Monday, August 31, 2009

Monday Morning Musings

The big selloff in China overnight certainly affected sentiment coming into the open for US stocks, and our market is under considerable selling pressure in early trading.

China's Shanghai Composite fell -6.7% after mainland fund managers reduced their recommended allocation to equities for the first time in six months. The timing seems a bit late, given that last month Chinese stocks suffered their second largest one-month losses in 15 years. There has also been persistent concerns about tighter lending practices coming in the economy.

The negative news out of China overshadowed two high-profile acquisitions. Baker Hughes (BHI) is acquiring BJ Services (BJS) in the oil services arena for $5.5 billion. And Disney (DIS) will buy Marvel Entertainment (MVL).

The dollar is lower this morning, but commodity prices are down also. This is weighing on the energy and materials sectors, which are leading the downside action among the 10 major S&P sectors, all of which are currently in negative territory for the day.

The 10-year yield is lower to 3.42% and the VIX is +7.1% higher to 26.53, spiking above its 50-day average that has acted as solid resistance since the rally began in March.

Trading comment: Although the financials are lower, our CME add from Friday is bucking the weakness so far. I also put on a short China (FXP) trade last week, but have not taken any profits yet.

The media continues to run story after story about how September is historically a bad month for stocks. I wonder if this will lead to another quick spike in bearish sentiment if the market continues to selloff? Last week's AAII survey already showed a big spike in pessimism, but I will be on the lookout for other supporting indicators.

long CME, FXP

Friday, August 28, 2009

Good News From Tech Companies Helps Semis Power Ahead

The market is roughly flat in the first hour of trading, but large tech stocks are leading the way after some solid earnings reports.

DELL and MRVL both reported solid earnings and gave positive outlooks. Additionally, Intel came out and guided revenues above consensus. This is a great sign. The bears have been complaining that the strong earnings reports were all from cost-cutting, and that we would need to see a pickup in revenues for it to continue. So this revenue guidance from INTC is notable. It is also helping power the semi index +2.3% ahead while most sectors are flat.

There were also some solid reports in the retail sector from JCrew and Tiffany, which is helping those stocks as well. The chart of JCG is really a thing of beauty.

Energy and materials stocks are mixed, despite oil and most metals trading higher. The dollar index is lower today, and that is helping support commodity prices.

Asian markets were mixed overnight, with China sharply lower amid more concerns that banking regulators are tightening lending practices to avoid overheating in the sector.

The 10-year yield is a bit lower to 3.45%. The bond auctions that took place this week went off without a hitch, and it seems that there is still plenty strong demand for our Treasury securities, both at home and abroad.

The VIX is up slightly to 25.05, after another close below the 25 level yesterday. The VIX is still churning below its 50-day average, and is not yet signaling that a sharp selloff is at our doorstep.

Yesterday's AAII survey did not show the same jump in bulls as the Investor's Intelligence on Wednesday, so the data on investor bullishness is mixed to say the least. I will have another roundup on Monday to discuss the sentiment data.

This last week of August used to be a much quieter time in the market. I still used this week to get out and do more outside of the office, but I think the fact that everyone is now still connected to their offices via Blackberries and iPhones makes it feel more like a normal business week, even if so many people are at the Hamptons or the beach.

Thursday, August 27, 2009

Stocks Nonplussed By Today's Economic Data

The market finally seems to be selling off. I say "finally" because I would have thought after peaking and getting overbought earlier this week, we would have seen a big down day earlier in the week. But the market kept hanging around, and it seemed like even though the bears pressed, they couldn't really knock it down.

This morning's GDP report was better than expected, and showed that GDP in Q2 fell -1.0%, unrevised from previous estimates, but the consensus was that it would fall to -1.5%.

Jobless claims were mixed, as weekly claims came in a bit higher than expectations (570,000), but continuing claims showed a nice drop, to 6.13 million (down 119,000).

Energy and materials stocks are down the most, as the dollar is higher this morning, and weighing on commodities. Oil is hovering near the $70 level.

Asian markets were mostly lower overnight; the 10-yr yield is at 3.44%; and the VIX is +3.1% higher to 25.74.

Trading comment: I mentioned that I was raising cash earlier this week, but I have not yet put any of it to work today. Volume will likely be very light, as we get deeper into late August and most on Wall St. try to get in some vacation.

There was a big spike in bullishness in the Investor's Intelligence readings yesterday, something I said to watch for as rising complacency would not be good for a selloff. It will be interesting to see what today's AAII readings show. I will keep readers posted.

Also, only in southern Cali does this happen - I have a meeting this morning with a client down in Manhattan Beach. He told me to bring my surfboard, as we are going to go out and catch some waves. Nice.

Wednesday, August 26, 2009

Another Sign Supporting The Housing Bottom

I have taken a lot of flack for supporting the notion that housing has bottomed. To clarify, I don't think it is the type of bottom like you get in the stock market, where home price appreciation is right around the corner. Rather I think that the pace of declines in the housing market has peaked, and that while prices are still soft, sales have certainly picked up and overall I think the worst is over.

I first started talking about this after the NAR Metro Home Sales report. Recently, we got more good news in the form of the much stronger than expected existing home sales report. And today, we get a third supporting datapoint in the July new homes sales report.

New home sales rose +9.6% in July, vastly higher than the consensus of +1.6%. This equates to an annual rate of 433,000 units. Inventories of new homes fell -11.8% to 7.5 months. I'm sure the housing bears will never declare a bottom has been reached, but I think that is exactly how we'll look back at this period.

There was also a positive durable goods report this morning, which showed July orders rose +4.9% (vs. +3.0% consensus), which is the best reading in two years. June figures were revised upwards also.

That durable goods report wasn't enough to keep the market from selling off near the open. The strong new home sales report pulled stocks back into positive territory, but they have since weakened again and all of the major indexes are now back in the red.

My colleague Doug Kass at did a great job of nailing the market bottom in March. Now he is back trying to make another bold call that the market has topped for the year. While anything is possible, I think the market will be higher than today's levels by year-end. But I wanted to pass this along nonetheless.

Asian markets were higher overnight, led by China; the dollar is higher, pressuring commodities; the 10-year yield is lower to 3.44%; and the VIX is only 0.6% higher to 25.08. I would think the VIX would be higher if this selloff is to have any teeth.

Trading comment: I have added a short S&P hedge (SDS) with a tight stop, as I do think the market is due for a pullback after this multi-day run. Yesterday I took some additional profits on our insurance etf (KIE) and added RIMM to our portfolios as well.

Lately, every time I have been looking for a pullback it has only lasted a few days. So we'll have to see if it's any different this time around. I still have considerable cash on the sidelines, so I am willing to wade back into getting more fully invested on the dips.


Tuesday, August 25, 2009

Market Cheers Reappointment of Bernanke

There were several things this morning that helped boost the market today, but I think the reappointment of Bernanke should not be overlooked. While it might not be the sole factor responsible for driving today's rally, I think had he not been reappointed we would have seen the market selloff for sure.

Critics will say that Bernanke was too lax when he first took office, and that as a result he presided over the biggest bubble in the real estate market. That may have some truth to it, although I have to ask where all of these vocal critics were during the fact. I think a lot of them are playing Monday morning quarterback. I would say Greenspan is probably more to blame for the last bubble.

That said, I truly believe that were it not for Bernanke's creative solutions and swift actions once the credit crisis really exploded, we would have been faced with a much deeper economic contraction and drawn-out recession. I think it is important for Bernanke to remain Fed chairman while all of these special programs get worked off, and the Fed slowly removes the stimulus and reduces its balance sheet.

There were some positive earnings reports from retailers this morning (ANN, CHS, BIG), and that is helping push that sector up +3.0% so far, leading the action. Energy stocks are the main laggards today.

The Case-Shiller Home Composite also came in better than expected, even though it showed a -15.4% yr/yr decline (vs. -16.4% consensus). And the Consumer Confidence Index spiked to 54.1 in August from 47.4 in July, another good sign.

Asian markets were mostly lower overnight; the dollar is also lower, which is helping gold, but not oil; the 10-year yield is a bit higher to 3.51%; and the VIX is -3% lower to 24.37.

Trading comment: Yesterday's rally faded into the afternoon, but today's action looks a bit stronger. Internals are better, and the VIX is down today (it was up all day yesterday). I took some profits yesterday on our insurance etf (KIE), which has had a very big run. Today, I am adding a long position to RIMM, which I have been eyeing as an addition to portfolios.

long KIE, RIMM

Monday, August 24, 2009

Monday Morning Musings: No Options Hangover Today

The market is doing its best to further frustrate the bears and continue to march higher. There is a trend in the market that many hedgies look for, and that is that when the market is strong into options expiration (last Friday), there is usually a "hangover" on Monday.

This anomaly is certainly not kicking in today, at least not so far. The market is pushing higher into positive territory, on pretty much no new news. Asian markets were strong overnight, led by Japan, and that helped sentiment in the early going. There were also some analyst upgrades in the financials, which are the leading group. Utilities are the biggest laggards.

Its also interesting that noted perma-bear Nouriel Roubini reiterated his call for a double-dip recession next year. Earlier this year, his comments would have likely had a negative effect on investor sentiment, so its a good sign that his comments are now being taken with a grain of salt. That is, he was spot on in calling the big decline in financials and the economy, but it is less likely he will be as accurate with another bearish call.

The dollar is higher today, which is weighing on gold, but most energy and material stocks are higher nonetheless; the 10-year yield is up slightly to 3.55%; and the VIX is also a bit higher to 25.24.

Trading comment: Without more news, earnings reports, etc, this continued buying feels more like underinvested managers who are being forced into chasing stocks higher for fear of being left behind by their benchmark indexes. I can tell you that this is a very real phenomenon, if you have never experienced it.

I wrote last week that I was looking for an entry point in a few stocks (BAC, RIMM, etc), and I'm kicking myself for not pulling the trigger. I admit to being surprised that the selloff had completely run its course after only 2 days. Of course, today's action tells me I am not alone in feeling that way.

Friday, August 21, 2009

Stronger Home Sales Report Spurs Breakout In The S&P 500

Stairstepping into the weekend. The market looks like it again staged a mild 2-day pullback, before embarking on another move higher. This morning, a strong housing report has spurred strong buying and led to a breakout in the major indexes.

The S&P 500 is currently +1.56% higher, and trading above its Aug. 7th highs. Ditto for the Nasdaq and the Russell 2000 small-cap.

The July existing home sales report showed that home sales rose +7.2% last month, much better than expected. That equates to a rate of 5.2 million homes, up nicely from June's level of 4.9 million. I recently posted that I felt the signs were improving that a bottom in housing had been reached, and I received a lot of hate mail for it. This datapoint is another supporting item for my thesis.

The dollar is lower today, helping boost commodities. Oil is trading above $74 and gold is trading above $950. This is also helping boost the energy and materials sectors, which are leading the action.

Europe was strong this morning, while Asia was mostly lower overnight. There are lingering concerns that Chinese bank regulators are considering rules that will dampen loan expansion.

The 10-year yield is higher today to 3.53% and the VIX is another -1.6% lower to 24.69.

Trading comment: I have said that I felt sentiment was the key to the recent correction. Interestingly, the put/call ratios have been high all week and yesterday the AAII survey showed a big jump in pessimism, and abrupt about-face to the recent surge in optimism. The bull/bear spread in the survey spiked lower to -6 from +18 the previous week. Bulls dropped all the way from 51% to 34%.

So while I didn't think it would happen that quickly, the shift in sentiment again helped the market move in the opposite direction, as today's move higher likely again caught many traders leaning the wrong way. Jesse Livermore said that is exactly the diabolical purpose of the market, to fool the greatest number of people.

Thursday, August 20, 2009

Market Still Befuddling The Bears

I have to keep this morning's post short as I have a meeting to get to.

The market is higher this morning, on the heels of strong rallies in the Asian markets, led by China which spiked +4.5%. The market looked like it might break down further yesterday morning, but by the close it had rallied back into positive territory, and is building on those gains this morning. For the bears who smelled blood, this is another frustrating development in the ongoing stairstep market.

Jobless claims were a bit higher than expectations, but the Philly Fed index was surprisingly strong at 4.2, well above the -0.2 expected and the -7.5 reading in July. Combined with the strong NY Manf. Index last week, the manufacturing sector looks like it is indeed getting a boost.

Google (GOOG) is trading +3.3% higher after being added to Goldman's Conviction Buy List.

The dollar is flat; oil is trading near $73.30, and gold is around $940; the 10-yr yield is up to 3.48%; and the VIX is -4.6% lower back down to 25.05. The VIX is back below its 50-day average, and only closed above it once this week. I think the lower VIX is signaling that another big selloff is not in the cards (unless its a headfake).

On this 40th anniv. of Woodstock, my friend Doug Kass posted this link to the actual lineup of artists and the setlists they played, with some interesting footnotes as well.

long GOOG

Wednesday, August 19, 2009

How Deep The Pullback? Sentiment Holds The Key

There isn't much in the way of market moving news this morning. Our markets are lower, mostly taking their cue from overseas markets, which sold off again overnight. Shanghai fell -4.3%, with Hong Kong and Japan lower as well.

We got some solid earnings reports from Hewlett-Packard and Deere, but they aren't having much effect on the market. That said, so far this pullback has again been rather mild. I'm not saying its over, but given how overbought the market had become, I'm sure the bears were expecting a sharper correction.

From my perch, I think it all comes down to sentiment. The market had a fairly significant correction in July, with the S&P 500 retreating 9% from its highs to lows. But sentiment became highly bearish in short order, and the market rebounded and experienced a strong relief rally.

Could the same thing happen again? I doubt it will occur in the same fashion, but first we need to see how the sentiment indicators shape up. Many of them have moved too far in the complacent camp, and if that complacency persists, then any correction could last longer.

Here is a look at a few of the indicators I monitor:
  • Investor's Intelligence survey: The spread between the bulls and bears hit +28% recently. This is the highest level since January 2008. Note that in July the spread moved back to +0%, so this indicator bears watching.
  • AAII: this survey of individual investors bounced around more, but it recently hit +18%, its highest reading since May 2008. In July, it was deep in negative territory (more bears than bulls) at -27%.
  • Rydex Nova/Ursa: this ratio measures assets flowing into the bullish Rydex market timing funds vs. the bearish funds. It recently fell to .56 after rising to .95 in July (a higher reading means more assets flowing into the bearish funds)
  • 10-day put/call ratio: this is an options indicator of bearish put buying vs. bullish call buying. It currently stands at .81, which shows a little complacency. In July, it rose to .97, which showed far more skepticism.

As the market pulls back more, I will be watching to see if these indicators show rising levels of pessimism among investors. If that happens, then I would expect the pullback to be of the shallow variety again. Many pundits are warning about the fact that September and October are historically the worst months for the stock market. But if the market pulls back ahead of those months, and everyone is already hunkered down in their fallout shelters, the expected result might not come to fruition.

This is why I say sentiment holds the key. As we move closer to Q4, I expect some of the economic data to begin to improve at the margin. Also, as we move closer to 2010, when the economic recovery is expected to really show up, the stock market should begin to reflect stronger growth and work higher. This is why I would view any potential pullback in the market as another good opportunity to add to stocks that I think will be well higher a year from now.

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

Monday, August 17, 2009

Monday Morning Musings: Big Selloff In China Leads U.S. Markets Lower

The market is down across the board this morning, after large selloffs in overseas markets sparked the early weakness. The weakness in Asian markets overshadowed a positive economic report this morning, as well as news that the Fed is extending the TALF program to continue to help improve credit conditions.

Japan fell -3.1% overnight after a weaker than expected GDP report. Hong Kong markets fell -3.6%, but China dropped the most, falling -5.8% amid concerns that tighter bank lending policies could crimp liquidity. This is also hurting commodity prices, and leading to big losses in energy and materials related stocks. A higher dollar today is also weighing on commodity prices.

The positive economic report was the NY Manufacturing Index, which showed its first positive reading since April 2008. A couple of weeks ago this report would have been applauded and received a lot of press, but today it is fading into the background.

The 10-year yield is lower, falling below 3.50% for the first time since July. And the VIX is spiking +14% higher today to 27.60, and surging through its overhead 50-day average in the process. A lot of traders are forecasting higher volatility coming by September, and the VIX is starting to reflect this. But there is considerable resistance at 30, so I am not going to cry 'the sky is falling' yet.

Trading comment: Glad I closed out those long daytrade positions on Friday before the close. Today will be a good test to see if the dip buyers show up again into the close. There is some support around SPX 980. I have not done any buying today, but am still watching for opportunities to add to the likes of BAC, XLF, and RIMM.

Friday, August 14, 2009

Market Tumbles On Weak Consumer Sentiment

Sorry for no posts yesterday. Between conference calls and external meetings, the day simply got away from me. The market powered higher yesterday, but volume was the lowest I can remember for a non-holiday session. That means there was very little conviction behind the buying.

This morning, we received some mixed economic data, but it seems investors keyed off the weak consumer sentiment figures and sold stocks. The University of Michigan consumer sentiment survey came in at 63.2, well below expectations for 69.0. I'm not sure what is skewing this number so negatively, but something is.

That datapoint overshadowed a positive industrial production number (+0.5%), and a CPI report that showed consumer prices were flat vs. last month, and total CPI fell -2.1% year/year.

The dollar is higher today, which is weighing on commodities. Oil is trading below $70, while gold is trading near the $950 level. The materials sector (-3.17%) is down the most so far today, while consumer staples (-0.86%) are down the least. Semis and homebuilders are also getting hit pretty hard.

Asian markets finished mostly higher overnight. Hong Kong reported its Q2 GDP rose +3.3%, as it pulls out of recession. In China, the Shanghai index closed lower, falling to a 6-week low.

The 10-year yield is lower, nearing 3.50%. And the VIX is higher today, up +4.3% to 25.77.

Trading comment: The market looks like its 4-week winning streak will end this week. This is something that I predicted on Monday, as it is very hard to continue the momentum we have had. If the S&P finished here (997), it would be -1.3% lower for the week.

Sentiment has become a little too bullish of late, which increases the odds for a bit more of a pullback. I recognize that each pullback so far this year has been relatively shallow, and the market has stairstepped higher each time. I will be monitoring the sentiment indicators to see if folks again rush into the bearish camp, which would support the case for another shallow pullback.

Trading-wise, I am starting to add to our short Treasury (TBT) position in our accounts. And I am also playing a potential intraday bounce via GS and SSO. But I will likely be out of those either way by the close.

long GS, SSO, TBT

Wednesday, August 12, 2009

More Signs Of A Housing Bottom

The National Association of Realtors (NAR) released its quarterly metropolitan home sales report this morning, and I found some bullish undertones in it.

While most people are focusing on the continued large year/year price drops, I have not heard anyone focusing on the fact that most cities showed sequential (qtr/qtr) price gains for the first time in roughly 2 years!

For the country as a whole, median sales prices rose +4% in Q2 vs. Q1 of this year. The median home price in the U.S. rose to $174,100 (which is still -15.6% below year-ago levels). Here are some of the largest quarterly increases for some notable cities:
  • San Francisco (+18%), Boston (+16%), Washington D.C. (+14%), Dallas (+11%), and Chicago (+10%).
  • Additionally, some of the cities that have been most cited for outsized speculation in recent years have also shown renewed stabilization: San Diego (+5%), Los Angeles (+3%), New York (+2%), Phoenix (+1%) and Miami (+1%).

We know that one datapoint does not make a trend, but I also know that these quarterly sales prices have been dropping every quarter since mid-2007. So this bounce is notable, and from here we'll just have to see if the trend is sustainable.

Hopefully home prices have now fallen sufficiently from their prior highs, up to 50% in many cities, that buyers feel better about stepping up. The low mortgage rates and first-time buyer tax credits should continue to bolster demand as well.

Here is a look at some of the year/year price declines in some of those notable cities I mentioned:

  • Boston: -8.3%
  • Chicago: -20.7%
  • Dallas: -0.2%
  • Los Angeles: -25.7%
  • New York: -16.3%
  • Phoenix: -36.1%
  • San Diego: -20.2%
  • San Francisco: -33.8%
  • Washington D.C.: -14.0%

Two other notable cities that are still seeing declines are Ft. Myers (-52.8%) and Las Vegas (-39.7%).

Overall, home prices have fallen by record amounts in nearly all cities. For the first time in roughly two years, we are seeing a sequential uptick in home prices. With the home affordability index near multi-decade highs, the odds are increasing that this single datapoint of rising home prices could further cement the notion that housing has bottomed, and that would have positive implications for home prices, consumer confidence, personal spending, as well as the overall economy and stock market.

Hurry Up And Wait: FOMC Meets Today

The market is nicely higher today, after a 2-day pullback. The consensus was that the pullback would be deeper, but it looks like smart money players bought last night's close and are up nicely this morning.

Of course, the Fed will make its policy announcement later today, and that could change things in a hurry. This is why the market is normally fairly quiet ahead of Fed meetings. No one expects them to change their tune much. Rates will stay in the 0.00% - 0.25% range, and they should put forth the same message about remaining accomodative for an extended period. But if they get into efforts to unwind their balance sheet, or hint at timing with regard to future rate hikes, we could see some volatility in the market.

The bond market is also getting ready for a $23 billion 10-year Note auction this morning, but lately these bond auctions have gone off well, with solid demand. Currently, the 10-year yield is a tad higher at 3.71%.

All 10 major S&P sectors are higher so far, led by financials and tech, while staples and utilities are lagging. The dollar is lower so far, which is helping boost commodities. Oil is trading near $71, while gold is hovering near the $950 level.

Asian markets closed lower overnight, led by Hong Kong with a -3.0% decline and a -4.7% plunge in China as investors worried about a drop in lending.

The NAR released its metropolitan home sales report this morning, and it looks pretty good. Year/year prices were still way down, but for the first quarter in a while, it looks like there was an uptick in prices. I am going to go crunch the numbers, check back in a bit for a roundup--

Trading comment: No big trades for me yet this week. I put out a couple of trading shorts on GEF and CFR, neither of which are doing much so far. If BAC continues to pullback (or GS), I would like to start a position in either of those. Ditto for RIMM. But after such a strong 4-week rally, I don't want to act like my cash balances are burning a hold in my pocket.

Tuesday, August 11, 2009

Profit Taking In Financial Stocks Weighs On Market

The market is lower today, despite some solid economic reports. A well known bank analyst (Dick Bove) said to take profits, and that sparked a big selloff in bank stocks. The bank etf (XLF) is down -3.5% currently. The consumer staples sector (XLP) is the only sector in positive territory this morning.

Q2 productivity came in well above expectations at 6.4%, this highest reading in six years. Also, unit labor costs fell -5.8%, one of the biggest declines on record. These are very positive readings for continued low inflation, and may have added to the pressure in commodity-related stocks.

The dollar is a bit higher again, which is also helping weigh on commodities. Oil and gold are both lower, while energy and material stocks are down across the board.

The FOMC starts its 2-day meeting today, with its announcement tomorrow. No one expects any big surprises. There is some talk that the Fed will extend its bond purchase program, but that would be a bit of a surprise.

Bond yields are lower today, with the 10-year yield down to 3.70%. The Treasury has a $37 billion 3-year auction today, which could add to volatility in bonds.

Asian markets rose overnight, while Europe was lower this morning. The WSJ said that housing sentiment in the UK reached its highest level in two years.

The VIX is +7.4% higher today, rising to 26.84. It is still trading below its 50-day average. I think it will be interesting to see if it breaks above this resistance that has been in place since March.

Trading comment: So here we are again. The markets are pulling back for a second day, and everyone is calling for a deeper pullback. It will be interesting to see how the investor surveys come in, as those have started to show a hint more bullishness recently. If they flip back to the bearish side of the ledger quickly, that will increase the odds that any pullback will again be shallow. But if pessimism doesn't surface, that would be a change from recent months and could present a bit more of a problem.

Monday, August 10, 2009

Monday Morning Musings: What Happens After Four Straight Up Weeks?

The market has now posted four straight weekly gains, rising +2.3% last week (S&P 500), and +15% over the 4 week stretch. The last time the market experienced such a four week stretch,
back in June, it then followed up with a four week stretch of declines, albeit it mild ones.
A look at the chart of the oscillator for the Nasdaq (above) shows that market isn't really all that overbought, which is somewhat surprising given the run we've had. Nonetheless, there is a flurry of pundits out there calling for a broad market pullback.
With so many people looking for a pullback and raising cash, or positioning themselves ahead of such an event, its less likely to come to fruition. I think that's called the Heisenberg principle. I have written for months about the stairstep action in the market, and for the time being it continues. Even this morning the market has barely pulled back, although it is still early.
The dollar is up a bit today, which is weighing on gold, but oil is trading higher and boosting energy stocks. Healthcare stocks are also higher, but the rest of the sectors are lower so far.
Asian markets were up overnight. Analysts at Goldman Sachs raised their GDP forecasts for Asia. The 10-year yield is lower to 3.81%. And the VIX is higher at 25.40.
Trading comment: Taking more partial profits this morning on some individual stocks. FWLT has run up substantially since reporting earnings last week. I am trimming some shares above 30 here. Also, FIG has had a big bounce, and I want to lock in some profits there too. I would look to add back to both of these positions if they pulled back from here.
long FIG, FWLT

Friday, August 07, 2009

Why A Long, Slow Recovery Might Not Be A Bad Thing

The market is ripping higher this morning on the combination of heightened skepticism among investors that the market was overbought and in need of a pullback and the better than expected jobs report.

Nonfarm payrolls declined -247,000, but this was much better than the -325k that economists were forecasting. Also, the unemployment rate ticked down to 9.4% vs. 9.6% consensus, and I heard many whisper numbers that it would actually rise to 9.7%.

Today's jobs report showed the fewest job losses since August 2008, and although job losses are never a positive for the overall economy, this report is another solid sign that the worst of the recession is behind us and that the economy is at least on a slow path to recovery.

Many people continue to complain that the recovery is likely to be slower than usual, due to the large number of job losses, the weak consumer, and lackluster economic growth. As an investor, I don't mind a long, slow recovery.

To me that just means that it will take even longer before the Fed has to raise rates to the point that it taps the breaks on the economy and tries to slow it down again. The longer the Fed remains in accomodative mode, the longer stocks will continue to have a tailwind rather than face a headwind.

Another suprise was AIG reporting solid profits and better than expected earnings. This has helped financial stocks rally yet again, as they are leading the action this morning in the market. Energy and materials stocks are the laggards, as the dollar is stronger this morning which is weighing on commodities.

Asian markets were lower overnight, led by China (-2.9%) amid concerns that the mainland would tighten monetary policy; the 10-year yield is higher at 3.87%; and the VIX is back down below 25, falling -6% to 24.07. If the bears' are right that we are about to see a big pullback, wouldn't the VIX be creeping higher? Just askin'

Trading comment: You can count me among those investors who raised cash recently as the market became overbought, and who have been waiting for more of a pullback. But this market continues to stairstep higher, as I have been writing about for months, and forces investors to pay up to participate.

Short sellers do not look like they are going to have fun day heading into the weekend. I have not made any new trades in the last couple of days, but I am still involved in the ASCA and AKS longs that I added earlier. URBN looks really extended to me, and I may look to take a shot at a short trade in that one.

long ASCA, AKS

Thursday, August 06, 2009

Light Profit Taking Despite Lower Jobless Claims

The market started off higher, but has since slipped back into negative territory as profit taking continues. Yesterday's decline was not bad, and despite the overbought condition of the market, the profit taking feels pretty benign so far.

Cisco (CSCO) reported solid earnings last night, but given the run we've had, even that news isn't enough to continue to propel the Nazz higher. CSCO is down -0.5% today.

Initial jobless claims came in lower than expected at 550,000 vs. 580,000 consensus. As signs of the recovery grow, hopefully corporations have slowed job cuts. Tomorrow's monthly payroll report will be a closely watched event.

Retailers reported generally lackluster same-store sales, but the retail etf (XRT) is higher nonetheless. A few companies, including Gap, Kohl's, and Macy's issued upside guidance, and those stocks are nicely higher. URBN is up +9% today to its highest levels since last October.

There were also gains overseas as Asian markets rose overnight, and the Bank of England made a surprise decision to expand its bond purchase program while leaving its benchmark interest rate unchanged at 0.5%.

The dollar is higher this morning, weighing on commodities (oil, gold, etc); the 10-yr yield is steady at 3.76%; and the VIX is slightly higher to 25.43.

Trading comment: The market looks a little toppy here. It could be that we just get another sideways consolidation before another push higher, or it could be that we get more of a deeper pullback. It's hard to say ahead of time, which is why I closely monitor the daily price/volume action in the market.

I am still net long, but have a somewhat elevated cash levels relative to "normal" allocations due the the profits I have taken recently and my cautiousness about reinvesting those profits in new areas. I would really like a pullback in the financials to add to BAC and GS, but those stocks seem to power higher on a daily basis. Ditto for RIMM, which looks to be in good shape again. So far, no trades today.

Wednesday, August 05, 2009

Jobs Report Preview Higher Than Expected, Stocks Pull Back

My morning post is a bit late today as I was covering the FWLT conference call for FWLT reported an outstanding quarter, and the stock is +13% higher on the results. After my summary of the call is posted on, I will post a copy here.

Stocks are taking a rare breather, at least in recent weeks, after a weaker than expected ADP Employment Report spurred profit taking. The ADP report showed the economy lost -371,000 jobs, above the -350k consensus. The government payrolls report comes out Friday, and is a bigger market moving release. The consensus for that report is -328,000.

We also got a weaker than expected ISM Services report, which came in at 46.4 vs. 48.0 consensus. This marks the 10th straight reading below 50, which is the level that marks the difference between expansion and contraction.

The dollar was higher earlier, but has since fallen into negative territory. Commodities are generally weaker; the 10-year yield is lower to 3.65%; and the VIX is up a bit to 25.28.

Trading comment: Yesterday I took profits on WMS and added ASCA. The latter stock is lower today after reporting lackluster earnings. Such is trading.

The Nazz is down -1.5% today, for the first time in awhile. The NDX is deep into overbought territory, and badly in need of a pullback, imo. I own the Nazz 100 inverse etf (QID) as a hedge. I was admittedly early in adding to this position, but I think it works here as the NDX should pull back.


Tuesday, August 04, 2009

Has Housing Bottomed? Pending Home Sales Rise For 5th Straight Month

The market is slightly lower in early trading, but that is not surprising given the outsized gains we made yesterday, and the prolonged rally we have enjoyed since mid-July.

The economic data released this morning was better than expected, especially in the housing sector. Pending home sales for June rose +3.6%, which handily exceeded expectations for a 0.7% increase. Moreover, this was the 5th straight monthly increase for this datapoint.

This will likely prompt the question, "has housing bottomed"? I think the answer is yes, due to the fact that low interest rates and first-time buyer tax credits have helped spur demand. But a bottom for housing will not look anything like a bottom for stocks. By that I mean that the housing bottom is likely to be prolonged and shallow. I expect home prices to stop dropping, and bounce mildly in some areas, but I do not expect solid home price appreciation for a few years.

In other economic data, personal income for June fell -1.3%, but personal spending increased +0.4%. That is a good sign. For the economy to continue to strengthen we need to see consumers start to spend a little again.

Consumer staples are the strongest sector so far, helped by the acquisition of Pepsi Bottling Group by Pepsico. Utilities are the biggest laggard.

Asian markets were mixed overnight; the dollar is roughly flat; the 10-year yield is higher near 3.70%; and the VIX is flat near 25.50.

Trading comment: WMS reported strong profits and raised guidance, and the stock is spiking higher. I am taking profits here, and will look to reenter down the road a bit. Yesterday, I added RIG and AKS. RIG should benefit from higher oil prices and an economic recovery, while AKS should benefit from stronger auto production and steel prices.

The market is still oversold, and I don't want to chase it here, but I am willing to buy individual situations that look promising.

long AKS, RIG

Monday, August 03, 2009

Monday Morning Musings: S&P 500 Tops 1000 Level

Back in the saddle after a nice vacation. Last week was a good one to miss, as the newsflow and price action was pretty slow. But investors are making up for it this morning, as the first trading day of the new month starts off with a bang.

The S&P 500 is rallying, and topped the 1000 level this morning for the first time since November 5, 2008. These big, round numbers tend to act as resistance the first time they are touched, so I would expect the SPX to consolidate around these levels for awhile before making any futher meaningful headway.

There was some positive economic reports in the form on an ISM Manufacturing Index reading that came in at 48.9, well ahead of the 46.5 consensus. That number is still shy of the 50 level which marks expansion in the sector. Also, construction spending for June rose a surprising +0.3% vs. expectations for a -0.5% decline.

Asian markets were mixed overnight, while European markets opened strong this morning. The dollar is lower today, which is helping boost commodities. Materials stocks are leading the action, with big gains in copper, steel, as well as energy stocks. the 10-year yield is higher at 3.65%, reversing a big plunge lower on Friday. And the VIX is higher to 26.18 after bottoming a week ago at 23.0.

Trading comment: I obviously was bit early in taking profits and raising cash. This stairstep market continues to frustrate most investors who aren't fully invested. But the sharp rise from the mid-July lows does not look sustainable at this pace, and I do expect more consolidation around these levels.

Aside from focusing on the major index levels, I will continue to look for trading opportunities in individual stocks and etfs, and will update the site with any trades. Currently, I am mulling taking some partial profits in our materials etf (MXI), which has had a nice run.

long MXI