Monday, November 29, 2010

Monday Morning Musings

News over the weekend of a bailout for Ireland has done little to calm the markets this morning. The $113 billion bailout is also weighing on the Euro and leading to a rally in the dollar. And as we know lately, strong dollar means weak stocks.

There are also continued tensions regarding the Korean situation, but despite those Asian markets finished mixed overnight. European markets are lower this morning, and the credit default swaps on major sovereign debt continue to push higher.

Among the sector ETFs, it is a big odd that financials (XLF) are bucking the weakness and trading slightly higher on the day. I think this shows a bit too much complacency in the face of this big debt mess in Europe. Healthcare (XLV) stocks are down the most, as a group.

The early numbers for Black Friday look pretty good. So far, Amazon (AMZN) is trading higher. I heard the retail figures for Thanksgiving day were also pretty good. And today we have Cyber Monday, which I'm sure will be heavily discussed later this week.

Oil prices are slightly higher to $84.05, while gold prices are off a bit to $1361. The flight to safety into Treasuries is pushing the yield on the 10-year Note down to 2.83%. And the volatility index (VIX) is up +4.5% today to a 2-month high of 23.22.

Trading comment: I have mentioned recently that I wanted to see how sentiment shaped up to help gauge when this correction might run its course. So far, I would have to say that I think investor sentiment remains too complacent.

Last week's put/call ratios were on the low side. Additionally, the investor sentiment surveys still show a lot of bullishness. The spread between bulls and bears in the AAII survey rose to +23 last week, while the II survey still hovered at +34. And the Rydex nova/ursa ratio hit fresh highs last week.

So far the S&P 500 is roughly 4% off its early November high. But given that I still think we have room to see these sentiment indicators move lower, I don't think the markets are ready to bottom yet and resume their rally. I expect continued choppy trading, but think the market will likely touch lower levels in order to bring out more bearishness before we see a meaningful bounce. And much also depends on this situation out of Europe, as we need to see the bad news slow down.


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