Thursday, July 09, 2009

Stocks Bounce As Oil Falls Below The $60 Level

The S&P and Nasdaq are modestly higher on Alcoa (AA) results that topped estimates and initial jobless claims that fell to the lowest level since January. That said, continuing claims hit a new high, and that couple with generally weak same-stores sales results looks to be keeping a lid on any buying enthusiasm.

Retailers are reporting June sales that are generally weak. The Gap (GPS) fell 21 cents to 15.05. Abercrombie and Fitch (ANF) is down 47 cents to 23.53. Costco (COST) said comparable sales dropped 6%, which is in line with expectations and the shares were down 12 cents to 45.92.

In merger news, Data Domain agreed to be acquired by EMC for $2.1 billion. Data Domain lost 48 cents to 33.43. EMC is up 8 cents to 12.60. Also, Broadcom (BRCM) is walking away from its offer to buy Emulex (ELX), which is hurting the latter's shares pretty big.

The dollar is weaker today, which is helping gold prices rise. But oil is lower, breaking below the $60 level. Despite the drop in crude oil prices, energy stocks are still the leading sector so far (+1.2%), while healthcare stocks are the weakest (-1.5%). Financials are the second strongest group so far (homebuilders are bouncing also).

Asian markets were mixed overnight, although there was some surprising news that auto sales in China surged +36% in June. Seems odd.

The 10-year yield is up to 3.38% after a BIG plunge lower yesterday following the auction of 10-year notes. Demand at the auction was very strong, flying in the face of the conventional wisdom that demand for US Treasuries was sure to weaken. Seems the appetite for safe returns is higher than most people think.

The VIX spiked over the key 30 level yesterday, a level that I have been keying in on to gauge the potential for volatility (and selloffs) to increase. Today, the VIX is trading -3.6% lower, right at that key 30 level. Keep an eye on this one.

Trading comment: Yesterday morning I covered more of our short positions/etf hedges, and added some trading long positions in AMZN and GS. I haven't added any new long etf positions, as my near-term outlook is for the market to enjoy and oversold bounce, but then to experience more downside probing before finding a better support level.

long AMZN, GS


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