Wednesday, April 15, 2009

Consumer Prices Show No Inflation At The Moment

The market is slightly lower in early trading. Yesterday's selloff picked up strenght late in the day, but given the rally we have experienced, I don't think anyone is all that suprised by the decline.

Today's economic report showed that consumer prices (CPI) fell 0.1% in March (vs. +0.1% consensus). Also, CNBC reported that consumer prices fell yr/yr for the first time since 1955. For those worried about inflation, this report lends itself to the notion that those worries are premature, at least for the time being.

The April Empire State Munafacturing Index came in at -14.7, which is much improved from last month's -38.2, and well above the consensus of -35.0. This is a survey on general business conditions, and bodes well for improved sentiment in the manufacturing sector after a huge drawdown in inventories.

In corporte news, P&G declared a 10% increase to its dividend, helping boost the stock and pushing the consumer staples group higher. Intel (INTC) reported earnings last night that were pretty good, but the stocks is selling off today nonetheless. The company said that they believe we have seen the bottom in the personal computer market, and they believe the worst of the inventory correction is now behind us.

Asian markets were mixed overnight; the dollar is higher so far today, and gold is a bit higher also; oil is trading down a bit, below the $50 level; the 10-year yield is lower again to 2.77%; and the VIX is also lower again, near 37.50.

Trading comment: I didn't take any profits yesterday, but I am getting closer to doing so. The ISEE Sentiment Index is too high for my liking, coming in at 181 and 176 the last 2 days. Ditto the CBOE put/call ratio, which was 0.67 and 0.76 the last 2 days. Those indicators point to rising bullishness, just as I believe this rally is getting long in the tooth (into its 6th week).

That doesn't mean we have to plunge back down, the way the market did last fall and earlier this year. We could just get a mild pullback. But we will only know that with hindsight, and my strategy remains to be active in tacking profits and redploying that cash after pullbacks.


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