Tuesday, November 30, 2010

Sovereign Debt Concerns Continue To Dominate The Action

The market rebounded nicely from its lows yesterday, but sellers are back this morning amid continued concerns about sovereign debt in Europe. The concerns have led to continued selling in the euro, and buying in the dollar.

The flight to safety trade is on, with the dollar higher, gold prices higher ($1383), and Treasury bonds higher also. At the same time, global equities and commodities are lower.

Asian markets were down across the board overnight, amid ongoing speculation about tighter monetary policy in China.

There was some good economic news in the form of a higher than expected Consumer Confidence reading this morning. Consumer Confidence for November rose to 54.1 from 49.9 the prior month.

Oil prices are lower, but still above $85 after yesterday's rally; the 10-year yield has fallen back to 2.77%; and the volatility index (VIX) is up +5% to 22.67 after a big reversal yesterday from its intraday highs.

Trading comment: The market continues to bend, but not break. The chart of the S&P 500 below shows that the market has been finding support at its 50-day average (blue line). Reversing from its lows yesterday to rally into the close was also bullish action.

So far the SPX remains 3-4% off its early November highs, so this correction has been mild in magnitude and is approaching its 4th week in duration. I said before that I wanted to see bearish sentiment surface, and the put/call ratios have begun to confirm that. The CBOE put/call ratio hit 0.98 yesterday and 0.96 this morning, while the ISEE call/put sank to 87 yesterday and 78 this morning. So that is a start. It will be interesting to see if the investment advisor sentiment surveys change much this week.


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