Bear Mountain Bull

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?

This still seems like a very difficult market to trade, but that doesn’t mean I’m not watching. This is one of the more interesting short setups I see (Dave Landry pullback-style), in a weakening health care sector (not trading advice, no position in CYBX).

Chart courtesy of StockCharts.com

A pair of today’s Five Things:

1. Now, It’s Main Street’s Turn 

The Dallas Morning News is one of the first large city papers I’ve run across to plunge headfirst into documenting the spread of Wall Street credit woes to Main Street. Reporter Angela Shah writes in her DMN piece (”Credit Crunch Hurting Entrepreneurs“), “The capital markets crunch has hit Main Street, leaving many entrepreneurs in need of financing in the lurch.”

Shah notes that loans that banks would have approved readily a year ago “don’t pass muster today.” Indeed. “[Alex] Vantarakis’ company connects buyers and sellers of small companies, giving him a front-row seat to the turmoil’s impact on Main Street. He didn’t see it at first, he said, but realizes now that lenders started pulling back on capital around the first of the year, regardless of how solid the underlying business.”

Yes, things have changed. This is a different time, and while everyone stands around quietly with their hands shoved deep into their pockets waiting for things to “get back to normal,’ there is also the uneasy feeling that we’re never going back to that strange place.

2. What Strange Place?

And what strange place is that? The one we were in just 18 months ago, the one BusinessWeek’s ill-timed cover referred to as a “low, low, low, low-rate world.”

“Money is cheap,” the cover story observed. “And some experts say it could stay that way for years.”

Feb. 19, 2007

Ho hum. More tossing and turning, on sickly volume. This week has pretty much been a throwaway so far, and I don’t expect it to get much better. If the action is this dull now, imagine what it’ll be like on Friday.

The few traders that were playing today faked it for a while, and pushed the Dow up to a high of +140 or so around midday, but gave up more than half of those gains going into the last hour, before pushing things back up into the close.

Here are the final scores, for what it’s worth:

Treasuries/yields barely budged again:
6-month: 1.87%    2-yr: 2.28%    5-yr: 3.01%    10-yr: 3.76%    30-yr: 4.38%.

Internals were positive, but volume continues to be very light. Advances/declines were 14 to 5 on the NYSE and 12 to 7 on the Nasdaq, with up/down volume 3 to 1 on the NYSE and 8 to 3 on the Nasdaq. Still more new lows than new highs: highs/lows were 15/33 on the NYSE and 22/52 on the Nasdaq.

Most of the groups finished green - homebuilders (+3.5%) led the way, followed by gold and silver stocks (+2.6%), brokers (+2.3%), metals and mining (+2.3%), steel stocks (+2.2%), oil stocks (+1.9%), disk drives (+1.7%) and banks (+1.5%). Former favorites the airlines (-2.9%) and biotechs (-1.8%) topped a very short list of losers.

Energy prices moved higher for another day. Crude gained nearly two bucks to $118.15/barrel, and gasoline posted a 9 cent gain for the second day in a row, up to $3.06/gallon. Natural gas was also higher, up to $8.42/mmBTU. The dollar recovered from overnight selling, but the dollar index finished slightly lower at 77.00. The PMs were mixed near the flat line, with spot gold up a couple of bucks to $826/ounce, but silver slipped a dime to $13.47/ounce.

BMB Note:   Expect nothing, be prepared for anything - or just forget it and go fishing. Mow the lawn, go play golf. That’s pretty much where we’re at as we head into the end of what has been an incredibly dull week.

On housing prices - a quote from a post at Calculated Risk:

“People are saying the reason prices are falling are because of all of the foreclosures, but the foreclosures are happening because the prices are falling. They’ve got it backwards. The prices are falling because they’re too freakin’ high.”
Chris Thornberg, Beacon Economics, Aug 27, 2008

From The Big Picture:

Since the S&P 500 hit a closing peak of 1565.15 on October 9th, the benchmark has lost 18.11% (through this morning). However, 50 stocks, or 10% of the index constituents, have actually fallen by more than 50%. Not surprisingly, the biggest losers are financials, though the list also includes a few dogs from the auto, newspaper and technology sectors, among others.

Go check out the list.

Just to make sure that we continue to see choppy action that goes nowhere, stocks are continuing with the little move up that started yesterday afternoon. The indices are showing slight gains, and A/D lines, along with most groups, are in the green. Leading the winners are the homebuilders, natgas stocks, gold and silver stocks, metals, oils, steels and disk drives, while airlines and biotechs lead the few losers.

Treasuries are just a bit lower, yields higher. Energy prices are higher, and still bouncing around a bit following the weekly inventory report just released. The dollar index is slightly lower, gold and silver near flat.

…in the never-ending oil and gas story will be the arrival of TS/Hurricane Gustav, currently forecast to plow right through the heart of the Gulf’s energy infrastructure:

The solar stocks might be worth keeping an eye on here, judging from the turn up in the moving averages and the nifty little pullback in the solar ETF. Update:   Deron Wagner noticed it too.

Chart courtesy of StockCharts.com

The dollar has been on a tear lately, but in Frank Barbera’s opinion, it isn’t going to be a long-lasting move:

At this juncture, it seems clear that the US Government has set itself upon a course of unlimited damage control. Institutions will continue to fail in the coming year, and Uncle Sam appears ready to step up with his giant tube of crazy glue, intent on making sure that nothing falls apart. It is likely a self-defeating course of action, as bail-out after bail-out will require a steady stream of new digital money. Monetary inflation is the likely end game result.

In the process, confidence is likely to steadily erode and with it, the purchasing power of the Dollar. While many are currently proclaiming a new Dollar bull, we see nothing in the current fundamental monetary climate that would justify such an outcome. While all markets are given to periodic recovery swings and regular counter-trend movements, in order for a secular trend to alter course, there needs to be a solid fundamental under-pinning, which in the case of the Dollar is entirely absent. For the Dollar, large Current account deficits remain, and now, the Federal Deficit is once again running out of control, poised to hit records in the years ahead. It is likely, ultimately, this concern about the ability of the US government to fund its many obligations which will start trouble in the Current Account and a more aggressive period of foreign Dollar diversification.

I’d have to agree. Fundamentally, something is going to have to change before long-term strength can return to the dollar. And despite the big move up in the last few weeks, the longer term downtrend remains in place.

A lengthy piece, well worth the read, from Bennet Sedacca and Rob Roy on the state of our financials - Fannie, Freddie, and some of the other ‘dead men walking’.

Here are a few snippets:

Are there corporations that are “dead men walking”? When I first started in the industry in 1981 I was worried but about just one company, the Chrysler Corporation. Prior to that, Continental Illinois was in the forefront. Later in my career, in 1998, it was Long Term Capital Management, the hedge fund founded by John Meriwether, that captured my attention. Then we had Enron/WorldCom, and by early 2008 Bear Stearns became a worry and then a problem that needed fixing.

All of these events were isolated and dealt with, often with either direct assistance from Uncle Sam or an effort coordinated by America’s benevolent/socialist government financial authorities. Markets would become unnerved, fear would grow, and then the government stepped in to make sure that the systemic risk that had finally come to the surface didn’t melt the entire planet.

But this is where it’s “different this time” - not only is it different, I think it may be unprecedented in nature. When I look at my Bloomberg monitor each day that contains my 100 most important indices, companies, commodities, bonds, bond spreads, preferred shares, etc., I shudder. The reason for my concern is that my screen doesn’t have just one “problem child.” It looks like a screen that contains many “dead men walking.”

—

I recently wrote a piece entitled A Tale of Two Markets, where I talked about the “Fannie Mae (FNM)/Freddie Mac (FRE) experiment.” To me, that experiment has now clearly failed and a bailout/privatization/nationalization of Fannie and Freddie is probably being planned right now. While I have been expecting nationalization for quite a while, I am intrigued along with my peers and colleagues as to why the bailout is taking so long to accomplish. This is where, in my opinion, it gets interesting and dangerous from a systemic point of view. My hunch is that the reason for the delay is that the Treasury Department is “peeling back the onion” on Fannie/Freddie and finding out just how much of a mess the two of them are.

—

“We the People” are about to become owners in Fannie and Freddie, whether we like it or not. The capital markets have shut on them both as their stocks trade in the $2-5 range, down from the $70-80 level just a year ago. And the yield on the outstanding preferred shares hovers in the 18-23% range: Quite the bargain if they keep paying, but also it’s the market’s way of saying “Beware the value trap” as the preferred shares may pay another dividend or two, but that’s about it.

—

What strikes me the most about impaired companies, whether they are automakers, airline companies, banks, brokers or GSE’s is that they seem to sing the same tune, that there is a pattern of behavior. This is how I have attempted to identify in the past what would be in trouble in the future (whether that was just to avoid their stocks and bonds from the long side or to try to profit from their missteps on the short side).

It’s a pattern that isn’t terribly dissimilar from the emotion charts I like to focus on so much. But in the graphic below, I will run this analysis on banks. I call this cycle the “Dead Man Walking Cycle.”

The first “tip-off” or “tell” is when a company releases earnings or some sort of positive announcement and the stock falls. Another important tell is the credit spreads of the debt of the company begins to widen. Then, the company will usually announce that “all is well and is so great that we will buy back stock and not cut the common dividend.” After this comes the “acceptance” phase and write-offs/write-downs are announced and that some sovereign wealth fund or private equity firm will inject capital or that a company within the same group will buy a “strategic stake.” After a brief pop in the stock and short covering rally, the stock begins to fall further and credit spreads begin to blow out and preferred shares get hammered. Then, more write-downs and more write-offs and another capital raise and finally a dividend cut to “preserve capital.”

Sound familiar yet? All of this goes on for quite some time, until your stock price is so low that you would have to issue so many shares in a secondary offering that you dilute your shareholder base until it is unrecognizable. With this new share offering your credit, while still rated investment grade, trading like junk, your preferred shares rise to double digit yields. Further, the former strategic buyers, sovereign wealth funds and private equity firms, have taken such a beating that there are no further buyers. Yet the write-downs and write-offs continue unmercifully as the economy slows and credit is all but cut off. Eventually, dividends go to zero and you are a “dead man walking.”

Techs and telecoms sure haven’t done much to stir up excitement over the last couple of weeks:

Charts courtesy of StockCharts.com

Bleh.

Move along folks - nothin’ to see here:

Treasuries/yields barely moved:
6-month: 1.89%    2-yr: 2.33%    5-yr: 3.05%    10-yr: 3.78%    30-yr: 4.39%.

Internals were up and down, finishing mixed as things ramped ever so slightly in the final hour, but volume was again pathetic. Advances/declines were 12 to 7 on the NYSE and 10 to 9 on the Nasdaq, with up/down volume 5 to 3 on the NYSE but a negative 5 to 7 on the Naz. Still a pretty sorry sight when it comes to new highs - highs/lows were 11/72 on the NYSE and 17/67 on the Nasdaq.

A few more green groups than red ones, with mostly commodity stocks at the top of the list: natural gas stocks (+3.2%), oil services (+2.2%), oil stocks (+1.2%), REITs (+1.1%), utilities (+1.1%) and steel stocks (+1.1%). Airlines (-4.1%) took another dive, and semiconductors (-1.0%) were weak.

Energy prices were higher. It didn’t show up so much in crude oil, which only gained a little over a buck to $116.27/barrel, but gasoline gained nine cents to $2.97/gallon, and natural gas was higher by 45 cents at $8.23/mmBTU. The dollar index got bounced back up to 77.26, but the precious metals held their ground, with spot gold gaining a few bucks to $824/ounce and silver moving up to $13.57/ounce.

BMB Note:   Still not much happenin’ here. Even if I see something that looks like an opportunity, I’m unlikely to act when volume remains this light. Too light, too choppy - too uncertain.

Watch your money.

As always, on anything housing-related, we defer to Calculated Risk:

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted). Notice the Red columns for 2008. This is the lowest sales for July since the recession of ‘91. (NSA, 43 thousand new homes were sold in July 2008, the same as in July ‘91). As the graph indicates, there was no spring selling season in 2008.

From Mr. Practical - I couldn’t have said it better myself:

As the US Presidential election becomes front-and-center news, I respectfully submit this thought.

Why do we give so much power to so few people who don’t really know what they’re talking about? We now have a central government so vast that bureaucrats are making decisions markets should make.

One or 2 people can’t know what millions do - no way no how. We let Barney Frank make mistakes for us just because he has so much power.

If you really listen to the candidates, they have no idea how an economy like ours actually works. Neither do their advisors.

But then, what business is it of theirs to know? Why is it the President’s job to get everyone a job? Last I remember, that’s what the Soviet Premier was supposed to do.

—

A government responds only by taking money away from one group of people, who tend to know what to do with that money. They then give it to other people, who tend not to know what to do with that money. A government creates no wealth.

—

I told Minyans a while ago that the cause of many of our problems was a government grown too big and too powerful. Shysters would never have been able to lend money to people that couldn’t afford to borrow it if our government hadn’t advocated it.

Now the government’s using the problem to get more power. I’m not advocating no regulation - but I do advocate good regulation, with only proper authority granted to enforce it.

But we are making a huge mistake long-term, which is getting more and more short-term. We’re allowing the government to grossly distort our market economy.

Not a lot happening, as the indices dance around the flat line, but things are more positive than yesterday, and A/D lines are in the green. Most groups are green as well, with the natural gas stocks, oil services, homebuilders, oil stocks, HMOs and banks leading the way, while airlines drag behind.

Treasuries are a little lower, yields higher. Energy prices are higher. The dollar index is pulling back after a morning run up, gold and silver are higher.

Gary Kaltbaum, on today’s radio show:

“You guys are watching your money, correct? Watch your money. It’s a simple procedure - watch your money. And don’t let it get away from you.”

The NAR headline says that existing home sales increased 3.1% in July.

Calculated Risk has the unbiased story, along with the best charts in the business:

Sales in July 2008 (5.00 million SAAR) were the weakest July since 2000 (4.82 million SAAR).

It’s important to note that a large percentage of these sales were foreclosure resales (banks selling foreclosed properties). The NAR suggested last month that “short sales and foreclosures [account] for approximately one-third of transactions”. Although these are real transactions, this means that normal activity (ex-foreclosures) is running around 3.3 million SAAR.

—

According to NAR, inventory increased to an all time record 4.67 million homes for sale in July. Usually inventory peaks in mid-Summer, so this could be the peak for inventory this year (although it might happen in August or September).

—

NSA sales were reported at 501 thousand in July, however about one-third of those were foreclosure resales. This means regular sales are less than half the level of July 2005 and 2006.

More follow-up on the ripple-through effect of the Fannie/Freddie mess.

Martin Weiss wonders where the government will draw the line in “The Greatest Bailout of All Time”

Event #3. At financial institutions across the country, these devastating losses in Fannie and Freddie paper are ripping through balance sheets like an F-5 tornado. That includes:

• Sovereign Bank, the third largest savings and loan in the United States. In our “X” List video, we listed it as a prime candidate for bankruptcy because of its D+ rating and its big exposure to mortgages. Now, it’s been revealed that Sovereign has a $632 million stake in Fannie and Freddie preferred shares — the same shares that have lost about two-thirds of their value just since May 15.
• Hundreds of other banks and thrifts. They were encouraged by banking regulators to buy billions of dollars in similar Fannie and Freddie preferred shares. In fact, the regulators thought these investments were so reliable, they let the banks use them for capital that’s required as a cushion against loan losses. They even allowed banks to take a tax break on 70% of these securities!
• Countless U.S. brokerage firms, life and health insurers, property and casualty insurers. Some are in good shape. But many have loaded up with similar investments.
• Major financial institutions overseas.

All assumed these shares were safe. All believed they were getting something akin to a government-guaranteed investment. All could be severely disappointed when they discover the truth.

—

Right now, banks stuck with Fannie and Freddie preferred shares are hoping for a miracle. Since government regulators encouraged them to buy the Fannie and Freddie preferred shares in the first place, they’re praying they will get some consideration.

Sure, these banks and other preferred shareholders are one rank above common shareholders in the pecking order of investors clamoring for a piece of whatever’s left over. But they are also two ranks below senior debt holders.

Here’s why I think they will be sorely disappointed: Just to bail out Fannie and Freddie’s senior debt holders will be such a massive undertaking for the government, it’s hard to imagine that there will be much money left over for preferred shareholders.

—

What about the nation’s airlines seeking to make an emergency crash landing?

What about the thousands of local governments that could soon be forced to cut essential services like waste collection or even homeland security?>

What about brokers like Lehman Brothers, now scrambling for a foreign white knight to come to its rescue? >

What about the big banks we told you about in The “X” List?

Like Fannie and Freddie, each and every one will make the argument that they’re critical to the health of the economy and even national defense. All will want cash, loan guarantees, or direct capital injections.

Where will the government draw the line? How will it justify bailouts for some “absolutely essential” private companies but not others?

	We’ve got a couple of lower highs in the S&P chart, but it would take a break of 1260 or so to put in a lower low.
	We can start to take a more bearish view of things if we see a break of this downtrend in the VIX.

Charts courtesy of StockCharts.com

Boy, things just get curiouser and curiouser. Another day with very light volume, but this time, the few traders out there took Friday’s gains right back, and a little more.

All 30 Dow stocks were lower, and none of the indices were spared:

Treasuries were higher, and pushed yields down near multi-month lows:
6-month: 1.89%    2-yr: 2.32%    5-yr: 3.04%    10-yr: 3.78%    30-yr: 4.40%.

Internals were buried fairly deep in the red from start to finish. Volume was again very light. Advances/declines were 3 to 10 on both exchanges, with up/down volume near 1 to 7 on each. New highs trailed new lows again, with highs/lows coming in at 10/59 on the NYSE and 18/76 on the Nasdaq.

Not a single group in the green today, with lots of ‘twos’ and ‘threes’. Topping the list of losers were the steel stocks (-3.9%), homebuilders (-3.8%), HMOs (-3.5%), banks (-3.4%), REITs (-3.3%), disk drives (-3.2%), paper (-3.0%), brokers (-3.0%), metals (-2.6%) and airlines (-2.6%).

Energy prices finished just slightly higher. Crude oil gained less than a buck to $115.11/barrel, gasoline was up a penny to $2.88/gallon, and natural gas was flat at $7.83/mmBTU. The dollar index was first down and then back up, finishing nearly flat at 76.83. Spot gold was also flat at $821/ounce, while silver was a dime higher to $13.43/ounce.

BMB Note:   As we said this morning, may the chop be with you. If you like to try to trade a market that’s this messy, have at it. But it’s definitely not for me. It’s just a total crap shoot as to which direction the market will go from day to day.

They say ‘the trend is your friend’ - but that’s assuming there is one. Normally, a day like today would look pretty bearish, but things have been anything but ‘normal’ lately, so we’ll take our time and see what happens.

“at the yapper”, as he puts it. Or running on, about everything under the sun - but as always, he does get around to the markets.

However you want to look at it, here’s Gary Kaltbaum:

Running off at the yapper:

After the past week, please do not name any of your kids Fay. 4 days of a stagnant storm sitting over my house. Glad someone invented kayaks.

In the 1990-91 commercial real estate bust, the banks bottomed at .85 tangible book. Today, they trade for about 1.6x’s tangible book. Hmmm!

Osi is out for the season. I guess I will just have to now go and watch my Giants beat the New England Cheaters for the tenth time.

Ben Bernanke now says “a weaker economy is likely to bring inflation under control in the medium term.” This is amazing. First off, this is a man who said inflation was anchored up until about 6 months ago. Secondly, this statement is so far off base, it is not even comedic. A sinking economy has absolutely no influence on whether inflation slows. This is also the same man who said a shrinking dollar does not affect the average American because most do not buy goods overseas. I guess he forgot about what happens to commodity prices when the dollar heads south. I weep for the economy and the markets with this guy at the helm.

While on the subject of the Fed:

Willem Buiter, a professor at the London School of Economics and a former member of the Bank of England’s monetary policy committee, complained that the Fed had not demanded any quid pro quo from Wall Street in return for the enormous amount of liquidity it provided. He said the Fed had blurred the distinction between what was in the public’s interest and what was in Wall Street’s interest, describing the recent performance as “not very good at all.” Buiter said there was an acute concern that the Fed was subsidizing banks by taking their “pig’s ear” illiquid assets at “silk purse” prices. He also said the Fed has been “pathologically secretive” about the terms on which financial support is made available to struggling institutions and counter parties. THANK YOU!

Barack Obama said this:

“‘If you talk to Warren [Buffett], he’ll tell you his preference is not to meddle in the economy at all - let the market work, however way it’s going to work, and then just tax the heck out of people at the end and just redistribute it. That way you’re not impeding efficiency, and you’re achieving equity on the back end.”

HIDE YOUR WALLETS!

Cris Collinsworth interviewing Kobe Bryant:

COLLINSWORTH: “Where does the patriotism come from inside of you?

BRYANT: Well, you know, it’s just our country is, we believe, the greatest country in the world. It’s given us so many great opportunities, and it’s just a sense of pride that you have, that you say, “You know what? Our country is the best.”

COLLINSWORTH: Is that a cool thing to say in this day and age, that you love your country and that you’re fighting for the red, white, and blue? It seems like sort of a day gone by.

BRYANT: Nah, it’s a cool thing for me to say. You know, I feel great about it and I’m not ashamed to say it. This is a tremendous honor.

WHEN DID IT BECOME UNCOOL TO LOVE THIS COUNTRY? I AM NOW A BIG KOBE FAN FOR BEING SO “UNCOOL”!

Do you think Chris Cox is going to investigate the rumors that Lehman would soon be acquired by Korea Development Bank?

Do you think Chris Cox is going to investigate the short sellers that are plastering oil prices lower?

It’s just two more examples of selective targeting by the head regulator - where Chris Cox’s investigations target only rumors and things that do not fit the agenda! Be careful what you wish for!

More of the same in the market. OIL and COMMODITY PRICES continue to be the determining factor. As I have told you, OIL topped July 15th, the market bottomed July 16th. Last week was nothing more than a light volume “jello moving on the plate” fest… which remains very tough to play. Personally, I have done very little because my conviction is quite low on a daily basis. I am afraid to go home short because they gap you up the next day and afraid to go home long because they then gap you down the next day. The good news is that the major trends are still in place.

Notwithstanding bounces… and they had a vicious one this past week, COMMODITIES of all kinds remain in their own private bearish phase. This includes OIL, GOLD/SILVER, COAL, STEEL, FERTILIZERS, AGRICULTURE and the like. Longer term, I believe they are bullish but right now under pressure. I have been saying for some time that these areas are the TECH of the 80s and 90s.

On the other end, with COMMODITIES coming in, RETAIL, AIRLINES, RESTAURANTS and anything CONSUMER continue to have the relative bid. Off the lows, the good news is that these areas have played the 2 steps up, 1 step back routine. That had better continue. I can’t say as much for FINANCIALS.

While FINANCIALS had a better day Friday, overall, I believe they are now churning… and need to be watched carefully. I repeat… if they start gagging, the market will not have a chance. There are some names that continue to be on the morphine drip and need to be avoided… the same names I have been screaming about… Fannie Mae (FNM), Freddie Mac (FRE), Lehman Brothers (LEH), National City Corporation (NCC), Washington Mutual (WM) are at the head of the list. I am still amazed how so many invest in companies with such opaque accounting. I noticed Dodge and Cox took a 12% position in FNM. Methinks they should have called me first. But they are not the first. Many sovereign funds have been crushed buying into the financials as well as many other famous fund managers who are showing 25% losses this year.

WORLD MARKETS remain gross and continue to underperform our markets. Again, in bear markets, WORLD MARKETS most always do worse than us because they are less liquid than us.

I am taking my time. Volume is ridiculously light. Except for holidays, I believe Friday’s volume was the lowest in a very long time. This should not be on a 200-point day. But… the market has only rallied for 5 weeks. The last rally off a low lasted 8 weeks, so I would not argue that there may be more bounce to come. But if volume does not kick in, if leadership does not show up, it will be only a matter of time when the market heads back towards recent lows. Of course, this will happen while I am vacationing in Ireland in September.

Easy come, easy go. May the chop be with you.

The market looks like it’s trying to undo most of Friday’s gains at this point. The indices are all down between 1-2 percent, and A/D lines are pretty deep in the red as well. Leading the way down are the steels and metals, HMOs, REITs, transportation, brokers, paper, banks and homebuilders.

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

Deron Wagner tells us that, since the market’s in a chop and this is generally one of the slowest weeks of the year, it might be a good time to just sit back and relax:

As we enter one of the traditionally slowest weeks of the year, the main stock market indexes continue to exhibit mixed signals.  The Nasdaq Composite bounced off support of its intermediate-term uptrend line last week, but now must contend with resistance of its 200-day MA.  It’s positive that the S&P 500 and Dow Jones Industrial Average both reclaimed their 20 and 50-day moving averages, but a lot of overhead supply remains from earlier in the month.  With the major indices essentially in “no man’s land,” expect continued chop and whippy price action.  Unfortunately, the anticipated indecision may be compounded by the fact that turnover will likely remain well below average levels until the Labor Day holiday has passed.

We probably won’t see the real direction of the market’s next move until traders and investors begin returning to their desks in the beginning of next month.  Until then, it makes sense to take it easy with regard to entering new positions.  Realize that the best traders are typically out of the market more than they’re in the market, meaning they carefully pick their opportunities to strike, while laying low the rest of the time.  This prevents them from churning their accounts and giving back profits during the more challenging periods.  The coming week is probably one of those times to lay low.  Simply setting stops on existing positions and taking a one-week break from trading is certainly not a bad idea. Rather than trading through this slow period, consider using the extra time to thoroughly scan the market for new opportunities in September.  Then, you too will be fresh and ready to strike when the moment is right!