Monday, July 20, 2009

Monday Morning Musings

Good Monday morning. Hope everyone had a good weekend and is well rested. I got some surfing in this weekend, which always seems to rejuvinate me. Also, I am going on vacation at the end of this week-- Bethany Beach, here I come!

Some are saying that the bailout of CIT is boosting the market this morning. While I'm sure that is helping, I think the big gains in Asia have more to do with it. Hong Kong soared +3.7% last night, and many emerging markets are making new highs. That positive sentiment seems to have carried over to our markets this morning, despite our current overbought condition after a huge week last week.

Materials and industrials are leading the way so far, while defensive groups like consumer staples and healthcare are lagging. Healthcare is lower due to concerns about the prospect for new regulations that could still come out of the Obama Administration.

Financials are doing well this morning, after Moody's said that the global banking system has finally gotten back on its feet. But longer term, they said, "Despite general signs that the world's economy is stabilizing, and a profitable quarter for some banks, most are facing significant hurdles on their path to economic recovery". I think this statement is mostly true. The big banks should pull out of this first, but profitability in the banking system as a whole will not return to former levels of profitibility for a very long time.

In its commentary this morning, Goldman Sachs (GS) raised its year-end target for the S&P 500 to 1060 from 940. That's a nice bump up, and implies there is still another +12% upside left in store for the market in the second half of the year.

Asian markets rallied overnight; the dollar is lower this morning, helping to boost commodities; the 10-year yield is lower to 3.65%; and the VIX is up +2% to a still low 24.90.

Trading comment: I have taken some additional profits this morning, just to lock some in and raise a little cash. I sold my $WYNN, and trimmed $IBM and $IEZ.

I have hard time getting bullish on the market breaking out to new highs in July. I can't remember ever seeing that, while I can cite several examples of the market making a short-term top in July. I am not turning bearish, just want to acknowledge history and seasonality, and not get sucked into a potential headfake breakout.

long IBM, IEZ


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