Tuesday, December 14, 2010

Are Investors Becoming Too Complacent?

The market is up again this morning, and even though the market has looked tired several times in recent days, we continue to stairstep higher without a breather.

Asian markets were mostly higher overnight. The dollar is up a bit today, while commodities are mixed. Cotton prices were limit up this morning, oil prices are lower near $88.15, and gold prices are up a bit to $1391.

In corporate news, Best Buy (BBY) reported an earnings miss this morning and the stock is getting whacked. The company also lowered guidance for full year 2011. I thought BBY was doing pretty well, judging by how crowded the stores are, but maybe they are experiencing more competition than I thought.

The 10-year yield is higher again to 3.37%. Some people are looking at the sharp rise in bond yields as a potential headwind for stocks. So far this has not been the case, but I suspect they could be right if the pace of the rise in yields continues. As for the volatility index, it is still trading at low levels near 17.58.

Of course, the big event of the day is the Fed decision on rates today. I don't expect to hear much change from the Fed. They will keep rates low, and probably reiterate their recent plans for QE2 ($600 billion in purchases). But there is always the possibility for the market to selloff after their announcement.

Trading comment: Yesterday I commented on the growing complacency among investors. That has continued yesterday and today with the CBOE put/call ratio closing at 0.65 yesterday and opening at 0.47 today. Both of those are low readings, and speak of too much complacency in the options market. I view it as a red flag, but again, the timing of any potential impact is the difficult part. Nonetheless, I want to keep some powder dry to a pullback.

Some market leaders are beginning to rollover a little today, even though it is still early. I am keeping my eye on the likes of: FFIV, CSTR, OPEN, RVBD, PCLN, and NFLX.



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