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.

If you’re looking to do some browsing on this holiday weekend, head on over to Finance Trends Matter and roll through David’s “Features of the Week”.

Gustav has lost some of its intensity, which would be good news for all involved. Here’s the newest thread on the topic at The Oil Drum, where fate of the LOOP is one of the major concerns:

We now have Gustav as a Category 3. However, the Louisiana Offshore Oil Port or LOOP–where America uploads approximately 1.2 million barrels of imports each day–is directly in the hurricane path; there is also a good bit of refining and other infrastructural damage in the models.

Here is the first update today from Chuck Watson at KAC/UCF:

Here’s the 06z NHC (current forecast issued at 5am). I think it’s on the hot side, but their job is evacuation, not damage prediction. The LOOP is my main concern at this stage. It’s an important piece of infrastructure, and it is right in the bullseye. A 20 mile left or right shift, and 10 or 15 knots of wind speed means the difference between days and months of repair/recovery time. NHC track is Bad for the LOOP; some tracks to the east are better (not so good for NOLA, though). I’m sticking fairly close to my probabilities from a couple days ago, minus the Mexico and Tampa side trips: 30% Cat 3/4 landfall in LA, 30% cat 2 landfall in LA, 10% to Pensacola area, 20% farther west, 10% something goofy.

Notes on the latest moves in the industry groups:

• Not much to get excited about. Even the relatively strong health care areas, have started to pull back, maybe with the exception of the hospitals.
• Retail and defense stocks have been holding up fairly well of late.
• The laggards, the energies, metals and utilities, have done little more than bounce up of the lows.
• In the financials and real estate, insurance stocks have popped back up, but the rest are hardly taking off.
• Techs and telecom have been doing a lot of chopping and flopping.
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page., or the Industry Group Tracker at WSJ Online.

NYMEX energy trading to open early tomorrow as Gustav makes its way into the Gulf:

In response to concerns about Hurricane Gustav, CME Group, the world’s largest and most diverse derivatives exchange, today announced that it has revised its Labor Day holiday trading schedule (all times are Eastern time) for NYMEX energy products. On Sunday, August 31, all NYMEX energy products trading on the CME Globex® electronic trading platform will open for trading at 2:30 p.m. (Eastern), with a 2:00 p.m. (Eastern) pre-opening, for a September 2, 2008, trade date. NYMEX ClearPort® Clearing and NYMEX ClearPort® Trading will also now re-open for trading on this schedule on Sunday, August 31.

“We wanted to provide our customers with the opportunity to respond to the storm’s potential impact to energy markets as quickly as possible,” said CME Group Chief Operating Officer Bryan Durkin. “The ability to trade both our exchange-listed and over-the-counter energy products during this period will be a significant benefit for global energy market participants.”

Tip from the comments at The Oil Drum.

As I mentioned in the comments, Gustav has strengthened into a Category 4 storm, and there isn’t much standing in the way between it and an arrival on the Gulf coast sometime Monday.

Here’s the latest thread at The Oil Drum, with updates on possible effects on energy infrastructure.

Still not much happening here. We saw a few up days in the middle of the week, but those were bookended by a couple of big down days. That had the three major indices all lower on the week, and didn’t do much to help the sectors out.

Health Care and Staples still have the ‘best’ looking charts, but they haven’t gone anywhere in a month:

Among the rest, the Financials, Techs, Industrials and Discretionaries are doing only slightly better…

…than are the Energies, Utilities and Materials:

Here are the numbers as we finally get out of August:

Charts courtesy of StockCharts.com

Integrity Bank, Alpharetta, GA

Much of tech struggled today, but one of the more notable developments was the sharp break of near-term support and the 50-day moving average by RIMM.

Chart courtesy of StockCharts.com

I don’t care much for these pre-holiday sessions. Of course, this whole week has been one big pre-holiday session.

Stocks today gave up most of yesterday’s gains, in some cases, all of them, and the indices went out near their lows of the day. Does it mean anything? Who knows?

Treasuries didn’t move much, yields were up just slightly:
6-month: 1.94%    2-yr: 2.37%    5-yr: 3.09%    10-yr: 3.81%    30-yr: 4.42%.

Internals were in the red all day, but volume was very light, as expected. Advances/declines were 7 to 12 on both exchanges, with up/down volume 3 to 8 on the NYSE and 2 to 9 on the Nasdaq. More new lows than new highs again, with highs/lows at 14/21 on the NYSE and 21/46 on the Nasdaq.

Most of the groups were red, with the techs dominating the ‘worst’ list: paper stocks (-4.9%), computer hardware (-2.9%), semiconductors (-2.8%), disk drives (-2.7%), computer tech (-2.6%), internet (-2.1%), networking (-1.9%), software (-1.9%) and oil services (-1.8%).

Energy prices started higher, but got knocked back down during the day. Crude finished a few cents lower at $115.46/barrel, gasoline slid four cents to $2.98/gallon, and natural gas dropped back to $7.94/mmBTU. The dollar index moved up to 77.30, gold fell a few bucks to $830/ounce and silver slipped to $13.56/ounce.

BMB Note:   Glad this week is over with. Hopefully things will start to pick up the pace after the Labor Day holiday. As for me, I’ll have one eye on the hurricane updates, and the other on the start of college football.

Have a good weekend. We’ll be here, on and off.

A comparison of the McCain and Obama tax plans - thanks to Instapundit.

Just a little profit-taking after a few days of gains - or is the end-of-month markup coming to a close?

The indices are pulling back a bit this morning, particularly the Nasdaq indices as a number of tech names (not just DELL) are slumping. A/D lines have moved back into the red, and nearly all of the groups are red as well, the worst being paper, computer hardware, disk drvies, semis, airlines, computer tech, software and internet.

Treasuries are just slightly lower, yields a bit higher. Energy prices are higher. The dollar index is flat, gold and silver also near flat.

Not surprising, considering the choppy market lately.

It’s Friday morning, and we can be thankful that Larry McMillan isn’t taking the week off - click here for column with charts:

The market, as measured by $SPX, came within a hair’s breadth of breaking down, but it didn’t. It did penetrate the uptrend line that had been in place, but that was all. Somehow, in Houdini-like fashion, $SPX still has a series of “higher lows” in place.

Now, after three strong days of rally, $SPX has climbed back to near the highs of this rally that began in mid-July. As a result, it’s in a trading range, bounded by the high close (1305) and the low close (1266), both of which were set in early August. Despite a lot of volatile days, the market has made little progress since then. A confirmed breakout, on a closing basis, beyond those levels can be traded.

The equity-only put-call ratios have diverged, which is one of the reasons we view this rally with some skepticism. The standard ratio remains on buy signal (chart, above left). However, the weighted ratio has given a confirmed sell signal by turning higher and making a local minimum on its chart. We won’t pick one over the other, since both have reliable track records, so we’ll just have to call this indicator neutral for now.

Market breadth (advances minus declines) had been a laggard all year. Lately, it has been sluggish in both directions. That is, when the market declined a week ago, breadth wasn’t bad enough to get oversold, and on previous rallies, breadth wasn’t good enough to get overbought. In this most recent 3-day rally, though, breadth has expanded greatly.

Volatility indices ($VIX and $VXO) continue to decline and, as a result, they remain bullish as they are in downtrends. A $VIX close decisively above 21 would break that downtrend, but for now it remains intact.

In summary, the only sell signals are the weighted index put-call ratios. Meanwhile, $VIX and the standard equity-only ratio remain bullish. As long as $SPX remains in this trading range, we’ll likely have mixed signals. However, if the market clearly breaks out of the $SPX trading range, we would trade it.

All of this talk about “stimulus packages” makes you wonder where all this ‘miracle money’ is coming from. I guess it just grows on trees. Or it is created out of thin air - and then they wonder why we have global inflation:

The Japanese government is finalizing an economic-stimulus package of 10 trillion yen ($95 billion), including 8 trillion yen for government-credit guarantees for small businesses, according to a published report.

Real spending in the stimulus plan is expected to exceed 1 trillion yen, and the plan is expected to be approved Friday, Japanese business daily Nikkei said on its Web site in a report dated Friday.

Japan’s stimulus packages throughout the 1990s left it with massive public debt amounting to about one and half times its gross domestic product.

Finance Minister Bunmei Ibuki said at a press conference last week that Japan’s government wasn’t considering selling new bonds to fund the package, and that he hadn’t received any instructions from Prime Minister Yasuo Fukuda to compile a new supplementary budget.

This is what happens when mutual fund managers stay invested at all times:

Out of almost 2,100 diversified retail U.S. stock mutual funds that are open to new investors, just 17 have positive returns for both the past 12 months and year-to-date, according to investment researcher Morningstar Inc.

Hat tip to The Big Picture.

Still a lot of bizarre action in the precious metals markets, as many pundits call a top in ALL commodities, but shortages in availability of bullion continue:

Rand Refinery Ltd., the world’s largest gold refinery, ran out of South African Krugerrands after an “unusually large” order from a buyer in Switzerland.

The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer.

Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce “American Eagle” gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe.

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Johnson Matthey’s Salt Lake City refinery doesn’t have the capacity to meet investor demand for 100-ounce silver bars, said spokesman Ian Godwin in London. He wouldn’t comment on whether the company may expand capacity or end production.

The refinery usually gets orders for 1,000 ounce bars from banks and silver grains from jewelers, Godwin said.

The pundits and the futures markets have been trying to tell us one story, while the real world bullion demand has been saying something completely different. Who do we believe?

Though the indices have shaken off Monday’s drop and registered new highs for the week…

Investors aren’t completely convinced that we’re ‘off to the races’, as the VIX has not fallen below Monday’s lows, and barely budged today:

But not all stocks have been caught up in the chop:

Charts courtesy of StockCharts.com

Art Cashin said on CNBC the other day that the Thursday before Labor Day has been a down day in 10 out of the last 11 years. Let’s make that 10 out of 12.

Stocks rode the light volume into the end of the month, with some help from the energy markets:

Treasuries were a bit lower, with yields up slightly, more at the short end:
6-month: 1.92%    2-yr: 2.37%    5-yr: 3.05%    10-yr: 3.78%    30-yr: 4.38%.

Internals were positive, and volume spiked late to finish a little higher than yesterday, but still wasn’t real convincing. Advances/declines were 3 to 1 on the NYSE and 7 to 3 on the Nasdaq, with up/down volume nearly 4 to 1 on the NYSE and better than 4 to 1 on the Nasdaq. New highs/lows were split, at 30/16 on the NYSE but 42/51 on the Nasdaq.

Nearly all of the groups were green, but those same ol’, same ol’ groups topped the list: airlines (+8.7%), homebuilders (+5.0%), banks (+4.5%), brokers (+4.0%), paper stocks (+4.0%), REITs (+3.3%) and transportation (+3.3%). A couple of energy groups, natural gas stocks (-1.5%) and oil services (-1.2%) led a short list of losers.

Energy prices got smacked down in the morning, but bounced back somewhat to limit their losses. Crude dropped more than two bucks to $115.59/barrel. Gasoline gave up only four cents to $3.02/gallon, and natural gas bounced off morning lows, falling 37 cents on the day to $8.05/mmBTU. The dollar index finished slightly higher at 77.14, but the PMs gained a little more ground anyway, with spot gold up to $833ounce and silver back up to $13.67/ounce.

BMB Note:   Stocks started off with some morning fluff, then got another boost from lower energy prices. Again, the very light volume calls into question the ‘conviction’ behind any of the moves this week. I’m sure there are some end-of-month games taking advantage of the sparse holiday action, enough to get CNBC all lathered up about what a great month August as been - and I’m sure that tomorrow’s volume will be even worse.

After sitting on the sidelines for as long as I can remember, I actually took a couple of small trades today. Obviously, when I mentioned CYBX setting up as a short last night, I had no idea that it would cough up more than 18% of its value today. I grabbed a small position when it ‘triggered’ to the downside this morning, getting in a little late, but catching a good part of the move - and have already taken some partial profits. In addition, I nibbled at a little bit of natural gas via UNG on the big spike down this morning, as it bounced right off last week’s lows - with a possible Cat 3 hurricane heading into the Gulf. Maybe it’ll be a trade, maybe a start at building up some longer-term energy positions. Depends on what it does.

I wouldn’t get too excited about the moves up in the indices over the last few days. Let’s wait and see how things pan out once the holiday weekend is past and some volume - hopefully - returns to the market.

TD Eight has earned itself a name - it is now Tropical Storm Hanna.

Minyanville’s Lance Lewis on gold and the dollar:

Gold’s bull market isn’t just a weak-dollar phenomenon. It’s a function of global inflation, just as oil and other commodities’ bull markets have been.

That’s also why many commodities and gold have been making new all-time highs in all currencies - not just in dollars.

Now, turning to today’s headlines, we have another interesting tidbit:

The explosive growth in foreign holdings of treasuries at the Fed to record levels between mid-July and early August (foreign holdings exploded $25.6 billion for the week ended Aug 6th to a total of $1.42 trillion, which is a record) made it quite obvious what was done to prop up the dollar during the GSE panic this summer.

An agreement for coordinated intervention among the G7 to prop up the dollar makes it even more clear (i.e. foreign central banks intervened to prop up the US peso back in July).

If foreign central banks are going to be willing to sacrifice the purchasing power of their own currencies in order to prop up the dollar, that makes all the G7 confetti currencies now somewhat suspect. Is it any wonder that gold is now rallying strongly in all the G7 currencies regardless of where the “dollar index” goes?

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That’s not a coincidence. Gold is a currency, and if the G7 is going to prop up the dollar, it may be the only “hard currency” that investors have left to flee to.

All about oil again - oh, and a nice light volume week heading into the end of the month probably doesn’t hurt anything either…

Oil took another dive this morning, with natural gas getting smacked on its weekly inventory report - never mind that there’s a hurricane sitting out there, ready to rip up whatever energy infrastructure that it can. And we won’t even go into the Russian mess. But the dive in energy prices helped push an already buoyant market up even further.

There’s some odd stuff going on in the energy markets these days, seemingly out of line with any of the fundamentals. It is an election year, isn’t it?

More of the same light-volume action, with a positive bias. Indices and A/D lines are green, with the airlines, homebuilders, steel, transportation and metal leading.

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

Others have already got them covered - Barry’s skeptical of the GDP data, and Calculated Risk says that, according to the unemployment figures, “the economy is clearly in recession.”

Gustav will have people chewing their nails all weekend, T.D. Eight has been identified, and there are a couple more areas of possible development coming off the coast of Africa.

I guess that’s why they call it hurricane ’season’.

In Pakistan, via the brute force method. From Calculated Risk:

From Bloomberg: Pakistan Sets Floor on Stock Prices to Stop Plunge

Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April.

Securities can trade within their daily limit of 5 percent “but not below the floor-price level” of yesterday’s close …

Ahhh … stock prices that can only go up. That is a real PPT (Plunge Protection Team).

This is funny, but doomed.

See, the ’stop losses’ idea isn’t so far fetched. We haven’t heard what the new short selling rules from the SEC are going to be yet…

The ‘funny money’ game just gets bigger and bigger.

What’s funny about this - or maybe it’s not funny at all - is that we all know the Treasury doesn’t have any money. They’re trillions of dollars in debt!!

The Federal Deposit Insurance Corp. is considering a plan to borrow funds from the U.S. Treasury Department, as its seeks to shore up its finances amid an expected wave of bank failures, according to a published report Tuesday. Funds borrowed from the Treasury would used to cover short-term cash-flow needs related to reimbursing depositors in the aftermath of bank failure, the Wall Street Journal reported Tuesday, citing comments by FDIC Chairman Sheila Bair. The report said the borrowed funds would be repaid once assets from the failed bank are sold.

By the FDIC’s own admission, they might just need some help - their list of ‘troubled banks’ isn’t getting any smaller. Mish has some comments on the whole mess.

Sheila might have to get in line - who gets first dibs on the Treasury’s vapor money, her or the automakers?