Friday, February 26, 2010

Final GDP Estimates Revised Higher

The market is pretty flat so far today, which is a bit surprising given the euro is bouncing, the dollar is lower, commodities are rising, tech is strong, and GDP was revised higher.

Q4 GDP was revised higher to +5.9%, which is above the last estimate of 5.7%. I think this is probably the highest growth rate we are going to see for awhile, but I still expect the recovery to continue at a modest pace.

There was also a solid Chicago PMI release this morning, with that manufacturing index rising to 62.6 from 61.5 last month. But existing home sales fell -7.2%, which is disappointing, although I have continually said that this data will continue to be lumpy on a month-to-month basis.

The lower dollar is boosting commodities, with oil rising to $79.75 and gold higher to $1115 so far.

Asian markets were higher overnight; the 10-year yield is a bit lower to 3.60%; and the VIX is down another -1.0% falling below the 20 level to 19.89.

Last night I went to hear Greg Valliere speak. He is the political strategist that talks about how the stuff coming out of Washington might affect the markets. Here is a quick summary of some of his comments:
  • The Fed believes inflation will stay low due to contained unit labor costs and excess slack in the economy. As such, they are likely on hold at least until later in the year and possibly 2011.
  • The 'Volcker Rule' is DOA, and likely won't be part of any financial reform. Financial stocks could actually rally if we do get some reform, simply due to the removal of the uncertainty overhang.
  • Our huge deficits will continue to be a problem, and will likely result in higher bond yields at some point.

Thursday, February 25, 2010

More Greek Concerns Washing Up On Our Shores

The market is under heavy selling pressure this morning, on news that Greece could be downgraded at S&P within a month. Greece really needs to take some strong measures towards fiscal reform, but right now they seem to pointing fingers at other nations instead.

Although Greece is small, the worry stems from the fact that if Greece gets downgraded, who is next in line? Spain? Ireland? Portugal? etc, etc.

This is causing further pressure on the Euro, and in turn supporting the dollar. Commodities are mostly lower, with oil trading down to $78 and gold slightly lower at $1095.

Economic reports here in the U.S. this morning were mixed, with durable goods rising more than expected at +3.0%, which marks an acceleration from last month. But jobless claims were a bit higher than expectations.

Asian markets were lower overnight, except for China which bucked the overall weakness for a 2nd day; the 10-year yield is lower again to 3.64%; and the VIX is spiking +7.5% today to 21.79, thought that is well of its earlier highs.

Trading comment: I mentioned that the market was still overbought, and as such any negative news usually gets amplified in terms of selling. But negative sentiment is on the rise, with the CBOE p/c ratio opening at 1.27 today, and the ISE call/put hitting a low of 71 earlier. Rising bearishness is a good sign to support my thesis that any further pullback likely will not break below the early Feb. lows, and will present a good buying opportunity.

Yesterday we added to our Visa (V) position, and I will continue to look for spots to add exposure. In terms of groups, I still like tech the most, followed by insurance stocks (KIE), med tech, healthcare and retail. I am shying away from adding to commodity exposure right now, including oil services, agribusiness, etc.

long KIE, V

Wednesday, February 24, 2010

Quote of the Day

"All you have to do is know where you're going. The answers will come to you of their own accord."
— Earl Nightingale: motivational speaker

Market Bounces, Even With Greenspan Testifying

The market is getting a nice bounce this morning after yesterday's large selloff. The S&P 500 is still trading below its overhead 50-day average, so we will have to see if this is just a one-day bounce and more work needs to be done in terms of consolidation.

It's interesting that the new home sales report was quite weak this morning, showing an -11.2% decline in January, but the market seems to be shrugging it off.

The dollar is lower today, and that is helping some commodities. Oil is firm near $80, but gold is a relative laggard and trading below $1100.

Among the sector ETFs, financials (+1.39%) and tech (+1.02%) are leading, while utilities (-0.24%) and staples (+0.30%) are lagging. Elsewhere, emerging mkt (+0.85%) etfs are strong while homebuilding stocks (-0.57%) are weak

Chairman Bernanke is testifying this morning, and basically reiterating the same message the FOMC has been saying. That is, the job market is still weak, but showing less deterioration. Also, the FOMC continues to anticipate a moderate pace of recovery with inflation expected to remain subdued.

Asian markets were lower overnight, except China which bounced +1.3%; the 10-year yield is slightly lower at 3.67%; and the VIX is -3.28% lower to 20.68.

Trading comment: The market is still overbought, and needs more time to consolidate. That said, I still think the downside is limited after the recent pullback, and am looking for spots to put cash to work and add exposure. To reiterate, I am interested in stocks that reported strong earnings last quarter and have held up well during the correction. Some names on my list include Visa (V), Apple (AAPL), Research In Motion (RIMM), IBM, and Ford (F) to name a few.

long AAPL, IBM, F, RIMM, V

Tuesday, February 23, 2010

Quote of the Day

"Let others lead small lives, but not you. Let others argue over small things, but not you. Let others cry over small hurts, but not you. Let others leave their future in someone else's hands, but not you."
Jim Rohn: personal development author and speaker

Consumer Confidence Takes A Large Hit

The market was trading roughly flat before it got run over by a weak consumer confidence report. The February Consumer Confidence index fell sharply to 46.0 (vs. 55.0 consensus), which is the lowest reading since April 2009. I guess no one is feeling better despite the barrage of proposals from the President that are suppose to improve our lives, right?

Seperately, the Case-Shiller Home Price Index for December came in in-line at 145.9, with the 20-city composite showing a -3.1% yr/yr decline. This is a continued moderation, as last month the decline was -5.3%, so on this margin this trend continues to improve.

There has also been a flurry of retailers reporting earnings this morning, and many of them were good. But the retail etf (XRT) is still trading -1.1% lower this morning.

The dollar is trading higher today, which is weighing on commodities. Oil is lower to $78.66, while gold has traded down to $1105.

Asian markets were mixed overnight; the 10-year yield is lower to 3.73%; and the VIX is +6.3% higher to a still low 21.20.

Trading comment: I think the market was primed for a pullback, as I showed yesterday how overbought it had become in the short-term. But I think this pullback will be more shallow than the one that began in mid-January, and I will be looking for spots to put cash to work on any further decline.

I said I would look to some of the stocks that have held up the best during the recent correction. A reader asked me to name some names, so here are a few examples:


Monday, February 22, 2010

Monday Morning Musings

The market is slightly weaker in early trading, after Obama made comments about further health care reform proposals. There are also new regulations about credit cards, which I have previously posted on the site.

The dollar is firm today, which is weighing on commodity prices. Oil is trading near $79.90, while gold is weaker at $1115. In the energy complex, Schlumberger (SLB) announced a stock-for-stock merger with Smith International (SII), valuing the latter at a 22% premium. SLB is down -5.6% on the news.

Among the sector ETFs, financials (+0.73%) are leading, while energy (-1.52%) is the big laggard. Also, real estate (+0.30%) is firm, while gold miners (-1.45%) are weak.

Asian markets rose overnight, after China's bank regulator called on banks to prudently manage their lending.

The 10-year yield is up slightly to 3.79%; and the VIX is up +2% to 20.50.

Trading comment: After a very solid last week, the market is now firmly overbought. The chart below shows the oscillator for the Nasdaq at its highest level since last fall. This usually makes it a risky time for making new buys. I raised a little cash last week, and will look for a pullback before putting new money to work. Overall, I still think investor sentiment is sufficiently bearish that any pullback will be contained, and not break below the early Feb. lows.

Friday, February 19, 2010

Inflation Falls The Most Since 1982

My post is a little late this am, as I was glued to that train wreck known as Tiger Woods' press conference. But I digress-- The market is acting pretty resilient this morning in the face of the surprise interest rate hike by the Fed. The Fed announced last night that it was hiking the discount rate by 25 bps to 0.75%.

The move seems mostly symbolic, and the Fed made sure to say that it was not a signal for any change in monetary policy towards a tighter stance. Rather, it seems more of an indication that the financial system is on more stable ground. But I don't think it speeds up the time table for the Fed to raise the fed funds rate. I still think they are on hold all year.

The market reacted negatively to the news last night, with the futures dropping quickly. Asian markets also reacted negatively to the news, and were lower across the board. The dollar soared on the news, hitting 8-month highs, and weighing on commodity prices. But by this morning, the news had time to be digested, and while the market was slightly lower earlier, it has since climbed back into positive territory.

This morning's inflation report also helped improve sentiment. The core CPI actually fell -0.1% in January, marking the first time consumer prices have dropped like this since December 1982. Wasn't that the start of a new bull market? I have said for a while now that inflation should remain subdued with all of the excess capacity in the economy. I think the inflation hawks only seem to be looking at the few prices out there that are rising (i.e.- healthcare).

Trading comment: The market acts well so far, and sentiment is still heavily on the bearish side. So despite the market moving back to overbought, I think it should hang in here well.

Thursday, February 18, 2010

Is The Correction Over?

Back in the saddle after an extended President's Day weekend. The market has held up well so far after Tuesday's big rally, and has not given back any of the big gains. Volume has been running light, but the price action has been solid.

Last night we got some more solid earnings reports from the likes of Hewlett-Packard (HPQ) and Priceline (PCLN). Both stocks are higher, with PCLN up nearly 10%. This is helping boost the tech sector.

The materials sector is leading (+0.82%), with the dollar declining and commodities firm. Oil is higher near $78, while gold is trading near $1116. Although materials stocks are higher, energy stocks are lower after some disappointing earnings reports in the oil patch.

In economic news, the Philly Fed index for February came in at 17.6, which is up nicely from the 15.2 reading last month. On the inflation front, the Producer Price Index came in higher than expected at +1.4% (vs. +0.8% consensus). I am not too worried about inflation right now with as much excess capacity as we have in the economy, and labor costs continuing to fall.

Asian markets were mostly lower overnight; the 10-year yield is higher to 3.79%; and the VIX continues to move lower, falling to 21.60, right at its 50-day average.

Trading comment: Speaking of 50-day averages, the Nasdaq is breaking above its overhead 50-day as we speak, while the mid-cap (MID) and small-cap (RUT) indexes are already both above their respective 50-day averages. All three of those indexes are a bit more growth oriented that the larger S&P 500 Index, so this is a pretty good sign that the market is finding its footing.

I have written about how bearish investor sentiment became during the most recent correction. This is a good sign from a contrarian perspective, and I think even if we do get another pullback in the near future, it is likely that it will not break below the recent lows, and will eventually move back to new highs.

Friday, February 12, 2010

America Not Listed In 'Top 10 Cities To Live'

I was surprised to see that not one city in America was listed in the Economist's annual survey of the Top 10 'most liveable cities' in the world. What was interesting, was that Australia had 4 cities make the top 10.

Here is a copy of the article:

SYDNEY (Reuters Life!) – Vancouver has again topped a list of the top 10 most liveable cities in the world, giving the Canadian west coast city an extra boost as it opens the 2010 Winter Olympics.

In the annual survey by the Economist Intelligence Unit, Vancouver scored 98 percent on a combination of stability, health care, culture and environment, education, and infrastructure -- a score unchanged from last year.

The city has also topped the index since at least 2007.

In the 2010 ranking, there was little change in the top positions with Vienna, Melbourne and Toronto still taking the second, third and fourth positions and the top 10 dominated by Canadian and Australian cities which took seven of the 10 slots.

Johannesburg, which is hosting the soccer World Cup finals in June, came in 92nd place, the highest score in sub-Saharan Africa.

"Vancouver scores well across all categories in the survey and the forthcoming Winter Games contribute to a strong score in the cultural and sporting events category," said Jon Copestake, editor of the report, in a statement.

"Johannesburg has had well-documented crime problems, but performs better in other categories, with the highest overall livability rating in sub-Saharan Africa."

The Economist Intelligence Unit survey ranked 140 cities on 30 factors such as healthcare, culture and environment, and education and personal safety, using research involving resident experts and its own analysts.

It said in a statement that these rankings were used by employers assigning hardship allowances as part of expatriate relocation packages.

New York was ranked 56th, two slots behind London which was at number 54, while Los Angeles ranked at number 47.

Zimbabwe's capital Harare scored the least, making it the list's worst city, with a rating of 37.5.
Following is a list of the top 10 most liveable cities as ranked by The Economist:

1. Vancouver, Canada
2. Vienna, Austria
3. Melbourne, Australia
4. Toronto, Canada
5. Calgary, Canada
6. Helsinki, Finland
7. Sydney, Australia
8. Perth, Australia
9. Adelaide, Australia
10. Auckland, New Zealand

The bottom 10 cities were:

1. Harare, Zimbabwe
2. Dhaka , Bangladesh
3. Algiers , Algeria
4. Port Moresby, Papua New Guinea
5. Lagos, Nigeria
6. Karachi, Pakistan
7. Douala, Cameroon
8. Kathmandu, Nepal
9. Colombo, Sri Lanka
10. Dakar, Senegal

China Taps The Brakes Again

The markets are lower in early trading, showing that this market really has no memory from day to day. Yesterday's session turned out to be quite good, but that mood hardly lasted into today's session.

I think the biggest driver of sentiment today was the news that China's central bank will raise reserve requirements at banks for the second time this year. This comes on the heels of reports that China's banks issued stronger than forecast loan volume in January. With China being a main driver in the global economic recovery, monetary tightening from their central bank is a de facto tightening of our monetary policy as well. Or at least it has the same effect.

There was also a report out of Europe that GDP in the eurozone in Q4 grew less than expected. This, coupled with further talks of monetary aid to Greece, continues to pressure the euro and boost the dollar. While a firm dollar is good longer-term, in the short-term, it pressures commodity prices, weighs on energy and material stocks, and dampens growth for commodity-based emerging market economies.

The above reports are overshadowing news in the U.S. that retail sales grew more than expected, rising +0.5% in January.

Asian markets were mostly higher overnight; the 10-year yield is lower to 3.67%; and the VIX is +3.5% higher to 24.81 after a sharp move lower yesterday.

Trading comment: Well, after yesterday's rally we are no longer in oversold territory. That doesn't mean we can't rally further, just that we don't have the same tailwind behind us. The S&P 500 needs to close above 1166 to eke out a positive week, while the Nasdaq 100 is poised to put in its second consecutive positive week (+1.2%).

I continue to see more indications that bearish sentiment is reaching extreme levels, those that have been associated with past trading bottoms. As such, I think the time to sell and raise cash has passed, and the opportunity now is to look to add exposure on further weakness. With sentiment this negative, any catalyst could spark a nice rally, and I want to have my buy list ready. I would look to those names that have held up the best during the correction, as well as those that reported the strongest earnings in the latest quarter.

Thursday, February 11, 2010

Euro Tanks On Potential Greece Bailout

The market is lower this morning, mostly on what looks like a strong dollar and weak financials. Commodities look firm, even in the face of the dollar's rise.

There have been reports out this morning that the European Union has reached a deal that will provide financial aid to Greece, although no details have been provided. The news is causing significant weakness in the Euro, and strength in the dollar, due to speculation that any aid to Greece will cause Spain, Portugal, Ireland, etc. to get in line for their handout next.

In economic news, jobless claims came in below expectations, while continuing claims hit their lowest level since December 2008. So that is a bit of good news.

Asian markets were higher overnight. One report showed an unexpected slowdown in China's consumer inflation during January.

Oil is flattish near $74.50, while gold is bucking the dollar strength and rising to $1079.

The 10-year yield is higher to 3.72%, and the VIX is flat at 25.40.

Trading comment: The market has not been able to realize the lift that I had been expecting for this week, coming off that oversold reading. We still have a few more days to see what happens, but unfortunately, the market seems to be moving away from that oversold condition without any upside progress. Sometimes just consolidating sideways can relieve and oversold (or overbought) condition.

Away from the technicals, bearish sentiment has really been on the rise lately, and that could be a more important factor at some point. Most of the sentiment indicators I follow have moved back to the bearish levels that helped the market bottom last July and October. I think what we really need is some catalyst, now that corporate earnings season is essentially over. I'm just not sure what that potential catalyst is at the moment.

Wednesday, February 10, 2010

Personal Finance: Coming Credit Card Changes

Since everyone out there uses credit cards, I thought it would be worthwhile to post this article I read about some of the upcoming changes to credit card laws, and some tips:

5 Moves to Make Ahead of the New Credit Card Law

With new regulations starting in less than a month, you may need to take stock of your credit card portfolio to determine which cards' terms are changing to your benefit and which feature changes that can hit you in the wallet.

The most important thing to do, says Lauren Bowne, staff attorney at San Francisco-based Consumers Union, is be aware of your card terms. So much has changed in recent months that consumers need to pay attention to what is and isn't featured in the credit card.

"Even if you're the person who pays off your balance and doesn't even have any credit card debt," says Bowne. "They might get a notice that says they're getting a $100 annual fee. Even people with stellar credit and stellar credit payment histories need to pay attention."

Here are five smart credit card moves to make before Feb. 22:

1. Consider waiting to get new credit cards until after Feb. 22 because new accounts are protected from interest rate increases for the first year. As issuers compete for new customers in the new reform law landscape, there may be good deals and offers for people with good credit.

2. For existing accounts, consider doing a balance transfer from higher interest rate cards to accounts with lower APRs. Some issuers are offering good customers balance transfers of at least a year. Remember that there is a cost of 3 percent or 4 percent of the amount transferred, so weigh that decision carefully. Also, take note of what the new interest rate will be AFTER the promotional period ends. If it's higher than the rate on the old card or only a few points lower, it may not be worth it to switch.

3. Have a Plan B backup card or two. Issuers can still lower your credit limit and close your account without advance notice. Make sure you have more than one card as a backup in case this happens to you and you need a credit card for emergencies.

4. Charge a small amount on those other cards every other month and pay it off in full when the bill comes. This avoids any dormancy fee that may be assessed and may prevent the company from closing the account for inactivity. Some issuers require a minimum amount of charging to avoid inactivity fees, so check your terms.

5. Young adults' access to credit will be restricted by the new law. For college students or anyone under 21 who is responsible with credit, the best move could be to get a credit card now while you still can on your own. After Feb. 22, you will have to get an adult (over 21) co-signer and may be asked to show proof you have the ability to pay.

Some Advice Doesn't Change

In addition to the moves to make before the law takes effect, good credit card habits remain important, some of them even more so.

Don't go overboard. Making too many changes within a short period -- as in opening or closing several accounts at once -- can hurt your credit score. If you're closing or adding new accounts and about to apply for a loan, it may be better to keep the cards you currently have -- even if the terms are worse. Closing an account that you've had for a long time can negatively impact the portion of your credit score related to credit utilization ratio.

Pay your bills on time. Even though the credit card law gives you a 60-day window for late payments before banks can impose penalty interest rates on existing balances, payments not received by the due date will show up as bad marks on your credit report.

Pay more than the minimum amount due. It will help you pay your credit card debt off faster. The new law mandates that your billing statement include a prominent notice of how long it will take you to pay off your debt. For many, that could be a wake-up call.

If you're having trouble paying your bills, get help from an accredited nonprofit credit counselor. Your monthly credit card statement will feature a toll-free number to call for help. The credit card reform law requires that issuers prominently display a toll-free number that consumers can call to get the names of at least three consumer credit counseling agencies that have been approved by the U.S. bankruptcy courts for credit and debt management counseling.

Stay on top of your mail. The new law requires that credit card issuers notify you of changes to your account. That means you can't leave that mail unopened on the table for a week. Some changes are likely to have deadlines and time elements that can hurt you financially if you don't act quickly.

Bowne, from the consumer group, recommends consumers create a list of their credit card accounts that includes key terms (i.e., the interest rates for purchases, balance transfers and cash advances, fees, due dates and grace period). She recommends marking your calendar to remind yourself when promotional rates end so that you can be sure to pay off the balance before higher interest rates begin on those accounts.

"It requires a lot of organization and a lot of time," Bowne says. "The more credit cards you have, the more things you've got to juggle and the more things you've got to know."
She adds: "At least now, luckily, your credit card due date will be on the same day each month."

Quote of the Day

"You must accept that you might fail; then, if you do your best and still don't win, at least you can be satisfied that you've tried. If you don't accept failure as a possibility, you don't set high goals, you don't branch out, you don't try – you don't take the risk."

Rosalynn Carter: Former First Lady and author.

Tuesday, February 09, 2010

Is Greece Getting A Lifeline?

The market is getting a nice boost this morning on improved sentiment over the situation in Greece. There are rumors that the EU might throw Greece a bone, and that is helping the euro rally. Of course, the flip-side is that the EU could be going down a slippery slope if they decide to do this, because Spain, Portugal, Ireland, etc. would be the first to get in line.

The strong euro is coming at the expense of the dollar, which is boosting commodity prices. Oil is higher, trading above $73.10, while gold has bounced back to the $1075 level.

Among the sector ETFs, energy and materials are leading the way, while financials and real estate are lagging, especially real estate (-0.96%). The Dow is sitting right at 10,000, which is really just a psychological hurdle that investors will keep an eye on.

One of the things that is weighing on the financial sector is the news that Standard & Poor's has lowered their outlooks for Citi (C) and BofA (BAC) to negative from stable.

Asian markets were mostly higher overnight; the 10-year yield is flattish near 3.59%; and the VIX is a tad lower to 26.38.

Trading comment: Yesterday's action was a bit disappointing, but volume was rather light. This morning's rally looks promising, but I am always skeptical of a market that is too strong right out of the gate. I would prefer the rally to build into the close. But let's give it the benefit of the doubt. We need to see a nice rally on rising volume to signal a change to the short-term trend in the market.

I have yet to put any cash to work, but may dip my toes in the market if today's closes strong. The market is still oversold, and due for at least a short-term bounce.

long BAC

Monday, February 08, 2010

Monday Morning Musings

The markets opened on a weak note, but have since rallied back into positive territory. There has not been a lot of market moving news this morning, and just a few earnings reports trickling in.

The dollar is weak this morning, which is helping boost commodity prices. Gold is rising back above $1070, and oil is trading near $71.50.

Among the sector ETFs, energy is leading the way (+0.80%), followed by tech (+0.62%). Utilities and financials (-0.11%) are lagging so far. Among subsectors, homebuilders are rallying +2.86% and oil drillers are up +1.18%.

The 10-year yield is higher to 3.60%, and the VIX is falling back down -2.1% to 25.57 after rallying over 29 on Friday but reversing lower in the final hour of trading.

Trading comment: The market is still pretty oversold, and I like stocks here for an oversold rally. I think we should get a nice bounce this week, but I like em just for a trade. As I said to watch for, sentiment has been approaching some very bearish levels. To wit, the CBOE put/call ratio hit 1.21 on Friday, a high level. Bears in the AAII survey have climbed to 43% (and 29% bulls), and the Rydex Ursa/Nova ratio plummeted to .514 last week, as market timers rushed into bear mutual funds.

I would not be surprised to see us bounce in here for a little while, and then experience another pullback thereafter. I think there is a good chance that second pullback does not make a lower low, and I am in the minority in that camp. That would offer a good buying opportunity heading into Spring.

Friday, February 05, 2010

Bears Fail To Knock The Market Lower

I'm glad that I waited until the close to post today's market commentary. If I had written it earlier, I likely would have talked about the market being down again, and the fears of sovereign debt in Europe overshadowing everything else.

But a funny thing happened on the way to the bears' happy hour today, they failed to keep the market lower, and we saw a strong rally into the close. For those who have never traded from the short side, it is hard to put yourself in the bear's mindset. But trust me, they have a big agenda to push things lower and pad their returns.

Take the credit default swap (CDS) market for example. This market is relatively easy to manipulate, and make prices spike higher. This looks like what has been going on with the Greece and Portugal CDS, and it has caused investors around the globe to panic. The same playbook was used in 2008 against Lehman, Merrill, AIG, etc, with great success. So why not trot it out again?

I'm not saying we should shrug off the debt concerns of developed nations, but just that we shouldn't overreact to what could amount to a temporary and induced markup in CDS securities.

When the bears couldn't keep the market down today, shorts started to cover and buyers piled on to cause a sharp snapback rally. Given that the market remains very oversold, bearish sentiment has risen markedly, and the market has been down for 4 straight weeks, I expect the markets to bounce next week.

In economic news, although nonfarm payrolls fell by more than expected (-20k vs. +15k consensus), I think the fact that the unemployment rate ticked down to 9.7% should make for pleasing headlines in the newspapers.

Overall, I see a relief rally developing, which you might be able to play for a trade. Most people still expect the market to dip again and make lower lows, but I am beginning to think that our next trip lower might not break today's lows, and that would be a bullish development. Patience.

Thanks for reading, and have a great weekend--

Quote of the Day

"Genuine leadership comes from the quality of your vision and your ability to spark others to extraordinary performance."

— Jack Welch: Former General Electric chairman and CEO.

Thursday, February 04, 2010

Quote of the Day

Make it a point to do something every day that you don’t want to do. This is the golden rule for acquiring the habit of doing your duty without pain.
-- Mark Twain

European Woes Catch Up With The Market

Yesterday, a colleague and I were talking about the sharp rise in credit default swaps (CDS) in Europe, specifically Greece and Spain. I noted that it didn't seem to be hitting our markets yet, but likely would at some point. Well, it seems that point is today, as the worries over sovereign debt are overshadowing positive earnings reports from the likes of Visa (V) and Cisco (CSCO), as well as some solid same-store sales reports among retailers.

The weakness in Europe is boosting the dollar to a five-month high, and further pressuring commodities. Oil is lower near $75, while gold is really tumbling below $1080.

Among the sector ETFs, all 10 are lower, led by energy (-2.9%) and financials (-2.6%), as well as industries like gold miners (-4.7%), steel (-4.75%), and agribusiness (-3.0%). Emerging markets are also weak (-3.25%).

In economic news, factory orders were solid (+1.0%) for December, but initial jobless claims for the week came in a little higher than expected.

European stocks are obviously lower, despite the ECB and Bank of England holding interest rates steady. Asian markets were also lower.

The 10-year yield is lower to 3.63%, and the VIX is spiking +13.3% higher to 24.50.

Trading comment: I have been saying to keep some powder dry, and today's action validates that thesis. I would make notes of those companies that have reported strong earnings but whose stocks have not benefited. I think when the market stabilizes, those stocks will be good bounce candidates.

In the meantime, we will need to continue to monitor things we didn't use to have to worry about, like the possibility of European nations falling further into debt trouble, as well as Dubai which was never really resolved. I would expect bearish sentiment to continue to rise in this environment, which from a contrarian standpoint is a precursor to a market bottom.

long V, MOO

Wednesday, February 03, 2010

Services Sector Ends Contraction Streak

The ISM services index ended its two month contraction cycle as the index increased from 49.8 in December to 50.5 in January. This reading was basically in-line with the consensus of 51.0. Also, the ADP Employment Report showed fewer job losses in the private sector (-22,000) than forecast. Hopefully this will translate into a better payrolls report on Friday.

More earnings reports are rolling in, with mixed reactions. Stocks like Netlogic (NETL) are surging, while insurers like MetLife (MET) and Aflac (AFL) are mixed. Both of them topped expectations, but MET is lower while AFL is higher.

The dollar is trading higher today, but commodities are hanging in. Oil is above the $77 level, while gold is roughly flat near $1115. Asian markets rallied overnight, with China bouncing +2.4%.

The 10-year yield is higher to 3.67%, and the VIX is a bit higher to 21.75, as it bounces from its 50-day average.

Trading comment: The bounce over the last 2 days has been nice, but it has come on relatively light volume which means there was not a lot of institutional conviction behind it. Today, large-cap tech is outperforming for the first time in awhile, which is nice to see. Hopefully this will become a trend.

We need to see the broad markets begin to stabilize, and for recent market leaders that are in the midst of corrections begin to form solid bases from which to launch new rallies. I am still holding cash until I see more concrete signs of the above.

Forbes' Quote of the Day

What counts in any system is the intelligence, self-control, conscience and energy of the individual.
-- Cyrus Eaton

Tuesday, February 02, 2010

Homebuilders Rally After Strong Earnings Report

The market is getting a nice lift in early trading, after opening relatively flat. Homebuilders are the leading sector so far after strong earnings reported by DR Horton (DHI) and an in-line pending home sales (+1.0%) report.

There were several other solid earnings reports this morning, and some of the stocks are getting nice bounces out of it: Emerson (EMR), Ann Taylor (ANN), and Whirlpool (WHR). Overall, corporate profits have been solid this quarter, but they have not been the catalyst for stock prices that many had hoped.

The dollar is lower today, which is boosting commodity prices. Oil is higher to $75.75 and gold has rallied back to the $1115 level. Nonetheless, the materials sector (XLB) is lagging. Industrials (XLI) are the leading sector this morning (+0.95%), followed by tech (+0.94%).

Asian markets rose overnight, led by Australia (+1.8%) after its central bank surprised markets and held their benchmark interest rate steady at 3.75%. China continued to struggle after ICBC reported new loans in January were lower vs. year-ago levels.

The 10-year yield is lower to 3.64%, and the VIX is another -3.4% lower to 21.83.

Later today, Paul Volker will testify on proposed banking regulations. He will say that proprietary trading and speculative activities at commercial banks should not be protected by the government and that restrictions should be placed on those activities. This information is well know, but I would not be surprised to see the market weaken when his testimony is televised.

Trading comment: The market is getting that oversold lift we talked about, and approaching the SPX 1100 level. This is more just a psychological level, while 1110-1120 will act as more significant resistance, if and when.

I have made a few small trades, but nothing big. I would look to raise a little cash on a further lift in the market to be in better shape for another pullback.

long EWA, GLD

Monday, February 01, 2010

Monday Morning Musings: Solid ISM Report Points To Strong Economic Growth

The market is getting a nice bounce in early trading, on the heels of a strong economic report and a general oversold condition.

The ISM Manufacturing Index rose to 58.4 in January, above estimates and well above last month's 55.9 reading. This marks the highest index level since 2004, and correlates to very strong GDP growth.

The dollar is weaker this morning, and that is helping boost commodities. Oil is higher near $73.80, and gold is nearing the $1100 level (currently $1097). A weaker dollar, and a solid earnings report from Exxon (XOM) are helping boost the energy and materials sectors, which are the two leading sectors so far today. Real estate and financials are also solid, while utilities and healthcare are lagging so far.

The strong manufacturing data was matched in the UK, where its manufacturing index hit a 15-year high. This helped boost European bourses this morning, but Asian markets closed mostly lower again amid continued concerns about further loan restrictions in China.

The 10-year yield is higher to 3.65%, and the VIX is -6.6% lower to 22.98.

Trading comment: This looks like the start of that oversold rally that I wrote about last week. The markets became very stretched on the downside, and some relief in the form of a rally certainly seems likely. The sentiment indicators have come off their recent highly bullish levels, and are beginning to show signs of rising bearishness. I still think the most likely scenario is for the markets to rally back to resistance (maybe SPX 1100-1120), and then for us to see another pullback.

That is the game plan I'm working with at the moment, and while I am looking for good buys here, they will likely be earmarked as trades rather than investments, as I still want to have dry powder in case we get another pullback.