Bear Mountain Bull

Notes on the latest moves in the industry groups:

• A few more groups are sneaking up on those still-declining 50-day moving averages (red line) – the insurers and the energies are looking to join the utilities and precious metal stocks – but none have convincingly turned the corner as of yet.
• Despite the big bounces this week – especially from the most beaten down areas, like the financials and the metals – most charts are still pointed downward. Have a look: set #1 — set #2 — set #3 — set #4
• 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.

Over the past 6-7 weeks, the Energies, Utilities and Staples have done the best job of ’stabilizing’:

The rest of the sectors have been slipping a bit more than those, with the Financials getting the biggest bounce this week:

The numbers as we close out the month of November:

Charts courtesy of StockCharts.com

Just the final scores for today’s shortened, light volume, post-holiday session:

And nothing more at this point, says Larry McMillan (click here for column with charts):

Despite the absolute euphoria pouring out of your TV set, it is important to keep in mind that the strong rally this week is — so far — nothing more than an oversold rally. It is very similar to many other such rallies in the past, including the one at the end of October.

The chart of $SPX (Figure 1) shows that at last week’s lows, $SPX was nearly 150 $SPX points below its 20-day moving average. At the same time, there were heavy oversold conditions in breadth, put-call ratios, volatility, and so forth. When those conditions combine, an oversold rally is likely to take place.

So, here we are, having rallied about 150 $SPX points since last Friday, and about to run into the declining 20-day moving average. Not only that, but the short-term trend line of this market (red line on chart) is at current levels as well. So, if you can remove the emotion, you can see that so far this rally has proved nothing as far as its staying power or as a possible bottom for the bear market

Admittedly, this has been a strong rally. But even if it overshoots to resistance at $SPX 910-920, it might still be a bear market rally. In order for this to be something more, we would continue to look for the elusive “higher high, higher low” pattern that we did not get earlier in November. Then and only then would we have an intermediate-term buy signal on the $SPX chart. There are other scenarios that might occur, I suppose, but it is quite logical to expect to see this pattern, for it is evident at most major bottoms.

The equity-only put-call ratios are trying to turn bullish again. The standard ratio appears to have done so just yesterday, rolling over enough to be considered a “buy.” The weighted ratio isn’t quite there yet, but appears to be close to confirming a buy signal as well.

Market breadth was terrible last week, and — by Thursday’s close — had reached all-time lows in terms of massive oversold conditions. That was greatly responsible for the oversold rally that we’ve seen since then. That oversold condition has been fully worked off now, and buy signals have been generated.

Volatility indices have collapsed from their all-time high closes of November 20th. That creates a short-term buy signal. Furthermore, the short-term rising trend line of $VIX has been violated (Figure 4), and that is more bullish fuel. The longer-term, more slowly rising trend line is very near today’s $VIX close. If $VIX falls and closes below there, that should be even more bullish.

In summary, the current rally is a short-term bear market rally. Such rallies are often very violent, as this one is. We would reclassify the rally as something stronger (i.e., an intermediate-term rally in a bear market) if we see a more constructive pattern on the $SPX chart. Despite the buy signals from the other indicators, it is the $SPX chart that must come around. The entire situation is very similar to what we saw at the end of October. At that time, the $SPX chart did not come around, and the market collapsed. Finally, whether or not last week’s lows are the lows of this bear market, we fully expect them to be retested before any sort of bull market could take place.

BMB will be taking the day off to celebrate Thanksgiving, enjoying family, friends, food and football. I hope that all of you that celebrate the Thanksgiving holiday will do the same.

As for tomorrow, things will probably be pretty quiet. The market is only open a half-day, and at some point during the day, our web host will be taking the server down to be relocated. I’m not sure what time that will take place – but if BMB disappears for a few hours, you’ll know why!

	Is it different this time? We’ll find out soon enough.
	Though stocks have bounced back up, long bonds have continued to rally, smashing yields down.
	Beware the ‘fads’ or ‘trendy’ stocks, especially in a bad market.

Charts courtesy of StockCharts.com

Stocks shook off some poor economic numbers in the morning and rallied out of an early dip, then ignored terror attacks in India in the afternoon and rallied further, leading into the Thanksgiving holiday.

The indices, along with internals, were a healthy green, and closed at the highs of the day – but volume was predictably light:

Treasuries continued their move higher, pushing yields even lower, with the 10-year now below 3 percent:
6-month: 0.47    2-yr: 1.09%    5-yr: 2.01%    10-yr: 2.98%    30-yr: 3.52%.

Internals were quite positive, but that volume was missing. Advances/declines were 6 to 1 on the NYSE and 15 to 4 on the Nasdaq, with up/down volume better than 9 to 1 on both exchanges. Even a few new highs were seen – highs/lows were 7/43 on the NYSE and 6/117 on the Nasdaq.

All of the groups finished green. Leading the way were the metals (+11.8%), steel (+11.7%), homebuilders (+9.4%), oil services (+8.9%), semiconductors (+7.6%), disk drives (+7.5%), brokers (+7.1%), natural gas stocks (+6.9%), gold and silver stocks (+6.1%) and retailers (+5.9%).

Energy prices were higher. Crude oil rose to $54.14/barrel, gasoline jumped to $1.18/gallon, and natural gas got a boost to $6.88/mmBTU. The dollar index bounced back up to 85.61. Gold lost a few bucks to $808/ounce, and silver lost a penny to $10.26/ounce.

BMB Note:   Four up days in a row for the Dow – first time since April, according to CNBC. Yikes.

Anyway, the market made a nice turnaround today, putting up some decent numbers after the morning dip. But I’m always afraid to give too much weight to these light-volume holiday sessions, and Friday’s half-day will be another one. I’d like to see maybe a little pullback, then see some volume start to come in on the up days, especially as things now try to work their way through some significant overhead resistance. Maybe they can bounce this thing up into the beginning of the new year. We’ll see.

Calculated Risk says the numbers were the lowest since 1982.

More info and charts here and here.

Maybe he will be able to add some sanity to the handling of economic matters in Washington. We can only hope.

I’m guessing that he and new Treasury Secretary Geithner won’t always be in agreement…

An early dip has turned positive. Though the big indexes are still hovering around the flat line, the Naz has turned positive and A/D lines are in the green as well. Steel, metals, homebuilders, retail, semis, airlines, internets and gold stocks lead the winners, while utilities, telecoms, chemicals and drugs stocks trail the pack.

Treasuries are mixed. Energy prices are just slightly higher, the dollar index is fairly flat, gold and silver near flat as well.

“The Illusion of Wealth”, by James Quinn, posted at Minyanville:

By any reasonable assessment, the Troubled Asset Relief Program (TARP) has been a miserable failure and a complete waste of taxpayer money. The basis used to ram the bill through Congress was the purchase of the toxic assets off of bank’s book, but not $1 has been used for this purpose.

Furthermore, the banks who have received the $179 billion have not made any loans with the money. Some are using the money to buy other banks. Their goal is to become too big to fail. Others, like Citigroup, have used the money to buy back bad assets they created to mislead investors.

—

Michael Lewis, author of the classic Liars Poker captured the absurdity of TARP in a letter to Secretary Paulson last week:

As your mind is subtle, I can only assume that you secretly believe that the American economy right now needs not smart loans, but more stupid ones – and thus that you have targeted the bankers who have proven they can make them.

By giving money to bankers who have made many stupid loans you have made life harder for bankers who have never made stupid loans. By aiding the dumb banks you prevent the smart ones from replacing them. It may be that just now smart bankers are the last thing we need – but one day they may come in handy, and so we should do what we can to keep them from getting discouraged.

—

Bernanke has created the Term Auction Facility, Term Securities Lending Facility, Primary Dealer Credit Facility, Commercial Paper Funding Facility and Money Market Investor Funding Facility, among others in the last 8 months. He also started paying interest to banks on reserves. The goal of unfreezing the system has been a wretched failure. Banks are finding it easier and safer to borrow from the Federal Reserve, earn interest on their TARP capital and not make any loans. All of the facilities and programs are a crutch that discourages banks from doing business. Why would a rational banker make loans to businesses and consumers as we’re entering the deepest recession since the 1930s? This is where our country and government have become warped and dysfunctional. The Government is now encouraging reckless lending as the solution to previous reckless lending.

In the space of 2 months, Chairman Bernanke has doubled the balance sheet of the Federal Reserve. When he and Secretary Paulson were selling their rescue plan in front of Congress in September, they stressed transparency, oversight and openness. Yet the chairman has since withheld the names of all financial institutions that have borrowed from the Fed – and will not reveal the collateral that they have put up for those loans.

There’s lots more. Read it.

…has the market been this volatile, according to Bespoke via The Big Picture.

I can believe it.

The oil stocks, gold & silver stocks and utilities are some of the only groups looking to challenge their still-declining 50-day moving averages (red line):

Charts courtesy of StockCharts.com

Waffling. Lotsa waffling.

The indices bounced around up and down most of the day, with the Nasdaq lagging behind the entire time. The Transports were the big winners, and the A/D lines made a late surge to finish on positive ground:

In Treasuries, yields were higher on the short end but lower further out on the curve:
6-month: 0.52%    2-yr: 1.15%    5-yr: 2.01%    10-yr: 3.09%    30-yr: 3.61%.

Internals finished mixed, with volume starting to slip down to holiday levels. Advances/declines were 11 to 5 on the NYSE and 5 to 4 on the Nasdaq, with up/down volume nearly 2 to 1 on the NYSE but 2 to 3 on the Nasdaq. Still not much in the way of new highs – highs/lows were 2/86 on the NYSE and 4/169 on the Nasdaq.

The groups were mixed, with more green than red. Leading the winners were the homebuilders (+7.8%), airlines (+6.8%), metals (+5.0%), brokers (+4.9%), HMOs (+4.5%), steel stocks (+4.4%), telecoms (+3.2%) and banks (+2.8%). Losing ground were the semiconductors (-2.2%), computer tech (-1.7%), paper stocks (-1.4%), software (-1.2%) and computer hardware (-1.2%).

Energy prices turned lower. Crude oil fell to $50.77/barrel, gasoline to $1.09/gallon, and natural gas to $6.38/mmBTU. The dollar index fell again, now down to 85.01. The precious metals gave up a little ground, with spot gold off a few bucks to $817/ounce and silver down to $10.27/ounce.

BMB Note:   Not much to say about today. Things bounced around a bit, and the Nasdaq lagged the other indices all day. But it mostly looked like the market was resting after the big two-day bounce up, or maybe just marking time as we slide into the holiday.

Gary Kaltbaum on our government’s continued efforts to prop up the sagging economy asset prices:

I want to wish each and every one of you a safe and Happy Thanksgiving.

Well…we got the breakdown – and the rally – but I must tell you…I am scared – very scared – not about the markets today but what our government is doing. You see – all this money is being thrown around is not cash – it is FUTURE OBLIGATIONS. $300 billion to CITI and today another $800 billion…read this:

WASHINGTON, Nov 25 (Reuters) – The U.S. Federal Reserve, in another massive life-support intervention for the U.S. financial system, on Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities, The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises. The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae. (Reporting by Mark Felsenthal, Editing by Chizu Nomiyama)

The problem is that this is being engineered by someone who was great at using other people’s money (Hank Paulson)! But look at what all the leverage ultimately did…you got it…got us to where we are today. So, this one man is just putting off the inevitable. Government just does not have this money they are using. I am reminded of a quote from Wimpy from the Popeye cartoons: “I’d gladly pay you Tuesday for a hamburger today.”

Is it no wonder bank stocks have lifted the market in the past couple of days? All these moves will tend to inflate assets but for how long? The bad guys are literally being handed the money. CITI was a goner. The government is taking all their bad (hidden) assets away from them. It is a simple forgiven loan.

The next problem is Obama…here comes another $2 trillion of money we don’t have…brought to you by whom? Yup…Bob Rubin…another dude who made billions using other people’s money. I don’t blame Obama. He is new at this game. This is just more repetition…which takes me back to my original thought, from months ago, of all this fake money being thrown around. HOW WILL THE MARKET REACT WHEN IT REALIZES IT IS NO LONGER FREE?

Well…you have seen it over the past year. Let’s just hope the markets react better going forward. So far, for me, just another government induced pop to the upside. Every one of these government induced pops faded badly within days/weeks. I don’t have a clue about this one…but will be watching. One has to believe that eventually, one of these rallies will stick….I think!

Lastly, I give you the following article…UK going to soak the “privileged few.” This country is next. Pre-Budget report: National Insurance rise adds to high earners’ woes – Telegraph

Some advice for traders from Deron Wagner this morning:

For those new to trading and/or this newsletter, the concept of staying mostly in cash, and taking a few shots here and there with reduced share size, is tough to grasp. Many new traders are anxious to test out new strategies/methods, and have expectations of outperforming the market every single month. But we’ve learned the hard way, through years of experience, that knowing when to go full throttle, and when to apply the brakes, is the key to long-term success as a trader. Capital preservation during indecisive and erratic market conditions enables us to be in the game for the long-term, so that we can aggressively take advantage of opportunities when the good times return.

“Breaking News” on CNBC – the Fed pawn shop is expanding, adding new ‘wings’ to the store to buy up even more junk, including credit card, school and auto loans, as well as a half-trillion dollars in mortgage-backed securities.

Press releases here and here.

Looks to me like the Fed is lobbying to be re-zoned as a garbage dump.

This effort is all about trying to jam money down consumers’ throats again, which is exactly what got us in this mess in the first place. Simply incredible.

Links to Bloomberg and WSJ at Calculated Risk.

	Though the indices have bounced well up off the lows, those moving averages have yet to hint at a turn back up.
	It’s hard to get too bullish with that 3-month yield dragging right along the zero mark. Pretty amazing stuff.
	Gold has rallied strongly the last few days. GLD has seen the moving averages start to turn up, but they have yet to ‘cross over’ and put the shorter-term averages on top.

Charts courtesy of StockCharts.com

Stocks picked up where they left off in the final hour of trading on Friday, and moved higher in a broad-based advance, bouncing off the new lows put in just Friday morning.

All of the indices moved higher, with the Utilities lagging:

In Treasuries, yields were higher across the board – except that 3-month is still dragging right around zero:
6-month: 0.45%    2-yr: 1.21%    5-yr: 2.21%    10-yr: 3.34%    30-yr: 3.78%.

Internals were strongly positive, with volume just a bit below Friday’s levels. Advances/declines were 8 to 1 on the NYSE and 3 to 1 on the Nasdaq, with up/down volume better than 18 to 1 on each exchange. But there are still no new highs to speak of, and even on a ‘big’ day, we still saw almost 400 new lows. New highs/lows were 1/125 on the NYSE and 3/255 on the Nasdaq.

All of the groups were green, many of them double digits, with the financials leading the bounce: brokers (+19.3%), REITs (+18.1%), banks (+17.7%), homebuilders (+12.8%), metals and mining (+12.4%), telecom (+11.2%), steel (+10.8%), retail (+10.6%) and airlines (+10.5%).

Energy prices continue to recover from last week’s slide. Crude oil ramped up to $54.50/barrel, gasoline rose to $1.14/gallon, and natural gas jumped to $6.94/mmBTU. The dollar index fell to 85.90, and the precious metals moved higher for a second day, with gold up to $822/ounce and silver to $10.50/ounce.

BMB Note:   A fairly decent day for the market – the problem is that it comes just a day off fresh lows at the end of last week, so doesn’t do much to repair the damage done up to this point. We’ll see if this bounce up can develop into something more – and maybe it can as we move into the holiday period. But right now, it’s just a bounce like so many we’ve seen before.

Let’s just be patient and keep our fingers crossed that things might start to stabilize a bit.

The Citi deal prompts a few questions from The Big Picture:

Un-fricking-believable.

The US is guaranteeing $306 billion on bad investments (So much for Capitalism without failure). For Citi, its a great deal — but its a terrible one for taxpayers.

The dividend payment has been restricted to one cent per quarter for 3 years. Can someone explain why even a penny is allowed?

Where is the “Protection” for the taxpayers? Where are the clawbacks? How about going after the idiots that bought a third of a trillion dollars worth of junk, and then got paid large on it? Where is the sense of outrage and justice?

At what point do taxpayers demand that the people responsible for creating this mess must pay their pound of flesh?

Our government just keeps bailing and bailing – with money they don’t have.

Here’s Gary Kaltbaum:

You need to read the following article out of the NY Times. You will easily know why I was so sick to see Bob Rubin standing behind Barack Obama.

The Reckoning – Citigroup Saw No Red Flags Even as It Made Bolder Bets – Series – NYTimes.com

I now repeat 3 paragraphs from that article:

“But when Citigroup’s trading machine began churning out billions of dollars in mortgage-related securities, it courted disaster. As it built up that business, it used accounting maneuvers to move billions of dollars of the troubled assets off its books, freeing capital so the bank could grow even larger. Because of pending accounting changes, Citigroup and other banks have been bringing those assets back in-house, raising concerns about a new round of potential losses.”

“Also, hundreds of billions of dollars in dubious assets that Citigroup held off its balance sheet is now starting to be moved back onto its books, setting off yet another potential problem.”

“The bank has already put more than $55 billion in assets back on its balance sheet. It now says an added $122 billion of assets related to credit cards and possibly billions of dollars of other assets will probably come back on the books.”

So…what does Citi get for hiding losses, non-disclosure of these losses, bad accounting and every other securities violation under the sun? Yup…good old Mr. Government shows up with another $300 billion guarantee with our money. Isn’t this grand? Isn’t it great to be politically connected? How does this make you feel? What’s another $300 billion when the government has already spent trillions? Of course, these numbers are not real! This chart does not include CITI, another $40 billion to AIG, and any hidden backstops for BAC/CFC,WFC/WB deals.

There is still no end in sight to our government’s largesses. There is just one significant problem. Our government does not have one single dime of this money. This money will be conjured up and added to the $13 trillion of debt that has been run up by the people we have elected. This money will be coming out of all of us, our kids, our grandkids, their children and their grandkids…and for what? To pay off the bad bets of all these slime bags. We get nothing for our money. We haven’t seen one indictment, one perp walk…nothing.

In my last report, I wrote this:

Markets have now broke recent support…but be careful. I have seen many times a break…and a move back up. Also, the DOW just came down 2100 points in 12 days. But the fact remains, when I scanned my usual 2500 stocks last night, it was as bad as I have ever seen…and I have studied them all.

I now want you to focus on a couple of items that no one is focusing on. Therein lies the edge. Start watching the DOLLAR and GOLD. The DOLLAR has soared recently in a “flight to quality” orgy. I am not sure this can last. GOLD is now starting to outperform the DOLLAR…so I am watching for the GLD to move above the levels it is sitting at now. Get a chart of GLD and you will see it is trying to come up the right said of its recent range. Typically, I would tell you markets would rally if the DOLLAR weakens…which has been the case in recent months…but not sure. I would guess all commodities would get a lift, if the DOLLAR dropped as they are massively stretched and extended to the downside…which will help the indices but markets need the financials…and this second, financials cannot find a friend.

By now you know the market ramped into the close Friday. Already and amazingly, for the hundredth time, pundits are calling for another bottom. They never stop. Every up day is the bottom even though they are batting 0.000. For me, it is simple, if it is the bottom, a bottom or whatever, I will need to see more. I will need to see more in follow-through, in leadership, in no more heavy volume down days. So far, we have another 500 point, one hour move after a 2100 point drop in the previous 12 days.

As far as GOLD, it is now on my radar as it moved above near-term resistance on Friday…and with the underlying stocks moving on big volume. This is potentially important. Why? Because it may mean the dollar is going to weaken. If the dollar weakens, I believe the markets will rally as there has been a direct correlation between a strong dollar and a weakened market. I would also suspect other commodity areas will take a leadership position. Asset markets are ridiculously depressed and oversold while investors have plowed into the U.S. dollar and U.S. Treasury’s. An unwinding of this trade could see a very strong rebound in asset markets in conjunction with a sell off in dollar and bonds…and due to the fact these trades are now crowded and central banks are providing massive liquidity at the same time, once the unwinding starts, it could be powerful in the short term.

But I repeat, let’s get some follow through first. So far, it is again only one day…I mean one hour. We are in the midst of seasonal strength so anything is possible. Remember, markets do what is least expected. I do believe there is a big rally out there somewhere. The market has not had one in quite a while. But big rallies leave footprints.

Congratulations. As a taxpayer, you now own a chunk of Citigroup, whether you like it or not.

Plenty of reactions over at Economist’s View – hat tip to Calculated Risk, who quotes Paul Krugman:

A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

Two more showed up after our post Friday evening.

Downey Savings and Loan, Newport Beach, CA (symbol DSL)
PFF Bank and Trust, Pomona, CA

More government messes and confusion as they try to save yet another failing financial entity. Obviously, they have no idea what they’re doing – again.

From CNBC.com:

Citi officials are reportedly working on a plan that could include a capital injection from the Federal government—among other possible ideas. The details have yet to be hammered out and it’s not clear when such a plan would be announced.

—

Update: The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight.

—

Update 2: Sources with knowledge of the deal say government officials are now getting cold feet over the plan to buy the troubled assets from Citigroup.

Situation is still fluid and people close to the company say some sort of a deal will likely be worked out tonight. one other option being considered now is for the government to put money into Citigroup.

The problem with buying the assets from citi is political: people close to the deal know that other firms will line up and ask the government to purchase their troubled assets as well knowing that all brokerage stocks got crushed when treasury secretary hank paulson reversed his plan on the tarp to direct capital infusions to the banks and away from buying troubled assets.

Bottom line: this is very fluid and the situation may change again, but as of now government getting cold feet on plan to buy troubled assets, which leaves direct capital infusion on the table.

Yeesh.

In this case, the hard truth about bailouts. From Peter Schiff:

As the Federal bailout bonanza prepares to spread beyond the mortgage and financial sectors to fill Detroit’s depleted coffers, few economic or policy analysts have spared a thought for the destitution of the U.S. government itself. Put simply, our government doesn’t have enough spare cash to bailout a lemonade stand let alone a bloated and failing industry that is losing tens of billions of dollars per month. Washington can only offer funds that it has borrowed from abroad or printed. Unfortunately, the nation is in the grips of a delusion that money derived from these sources has the power to heal. But history has clearly shown that borrowed or printed money only has the power to destroy.

The argument that energizes the pro-Detroit camp is that the government should extend the same courtesy to the rank and file auto workers that it lavished upon the fat cats of Wall Street. While two wrongs certainly do not make a right, the fact remains that the Wall Street firms are still floundering despite the bailouts. What’s worse, the money spent was either printed or borrowed from abroad. Both options are destructive to America.

—

…for the same reasons that Washington should not bail out General Motors, the world should not bailout America. Like GM, our economy is in desperate need of a restructuring. Spending must be replaced with savings, and consumption with production. The service sector must shrink and manufacturing must expand to fill the void. The dollar must fall, wages in America must be brought down to a competitive level, and hopefully government spending and burdensome regulation can be reduced.

This transformation will not be fun, but it is necessary. Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover. By accepting a lower standard of living today, we will eventually be rewarded with a higher one tomorrow.