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