. Dive in the shallow end at your own risk.

Well, the bulls are doing the best they can with what they’ve got. They’ve managed to nudge the indices just above yesterday’s highs, the worst bear market areas are getting big bounces, and another dip in oil is helping out. A/D lines remain positive, but volume has been relatively light and is slacking off.

So far, this doesn’t look like much of a game-changer to me.

Looks like the market is already up to its usual tricks, getting in a few more iterations of the up-down dance in the first hour of trading. The latest move is another ’stand-up’, as crude oil prices fall in response to the weekly inventory report.

The indices are back in the green, and A/D lines are on positive ground for a change - we’ll see how long that lasts. Leading the move are the recent horrible laggards - airlines, banks, brokers, transports, housing and retail.

Treasuries are lower, yields up. Energy prices are lower. The dollar index is fairly flat, gold and silver are mixed but near the flat line.

Apparently they couldn’t find any way to hide it this month:

Double-digit increases in gasoline prices helped push the nation’s consumer price index higher by 1.1% in June, the biggest increase since Hurricane Katrina nearly three years ago, the Labor Department reported Wednesday.
The unexpectedly large increase in CPI was led by a 6.6% jump in energy prices and a 0.8% increase in food prices.
Excluding food and energy inputs, the core rate of inflation at the retail level rose 0.3%, the biggest increase since January.

From another story:

Over the past 12 months, consumer inflation is up by 5 percent, the largest year-over-year gain since a similar 5 percent rise in May 1991.

So they say. We all know it’s really worse than that.

This commentary from Barry at The Big Picture was simply too good to excerpt, so you’re getting the whole thing:

Idiots Fiddle While Rome Burns

The collection of ne’er do wells, clueless dolts, political hacks, and oh, let’s just be blunt and call them what they are — total Idiots — expands into an ever larger circle.

While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone — except their own horrific negligence.

This is financial incompetence writ on a scale grander than anything seen for centuries.

As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity.

There is a choice to be made: Either regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God’s sake, do not give us the worst of both worlds — do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill. 

That’s not capitalism, its not socialism, its not regulation, and its sure as hell isn’t what free markets are. Our language is insufficient to describe this hodge-podge system, other than to call it a random patchwork of quasi-capitalism, quadrennial-socialism, and politics as usual. Ideological idiocy is the only phrase I can muster that has any resonance with the daily insanity.

We have entered into a fit of Orwellian madness: The American Capitalists, long the globe’s leading advocates for free markets, have become near Socialists. Halfway around the world, the Chinese Communists have picked up the baton, and are moving rapidly towards a form of Capitalism. Ironically, it is the once largest communist nations — the Chinese and the Russians — who holds much of Fannie and Freddie’s paper.

Hey comrades, who’s selling the rope to whom?

Perhaps the rescue of “Phony and Fraudy” are not so much a bail out of American homeowners as it is a desperate attempt to stay in the good graces of our friendly global bankers. We are the world’s largest debtor nation, and as such, we depend upon the kindness of strangers — be they Japanese or Europeans or Abu Dhabians — or even former communists.

Back in the States, something beyond cognitive dissonance is occurring — this is full blown case of dementia unfolding in the public sphere. When this era of excess and absurdity is treated by historians in the future, the question I expect to be asked most is not why many of these people weren’t jailed for their financial felonies. Rather, I expect them to wonder why so many of these folk weren’t placed in protective custody, and heavily medicated, for the only rational explanation for their statements and behaviors is that they have gone so far beyond the bend as to be completely and totally insane.

Massively over-leveraged companies? Blame the short sellers.

Wildly undercapitalized finacial firms? Blame the rumors.

Heinously poor corporate management? Blame a Senator.

Books will be written about this period of time, and our descendants will wonder in awe as to how this was allowed to happen. Tulips got nothing on us! Its not just the total dollar value of the losses that have exceeded all other global fits of financial madness combined, but rather, how so many warning signs were so blithely ignored by so many and for so long. What was wrong with these people, the authors and historians will wonder. Did the antibiotics in the food supply drive them mad? Did the High Fructose Corn Syrup compromise their ability to think? Some form of viral plague? Road rage? What else could have created such a mass delusion amongst not just the populace, but their leadership and institutions?   

Indy Mac goes belly up, having lost $900 million this year alone. Its shares fell 87% in 2007 and then its value dropped (on top of last year’s collapse) another 95% this year-to-date. The stock fell to 28 cents yesterday. Some estimates of the total bad loans made by this somewhere in the neighborhood of $30 billion dollars — and the Office of Thrift Supervision blames a senator who is investigating how much of the FDIC’s $53 Billion this is going to eat up, with Wall Street estimates ranging from 15% to 30%. The towering incompetence of OTS is incomprehendable, but it is their colossal gall that is truly stupefying.

From beyond the grave, Adam Smith does not know whether to weep or wretch.