Hurry Up And Wait

The markets are fairly flat this morning as everyone awaits the testimony from Fed Chairman Bernanke today.  I don't remember a time when there was so much anticipation of an FOMC meeting.  And it's not about a rate hike or rate cut this time, but rather if he mentions any hint of whether the Fed may begin to taper its QE purchases as early as September.

The market could see some volatility on Bernanke's comments, but I would expect it to settle down again soon after.  Even if the Fed does taper they are still far away from tightening monetary policy.  Taking their asset purchases from $85 billion to something in the $60s is still quantitative easing, albeit it slightly lower.

In corporate news, both Adobe and FedEx topped earnings estimates and both stocks are higher today.

Among the sector ETFs so far, energy and materials stocks are leading while defensive utilities and healthcare are lagging.  But by the close today we could see a reversal of this.

Asian markets were mixed overnight with China and Hong Kong lower and Japan higher.  Europe's markets are also mixed so far today.

The 10-year yield is still hovering around that 2.20% level.  It will likely see some fireworks around 2pm EST when the FOMC statement comes out.  It recent closing high was 2.23% for reference.

The volatility index hit 17 this morning before fading back near 16.50 for a second day.

Trading comment: Yesterday's action in the stock market was more positive than I expected and it now looks like the short-term double bottom pattern in the S&P 500 is complete.  The SPX is trading near the 1650 level and its high this year was around 1687.  So our thesis that the market could challenge its highs into quarter end certainly looks more plausible than it did a couple of weeks ago when the SPX was testing the 1600 level.  But the task at hand is to see what the Bernank has to say and try not to be shaken out of positions on any short-term volatility.  I still see the buy-the-dip mentality persisting into quarter-end.

KAM Advisors has long positions in FDX

Bulls Keep Their Foot On Gas Pedal

The market is higher again this morning with the Dow rallying another 100 points in the first hour of trading.  Of course, it's still very early in the session so we will have to see how the market closes.  I have always said the closing hour is much more important than the opening hour.

Bernanke's press conference is tomorrow so traders will have to wait another day to see if he gives any further insight about when the Fed might taper their asset purchases.  My guess is with growth slowing and inflation still low September might be too early to look for it.

The CPI data out today showed a 0.1% uptick with core prices up 0.2%, as expected.  Separately, housing starts rose 6.8% to a rate of 914,000.  But housing starts have trailed the last few recessions and the level of housing relative to population growth remains low, which should continue to act as a tailwind for the housing and construction sector.

Most Asian markets were mixed overnight.  Chinese home prices rose 6.0% last month.  And Hong Kong's unemployment rate ticked down one notch to 3.4%.

Europe's markets are also mixed today.  Eurozone economic sentiment rose to 30.6 from 27.6 last month.  Standard & Poor's pushed back its expectations for a European recovery to 2014.  It had previously forecast a rebound in the second half of 2013.

The dollar index is higher today and the yen is lower.  Commodities are mostly lower also.  Oil prices are up a bit to $98.15, but gold prices are lower near $1365.  Silver and copper prices are lower as well. 

The 10-year yield is rising again, back to the 2.20% level.  Last week the 10-yr touched 2.26% but never closed above 2.23%.  So we are watching those levels for any potential breakout. 

The VIX is a little lower to 16.60 but still above that 15 level we continue to monitor.

Trading comment: The market continues to show constructive price action.  The S&P 500 looks to have put in a short-term double bottom pattern recently at its 50-day average support.  To complete this pattern the SPX needs to trade above the 1648 level.  It is currently at 1647 so this seems likely to happen.  Tomorrow's FOMC meeting could cause a hiccup in trading, in either direction, but from there we are likely to get back on track with our quarter end strength thesis.

Monday Morning Musings

Markets are back in rally mode this morning after Friday's selloff that closed near its lows.  The one saving grace from Friday was that volume levels ran low, which means there wasn't as much conviction behind the selloff.

There was some positive economic news this morning when the Empire Manuf. index came in at 7.84.  That's a pretty big jump from last months reading of -1.4.  It was also well above expectations.  Also, the June NAHB Housing Index rose to 52 from 44, which was also well above estimates.

Of course, the big news this week is the FOMC meeting.  It's big because traders are hoping the Fed chairmen will give more of a glimpse into when they might start "tapering" their asset purchases.  I really don't think he will change his tune that much.  I also don't think they will do much more than tinker with the size of purchases between now and 2014 when Bernanke's term ends.

Asian markets were mixed overnight.  Japan spiked +2.7% higher after reports suggested that the BoJ's REIT purchases will exceed previous targets.  China's markets were lower after Fitch warned that China's credit bubble is 'unprecendented in modern history'.  And the Bank of India left rates unchanged at 7.25%.

Europe's markets are mostly higher today.  Italy reported a trade surplus of 1.91 billion Euros, but this was below expectations.  Germany's Merkel said she would serve a full third term if re-elected in the fall.

Commodities are lower again today.  Oil prices are slightly weak near $98.15 and gold prices are lower to $1383.  Copper and silver prices are lower as well.

The 10-year yield is trying to hold support at it's short-term 20-day moving average around 2.13%.

And the VIX is lower on today's rally, but still holding above that 15 level at 16.77.

Trading comment: Last week's action was pretty constructive, with rallies coming on strong volume and selloffs coming on lighter volume.  The outlook for our thesis of another push higher in stocks into quarter end remains intact.  Bears will probably try to knock the market down this week with the FOMC meeting and all, but if they are unsuccessful we wouldn't be surprised to see more performance chasing by portfolio managers.  More growth stocks appear to be breaking out or nearing breakouts, which is also a good sign for investors.

Bond Yields Beginning To Ease

Markets were slightly higher near the open but have since faded into negative territory.  Yesterday's action was very positive.  The market gained strength all day and finished with what we call an outside reversal.  That means the low yesterday was lower than the previous day, but then the rally carried the indexes to a higher high than the previous day as well.  So the range expanded on both sides but finished at the highs.

One positive today is the action in the 10-year yield.  After hitting 2.25% on Tuesday, yields continue to ease back.  The 10-yr yield today is at 2.10%.  This should give some breathing room to bond funds that have been hit hard in recent weeks.

Some of this morning's softness is being attributed to the Univ. of Mich consumer sentiment reading falling to 82.7 in June from 84.5 last month.  But last month's reading was very high and anything around these levels is indicative of positive consumer sentiment.  So I am not worried there.

May industrial production was unchanged and capacity utilization actually fell to 77.6% from 77.8%.  Capacity utilization probably needs to rise before we start to worry about more inflation.

Asian markets were higher overnight.  Japan bounced back +1.9% amid reports the govt is expected to implement a corporate tax cut.  There are also rumors the Peoples Bank of China may cut interest rates over the weekend.  I find this one less plausible given its property bubble.

Commodities are trading higher with crude prices nearing $98 and gold prices higher to $1388.  Folks must be surprised to read on the cover of the Wall St. Journal yesterday that oil and gas production in the US is hitting record levels but at the same time oil prices are hitting $98 and look like they could get to $100.  Frustrating.

The volatility index reversed sharply lower yesterday which is another positive.  This morning it touched 16 before bouncing to 16.65 currently.  We are still watching for a potential move below the 15 level.

Trading comment: Yesterday's action was very positive and lends itself to our thesis that we could see another push higher in the markets as we move into quarter end and portfolio managers look to get more fully invested.  There could also be some performance chasing if and when.  But we also need to watch the SPX 1687 level that marked the highs at the end of May.  If the market is unable to break above those levels that could set things up for a deeper pullback as we enter the summer.

Is Japan In A Bear Market Already?

The markets were roughly flat at the open and have since pushed slightly into positive territory.  If you're like me and you check the futures before you go to be each night, you are probably breathing a sigh of relief given how negative things looked last night.

Asian markets slid across the board, led by a -6.4% plunge in Japan.  The volatility in Japan has been severe, and the Nikkei is now down 20% from its recent peak.  Technically that qualifies as a new bear market.  But I think it needs to be put in perspective.  The Nikkei was up over 50% in just the last 6 months since the BoJ announced its new quantitative easing program.  That program isn't over, so I suspect the Nikkei will find its footing at some point.

In economic news, May retail sales rose 0.6%, which was better than expected.  Ex-autos, retail sales were up 0.3% implying solid auto sales as well.  Weekly jobless claims also came in lower than last weeks tally.

China was also lower overnight to the tune of -2.7% after reopening following a 3-day holiday.  The World Bank lowered its growth forecast of China for 2013 from 8.4% to 7.7%.  But I'm not sure how good the World Bank has been with its forecasts.

In Europe, the ECB put out its monthly bulletin which singled out Italy for failing to control its deficits.  Peripheral bond yields in Europe have been on the rise, but hopefully the ECB has tools in place to prevent another flare up like we saw last year.

Commodities are lower today despite dollar weakness.  Oil prices are lower near $95.60 and gold prices are down to $1382.  Copper prices are weak today also.

The 10-year yield is easing back to 2.18% so far.  This positive move lower in bond yields seems to be trumping a stronger Yen today (at least so far).  Traders are worried that a rising yen will unwind the carry trade in Japan and hurt stocks.

The volatility index closed at 18.60 yesterday which was its 2nd highest close this year.  But today it is down -6% to 17.40.  We continue to watch the 15 level for an all-clear sign that the market might be ready to rally again and test its recent highs.  The longer we continue to hover with the VIX above 15 the higher the chance that the market breaks below recent support.

Trading comment: Traders are watching the S&P 500 1598 level for support.  That is the level the SPX hit last week.  It is usually not a great sign to see the market retest support levels that quickly.  The SPX came within 10 points of that level this morning.  But the market can do anything at any time and we are still leaning towards the scenario that favors the market making another push higher into quarter end.  If this were not to occur and the SPX broke back below both its 50-day and recent support levels it would likely indicate the summer correction  we said could be on the horizon may unfold sooner rather than later.  So for now the market looks okay, but watch SPX 1598 if and when.

Back On Yen Watch

Markets in the US opened on a higher note, but have since faded back into negative territory.  Lately, strength in the Japanese Yen has been associated with weakness in stocks.  Today the yen started out lower but has reversed higher.  So it appears for the time being we are back in that mode where we have to watch the yen (FXY) to gauge stock sentiment.

There hasn't been any economic news today.  In M&A, Cooper Tire (CTB) is up 40% after it agreed to be acquired by Apollo Tyres for $35 per share.

Asian markets were lower overnight.  China and Hong Kong markets were closed for the Dragon Boat Festival.  In a surprise move, the Bank of Indonesia hiked rates 25 basis points to 4.25%.  S. Korea's unemployment rate ticked up to 3.2%.  And Australia's consumer sentiment rose to 4.7% from -7.0% in the prior reading.

In Europe, markets are mostly lower.  The German high court continues its debate on the constitutionality of the ECB's Outright Monetary Transaction (OMT) program.  Also, Eurozone industrial production rose 0.4% last month, above expectations.

The dollar is roughly flat today but commodities are mostly higher.  Gold prices are up to $1385.  Oil prices are higher near $95.85.  And silver and copper prices are up as well.

The 10-year yield is barely higher at 2.20%.  And the recent selloff in stocks this morning has pushed the volatility index +2.5% higher to 17.50.  We have seen larger intraday swings in the stock market as long as the VIX has been above the 15 level.

Trading comment: The market looks like it needs to find its footing soon to keep this uptrend intact.  There are some red flags on the horizon in the form of a stronger Yen, rising bond yields, and deteriorating credit conditions in emerging markets.  Look at the emerging market bond etf (EMB) for an example of a plunge.  CDS prices on emerging markets have also been rising sharply lately.  So there are some emerging strains in the financial system.  While we are still looking for another push higher for stocks into quarter end, we are mindful of the potential for a summer correction as well.  As such, we are being less aggressive about buying the dips here.

Continued Volatility From Rising Bond Yields

Global markets began to selloff overnight after the Bank of Japan concluded its latest policy meeting with no new changes announced.  That was a disappointment to some investors who hoped the central bank would take steps to address bond market volatility or increase its ETF program.

So Asian markets were generally lower overnight.  China was closed again for a holiday. 

Most European markets are also lower as yields in countries like Spain and Italy are on the rise.  The sharp rise in rates over the last month has added to volatility in financial markets. 

There wasn't much market moving news in the US, so trading here took its cue from overseas markets and started out weak.  The Dow was down -150 points in early trading but has since climbed back all the way to positive.  That's quite a turnaround so far, but its still very early in the trading session.  As we have said many times, it's how the market closes that matters most.

Part of the reason for the snapback is that though the yield in the 10-year Treasury rose to 2.26% this morning, it has since given back most of that rise.  It currently is hovering near 2.22%.

Commodities are mostly lower today despite weakness in the dollar.  Oil prices are down near $94.65 and gold prices have fallen back to $1374.

The volatility index couldn't get under 15 yesterday, and today is back above the 16 level.

Trading comment: No change to our recent stance.  We continue to think that although we are having some near-term volatility that the stock market will rally into quarter end as portfolio managers continue to address being underinvested.  Yesterday some stats came out that hedge funds and small investors are as heavily invested in equities as they have been since 2007.  Although that could be a slight negative, we still don't see the type of extreme bullish sentiment that has market prior market tops.

Monday Morning Musings

Stocks in the US were higher after the open but so far are struggling to stay positive in early trading.  This isn't all that surprising after Friday's outsized rally, which was on the back of Thursday's big reversal.  The S&P has quickly bounced from testing the 1600 level to nearing 1650 this morning.

On a positive note, Standard & Poor's has raised the US debt rating outlook to Stable from Negative, saying that some of the downside risks have receded.  Bond yields are slightly higher despite the news, with the 10-year yield trading at 2.20%.

A couple consumer staples stocks that are higher today are McDonald's (MCD) after reporting solid global same-store sales and B&G Foods (BGS) which announced the acquisition of the company that makes Pirate's Booty (kids reference).

The St. Louis Fed President made comments today that the still low rate of inflation could justify the Fed's aggressive monetary policy stance. 

Asian markets were mostly higher overnight, led by a sharp snapback rally in Japan (+4.9%).  Consumer confidence in Japan hit its highest level since 2007.  China was closed for a holiday, but the Chinese ETFs are lower today after several economic datapoints showed slower growth in China.

The dollar is higher today, and commodities are mixed.  Gold prices are slightly higher while oil prices are a bit lower near $95.50.  Gold is back below the $1400 level ($1383).

The volatility index is sitting just above that 15.0 level that we have been watching as a barometer for investor sentiment.  If it can get back below the 15 level we would not be surprised to see the market rally back to recent highs.  But a move higher in the VIX could mean more consolidation is needed first.

Trading comment: We used the weakness last week to add to stocks.  Our recent worry that investor sentiment would become too complacent seems not to have happened as some of the investor surveys we follow show that bearish sentiment quickly spiked higher last week.  Some of our indicators are showing the highest levels of bearishness so far this year.  High bearish sentiment is okay at this juncture because it keeps the wall of worry high and as the old saying goes "bull markets love to scale the wall of worry".

KAM Advisors has long positions in BGS and MCD

A New Twist On The Goldilocks Economy

Markets are nicely higher this morning after investors cheered this morning's jobs report.  Nonfarm payrolls rose 175,000 in May vs. expectations for 159,000.  The unemployment rate ticked up a touch to 7.6%.

In a normal recovery, 175k new jobs would not be enough to get excited about.  It certainly doesn't paint a picture of a robust economy, which used to be able to add 300-400k jobs per month.  But this is anything but a "normal" recovery.  Investors today are more worried about the Fed taking their foot off the gas and tapering back their bond purchases.

So today's luke warm jobs report fits into a new sort of Goldilocks scenario where it isn't so hot that the Fed feels pressure to stop its QE program, but it also isn't so bad that it looks like the economy is weakening.

Also, the unemployment rate ticked up to 7.6%.  The Fed has said they want to see it near 6.5% before they think about raising rates.  Given that so many people have dropped out of the labor force, we could see some of those folks re-enter as the economy strengthens.  That would lengthen the time it might take for the unemployment rate to get down to 6.5%.  Adding 175k jobs a month just isn't going to cut it.  And youth unemployment remains extremely high.

Most folks are talking about the end of this year for the Fed to begin tapering its bond purchases, but not until mid-2014 before they curtail the program altogether.  And that assumes that the economy continues to improve.

Asian markets were mostly lower overnight.  Japan was down as much as -3.0% before a notable spike from the lows that was attributed to a large ETF purchase by the Bank of Japan.  Japan's finance minister also said pension funds would be allowed to diversify away from bonds. 

European markets are higher today.  Germany's Bundesbank lowered its GDP outlooks for 2013 and 2014, with next year's growth projections coming down to 1.5% from 1.9%.

The 10-year yield is moving higher today on the jobs data to 2.14% so far.  Last week's highs were around 2.21%. 

The volatility index is plunging today, down -7.5% to 15.35.  We have been highlighting that 15 level and if we get a couple of closes back below 15 that would increase the probability that the recent pullback is over.

Trading comment: We said that as the S&P 500 came down to its 50-day average and tested the 1600-1605 level we wanted to be buyers.  So far that has worked out well, as the SPX bottomed right at 1600 yesterday and rallied into the close.  Today it is up another 1% nearing the 1640 level.  We could see some resistance at the 1645 level where the overhead 20-day average resides.  But its still early in the day, and we would also like to see a strong close today as opposed to the market fading into the close.

Is That The Pullback Everyone Was Looking For?

For months as the stock market rose folks said they liked the market but wanted to wait for a pullback to buy.  Of course, the market never really paused to give them a good buying opportunity.  But now we are getting a 5% pullback from the highs.  So my question is: are you buying now?

Often times when the correction finally comes, those folks looking to buy get cold feet.  But the Dow, S&P 500 and S&P midcap 400 are all at their 50-day averages.  This looks like a good spot to put some money to work and yesterday we were buyers on the weakness. 

There isn't much in the way of market moving news this morning.  Initial jobless claims totaled 346,000 which was below last week's tally.

Asian markets were lower across the board, with continued high volatility in Japan.

European markets are higher today after the ECB meeting.  The ECB held rates steady at 0.5%.  ECB President Draghi said once again the central bank is 'technically ready' for negative deposit rates.  The Bank of England also left its rates and purchase program unchained.

Elsewhere, French unemployment rose to 10.8% from 10.5%, while Greek unemployment rose to a record 26.8%.

Among the sector ETFs, financials are leading the early action and utilities are bouncing from their recent drubbing.  Tech stocks are lagging so far.

The dollar is lower today and commodities are mixed to higher.  Oil prices are back above $95 and gold prices continue to struggle to stay above the $1400 level.  Copper prices are lower today.

The 10-year yield is slightly lower to 2.09%.  And the VIX is a tough higher near 17.60, highlighting expectations for market volatility to remain elevated in the near-term.

Trading comment: We were better buyers into yesterday's weakness, and would continue to buy on weakness.  We said we had been hoping for a 5% pullback in the market and now that it is upon us we want to stick to the plan.  We still expect another push higher into quarter end, although the markets could need some further consolidation to setup a new base.