Monday, January 25, 2010

Monday Morning Musings: Gearing Up For Apple

The markets are getting a nice bounce in early trading, after last week's sharp selloff. This week is also a very busy week for earnings announcement, so expect a lot of news reports and a lot of exaggerated stock reactions to earnings.

Tonight we will hear from Apple (AAPL), who I expect should report a very strong quarter. Some are saying that tonight's earnings don't matter as much as Wednesday's event where the company is expected to announce the much anticipated "tablet" device, but I beg to differ-- tonight's earnings will be market moving.

The dollar is roughly flat this morning, but commodities are getting a lift. Oil prices are up slightly near $74.80 and gold is bouncing to the $1097 level. AK Steel (AKS) reported better-than-expected earnings, and is helping boost materials stocks.

The market remains a bit jittery over the prospect of whether or not Bernanke will get confirmed. It looked a little dicey last week, but I think in the end he will get confirmed. I am surprised how much dissension there is on his confirmation, as I am in the camp that views him as being primarily responsible for helping our country avoid another depression. The last thing I want to see is Congress having more influence on the Fed and monetary policy.

Existing home sales took some of the wind out of the market's sail, falling -16.7% in December after the first-time homebuyer credit expired. The IYR (real estate) etf is flat right now.

Asian markets were mostly lower overnight; the dollar is roughly flat; the 10-year yield is up a bit to 3.61%; and the VIX is falling -6.8% to 25.45 after a record 2-day rise at the end of last week.

Trading comment: The sharp 2-day spike higher in the VIX last week, coupled with rises in most of the investor sentiment indicators shows that complacency quickly dipped last week as fear re-entered the investment equation. This is a necessary ingredient for a market bottom, but that doesn't happen overnight. My best guess at this point is that the market will likely bounce, and then come down again, which will further increase bearish sentiment. That second dip down should offer a better buying opportunity for investors than right now, even as short-term trading opportunities may come sooner.

long AAPL


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