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


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