Tuesday, August 18, 2009

A Couple of Retailers Report Better Than Expected Earnings

The market is higher in early trading, though not by a huge amount. Both Target (TGT) and Home Depot (HD) reported better than expected earnings, which is helping boost retail stocks. HD also raised its full-year 2009 outlook.

Housing data came in a bit below expectations, with housing starts at a rate of 581,000 in July (vs. 599k consensus), and building permits at a rate of 560,000 (vs. 577k consensus). But the data for June was revised slightly higher, and the homebuilders stocks are higher on the day.

On the economic front, the PPI for July fell 0.9%, more than the -0.3% expected. The recent inflation figures still show that deflation is the current theme, even though most market strategists you hear in the media are still micro focused on inflation. I still think we are a long way off from having to worry about inflation, and would expect both gold and bond yields to be higher if inflation was truly at our doorstep.

The dollar is slightly weak today, which is helping commodity prices. Oil is back above $67, while gold is trading near $939. Asian markets were mostly higher overnight, led by a rebound in China (+1.4%).

The 10-yr yield is lower again to 3.48%. And the VIX is -2.6% lower to 27.15, after a sharp spike higher yesterday. The VIX is sitting right at its 50-day average currently, a support level that bears monitoring.

Trading comment: I didn't do any buying yesterday. Actually, my only trade was a short flyer in FFIV. I am still monitoring BAC (and XLF), RIMM, and ESRX for entry points. I will try to do a post later on the sentiment indicators I follow, as I feel that sentiment holds the key for how the markets will fair in the near-term. That is, if pessimism begins to surface again, as it did in July, then we will be okay. But as long as complacency remains high, the markets could continue to struggle.

short FFIV


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