Wednesday, February 04, 2009

Stocks Rally In Early Trading, Led By Semis and Financials

The market is getting a nice bounce in early trading. The SPX is brushing right up against the 850 level again. If you look at the chart, you can see that the SPX has been magnetized by this level since Oct. 10th. But as the ranges continue to narrow, a breakout could be coming.

In economic news, the ADP payrolls report came in slightly less the expected, indicating 522,000 jobs were lost in January (vs. -535k consensus). The govt payroll report comes out on Friday. Also, the January ISM Services Index came in better-than-expected at 42.9 (vs. 39.0 consensus). This marks the second monthly rise. One more and we will have a trend!

In corporate news, more earnings reports rolled in:
  • Companies topping earnings expectations included: MetLife (MET), Clorox (CLX), and Yum Brands (YUM).
  • Companies missing expectations included Disney (DIS) and Kraft (KFT). Also, Costco (COST) didn't report earnings, but warned that profits would be well below consensus estimates. This has the stock trading sharply lower.

The strongest sectors so far are the semis and financials (led by the brokers). Retailers, drugs, and consumer staples are the laggards so far.

The dollar is higher this morning, but so are oil ($41) and gold ($906). The 10-year is also bouncing further, to 2.92%. The 10-year yield has been on a tear the last few weeks since bottoming at 2.20%. I think the higher yields are a positive indicator, reflective of future growth vs. a deepening recession.

The VIX is also 3% lower to 41.75. It has left another lower low on the charts, and is once again near the 40 level that it has bounced higher from the last 2 times.

Trading comment: I have still not taken any more profits on the recent etf positions I added (oil services, ag, etc). If they continue to bounce, I will look to take partial profits, but I want to give them a little room here.

I would also like to add to my biotech etf (XBI) positions on a pullback, as that group remains the relative strength leader. The medical devices etf (IHI) also looks positive, as does Apple (AAPL).



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