Thursday, January 29, 2009

A Pullback Was In The Cards

Yesterday I commented that with the S&P 500 rising to its 50-day average on 4 straight up days, that it was a likely place to look for a pullback. Also, the put/call ratio had been relatively low for the last 4 days, giving further support to the pullback thesis.

This morning we are getting that pullback, although I expect it to be a moderate one and not like the plunge we experience in early January.

The House approved an $819 billion tax and spending plan, and there is talk that the Senate will vote next week on a similar plan that could be upwards of $900 billion.

Earnings season continues apace, and here are some items:
  • 3M and Colgate (CL) both topped expectations and their stocks are higher. This is helping the consumer staples group buck the weakness this morning.
  • In healthcare, Zimmer (ZMH) and AstraZeneca (AZN) both fell short of consensus expectations, and their stocks are lowre.
  • Altria (MO) reported an in-line quarter, and its stocks is slightly higher

In economic news, durable goods orders fell -2.6% in December, which was more than the -2.0% decline expected. Jobless claims for the week also remained elevated (588,000).

Asian markets were up sharply overnight, following the positive action in the U.S., and optimism about a bank solution. The dollar is mixed today vs. the Euro and Yen, and oil is trading lower, below $42.

The 10-year yield is higher again, to 2.68%. And the VIX is 5% higher today to 41.7, after closing below the key 40 level yesterday. Overall, the trend looks lower for volatility, which should correspond with a more benign backdrop for stocks.

Trading comment: So far, yesterday's decision to take profits on those index etfs was a good call. I am hopeful that the SPX holds the 850 level, if it gets there, and would eye that as an area to add back some long positions.

Beyond these short-term trades, I do think that the recent test of the SPX 800 level was successful, and that the index should work towards 900-950 in February.

long SSO


At 10:53 AM, Blogger Celal Birader said...

Is the put/call ratio something we can follow as well ?

At 11:00 AM, Blogger J. Kahn said...

Absolutely, Celal. I need to update my links, but scroll down the right hand side of my blog and you'll see links to the CBOE put/call ratio, as well as the ISE (which is a call/put ratio, or inverse p/c)

At 2:55 PM, Blogger Celal Birader said...

Thank you Jordan.

There's something i don't quite understand :

Wouldn't one normally expect to see the put/call ratio to be high rather than low to signal a pullback since an increase in traded put options would indicate that investors are either starting to speculate that the market will move lower, or starting to hedge their portfolios in case of a sell-off ?


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