Thursday, December 31, 2009

Reflections On The Year That Was

The market looks like it's going to limp into year-end, with volumes levels so light it makes you wonder who is still around on the trading desks. Oh yeah, me. That's who.

The jobless claims figures this morning were pretty good, coming in less than expected at 432,000, which puts claims at their lowest level in 15 months. Moreover, the continuing claims figure (4.98 million) is the first reading below 5 million since February. So the jobs picture continues to improve, and we should see some actual job growth next year.

Overall, we are ending the year in solid fashion, as the market is still up nicely for the month of December, as well as on the year. If the S&P 500 closed at these levels today, it would be up +24% for 2009. That's a great year, and a phenomenal one given how poorly the year started out in the first few months of 2009.

After the dismal experience of 2008, many were hopeful that the markets had bottomed and 2009 would show improvement. But as the markets began to slide further in the first quarter of '09, bearish sentiment began to rise markedly and few had any hope whatsoever that the markets could bottom and start to rally again.

I know that sentiment had gotten to a low point when I began to receive calls from clients saying that they no longer cared if they made any money going forward, they just didn't want to lose anymore. (Funny though, after the markets rallied strongly, few remembered having said this)

By March, the markets were already down roughly -25%, and it was hard to see how things could get worse. Around this time, we started communicating to clients that things didn't need to get better right away for the markets to rally, they only needed to stop getting worse. The markets were so oversold (the most since 1938 by some measures), that a sharp relief rally was right around the corner.

We dipped our toes back in the market, and made some buys at very good prices. Our clients were so gun shy, that it was hard to be too aggressive. When the markets began to lift, many thought it was just a bounce, and that a retest of the lows was likely.

We continued to espouse our 'green shoots' theory, that the seeds had been planted for the economy to improve later in the year, but that the markets would continue to anticipate the improvement, and you had to stay invested to reap the benefits. While we were right to be bullish early, even we were surprised by the relentless climb higher by the market, with few pullbacks along the way.

We quickly nicknamed the action the 'stair-step' market, since the market seemed to go up for a while, then move more sideways then down, before making another move higher. This type of action offered few good buying opportunities in the form of pullbacks, and continually made portfolio managers pay up for stocks. You might be surprise to learn that after the first 2 down months of the year, there would only be one more down month for the year (October).

Nearly all groups have participated, with tech and materials leading the way, while defensive groups like consumer staples and utilities have lagged. Commodities and emerging markets have also had a very good year, with some sectors (steel) and emerging markets (Brazil, Russia) even doubling for the year. And growth stocks handily outperformed value.

As for what next year holds, that will have to wait for another post. I want to wish everyone a very happy and prosperous new year. And here is an Irish toast I just learned, "May the best of this year be the worst of next year!"

Wednesday, December 30, 2009

Volume Remains Light As New Year Approaches

Stocks are flattish again, with volume levels running well below avearage as traders look to pack it in for the year, and start their holiday early.

There has not been much in the way of news to trade on either. Today, the Chicago PMI came in at 60.0, which is well above the 55.1 consensus. This is a strong datapoint, and hopefully will translate into a higher ISM survey number when it comes out. There are some increasing signs pointing to strengthening economic growht next year.

The dollar is up again today, which is weighing on oil prices ($79) and gold ($1089). Semis are leading the action so far today, while bank stocks are lagging. Among the sector ETFs, technology is up +0.2%, while consumer discretionary is lower by -0.53%.

Asian markets were mostly lower overnight; the 10-year yield is flat at 3.81%; and the VIX is up fractionally to 20.11.

Trading comment: Nice to see Goldman Sachs (GS) up for a change. Today's action looks promising, and could be the first sign of reversal of the recent downtrend. A new stock we're adding to is WFR. We've owned this one in the past, and I think given how beaten down it is, it could do very nicely next year. I will try to do a more complete write-up of the name in a future post. I also still like IBM, which continues to creep higher and higher yet remains under the radar.

long GS, IBM, WFR

Tuesday, December 29, 2009

Midday Update: Stocks Flattish In Lackluster Trading

Stocks are slightly lower at midday, while volume is again well below average. I know there are people around, buy my office building is pretty dead this week. I've always been jealous of those folks that take this whole week off.

There were a couple of economic reports this morning. The Case-Shiller Home Price Index for October came in at 146.6, unchanged from the 146.7 reading the previous month. The 20-city price index fell -7.3% yr/yr, which is an improvement from the previous reading of -9.3%.

Separately, the Consumer Confidence Index rose to 52.9 in December from a reading of 50.6 in November.

The dollar was lower this morning, but has firmed since. Commodities are mostly lower, with oil prices down to $78.70 and gold falling back below the $1100 level to $1098.50.

Asian markets were mixed overnight, with Australia leading to the upside; the 10-year yield is higher to 3.84%; and the VIX is flat near 19.90.

Trading comment: The market has been up for 6 straight days, so a down day in here should be expected. I continue to hear increasing chatter of expectations for a January correction. But if no one is selling this week, that could mean a race to raise cash in early January. I wonder what the first week of trading in 2010 will look like? If bearish sentiment were to rise quickly, I would likely be a buyer of any dip.

Monday, December 28, 2009

Monday Morning Musings

The market is getting a small lift in early trading, although volume will likely continue to run light this week on another holiday shortened week.

Newsflow is relatively slow today, with no major economic or corporate reports to speak of. MasterCard's SpendingPulse report showed that US retail sales increased +3.6% this holiday season vs. last year, which is helping boost retail stocks.

The dollar is weak, which is supporting commodities. Oil is trading higher near $79, while gold prices are flattish around $1104.

Asian markets were mostly higher after Premier Jiabao in China said that it is too early to wind down the government's stimulus policies.

The 10-year yield is higher to 3.83%, and the VIX is also higher to 20.15, after falling to new yearly lows last week.

Trading comment: The market should hold up into year-end, although it is now back into overbought territory, so I would hold off on committing new money in any big way. I would think that we should see a pullback in January, but the fact that this view is becoming so consensus leads me to think that any selloff could be more shallow than most expect.

Sentiment has grown more complacent in recent weeks, so it will be interesting to see how quickly bearish sentiment returns if we get any sort of correction. If bearishness rises quickly, it would help limit the extent of a pullback. But if complacency persists, that would raise a red flag.

Wednesday, December 23, 2009

Chart of the Day: Gold Bounces Off Support Levels

The chart above shows the pullback in gold prices, which are now nearing support levels. The red line I have drawn in represents what had been former resistance levels around $1075. That former resistance is now acting as support, and gold is attempting to bounce from these levels.

I trimmed half of our gold etf (GLD) positions at higher levels, but yesterday I added back a little to play a potential bounce. I don't plan to add back all of our exposure to gold until I see it hold support. Often times there is an initial bounce, and then a pullback to retest said support levels. If this occurs, the second pullback would represent a better entry point. We shall see.

After the close last night, Micron (MU) and Red Hat (RHT) both beat earnings expectations, and both stocks are nicely higher this morning. Tech is leading the action so far, and energy and materials are strong as well. Financials and healthcare are lagging right now.
On an unrelated note, despite the widely heralded coming collapse in commercial real estate, the real estate etf (IYR) is making new highs for the year right now. I continue to think that with so many people focused on the CRE issue, and waiting for prices to come down, that the final wave will prove uneventful relative to expectations.
Despite yesterday's strong existing home sales report, I have said that the housing data (like the jobs data) is likely to be lumpy at best. So today's new home sales report is disappointing, but I don't think any single housing datapoint should be viewed in isolation. New home sales fell -11.3% last month, but the overall picture for housing in this country is still ameliorating.
Asian markets were higher overnight, led by a +3.2% spike in India after the Finance Minister said the economy may accelerate at a a faster pace; the 10-year yield is lower to 3.72% after spiking to 3.75% yesterday; and the VIX is now below 20, hovering at new lows for the year around 19.75 right now.
Trading comment: The S&P has joined the Nasdaq in making new highs again. I think the markets should hold their bid into year-end, so I am going to try to hang on to my positions and refrain from taking profits until the New Year. A lot of people are already talking about a correction in January. As a contrarian, it always makes me nervous to run with the herd. So if the calls for a correction grow too loud, I would be more apt to fade it.
long GLD

Tuesday, December 22, 2009

Stocks Inch Higher On Mixed Economic Data

The market is slightly higher in early trading after some mixed economic reports. The GDP report came out first, and was a bit soft. Q3 GDP was revised lower to a rate of 2.2% from its previous estimate of 2.8%. But the existing home sales report was much better than expected, and is probably the more important metric right now.

Existing home sales rose +7.4% in November, much stronger than the 2.5% consensus estimate. This is the fourth consecutive increase, and helped push the supply of homes down to 6.5 months (from 7.0 months). Some argue that the surge in sales was from a rush of buyers trying to get in ahead of the homebuyers tax credit that was set to expire. This could mean that we could see a couple of soft months ahead, before another pickup in sales next Spring.

The dollar is rising to a 3-month high today, which is weighing on commodities. Oil is down near $73.50, and gold is lower again to $1180. Gold is getting pretty oversold here on a short-term basis, and also nearing some support levels. I would not be surprised to see gold prices bounce from here.

Asian markets were higher overnight, and Europe was up this morning despite Moody's decision to downgrade Greece's debt rating.

The 10-year yield is higher again, rising to 3.74%; and the VIX has made a new lower for the year, briefly dipping below the 20 level.

Trading comment: Biotechs have been big laggards this year, and I added to the sector when it was lower in October. Lately, the group has been rallying. I think the move higher could have more room to go, but I will likely be looking to trim back my exposure into the lift, simply because this group is always volatile and prone to pullbacks in the future. That said, given the fact the group got no love in 2009, I think it could be one of the better performers in 2010.

long XBI

Monday, December 21, 2009

Monday Morning Musings: Are Dollar v. Stocks Decoupling?

The market is getting a nice bounce this morning, and is doing so without the benefit of a weaker dollar. For months, the relationship between a declining dollar and rising stocks has been firmly in place. But lately we've seen this relationship begin to loosen. Today is one of the larger gains we've seen in the stock market on a day when the dollar was under pressure. I know its still very early in the day, but maybe we are beginning to see this trend decouple?

There were a couple of better-than-expected earnings reports from the likes of Walgreens (WAG) and ConAgra (CAG). Also, Sanofi-Aventis (SNY) agreed to pay $93.50 in cash for Chattem (CHTT) causing the stock to spike +32% higher this morning. Nice.

Among the sector SPDRs, materials (XLB) and energy (XLE) are the strongest, but all 10 sectors are higher so far. Healthcare is also garnering some support from the news that the Senate Democrats are closer to moving past Republican objections to health care reform.

Gold is lower near $1106 on the weaker dollar, but oil is up a bit to $74 ahead of tomorrow's OPEC meeting.

Asian markets were mixed to lower overnight; the 10-year yield is higher to 3.63%, its highest level since August; and the VIX is down another -4.3% to 20.72.

Trading comment: No change to recent trading comments/strategies and my near-term outlook. I still think the stair-step higher market is intact, and picking away at select stocks and etfs (tech, biotech, healthcare, ag) on weakness works. The Nasdaq is breaking out to new highs today, and that should keep growth stocks in favor. Trading volumes are likely to slow as the Christmas holiday nears, but the old Santa Claus rally looks like it may have started already.

Friday, December 18, 2009

Was Yesterday's Weakness Related To Options Expiration?

The market sold off pretty much from start to finish yesterday. This week is options expiration week in the market, and often during expiration week we see at least one big down day. So its possible that yesterday's selling pressure was exacerbated by today's expiration (futures, options, etc).

But after the close yesterday we got some very solid earnings reports in techland, with Oracle (ORCL) topping estimates and Research In Motion (RIMM) doing the same and raising guidance for next quarter handily.

Tech and biotech are leading the action so far, while consumer staples are the biggest laggard.

The dollar is higher again today, which is weighing on gold a bit ($1101) but oil is still a little higher near $73.

Asian markets were lower overnight, while Europe was mixed this morning. The Bank of England said that the financial sector looks in much better shape than it did six months ago.

Trading comment: My modus operandi hasn't changed near-term. I am still using dips to pick away and add exposure to areas I like. Lately, that has been mostly to tech (XLK), med tech (IHI), healthcare (XLV), and some foreign markets like China (FXI) and Brazil (EWZ).

The market is roughly flat for the week, with the S&P a little lower and the Nazz a little higher. The normal seasonal trades we often see in the market (Sell in May, September selloff, Thanksgiving rally, etc) have not worked too well this year, but since this week was pretty flat it does raise the odds that we see the old 'Santa Claus rally' emerge next week.


Wednesday, December 16, 2009

Will The Fed Change Their Language At All?

The markets are getting a nice bounce in early trading, after Asia finished mixed and Europe opened to the upside. A report on the December Eurozone Services Purchasing Managers Index hit 53.7, its highest level since November 2007. Not bad.

The FOMC meets today, and while it is a near certainty that they will hold rates steady a 0%-0.25%, there is some talk about if they will change any of the wording in their statement. Any change in the wording would lend itself to the Fed getting closer to withdrawing some of the liquidity it has pumped into the system. But from my perch, I think the language will remain essentially unchanged for now.

In economic news, the November CPI came in at 0.4%, and was flat excluding food and energy. Housing starts for November rose to 574,000 from 527,000 last month. And building permits hit an annualized rate of 584,000 from 551,000 last month.

The dollar is lower this morning, which is helping boost commodities. Oil is higher near $72 and gold is also up to $1138. The 10-year yield is lower to 3.57%, and the VIX is down another -4.3% to 20.56.

Trading comment: The stair-step market continues, and the Nasdaq is making new highs right now while the S&P 500 is very close. The rally could fade after the FOMC announcement today, but post-Fed trading is always a guess. AAPL is at a critical juncture here technically, as it bounces back to the underside of its 50-day average. I am staying long. GOOG might run into some resistance at $600, which is another new high. But the momentum seems to be returning to GOOG's business, and I want to stay long that stock as well.


Tuesday, December 15, 2009

What Happened To Manufacturing Activity in New York?

There was some mixed economic data this morning, but the one that jumps out at you is the Empire Manufacturing Index. For December, the index plunged to a level of 2.55 from last month's 23.51. That is a huge plunge, but I'm not sure why it occurred.

In corporate news, Best Buy (BBY) reported very strong earnings, topping estimates by a wide margin and raising its fiscal 2010 forecast. I guess it helps when your biggest competitor (Circuit City) is no longer around. I ordered a new flat screen TV for the holidays, and when they brought it off the truck, the entire front glass was shattered. So I'm not too happy with BBY right now.

The market is hovering just below the flat line so far, as another boost in the dollar index seems to be weighing on commodities, although energy stocks are faring well. Financials are the weakest sector so far, after Wells Fargo (WFC) became the latest bank to raise $10.4 billion in a stock offering after announcing it will repay its TARP loans.

Asian markets were lower overnight; the 10-year is higher again to 3.61%, its highest yield since August; and the VIX is slightly higher at 21.26.

Trading comment: Today's disappointing economic data combined with a rising dollar and a slightly overbought market could provide some headwinds here. But I remain in the same mode of looking for spots to pick at and add exposure. The broad market has been essentially consolidating in a sideways trading range for the last month, and I think the resolution of said trading range will be another upside breakout at some point.

Monday, December 14, 2009

Monday Morning Musings: Dubai Gets A Lifeline

The markets are nicely higher this morning on relatively light news. The two major news items were Dubai getting $10 billion in financing from Abu Dhabi to stave off a debt default, and Exxon (XOM) paying $41 billion in stock for XTO Energy (XTO), a 25% premium to Friday's closing price.

There was also an announcement that Citi (C) has reached an agreement to repay its $20 billion in TARP funds, which will involve issuing $17 billion in common stock. Concerns over further dilution are weighing on the stock, which is down -5% right now.

The dollar index is lower today, which is boosting commodities. Oil is trading a little higher near $70 and gold is bouncing back to the $1125 level.

Asian markets were higher overnight; the 10-year yield is flat near $3.54%; and the VIX is down another -2.7% to 21.00.

Trading comment: The market is trying to break out of its recent trading range that has capped most stocks for the last month. I am watching the stocks that have held up the best over the last month, as I think those are the candidates with the best shot of breaking out and making new highs into year-end.

I have not made any major allocations recently, but I have used pullbacks to pick away at etf positions like tech (XLK), insurance (KIE), agribusiness (MOO), and healthcare (XLV).

Friday, December 11, 2009

Can The Dollar Continue To Rally?

The chart below shows the US dollar index, which is the performance of the dollar vs. a basket of other currencies. You can see how it has spiked higher recently, and is now trading above its 50-day average for the first time in many months. The question is: can the rally continue?

Yesterday on CNBC, one of the more vocal dollar bears - Jim Rogers - said he is currently long the dollar, although he doesn't plan to stay long for too much longer. So this is an interesting juncture. If the dollar can consolidate here, and move higher, it could put additional pressure on the crowded short dollar/long commodity trade, which would likely weigh on the overall market in the short-term. But if the dollar falls back below that 50-day average, I would expect the trends that have been in place to remain through year-end.

Today the dollar is higher, and it seems to be overshadowing the positive economic reports that were released this morning. Oil is trading lower to nearly $72, while gold is down for another day, nearing $1120. The Nasdsaq is also lower today, while the S&P is roughly flat.

The University of Michigan consumer sentiment survey was surprisingly upbeat, coming in at 73.4 vs. 68.8 consensus. Business inventories rose +0.2% (vs. -0.2% consensus), and Advance Retail Sales rose a better-than-expected +1.3% (vs. +0.6% consensus).

The 10-year yield is also rising today, after a lackluster Treasury auction yesterday, hitting 3.55%. But the VIX is still lower, down -1.6% to 21.96.

Trading comment: In addition to the strong dollar, the weak financials have been holding back the market as well. I am still picking away at adding to positions, but we need to see one of those two factors reverse for the market to really get going. The possibility for another push higher before year-end is pretty good, but the timing of it is hard to tell right now.

Thursday, December 10, 2009

Stocks Follow Yesterday's Late Strength Higher

Stocks are bucking the overseas weakness, as well as a modest move higher in the dollar, and following through on yesterday's late day strength.

The initial jobless claims this morning were a little higher than expected (474,000 vs. 455,000), but the trade deficit for October totaled $32.9 billion (vs. $36.8 billion expected).

Asian markets were lower overnight, but European bourses were higher earlier today after the Bank of England held its benchmark interest rate steady at 0.5% and reiterated its 200 billion pound monetary easing.

The dollar is slightly higher, which is weighing on the materials sector a bit. Oil prices are flattish near $71 while gold is slightly higher above $1130.

Among the sector etfs, energy is leading the action this morning, followed by consumer discretionary stocks; financials are the laggard so far, followed by materials stocks.

The 10-year yield is higher again to 3.48%, and the VIX is nearly -2% lower to 22.23.

Trading comment: It looks like another predicted selloff may have been averted. The major indexes are still comfortably above their 50-day averages, and not far from their highs. Also, many of the leading growth stocks are rallying again, and if we start to see them make new highs it is likely that the broader market will follow higher. Yesterday I mentioned the action in GS and AAPL, but I would also watch GOOG, ISRG, FFIV, PCLN, AMZN, CRM, etc. to get a better gauge on how "leading" stocks are acting.


Wednesday, December 09, 2009

Are The Market "Tells" Back?

I had a busy morning, so am making this post after the close instead of near the open of trading. The market was weak most of the day, but a late day rally pushed the indexes into positive territory. That is the type of action I prefer to see, when the markets start off weak and then build strength into the close. This is the opposite of the action that we saw earlier in the week, when the markets would open strong, but then fade as the day wore on and close weak.

The chart below is of the Nasdaq 100, which led the action today. The reason I posted this as my chart of the day is that you can see on the chart below that today's action put in what is known as an "outside day". That is, we traded below yesterday's low, but closed above yesterday's high, meaning that today's highs and lows were outside of yesterday's ranges.

This is often a bullish sign, so we'll have to see if the action has legs. Yesterday I posted that the recent market "tells" that traders had been watching, namely Goldman Sachs (GS) and Apple (AAPL), had ceased to be market leaders. But today they were back, and led the action, especially at the end of the day. GS rallied nearly $5 (+2.8%) on solid volume, and AAPL spiked $8 higher (+4.2%) moving the stock back above its 50-day average.

Commodities had another rough day, with oil moving lower to $70.67 and gold closing below the $1130 level. Gold prices have now tumbled roughly -8% in just 4 days. That's a pretty sharp correction (which is why I took partial profits into the ramp), and a bounce could happen soon. I would not chase the bounce, as I think prices could settle in lower still before I would look to add back to my positions.

I added some individual names for a trade today, but will keep tight stops on them until I get a better sense of if this market can muster more than just a bounce.

long AAPL, GS, GLD

Tuesday, December 08, 2009

Bullish Sign That FedEx Raises Guidance

The market is struggling in early trading, despite what is usually a positive sign - FedEx raised guidance last night. CFO Alan B. Graf Jr. said in a statement that the improved forecast is due to better-than-expected growth in international volumes as well as the continued benefits of cost control programs.

"Year-over-year growth in our U.S. overnight express and FedEx International Priority services increased each month during the quarter, aided by inventory restocking and our successful sales efforts," said Graf. "Demand for our international services has improved significantly since the first quarter, particularly in Asia and Latin America."

But with the dollar bouncing again for the 5th day, which is weighing on commodities, stocks are heavy in early trading. Oil has traded down to $73, while gold is down again and has fallen below the $1150 level.

European bourses were lower this morning, after Moody's said that the U.S. and the U.K. must prove that they can trim their deficits in order to avoid a possible downgrade to their triple-A ratings.

Asian markets were also mostly lower overnight; the 10-year yield is lower to 3.73%; and the VIX is +4.6% higher to 23.13, but still below its 50-day average.

Trading comment: The S&P 500 traded down to the 1090 level this morning, which is the level it closed at on 11/27, the day the Dubai debt problems shook global markets. This level is just minor support, with the 50-day average coming into play around the 1080 level, if we get there.

My colleague Helene Meisler at pointed out that we used to look at Goldman Sachs (GS) as a "tell" for the market. But when GS stopped rising, we then started to look at Apple (AAPL) as the "tell". But now AAPL is faltering also. You could say we still have Google (GOOG), but without the former two stocks leading the market, you have to agree that rushing in to buy at this juncture might not be prudent.

Leadership seems to be narrowing, and I simply want to take more of a wait and see approach. New leadership could resume at any point, I just don't want to jump the gun. As usual, I hope my cautiousness is misplaced.


Monday, December 07, 2009

Monday Morning Musings: Has Gold Lost Its Luster?

The market is flat to slightly higher in early trading on not much news. Once again, it looks like the dollar is driving the action, with the dollar moving higher this morning and that is weighing on commodities.

Gold is getting hit again, now down near $1145. Oil is also trading lower, below the $75 level. Getting back to gold, I wrote over the last few weeks that the pace of the gains in gold was looking unsustainable. That said, its always hard to know when the momentum will stop. As such, I took partial profits in our gold positions, but didn't sell all of it.

A look at the chart below shows how overbought the gold etf (GLD) was. The RSI index at the top of the chart had moved deep into the overbought area, while the distance between the GLD and its 50-day average (blue line) continued to grow larger. Last week, the momentum stopped, and the GLD staged a sharp reversal. You can see below that the volume on that reversal day was enormous. And even now, there is still considerable room for the GLD to continue to correct before it finds support at its 50-day average. This doesn't have to happen, but it would not surprise me.
I don't think that the love affair with gold has ended, its just taking a breather. I suspect that with the public falling in love with gold, the end of the story might look more like a stock. By that I mean that after this correction and some consolidation, I think the uptrend in gold will resume, and I will likely not sell my entire position until we see that true parabolic spike higher.

The fact that big hedge fund managers like John Paulson and David Einhorn have endorsed the gold trade makes the above scenario more likely, as the public will feel emboldened that they are in the trade with the "smart money".

Outside of gold, the action is fairly subdued. Telecoms and utilities are leading the action, while financials are lagging. This comes despite Bank of America (BAC) raising funds to repay TARP on Friday, and reports this morning that Citigroup (C) is looking to repay $20 billion of TARP funds as well. The WSJ reported that the total cost of TARP could be cut by $200 billion as a result of paybacks. They are now talking about spending this money elsewhere, while they should just pay it back to the taxpayers.
The 10-year yield is down to 3.43%, and the VIX is +4% higher to 22.10.
Trading comment: For all of the handwringing and intraday volatility we have seen lately, the markets have hung in pretty well, and for the most part are consolidating in a sideways fashion. That is typical of this "stair-step" that I have been calling it for the latter half of the year so far. Keep an eye on the sentiment indicators, which have done a good job keeping us in this market. As long as bullishness and complacency don't get too high, I think the market will continue to work its way higher into year-end.
long BAC, GLD

Friday, December 04, 2009

Is Job Creation Right Around The Corner?

That was one surprising jobs report. If I had to bet on the release before it came out this morning, I probably would have taken the "over". The consensus was for a decline of -1250,000 job losses, but the actual figure was only a decline of -11,000 for November. Additionally, the unemployment rate ticked lower to 10.0% from 10.2%.

As that chart below shows, even though the decline in job losses has been a bit lumpy, the overall trend has been good. With a decline of only 11k jobs last month, you have to wonder if actual job creation is right around the corner?
Looking a little closer at the data, it seems most of the jobs that were added last month were temporary workers in the service sector. That tempers my enthusiasm a bit, but never underestimate the fact that better economic reports and headlines increase optimism and consumer and business confidence. So at some point the negative feedback loop we have experienced could more into a self-fulfilling virtuous cycle.

We also got some positive news in the form of Marvell (MRVL) topping earnings estimates and raising guidance, and Bank of America (BAC) raising $19.3 billion to pay off TARP. Even though the capital raise will be dilutive to earnings, its get BAC out from under the govt. and the "pay czar", which should help it compete better.
The major indexes spiked to new highs this morning, but the dollar is higher today, and that increases the odds that this early strength could fade. Commodities are mixed on the higher dollar, with oil up above $77, but gold taking it on the chin and falling below $1180 (after hitting new highs above $1225 yesterday). This could be the beginning of a much needed correction in gold, but we will have to see. It also remains to be seen if the dollar is going to rally for a bit how that will affect stocks.
Asian markets were mixed overnight; the 10-year yield is also spiking higher on the economic enthusiasm, rising 12 bps to 3.50%; and the VIX is a bit lower at 21.40.
Trading comment: I am keying off of AAPL today. That stock has been the "tell" for the action in the market recently, but this week it has not been able to rally. Today, it looks like it is reversing lower and testing its 50-day average support. If it is unable to hold this key moving average, it could be a sign that not only does AAPL need to take a breather, but the overall market might have some more consolidation ahead of it as well. As such, I want to be cautious right here, and keep my powder dry for a better entry point.

Thursday, December 03, 2009

Bank of America To Repay TARP Funds

The market is mostly higher in early trading, after some mixed economic data. Last night, after the bell Bank of America (BAC) announced it will repay the govt. TARP funds to the tune of $45 billion. $26 billion will come from excess reserves within the company, with the remainder coming from proceeds of securities sales.

The stock is currently 3% higher on the news, but the bigger picture is brighter as it removes the govt. oversight that makes it harder for BAC to compete with the likes of Goldman Sachs (GS), who has already repaid TARP and can pay employees what the market will bear.

In economic news, the initial jobless claims fell to 457,000 last week, below the 480,000 consensus. That is slightly good news on the jobs front, but the ISM Services Index came in at 48.7, which still shows contraction in the services sector. (consensus was 51.5)

The dollar is slightly lower today. Oil prices are roughly flat near $76.50, and gold is up slightly to $1215 as it continues to make new highs.

Asian markets were higher overnight, and European bourses are higher today as well after the ECB left its benchmark rate unchanged at 1.00%, stating that these levels remain appropriate.

The 10-year yield is higher to 3.36%, and the VIX is also higher to 21.43.

I have to run out for a bit, I'll try post again later with some trading comments.

Wednesday, December 02, 2009

S&P 500 Hits New High As Jobs Data Slightly Below Estimates

The market rallied in early trading, pushing the S&PO 500 to a new high for the year. The overall news flow is slow today, and the dollar isn't giving its usual boost.

In economic news, the ADP Employment Report showed that 169,000 private payrolls were shed in November. This is better than last month's figure, but below expectations of 150k. Friday's govt. payroll report is the more important release, and current estimates are for -123,000 jobs lost.

The dollar is slightly higher this morning, which is weighing on oil and commodity prices. But the love affair with gold continues, such that the yellow metal is bucking the weakness, and hit new highs above $1215 earlier this morning.

Gold is looking very toppy, as the chart has gone parabolic recently. Its too hard to predict when it will turn, but something will happen to cause a sharp correction, and shake out some of the newly minted gold bugs.

The 10-year yield is higher to 3.30%, and the VIX is down another -1.5% to 21.60.

Trading comment: The Nasdaq is the more oversold of the major indexes, and I've been picking at some of my favorite names there. Also, healthcare has really started to pickup lately, and many of the big-cap favs have been forming bases for many, many years. As such, if they continue to break out from these bases, it could signal a move that has legs. I have not made any major allocation to the space yet, but it is definitely on my radar.

long GLD

Tuesday, December 01, 2009

Despite Dubai Fears, Several Sectors Back At New Highs

The market is putting the Dubai fears behind it, and rallying strongly this morning. Some of this also has to do with the weak dollar today, as well as new money for the first of the month being put to work.

Last yesterday it was reported that Dubai World is negotiating to restructure $26 billion in debt, and that the amount in question is well below initial estimates. This helped European and Asian markets rally overnight and this morning.

In Asia, the Bank of Japan decided to further ease monetary policy to help curb the rising yen and address the falling CPI (deflation). In Australia, its central bank raised benchmark interest rates for a third time as that economy quickly recovers.

Commodities are also getting a boost from the weaker dollar. Gold prices hit a new record high this morning, briefly touching $1200 before settling in near $1193. Crude oil prices are also higher, around $78.70. The CRB Index is up +1.0%.

In economic news, the ISM Manufacturing Index came in at 53.6 for November, which although below the 55.0 consensus still represents further expansion in the manufacturing sector. Following the last 2 positive housing reports, pending home sales for October jumped +3.7%, which is much better than the -1.0% decline that many expected.

The 10-year yield is higher to 3.25%, and the VIX is plunging -9.0% back below its 50-day to 22.30.

Despite all the handwringing that Dubai could be a shot across the bow and spread to other global markets, I am seeing many sectors shrug off the concerns and rally right back to new highs for the year. Here are some of the etfs that are making new highs today:
  • global materials (MXI)
  • steel (SLX)
  • gold (GLD)
  • industrials (XLI)
  • utilities (XLU)
  • Brazil (EWZ)
  • India (INP)

And the S&P 500 is just 4 points away from a new high, despite the fact that financials aren't participating in today's rally.

Trading comment: Despite the concerns I mentioned yesterday, the key to successful investing is to take your clues from the market. If today's action holds, and volume on up days can pick up, then I would take that as the market's cue that the stair-step rally continues and the recent slide was just the market slipping on one of the steps, but quickly regaining its footing.

BIA clients are long GLD, MXI, EWZ, INP