Thursday, April 08, 2010

Strong Retail Sales Prove Consumer Isn't Dead

The market is slightly lower in early trade, following yesterday's selloff in stocks. The one sector that is bucking the weakness is the retail sector, after a flurry of same-store sales reports that were very strong. Companies such as Macy's (M), Target (TGT), and Gap (GPS) all posted double-digit increases in comp store sales, a solid showing.

In other news, United, or UAL Corp (UAUA) and US Airways (LCC) are in merger talks.

The dollar is roughly flat, while the euro has picked up a bit after ECB President Trichet said that no information available to him suggests that Greece will default. The ECB also left their target interest rate unchanged at 1.00%, while the Bank of England left their lending rate unchanged at 0.50%.

The energy and materials sectors are lower today, with oil trading down below the $85 level, and gold down just slightly near $1150 after a big spike higher yesterday. Most commodities are lower this morning.

Financials have pared their losses, with the XLF +0.06%. Housing stocks are higher, and consumer staples (XLP) are roughly flat. On the downside, utilities are lower by -0.80% followed by energy (XLE) which is -0.71% lower.

The 10-year yield is a bit lower to 3.85%, after yesterday's 10-yr Note auction showed much stronger demand than expected. This caused bond prices to rally, and yields to plummet on an intraday basis.

The VIX is +3.5% higher today to 17.20. That is still a very low level. Its hard to believe the VIX spiked above 29 in February, but if the market starts to selloff in earnest, we know the VIX can get jumpy in a hurry.

Trading comment: I have been sounding the caution note this week, as I felt the market was a bit extended while at the same time sentiment has been growing more complacent. That is usually a recipe for a pullback, so I have been raising a little cash to get positioned. I have a post coming that shows an example of one of the sentiment indicators I follow that has been spiking higher recently, reflecting more bullishness among investors. From a contrarian standpoint, we want to be cautious when the heard becomes overly bullish, and vice verse.


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