Friday, October 30, 2009

Month End Not Helping Stocks In Early Trading

My colleague Doug Kass at is fond of saying this market has no memory from day to day. This is very true today, after yesterday's nice bounce is starting to look like a one-day affair.

The Chicago PMI came in better than expected at 54.2 (vs. 49.0 consensus), but that did little to improve sentiment. This is a strong reading, and hopefully an indicator of better readings to come out of the manufacturing sector.

The real driver today seems to again be the US dollar. Its funny but lately all you have to ask is if the dollar is higher or lower on the day to know how the rest of the market is faring. Today, the dollar is bouncing, which is weighing heavily on stocks and commodities. Oil is back down to $78, while gold is lower near $1041.

Among sectors, financials are down the most (-3.05%), while consumer staples are holding up relatively well (-0.30%). International ETFs are also giving up much of yesterday's gains.

Asian markets were higher overnight, seemingly pleased by the strong GDP report here in the U.S.; the 10-year yield has moved lower to 3.42%; and the VIX is +8.3% higher today to 26.82, bouncing off its 50-day average that it tested yesterday.

Trading comment: This is shaping up to be a disappointing last day of the month, but I stand by my comments from yesterday. The market is still oversold, and likely due for more of a bounce. The price action and volume characteristics of that bounce should give us a better idea of how long this correction will last. Right now, the bears are pressing their bets.

Thursday, October 29, 2009

Say Goodbye To The Recession

The initial estimate of Q3 GDP was released this morning, and showed that the US economy bounced back at a rate of +3.5%. This figure is better than the 3.2% consensus estimate, and well above the 2.7% whisper number that Goldman's economist floated yesterday, that may have weighed on the market a bit.

This was the first positive GDP reading since Q208, after a string of four consecutive negative readings. If you're being technical, I believe this marks the official end of the recession, but the NBER will come out and make that determination sometime down the road, probably when it doesn't really matter to most people anymore, lol.

I have been writing about the economic bottom since March, when the stock market bottomed and I suggested that although the economic numbers would still be negative, they would begin to get "less bad" on their way to eventually turning positive. That subtle rate of change was the catalyst behind the big stock rally, and I think the magnitude of said rally could indicate that the economic rebound will indeed turn out to be stronger than most expect.

The naysayers will say that too much of the GDP bounce came from govt. assistance, in the form of 'Cash for Clunkers' and the homebuyer tax credits. This may be true, but that doesn't mean that the economic rebound can't still become self-sustaining post stimulus. Inventories were drawn down again in Q3, and when inventories actually start to get built back up, it will provide a strong boost to the economy.

The ECRI has had a very good track record of calls on the economy. Right now, their Weekly Leading Index is just off its highs, and indicating that the economic recovery is going to be strong. They also said that the odds of a double-dip are low right now. I'll bet on the ECRI versus the Wall St. economists.

The dollar is lower today, after its own 5-day rally. This is boosting stocks and commodities. Oil is up $1.50 to $79, while gold is up over $7 to $1038. The materials sector is the biggest winner so far today, while defensive utilities are lagging.

Asian markets were lower overnight, despite the IMF raising its economic growth forecast for the Asian economies; the 10-year yield is higher to 3.48%; and the VIX is -8.3% lower to 25.59.

Trading comment: I put some money to work on the long-side yesterday, after a 4-day slide that brought the market deep into oversold territory (oscillators). This also coincided with month-end, so the odds of a bounce were fairly high.

That said, I would like to see what this bounce is made of before I commit too much. If this is simply a low-volume bounce, with many leading stocks only able to make lower highs vs. last week, then this correction could have more to go. I do not think there is huge downside risk, sometimes corrections just need more time to run their course.

Wednesday, October 28, 2009

Fourth Day of Dollar Bounce Weighs On Stocks

The chart above shows the US dollar etf (UUP), which tracks the direction of the dollar relative to a basket of other currencies. You can see the long slide that the dollar has endured, but this has coincided with a rise in the stock market.

For the last four days, the dollar has been bouncing, and that has weighed on stocks, hitting the energy and materials sectors especially hard. It may seem counter-intuitive, but in this environment stocks rally on the weak dollar and pullback when the dollar is rising.

You can see that this recent bounce has been accompanied by a huge surge in volume, indicating that investors are betting that this latest move has some legs to it. I am less certain, and think that the dollar will likely run into resistance again and continue its slow slide.

This morning, the durable goods report came in a little better than expected, but the new home sales data was below expectations. I have commented recently about the lumpiness of the home sales data, and today is an example. I also put a little more weight in existing home sales vs. new home sales.

The stronger dollar is weighing on commodities, with oil prices down near $78 and gold flat around $1034. Asian markets were lower overnight; the 10-year yield is lower to 3.46%; and the VIX is +5.6% higher today, extending its recent rise to 26.25.

Trading comment: The S&P 500 is lower for its fourth straight day, and this morning touched its 50-day average at 1050. This coincides with an oversold reading in the oscillators, at the same time we are approaching month end. I think there is a good chance we could see a bounce from here, as investors step in at the 50-day average and also put money to work (window dressing) ahead of month end.

long SSO

Monday, October 26, 2009

Monday Morning Musings

The market was much higher in early trading, but the S&P 500 ran into resistance again near the 1090 level, and stocks have pulled back considerably from there such that the major indexes are now back in negative territory on the day.

One of the big laggards today is Bank of America (BAC), which is rumored to need to raise more capital to get out of their TARP loans. This is weighing on the stock, which is currently -5% lower. BAC has a solid Tier 1 capital ratio at current levels, and I think any capital raise they might do will provide a good buying opportunity for the stock.

The market is already back in oversold territory, especially the Nasdaq. So while we could see another down day or two, I think the market is more likely closer to finding support.

The dollar is bouncing today, which is also weighing on stocks, as lately stocks have been rallying on days the dollar slides. Crude prices were up but are now lower, breaking below $80. Gold prices are also lower now, falling to $1053.

Asian markets were higher overnight; the 10-year yield is higher to 3.53%; and the VIX was lower but has also turned higher, now up +7% to 23.84.

long BAC

Friday, October 23, 2009

Strong Earnings Reports Continue To Surpass Expecations

The market is lower this morning, despite another large batch of better than expected earnings reports. I covered the (AMZN) earnings report for (will post later), and they were the biggest standout. The stock is rocketing +23% higher this morning on their blowout earnings.

Microsoft (MSFT) also had surprisingly strong earnings, for once, and that stock is nicely higher also (+6.9%). But it wasn't just tech stocks, credit card companies American Express (AXP) and Capital One (COF) both surpassed expectations; Industrial behemoth Honeywell (HON) bested the consensus, as did durable goods maker Whirlpool (WHR).

So the strong earnings reports are pretty widespread, and are a good sign that the economic recovery has a more solid foundation than the naysayers would have you believe.

Asian markets were higher overnight, and European bourses were all higher this morning as well. The PMI for the eurozone grew in October at its fastest rate since December 2007, rising to 53.0 from 51.1 in September.

There was also a better than expected housing report here in the US, as September existing home sales hit a rate of 5.57 million vs. expectations for 5.35 million. I mentioned recently that the housing data is notoriously lumpy, but this is one of the good lumps. lol

The dollar is bouncing this morning, after a prolonged slide, which is weighing on commodity prices as well as the energy and materials sectors; the 10-year yield is up slightly to 3.45%; and the low VIX is bouncing +3.1% to 21.34.

Trading comment: The market "feels" a bit tired after making new highs earlier this week. We have seen some distribution days (higher volume selloffs) lately, but I still don't see any clear signs that any pullback will be more than the 3-5% variety we have been seeing. As such, the stair-step market is still intact, and another mild pullback could simply be another buying opportunity as we move toward year-end.

Thursday, October 22, 2009

Chart of the Day: Can Apple (AAPL) Be A $300 Stock?

Yesterday, the market sold off fairly hard, but one stock that stayed in the green all day was Apple (AAPL). The chart above shows the recent stock action, accompanied by a huge volume spike, as well as the long uptrend. The gap higher on Tuesday was the reaction to the company's blowout earnings report. I covered the earnings conference call for Monday night. Here is a copy of my comments:

"Apple reported a true blowout quarter. When the headline first crossed the newswire, I mumbled "wow." That's how surprised I was by how much the company surpassed consensus estimates.

EPS came in at $1.82, 40 cents ahead. Revenue also surprised at $9.87 billion, as did gross margins coming in at 36.6%.
Growth accelerated for the third consecutive quarter. Revenue grew 25% from the year-ago period, while earnings surged ahead 44%. The tax rate also helped, coming in at just 26% vs. expectations of close to 30%. Gross margins were boosted by component costs coming in less than forecast, and the product mix of higher-margin products, including Snow Leopard software (high margins), which sold at twice the rate of the first Leopard release.

Macs were the standout, and the leading driver of the revenue upside. The company sold 3.05 million Macs, with the growth rate accelerating to 17% year over year. This is an order of magnitude greater than the 2% overall PC growth that has been estimated for the quarter. Apple cited a very strong back-to-school season, strength in Asian demand (up 42%), as well as a consumer who was very attracted to their portables, which grew 35% from last year. That is impressive growth, and management says the segment still has fantastic momentum.

iPhones were also very strong, with 7.4 million units sold (up 7%). The response to the new 3GS phones has been strong, and management noted that the iphones have led the J.D. Power consumer satisfaction polls. They noted that demand did indeed outstrip supply in the quarter, but the equation should be coming into balance. They start selling in China later this month and are also expanding carriers in the U.K. and Canada. By year-end, they should be selling in 80 countries.

iPods fared better than the Street was expecting, with 10.2 million sold (down 8%). Of iPod buyers, 50% were reportedly first-time buyers, intrigued by the new features on the Nano and lower price point on the iTouch ($199). iTouch sales actually spiked 100% and should be a strong seller in the holiday season. The company claimed 70% market share in MP3 players, and I believe that sales should be strong this holiday season. I know I am ready to upgrade my iPod, as I would like the new FM radio and camera functionality (is it weird to snap pics at the gym?).

The other major factor that helped the stock top the $200 level after hours was stronger-than-expected guidance. EPS guidance of $1.70 to $1.78 was well above the whisper numbers of $1.68. Moreover, revenue guidance was in line with current estimates ($11.3 billion to $11.6 billion), a big surprise given their normal conservatism, and well above whispers of $11.0 billion. Similar to last quarter, gross margin guidance was 34%, and the tax rate at 30%.

The CFO said the company is unsure about when it would adopt the new FASB accounting standard, but it will probably occur at some point during 2010. Interestingly, if you look at the end of the press release, the company shows that if FASB were adopted now, it would have earned $3.12 in EPS this quarter. That's pretty amazing, and if we were to annualize that, we could argue that AAPL has earnings power of $12 next year. Now don't get all crazy on me for being bullish, but if you apply a P/E of 25 times to that figure, you could justify a price target of $300. I'm just saying...

So I posted my $300 target on Monday night. The next evening, on Jim Cramer's Mad Money show, he devoted some time on the show to Apple. Guess what price target Cramer came up with for AAPL? $300. Go figure. Welcome aboard, Jimmy.

This morning the market is roughly flat, with financials bouncing from yesterday while chip stocks and housing stocks are lower. Asia was down slightly overnight, although China said its Q3 GDP growth accelerated to 8.9% from 7.9% last quarter.

long AAPL

Tuesday, October 20, 2009

Disappointing Housing Data Stalls Stock Rally

The S&P 500 touched the 1100 level yesterday, a new high, before pulling back by the close. This morning, stocks are lower despite more better-than-expected earnings reports. The culprit looks to be a combo of some weaker housing data coupled with a bounce in the dollar which is weighing on the energy and materials sectors.

The bank sector is bucking the weakness so far today after Comerica (CMA) and Bank of New York (BK) both reported strong earnings. AAPL also reported a truly blowout quarter, and gave strong guidance, which is helping boost its stock to a new high above $200.

Housing starts came in a bit weak at 590,000 vs. expectations for 610,000. And building permits were also a tad light at 573,000 vs. 595,000 consensus. Housing data is always lumpy, so no single month should be given too much weight.

The dollar is bouncing today also, and as stocks have been highly correlated with the falling dollar recently, today is a reversal of that trend. Oil prices are near $79 after hitting the $80 mark yesterday, and gold prices are just over $1060.

Asian markets rose overnight. Today, Brazil stock prices are lower after the govt. announced it might implement a tax on foreign investment flows (like stocks and bonds). With all Brazil has going for it right now, this announcement seems ill-timed.

The 10-year yield is lower at 3.32%, and the VIX is up slightly to 21.49.

Trading comment: The short dollar/long commodity trade is once again probably one of the most crowded trades in the hedge fund universe. This sets up a nasty potential scenario for a short-squeeze that could cause the dollar to spike, commodities to sell off, and emerging markets would probably decline as well. This occurs from time to time, to keep traders on their toes, but would likely be another good buying opportunity if it did occur.


Monday, October 19, 2009

Monday Morning Musings

The market is bouncing higher this morning after Friday's lackluster session. The S&P 500 is actually right back at its highs for the year, with broad participation among the various sectors.

There was not a whole lot of news this morning. BB&T reported better-than-expected earnings, but the is lower nonetheless. Apple (AAPL) reports after the close. I think their earnings report will be very solid, but remember that they always give very conservative guidance, and that usually knocks the stock down after the report. If this occurs again, it will probably be another good dip to buy before year-end.

Earnings season will be in full force all week, starting with AAPL tonight, and continuing with YHOO, AMGN, EBAY, AMZN, BRCM, and MSFT during the week (just to name a few).

Asian markets were mixed overnight. Officials in China said the country's GDP grew more than 7% during the first 9 months of the year, and is on track to surpass forecasts.

The dollar is lower again today, boosting oil prices north of $78.50, and gold prices back above $1052; the 10-year yield is a bit lower to 3.41%; and the VIX is near at its lows for the year touching the 21.0 level.

Trading comment: I thought we might see at least another multi-day pullback, but right now the SPX is making new highs for the year, after pulling back for just one day. The put/call ratios got awfully low last week, and every other time we have seen the p/c ratios get that low, the market has taken a hit soon after. This is one thing that is keeping me from chasing stocks here, in addition to the fact that the market is once again overbought. I think that a better buying opportunity still lies ahead.

long AAPL, VXX

Friday, October 16, 2009

Limping Into The Weekend

The markets are lower this morning, after hanging in well yesterday. There were more earnings reports this morning that came in okay, but the reaction has been to sell the news. I don't think this is a big negative tell, as most stocks have had big runs ahead of their earnings reports. So some profit taking in here should be expected.

Google reported blowout numbers, and also a nice pickup in paid clicks growth (+14%). That news is being cheered by investors, who are driving the stock up over the $450 level. But companies like IBM and GE also reported solid numbers, topping estimates slightly, but their stocks are being met by selling. IBM's report was solid, and I would look to add on further weakness.

Bank of America (BAC) reported a bigger loss than expected, which is being viewed as a bit of a disappointment relative to JPMorgan, which reported strong results earlier this week. I haven't gone through the earnings release yet, but my sense is that BAC came in about where I expected.

The dollar is bouncing a little today, but that isn't hampering oil and gold too much. Oil prices are still near $77.50, and chatter is heating up about the $80 level. And gold prices are still hovering around the $1050 level, or slightly above it.

Asian markets were mixed overnight; the 10-year yield is lower to 3.41%, after a big, multi-day rise; and the VIX is +2.95% higher this morning to 22.36, still a pretty low level overall.

Trading comment: I know the market has barely pulled back from Wednesday's highs, but the pattern of this market has been to only pullback for 1-2 days before rallying again. As such, I will be looking to do at least some buying today, while still saving some cash for more of a pullback or consolidation down the road.


Wednesday, October 14, 2009

Strong Intel/JPM Earnings Help Propel Stocks To New Highs

The market is very strong this morning, with the major indexes pushing into new high ground for the year. The Dow is less than 25 points away from the 10,000 level. I don't want to burst anyone's bubble, but that level really has no technical significance. It's just a big, round number that the media loves to highlight. But if it makes people feel good, them I'm all for it.

The catalysts for today's enthusiasm stem from some strong earnings reports from big companies like Intel (INTC), JPMorgan (JPM) and Abbott Labs (ABT). JPMorgan beat consensus estimates by a huge margin ($0.82 vs. $0.52), and Intel raised both 4th quarter revenue guidance as well as margin guidance. The strong top-line growth was a welcome sign for investors, who were worried that revenue growth might not show up. And Intel also highlighted notable strength from the consumer

There were also some solid economic reports this morning, with advance retail sales down less than expected (-1.5% vs. -2.1% consensus), after the end of the cash-for-clunkers program. Ex-autos, retails sales actually rose +0.5% in September. And import prices for September fell -12.0% vs. a year ago.

The dollar is lower again, making a new 52-week low. Oil is trading higher to $75, while gold is a bit lower, below the $1060 level. I devoted some space in my monthly newsletter to gold and the dollar, so if you want a copy just send me your email.

Asian markets rose overnight; the 10-year yield is higher at 3.37%; and the VIX hit a new low for the year, and is currently -2.52% lower to 22.41 - a very low level.

Trading comment: No big changes to my exposure so far this week. One thing I would look for is stocks that are failing to keep pace with the market. If you own stocks that are making lower highs, while the market is making higher highs, those could be candidates to trim/sell and rotate into market leaders. That is something I will be looking at this week.

long TBT, VXX

Tuesday, October 13, 2009

Can The S&P Make It Seven In A Row?

The market finished higher again yesterday, for a 6th straight session, and although stocks opened lower this morning they are currently working their way back into positive territory. A 7th straight up day would be quite a feat.

JNJ reported solid earnings this morning, and raised full-year guidance, but its stock is pulling back from a big pop yesterday. CSCO said it is buying Starent Networks (STAR), a stock that I have mentioned here before, and the very stock I wrote that I was taking profits on yesterday. DOH!!

Financials are lagging the market so far, after Goldman Sachs (GS) was downgraded by Meredith Whitney Advisors. I'm not sure why her calls have so much impact. Sure, she had a great call last year with the banking collapse, but she has basically been wrong this year by clinging to her bearish stance.

Tech stocks are leading the action so far, ahead of Intel (INTC) earnings tonight. Google and IBM report on Thursday.

The dollar is lower again, go figure, which is boosting oil and gold. Oil prices are hovering below $74, while gold prices are near $1060 now, having hit new highs in overnight trading.

The 10-year yield is lower to 3.32%, after being closed for the Columbus Day holiday yesterday; the VIX is up just slightly to 23.10, but back down well below its 50-day.

Trading comment: I took some profits on some individual stock trades yesterday, as the market is getting closer to being overbought again. Although we are not there yet. With the S&P very near new highs, I would not be surprised to see a slight pullback before a break to new highs. Then we could get a bit of a rest.

Yesterday I was looking at P/E ratios for emerging markets, and how much multiples have expanded over the last several months. For many countries, the P/E expansion has been enormous, but interestingly the country with the smallest multiple expansion has been China (FXI). China has also had a major correction already this year, and that could make it a candidate to play catch-up into year-end, especially as the govt. there keeps its foot on the gas to boost its economy. As such, I am looking at adding to our exposure to China via the FXI.


Monday, October 12, 2009

Monday Morning Musings: Performance Anxiety?

The market is higher for a sixth straight day, which would be the first time this year it has accomplished such a feat. The driver? No news. There are no major economic reports this morning, nor are there any major earnings announcements. And Asian markets were slightly lower overnight.

So what is behind the enthusiasm? Hard to say, but I would not discount the fact that we are in Q4, which is a strong seasonal period for stocks. Also, mutual funds fiscal year ends are mostly in October, so there could be some buying pressure from fund managers. Last, I have no doubt that the performance anxiety among hedge fund managers is kicking into high gear. Those who were betting on a big pullback in October, and got short the market, have likely been forced to cover and are now scrambling on the long side to make up for lost profits.

The dollar is also weaker again today, driving the same commodity excitement it has been lately. Oil prices hit levels near $73.50, while gold futures touched new highs at $1060 before pulling back slightly.

All of the major economic sectors are participating today, with energy leading the pack, as well as semiconductor stocks. Broker dealers are one group that I see lagging so far.

The S&P 500 hit a high this year at 1080 on Sept. 23rd, and it is currently only 1 point away from that level. The Nasdaq is about 12 points below its Sept. highs.

Trading comment: Famed investor Jesse Livermore once said that it wasn't his trading that made him the most money, it was sitting on his hands. That means there were times when even though he felt like pulling the trigger and selling to take profits, he let them ride. That has been the winning formula for the last few months, even as it has been difficult to do so. But sometimes doing nothing is the best trade.

That said, I did take some partial profits on a couple of semi stocks (STAR, TSRA) this morning, lol. These stocks have had big bounces, and I am just trying to add value by trading around our positions, selling on spikes higher, and buying back on pullbacks. It's certainly a more active strategy, and probably only suitable for professional traders, as these stocks move quickly.

Earning season heats up this week in a big way, and as such I expect to see some increased volatility in the market and individual stocks relative to the last few weeks.


Thursday, October 08, 2009

Retail Sales Come In Better Than Expected

The market is rallying for a fourth straight day after several positive news items have hit the tape.

First, there were more solid earnings reports from Alcoa and Pepsi, both coming in above estimates.

Second, this morning's jobless claims numbers were also better than expected, including continuing claims.

Third, the September same-store sales figures for retailers were very positive relative to consensus estimates, and there is plenty of anecdotal evidence that consumer spending is not as bad as many believed. Even luxury auto sales are beginning to pick up, which are considered a good leading indicator.

European markets were higher after both the ECB and the Bank of England held rates unchanged. While many market pundits keep talking about inflation, the bond markets continue to be equally concerned about deflation, so I'm glad the central banks are not jumping the gun to raise rates. Central banks have an easier time dealing with inflation than they do combating deflation, just look at Japan.

Asian markets were also higher overnight; the 10-year yield is lower again, falling to 3.17%; and the VIX is down -2.7% to 24.01, breaking below its 50-day average. The dollar is also lower, boosting gold prices to new highs, while oil is flattish near $70.

Trading comment: So much for the big, nasty October correction many were calling for. Instead, it looks like the "stair-step" market continues, as the major indexes are back above their short-term moving averages, and not far from their highs of the year. The market is not yet overbought, so it still has some support in the near-term.

I added to our Bank of America (BAC) positions yesterday, but will likely wait to invest more until we get another small pullback. The key this year has been to buy on the 1-2 day pullbacks, and not wait for the 10% corrections that never seem to materialize.

long BAC, VXX

Wednesday, October 07, 2009

Chart of the Day: Gold Breaks Out

The chart above shows the strong breakout in gold. This is actually the gold etf (GLD), but it tracks gold prices very closely. You can see the strong volume spike yesterday as gold broke out convincingly above recent resistance.

Gold has been strong in conjunction with the weak dollar, one of the primary factors in the recently rally. There is a lot of chatter about the weak dollar, and central banks around the globe trying to diversify their dollar holdings and boost gold reserves.

But central banks are notoriously poor market timers, and I would caution against falling in love with gold just as it is breaking out to new record highs. We are long gold in our portfolios currently, but I will look to take some profits if prices continue to rise short-term. A strong bounce in the dollar could easily shake out a lot of the newly minted gold bulls, and spark a sharp pullback.

Outside of gold, the markets were lower in premarket trading, but have since climbed back into positive territory. The first few earnings reports from the likes of YUM, COST, and MON all came in ahead of estimates - a good sign. Earnings season kicks into high gear next week, and will likely become the new catalyst for stocks at the margin, taking the wheel from the dollar, which has been the primary focus lately.

Asian markets were higher overnight; the 10-year yield is slightly lower at 3.20%; and the VIX is -1.5% lower to 25.30.

long GLD

Tuesday, October 06, 2009

Market Rallies As Gold Reaches Record Highs

The market is rallying for a second day as the dollar slides and commodities run. Yesterday's bounce in the market came on lighter volume, causing many to dismiss the positive action. But as we mentioned, the market was pretty heavily oversold, so the relief rally continues.

Materials stocks are leading the action (+2.5%) as the slide in the dollar boosts commodities. Oil is rising to $71.80 a barrel, but gold is the start today, hitting all-time highs at $1043.

In corporate news, Mosaic (MOS) reported weak earnings (potash sales), but the stock is bouncing higher nonetheless. Earnings season kicks off in earnest tomorrow, and then heats up all next week.

European shares were higher after house prices in the UK rose for the 3rd straight month in September. Asian shares were mostly higher after the Reserve Bank of Australia raised interest rates by 25 basis points to 3.25%. Normally rate hikes are not cheered by equity investors, but in this case, the implied message that the global economy has steadies is being taken as a good sign.

The 10-year yield is getting a small lift to 3.25%; and the VIX is plunging -5.3% back down to 25.40, just above its 50-day average.

Trading comment: If this early rally holds, this 2-day bounce will have been a lot stronger than many expected. The S&P 500 turned lower last week at the 1069 level, so that is an area of resistance to watch.

Leading growth stocks are bouncing back, but many are still below their recent highs as well. STAR is breaking out to a new high, as is PCLN, SXCI, and CERN. If more names join this list, that will be the best indication that we may have once again seen the lows for now.


Monday, October 05, 2009

Monday Morning Musings

The market is getting a bounce this morning, after four straight losing sessions. Financials are outperforming (+2.3%) after Goldman Sachs (GS) upgraded the bank sector. Consumer staples are the only group in the red so far.

In economic news, the ISM Services Index for September came in better than expected at 50.9, which is nicely above August's reading of 48.4. The UK Times said that Britain's service sector grew at its fastest rate in 2 years during September.

Other than that, there is not a ton in the way of market moving news. There was no big M&A news over the weekend that I have seen, other than a rumor that Brocade (BRCD) could get bought by someone.

Asian markets were mostly lower overnight; the dollar is also lower, which is boosting gold prices slightly ($1003), but not helping oil much ($68.75); the 10-year yield is lower again, now down to 3.18%; and the VIX is also -4.3% lower to 27.44.

Trading comment: No trades on Friday or this morning, so far. The markets are still oversold, so I think they should bounce this week, and we are already seeing that this morning. But I suspect this latest consolidation will have a little more time to run, at least in some sort of sideways to downward fashion, although I think much of the downside risk has already been seen.

The S&P 500 has pulled back -5.5% so far, and I'm not sure we necessarily have to see a 10% pullback like many pundits are calling for. I saw a statistic over the weekend that in the last 3 post-recession recovery rallies, the Nasdaq rallied for an average of 16 months before it experienced a 10% pullback. So far, we are 7 months into this recovery rally. Just food for thought.

long GS

Friday, October 02, 2009

Will The Economy Ever Create Job Growth?

Economists missed the jobs estimates by a wide margin this morning. The nonfarm payrolls report showed the economy shed -263,000 jobs in September, far more than the consensus of -175k jobs.

This is a disappointing number for investors. We need to see the number of job losses continuing to decline. That plays into stronger consumer confidence, and strong personal spending, which is the biggest component in the GDP calculations (consumer spending accounts for nearly 70% of GDP).

On the flip side, I have said in the past that this recovery is not going to be smooth sailing. Rather, the economic data coming in will be lumpy at best. At times, it will look like the path to recovery is at our doorstep, while at other times it will appear we have taken a step back. I think today's jobs report falls into the latter category.

The news pushed the S&P 500 lower this morning, all the way down to its 50-day average near the 1020 level. It is the first test of the 50-day average since July. It also marks more than a -5% correction from its highs last week, and I am not in the camp who says we have to have a 10% correction here. So while there may be some additional downside, my guess is we have seen the worst of this decline already.

Bearish sentiment is already on the rise, quickly, as the put/call ratios have been very elevated the last few days. I would expect to see similar dislocations in the investor surveys. So my thesis is that the "stair-step" market is still alive, and I will look to use this pullback as another buying opportunity.

The dollar is moving lower now, pushing oil back to $70 and gold back above the $1000 level; the 10-year yield is hovering near 3.20% after a dip this morning all the way down to 3.10%; and the VIX is now down a touch after briefly topping the 29.50 level, an elevated level for this index.

Trading comment: Yesterday I added to a few stocks, including BIDU and GS. I aslo think STEC is very attractive at these levels, even thought the technicals are broken. In etf land, I've added a little to financials (XLF) and tech (XLK).