Monday, September 20, 2010

Monday Morning Musings

Despite the market advancing for the third straight week, despite the market being short-term overbought, and despite options expiration on Friday, stocks are higher again in early trading. The strength in surprising, but it seems in the absence of any bad news investors are looking to put more money to work.

There was some more M&A activity over the weekend, with IBM buying Netezza (NZ), and Safran buying L-1 Identity Solutions (ID).

The euro is getting a boost today, at the expense of the dollar, after Moody's said that the Aaa rating of the UK will withstand economic challenges. Boy, if the UK's rating is intact, it sure seems we don't need to worry about the U.S.

The lower dollar is helping boost commodities, with oil higher to $74.25, gold up again near $1275, and silver hitting a 30-month high.

Among the sector ETFs, energy (+1.17%) is strongest so far, followed by industrials (+1.10%); utilities (+0.58%) are lagging, but all of the sectors are higher so far. Among industry's homebuilders (+1.86%) are strongest after Lennar (LEN) reported better-than-expected earnings, and steel stocks (+0.04%) are lagging after a Goldman downgrade.

Asian markets were mostly flat overnight; the 10-year yield is flattish near 2.74%; and the VIX is down near 21.78.

Trading comment: I thought after the market got overbought that we would trade sideways to down while we worked off the overbought condition. So far that hasn't really been the case, as the market has essentially continued to creep higher. In the chart below, you can see the June and August highs near SPX 1131 (pink line), and the fact that today we are peaking our heads above that resistance.

I still think that we are overdue for some sort of pullback, so even thought I have not trimmed many of our positions, I am still waiting for a pullback before putting new money to work. I think if the S&P were to pull back into the low 1120s, that would be the place I would like to make my first round of buy/adds. I mentioned last week that with the market over the SPX 1115 level, we could see performance anxiety set in, and I think that is exactly what we have been seeing.


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