Thursday, February 18, 2010

Is The Correction Over?

Back in the saddle after an extended President's Day weekend. The market has held up well so far after Tuesday's big rally, and has not given back any of the big gains. Volume has been running light, but the price action has been solid.

Last night we got some more solid earnings reports from the likes of Hewlett-Packard (HPQ) and Priceline (PCLN). Both stocks are higher, with PCLN up nearly 10%. This is helping boost the tech sector.

The materials sector is leading (+0.82%), with the dollar declining and commodities firm. Oil is higher near $78, while gold is trading near $1116. Although materials stocks are higher, energy stocks are lower after some disappointing earnings reports in the oil patch.

In economic news, the Philly Fed index for February came in at 17.6, which is up nicely from the 15.2 reading last month. On the inflation front, the Producer Price Index came in higher than expected at +1.4% (vs. +0.8% consensus). I am not too worried about inflation right now with as much excess capacity as we have in the economy, and labor costs continuing to fall.

Asian markets were mostly lower overnight; the 10-year yield is higher to 3.79%; and the VIX continues to move lower, falling to 21.60, right at its 50-day average.

Trading comment: Speaking of 50-day averages, the Nasdaq is breaking above its overhead 50-day as we speak, while the mid-cap (MID) and small-cap (RUT) indexes are already both above their respective 50-day averages. All three of those indexes are a bit more growth oriented that the larger S&P 500 Index, so this is a pretty good sign that the market is finding its footing.

I have written about how bearish investor sentiment became during the most recent correction. This is a good sign from a contrarian perspective, and I think even if we do get another pullback in the near future, it is likely that it will not break below the recent lows, and will eventually move back to new highs.


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