Monday Morning Musings

The market is trading lower in the first hour of trading, but trying to recoup its losses as of this post. Financials are the weakest group, on the heels of a downgrade by Deutsche Bank. Energy and housing stocks are leading the way on the upside, followed by semis.

The dollar is sharply higher this morning, which is weighing on gold and silver. While commodities are lower overall, oil is bucking the trend and trading higher (over $47). This is helping the energy stocks, especially the beaten-down drillers.

The NY Fed announced it has begun buying fixed-rate mortgage-backed securities. This should help bring down mortgage rates further, and spur additional refi activity. Maybe this, along with the turn of the calendar year, will be the spark to foster a pickup in bank lending activity.

Separately, the WSJ is reporting Obama officials are trying to put together a $300 billion tax cut program to help stimulate the economy. I think tax cuts should be the prime focus, above big goverment projects where money will likely get wasted a bit, and not be as broadly spread out across the nation as tax cuts would be.

In corporate news:

• Steve Jobs put out a personal letter to quell rumors about his health. He said his weight loss is due to a protein deficiency, and the treatment is pretty straightforward. Shares of AAPL are +5% this morning.
• JPMorgan and Citigroup are trading lower after the stocks were downgraded
• The FT is reporting that Pfizer (PFE) may be thinking about merging with a large rival, as it faces patent expirations
• Sony (SNE) is denying reports it is preparing for drastic cost cuts and factory closings
• Walgreens (WAG) reported December same-store sales rose +4.9% in the face of challenging headwinds

Asian markets were nicely higher overnight; the 10-year yield is building on Friday's gains, up to 2.44%; and the VIX is another -2% lower to 38.35, its 2nd day below the 40-level.

Trading comments: The Hi/Lo index is positive for the 3rd straight day, a major change since last year. The Santa Claus rally has now gained roughly +8.0% since 12/23, a big gain over a short period. That puts the market in an overbought condition, which makes a pullback likely. But if the pullback is somewhat mild, without a big pickup in volume, it could set the stage for further gains in the next few weeks.

Also, if you haven't voted in my 2009 Poll below, please take a moment to do so.

long AAPL, TBT