Wednesday, November 10, 2010

Is This More Than Just Another 2-Day Pullback?

The market is lower in early trading, after a reversal yesterday that saw stocks give back their early gains and finished in the red. Volume rose on the exchanges yesterday, making for a distribution day that we haven't seen in some weeks.

The big questions is whether this is just another 2-3 day pullback, or the start of something bigger? It's hard to say, but I still think there are too many buyers out there who are anxious to buy the dip and try to book additional gains into year end. So while we could see some consolidation that lasts for a bit, I don't see the conditions that would point to a larger slide.

Financials are holding up the best so far, with many bank stocks on my screen bucking the weakness (C, BAC, JPM, V). Materials stocks are down the most so far, after a big run in recent days. REITs (IYR) are also bucking the weakness, up 1% so far after yesterday's shellacking.

Asian markets were mixed overnight, while Europe is lower this morning. Wider yield spreads on some Euro nations (Ireland, Portugal, Spain) points to continued concern about sovereign debt, which may be a topic for the G-20 which starts tomorrow.

The pressure on the euro is boosting the dollar, and weighing on commodities. Gold prices have fallen back to $1392, while oil is back near $86.68.

Jobless claims fell 24,000 last week, which was better than expected. The economic news flow remains relatively light.

There was also a somewhat weak 10-year Treasury bond auction yesterday that caused a big spike higher in yields. The 10-year yield is higher again today, now up to 2.72%. Today we will see how the 30-year auction goes.

The VIX is up +2.6%, but still only back to modest levels at 19.60.

Trading comment: Given that the market has not had much of any pullbacks recently, I will likely look to do at least a little bit of buying today. My goal will be to look for those stocks that had strong positive reactions to earnings, and have pulled back since. Those are the best candidates for further rallies into year end after they get some rest. So big picture I am just looking for a pause that refreshes.

long BAC, V


Post a Comment

<< Home