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.

The Fed extends its pawn shop hours into January, the FASB lets the banks lie about what’s on - and off - their books for at least another year, and says it’s “not practical” to have them tell the truth:

“We need to get a new standard into effect,” Linsmeier said, though “it’s not practical” to begin requiring companies to put assets underlying securitizations onto their books this year.

Mish has plenty to say on the subject:

It’s NEVER “practical” for the Fed, the SEC, Banks, CEOs in general, the FDIC, Congress, the Treasury Department, or the President to tell the truth.

This is what it all boils down to: Somehow it’s never “practical” to stop a drunken credit-financed orgy, yet when the party ends, it’s never “practical” to discuss the consequences.

In this case, the credit orgy lasted so long, and there were so many players, that the most important truth right now that needs open, honest discussion is that the entire US Banking System Is Insolvent.

—

The Fed, the SEC, and the Treasury department are all jumping through hoops attempting to disguise this fact, but their collective panic to bail out the wealthy at the expense of the poor tells the truth, even as they find it “impractical” to do so.

For whatever reasons, the utilities and precious metals stocks have been hammered of late:

Former market leader Mastercard is a leader no more, especially after breaking down badly in the past two days on their earnings report.

MA joins an ever-growing list of former leaders that are no longer doing the job of pulling the train forward:

Charts courtesy of StockCharts.com

Those lazy, hazy days of summer - when Wall Street takes Fridays off.

Stocks started out on the weak side, but bounced off the lows, and languished in the red much of the day. But the bulls - the few that were working today - took advantage of the light volume and pushed things around in the last hour again (what’s new??) and got the indices almost back to the flat line before letting things slip a bit into the close.

The Russell was the only index to hold the green:

Action in Treasuries was quiet, leaving yields where they were:
6-month: 1.86%    2-yr: 2.50%    5-yr: 3.21%    10-yr: 3.94%    30-yr: 4.57%.

Internals were mostly flat, with volume pulling back. Advances/declines were just above flat on the NYSE and just below it on the Nasdaq, with up/down volume just below flat on the NYSE but a negative 5 to 9 on the Nasdaq. But of course, there were more new lows than new highs: highs/lows were 23/70 on the NYSE and 29/86 on the Nasdaq.

The groups were split, but with more losers than winners. Paper stocks (+2.4%), hospitals (+1.8%), brokers (+1.8%) and banks (+1.6%) led the winners, while the metals again led the losers: steel stocks (-4.7%), metals and mining (-4.7%), gold and silver stocks (-3.7%), utilities (-3.3%), health care products (-2.1%), transportation (-2.0%), chemicals (-2.0%), computer hardward (-1.9%), biotech (-1.7%) and homebuilders (-1.5%).

Energy prices got a morning spike but finished only slightly higher. Crude gained a buck to $125.10/barrel, gasoline gained a few cents to $3.08/gallon, and natural gas climbed a quarter to $9.39/mmBTU. The dollar index made a little more progress, up to 73.41. Gold and silver gave back a little ground, with spot gold slipping 4 bucks to $909/ounce and silver dropping back to $17.44/ounce.

BMB Note:   Not much change to talk about. Still no real evidence that we’re going to be able to break out of the recent range and get things moving, in either direction. And even if we do, I’ll have a hard time getting excited about any move to the upside having a lasting impact.

Maybe we thrash around here for another few more weeks or so, and maybe we get more upside testing. But I have a sneaking suspicion we could be in for a very interesting time past that, maybe into September or October.

Now is the time to take whatever steps are needed to protect yourself, just in case.

Hey, it’s ‘Failure Friday’. Any more banks taken under the FDIC’s wing?

Larry McMillan doesn’t have any sell signals - but doesn’t sound like he’s diving into the ‘hugely bullish’ camp either. This column is written after Thursday’s close, so when he says ‘today’, he’s referring to Thursday’s action - click here for column with charts:

There have been large swings in both directions in the last week. In fact, of the last six trading days, five have seen $SPX net changes — on a closing basis — of 17 points or more. Even so, it appeared that the bulls were going to take charge, but they seem to have failed. After the oversold rally which ended last week, the market pulled back early this week, and then rallied. That pullback bottomed out at 1234 on $SPX, there making a “higher low” (the low of the previous week was at 1200). Then, on Wednesday (yesterday), $SPX rallied strongly, closing at a new high for this rally, at 1282. That made a “higher high” on a closing price basis, although not on an intraday basis. A pattern of higher highs and higher lows is bullish for the $SPX chart.

However, that configuration was dealt a blow by today’s negative action — thanks mostly to very negative comments by ex-Fed chief Greenspan (the market had pretty much weathered early selling, caused by worse-than-expected GDP growth). With today’s pullback, the $SPX chart looks more like it has even heavier resistance at 1280, as opposed to what looked like a bullish pattern yesterday. But the “higher low” is still in place, and there are some buy signals from the technical indicators, so the bulls may still be able to take control.

The equity-only put-call ratios have both turned bullish (see Figures 2 and 3). That is certainly important, as these intermediate-term indicators have a strong track record. Moreover, these buy signals arose from fairly lofty levels on their charts — usually an indication of a signal with a high probability of success.

Market breadth has been volatile, just like the market. Despite today’s negative action, breadth is currently on a buy signal — generated by the strong number of advancing issues on Tuesday and Wednesday of this week. This is usually a confirming indicator, and as such it is confirming the bullishness of the equity-only put-call ratios.

The volatility indices ($VIX and $VXO) have made some sharp moves, but the general tend is lower, and that’s bullish. However, recently $VIX has been bouncing around in a range between 21 and 24. A close below 21 would confirm a bullish market, but a close above 25 would change the $VIX chart to bearish. At this point, its last signal was a buy signal, and it hasn’t negated that, so technically $VIX is on a buy signal — merely by the fact that it’s in a general down trend. Note that its 20-day moving average is rolling over and beginning to turn downward. That’s bullish, too (Figure 4).

In summary, we don’t have any sell signals, and the fact that the equity-only put-call ratios have recently turned bullish is significant. Moreover, the other indicators are modestly bullish. As a result, we favor the upside here, but it looks like there won’t be complete confirmation from the $SPX chart unless it trades above 1291 — the July 23rd high. Of course, if the lows at 1200 are violated, then all bullish thoughts are to be abandoned, for that would be extremely bearish.

Today’s messy open started to the upside, but didn’t stay there long. The indices hit their lows when oil spiked up a few bucks, but are now resting in the red, with the Trannies and the Nasdaq(s) getting the worst of it. A/D lines are in the red as well. Looking at the groups, only a few ‘greens’ - paper, natural gas and oil services, while biotechs, transportation, steel, computer hardware, health care products, airlines, homebuilders and HMO lead the losers.

Treasuries are slightly higher, yields down a bit. Energy prices are higher, the dollar index is near flat as are gold and silver.

…at the Fed’s pawn shop.

U.S. banks’ direct primary credit borrowing from the Federal Reserve rose to a record high in the latest week. Banks primary credit borrowings averaged $17.45 billion per day in the latest week, up from the previous record set last week of $16.38 billion, the Fed said on Thursday.

Glad to hear things are improving…

Non-farm payrolls a bit better than expected, unemployment rate probably a little worse than expected. And a huge loss for GM - what a surprise.