Friday, January 29, 2010

Amazon Says Its Not Fazed By The iPad

The market is mixed in early trading, after a stronger than expected GDP report is offset by more profit taking, earnings announcements, worries over China, and a general shift in market psychology away from outright bullishness.

Advance Q4 GDP came in at +5.7%, much stronger than the 4.7% forecast, and well above last quarter's +2.2% growth. Normally this would have boosted the markets more, but the bears are out saying that most of it came from inventory restocking, which is not sustainable, and also that the strong growth will cause the Fed to tighten monetary policy here sooner rather than later.

What they miss is that is exactly the point. We want stronger growth, and the fact that the Fed will eventually start to raise rates is confirmation that the economy is on solid footing and has moved into a self-sustaining phase.

Many of the companies that reported earnings last night are seeing their stocks trade lower this morning (MSFT, SNDK, HON, etc.). But Amazon (AMZN) is up another 2% on its strong earnings report. Management said that they do not fear the new iPad because their Kindle is focused solely on reading, while other products have been engineered to perform a multitude of tasks. I suppose that is true for the truly avid book reader, but I think most people will prefer all of the various functions of the iPad in addition to the fact that you can use the Kindle app on it to read books.

The dollar is higher again this morning, which is weighing on commodities a bit. Gold is lower to $1079, but oil is up a bit to $74.

Among the sector ETFs, tech (XLK) is the weakest, down -0.45%, while materials (XLB) are leading, up +0.72%. Real estate (IYR) is also strong, +0.91%.

Asian markets were lower again overnight, capping off a poor week amid continued concerns over China's moves to curb lending. The 10-year yield is lower to 3.65%, and the VIX is -2.5% lower to 23.12.

Trading comment: It's never a good sign when the market can't even muster a bounce from deeply oversold levels. I still expect more of a bounce next week, and then another pullback from there. If bearish sentiment continues to grow, that second pullback could present a better buying opportunity. Right now confidence simply seems to be waning at every turn. A good jobs report in early Feb. would also help, but that might be asking for a lot.

Right now, I think the best bet is to keep some powder dry. There is always time to add to your favorite stocks when the market begins to shows signs of stabilization.

long AAPL

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