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 S&P hinted at a breakdown out of that wedge today. But was it convincing? Not quite.
	But if the NYSE Comp were to violate those recent lows, it would speak pretty loudly.

All the TV talk today was about the financials, and the new low territory being explored by the tag-team of Fannie and Freddie. The Treasury says it has no intention of using the ‘backstop’ it’s been provided. The market says it doesn’t matter - the shares are next to worthless either way:

But what caught my attention was the mini-meltdown in techs:

And particularly in these two big names - both Dow components:

Charts courtesy of StockCharts.com

Hmm. I guess oil didn’t matter today.

The price of oil fell just a bit more today, but it didn’t help the market one bit. Stocks started off weak and just got weaker as the day went on. The indices hit their lows going into the last hour, and managed to come off those lows as the closing bell rang.

The Utilities hung on as the rest of the indices floundered:

Treasuries were slightly higher, pushing yields a bit lower:
6-month: 1.94%    2-yr: 2.33%    5-yr: 3.06%    10-yr: 3.81%    30-yr: 4.43%.

Internals were negative, but volume pulled back from Friday’s expiration levels. Advances/declines were 5 to 14 on the NYSE and 6 to 13 on the Nasdaq, with up/down volume 1 to 4 on the NYSE and 1 to 5 on the Nasdaq. And it was back to more new lows than highs, with highs/lows at 29/61 on the NYSE and 25/47 on the Nasdaq.

Nearly all of the groups were red, with the financials a big contributor to the decline: homebuilders (-4.1%), banks (-3.9%), disk drives (-3.4%), brokers (-3.0%), HMOs (-2.3%), REITs (-2.1%), networkers (-2.0%), hospitals (-2.0%), paper (-2.0%), computer hardware (-1.9%), internet (-1.9%) and biotech (-1.9%). Only the gold and silver stocks (+1.5%) posted solid gains as they bounce off their lows.

Energy continue to drift lower. Crude oil was higher early, but finished almost a buck lower at $112.87/barrel. Gasoline dropped another four cents to $2.82/gallon, and natural fell 20 cents to $7.89/mmBTU. The dollar index slipped early but edged back up, losing only a little ground on the day to 77.12. Gold and silver finally got a rest from the selling, and each got a bit of a bounce, with spot gold up to $800/ounce and silver to $13.04/ounce.

BMB Note:   We’ve been wondering what would happen if the big slide on oil slowed down or reversed. Maybe we’re getting a hint that 1) oil might not be dropping much further real soon, and 2) stocks could be in a bit of trouble, regardless.

Last week we said we thought that we could see some changes in the market soon, and we might’ve seen the start of that today. The financials were weak, hurt by the fear that Fannie and Freddie could be in trouble - and they are. But I think there was more trouble than the just the financials today, as nearly everything pulled back, and in some cases, pulled back rather hard. The techs started to turn tail today, and some of them rather abruptly. The Nasdaq indices have been leading the move up off the lows, and if the market loses the support of the techs, the market will struggle.

It’s just one day, and this market has had a recent history of turning things around pretty quickly. But there isn’t much doubt that the momentum of this rally up has slowed, and now last week’s lows in the indices are already in danger.

The Dow is now back where it was a month ago on July 18th, which was just the 4th day of ‘the bounce’. Proceed with caution.

Gary Kaltbaum is still willing to give the market a chance. But so far, he’s fairly unimpressed:

I hereby quit everything I do to become Michael Phelps’ agent. (Get in line - BMB).

Quotes-

Lehman: “Oil prices to fall in Q4 and Q1 next year; oil has peaked for next few years.” Yes…Lehman knows where oil prices will be for the next few years.

Greenspan on July 31: “The U.S. is ‘nowhere near the bottom’ of the housing slump.”

Greenspan on August 14: “Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009.”

Do you think this man even remembers what he said 2 weeks before? And why is Greenspan, who has been calling the bottom in housing since 06… still being interviewed? Why is the man who was the root cause of everything we have been seeing… still being interviewed?

The “market” continues to trend higher as the follow through day that occurred on 7/29 continues to hold sway. The market has experienced some distribution but not enough to kill this nascent rally. But… most talk of the market. My job is to talk about what is working inside the market. I disagree with everyone who just says they are either bullish or bearish because side by side, we continue to have bull and bear markets. When the market was going up in April and May, the bulls said to buy buy buy, but the only things going up were COMMODITIES. Markets are now bouncing up again and of course, the bulls say buy buy buy… but this time the commodities are being smoked while all the previous bear market areas are now leading. So… let’s pick it apart.

On July 2, I called a major top for you in the COMMODITY areas. At the time, it was the only game in town as COAL, STEEL, OIL, FERTILIZERS, AGRICULTURE and the like continued to romp while everything CONSUMER continued to be crushed. July 2 topped most COMMODITY areas. July 15th topped the OILS and the GOLD… and I hoped you listened. Before those tops, I was nothing but bullish on these areas. I have been asked how and why these areas have been bludgeoned so badly. The answer is simple: money is much hotter and faster moving than it used to be. It used to be that stocks were sold off quietly and more slowly. Now… it is “get me the heck out!” Expect this to continue as hedge funds and others have quick trigger fingers especially when it comes to what I call “crowded trades.” I would absolutely continue to stay away from everything COMMODITY except for short term trades. The major trend remains down… albeit very stretched and oversold to the downside… which could lend itself to vicious snapback rallies. The outcome of this has been money flows coming out of COMMODITIES have found their way into everything CONSUMER.

On July 15th, OIL and GOLD topped… on July 16th, everything else bottomed. And you need to know that “everything else” has much more sway over the major indices than the COMMODITY areas. Well not all the major indices… as the not often mentioned AMEX is at new yearly lows because of how much ENERGY is in that index.

As far as the CONSUMER areas, they continue to get a bid. These areas were the worst of until July 16th including RETAIL, AIRLINES, HOUSING and the like. This is not great leadership… just mostly a ton of stuff coming off bear market lows. Let me be clear. They had better continue up.

FINANCIALS may be another story. While CONSUMER areas have kept the bid, it is starting to “feel” like many FINANCIAL names have already started to hit a wall. Let me be clear again. There is no way the market is going to get legs without the FINANCIALS’ help… so this must be watched closely. Names like Merrill Lynch (MER), Lehman Brothers (LEH), Citigroup (C), Fannie Mae (FNM), Freddie Mac (FRE), Washington Mutual (WM), National City Corporation (NCC) have hardly budged off their lows. I also make note that Goldman Sachs (GS) is now starting to act very poorly as it broke near term support this past week and may be headed to recent lows. Many FINANCIAL indexes are now testing the decling bear market 50 day moving averages. If they fail, watch the market fail.

It does not even pay to talk support and resistance right now as it is all short term talk. Shorter term, it does feel like markets are churning a bit here and would not be surprised to get some pullbacks… but that is just the short term. For me, the bottom line is that the market has bounced for 4 weeks… which is quite normal in bear markets. The last rally lasted 8 weeks… only the players have changed. For me, so far, this rally has been anemic but I will give it every chance to get going. My other major problem is that many leading breakouts have failed miserably and I am certainly not finding anything resembling powerful action in leading growth names.

Lastly, it is important to note that world markets are now lagging our market badly. Remember, everyone has told you to stay invested internationally. Well, China is down 53%. You remember China and their fabulous growth. Also, many world markets are laden with commodities, thus the recent poor action in places like Russia, Brazil and other submerging markets… I mean other emerging markets. If you have to be invested, there is no place like home.

Move along. Nothin’ to see here, folks. A little jostling around, but not much more than that. The indices are showing slight losses, with A/D lines in the red, and the commodities are getting a slight bounce. Only a few groups in the green, led by gold and silver stocks, metals and steel, while airlines, banks, homebuilders, disk drives and brokers lead the losers.

Treasuries are just slightly higher. Energy prices are flattish, the dollar index is lower, gold and silver are higher.