Friday, May 28, 2010

TGIF: Trading Expected To Be Light Ahead of Holiday Weekend

The market help up very nicely yesterday, and even built on its gains right into the close. Regardless, it has been a very rough month for the stock market, and traders are likely happy to shut it down early today and get a start on the long holiday weekend.

There were no big headlines this morning out of Europe, which is nice. There were some economic releases here in the States. To wit, personal income rose +0.4% (in-line), while personal spending was flat, coming in below estimates. The savings rate jumped from 3.1% to 3.6%, as it appears consumers reigned in their spending.

While this is good for those individuals, who may be repairing their personal balance sheets, it doesn't help the economic rebound, which seems to be losing speed of late. The ECRI weekly index has been hinting at this slowdown for a while, and it looks like it is materializing now.
Asian markets rose nicely overnight, and Europe is positive this morning; the 10-year yield is flattish around 3.33%; and the VIX is below the 30 level for a second day.
Trading comment: Yesterday was a nice rally, and we used the strength to do a little selling. At this point, while the market could continue to bounce, it looks like the leadership in the market is narrowing. So my strategy will be to focus on those stocks that continue to lead the market, and pare back those positions that look like they are beginning to struggle.
The S&P 500 is sitting right below its 200-day moving average (see below), which as I have said should act as resistance on the first push higher. I would expect the market to pullback a bit from here, but then to successfully push through resistance. That is the bullish scenario for an oversold market coupled with highly bearish sentiment.
But if this market truly is not ready to rally, we will know it by the inability to recapture this key moving average. In the meantime, enjoy the long weekend--

Thursday, May 27, 2010

Chinese Comments Boost Euro and US Markets

Yesterday the market was sharply higher in early trading, and I said I don't like to see the market too strong, too early. Sure enough, by the close the entire rally had faded and the market actually closed down for the day.

This morning, the markets are sharply higher once again in the first hour. Let's just hope we don't have a repeat performance of yesterday's late fade.

The big catalyst this morning is comments out of China that they have denied that they are reviewing their European debt holdings. Yesterday's late day weakness was attributed to a story that China was "looking" at its European debt holdings, and that caused the euro to tank.

The news is boosting the euro, which in turn is weighing on the dollar. Nonetheless, oil is higher again, nearing $73.50, while gold is steady around $1212.

All 10 S&P sectors are higher, led by energy and financials. Real estate is strong also (IYR), and emerging mkt etfs are getting a nice boost.

The second estimate for Q1 GDP showed the economy's growth rate moderating from the initial estimate of 3.2% to 3.0% this time.

Asian markets were higher overnight; the 10-year yield has bounced all the way back to 3.34%; and the VIX is back down to the 30 level. Let's hope it doesn't reverse higher again.

Trading comment: The VIX is down -13% today, a good sign. And the euro is higher. If the euro can stabilize here, it should leave the window open for stocks to continue to work higher. The recent extreme readings in the put/call ratio often coincide with at least a trading bottom. But I will continue to look to make partial sales on strong days to maintain flexibility.

Wednesday, May 26, 2010

Volatility Index Dips Back Below 30

The market is nicely higher in early trading, following yesterday's late day strength. Of course, readers know that I am always skeptical of a market that is too strong, too early. That leaves too much time for the rally to fade. And it is how the market closes that is most important.

There were some solid economic reports this morning. Durable goods orders for April rose +2.9%, above estimates. And orders for the prior month (excluding transportation) were revised higher to +4.8%, the strongest climb since August 2005.

New home sales also rose more than expected in May, likely aided by the looming expiration of the new homebuyer tax credit. Nonetheless, new home sales hit their highest level since May 2008.

Last, the OECD raised its GDP forecast for 2010 and 2011, but indicated that volatile sovereign debt markets bring risk to their forecast.

The dollar is rising again vs. the euro, but that is not stopping commodities from bouncing. Oil is 3.5% higher to $71.15, while gold is up slightly near $1200.

Asian markets rose slightly overnight, while Europe was up nicely this morning; the 10-year yield is bouncing to 3.22%; and the VIX is down -7% to 32.25.

Trading comment: The markets are still very oversold, and sentiment in the options market is pointing to a trading bottom. The 10-day CBOE put/call and ISEE ratios are now at levels that haven't been seen in over 2 years. This combination should allow the markets to continue to lift, although we need a reprieve from the bad news coming out of Europe.

One of the most positive things I saw today was the VIX dropping all the way down below the 30 level. It has since bounced back above 32, but if it can get back below 30 it would provide a much more benign backdrop for stocks to work higher.

long GLD

Tuesday, May 25, 2010

Investors Continue To Pare Back Risk

After a late day selloff yesterday, the market has opened sharply lower today. The S&P 500 briefly broke below February's lows, a negative technical signal, but it has since rebounded and the major indexes seem to have stabilized for the time being down -2%.

The concerns continue to emanate mostly from Europe, where debt problems and banking concerns are rehashing scary memories from 2008. I would note that here in the U.S., the problems are much different than in 2008, as we have done a better job shoring up our banking system.

Tensions are also rising in Asia after news that the ship that was sunk in S. Korea may have come at the hands of N. Korea, which continues to make aggressive comments. This helped push Asian markets lower overnight, with Hong Kong and Japan both down more than 3%.

The news from abroad is trumping any positive economic data here in the U.S., including an in-line CaseShiller Home Price report (143.4 vs. 144.1 consensus), and the best Consumer Confidence reading we have seen since March 2008. May consumer confidence rose to 63.3, up substantially from 57.7 last month.

The flow into safe haven investments is prevalent today, with Treasuries rallying, the dollar higher, and gold up again. The 10-year yield is down to 3.13%; gold is higher to $1196; and the VIX is spiking +7.5% to an extremely high level of 41.20. I mentioned yesterday how difficult it is when the VIX is this high, and this morning's market open is a perfect example.

Trading comment: I don't view it as a good sign that the market can't even bounce from these grossly oversold levels. The S&P breaking below February's lows is another negative technical sign. I still think there is a lift at some point, which will provide a better opportunity to get more defensive. I don't like to sell on these big down days when everyone is panicking.

long GLD

Monday, May 24, 2010

Euro Falls Agian On Spain Banking Woes

The market is lower in early trading, after the euro falls again. News out of Spain that they had to bailout one of their large banks, CajaSur, has not helped sentiment in the eurozone.

The euro is falling rather sharply against the dollar today. Despite the boost to the dollar, oil is up to $70.50, and gold is nicely higher to almost $1190.

The homebuilders are leading this morning after existing home sales were reported to have spiked +7.6% in April, more than expected.

Asian markets were mixed overnight, but China bounced back +3.5%; the 10-year yield is roughly flat around 3.20%; and the VIX is down another -6% to 37.72.

I think it's important that the VIX is moving lower. The chart below shows the action on Friday, when the VIX surged to a multi-year, but reversed lower to close down for the day. The chart shows that big negative reversal on Friday, and hopefully that implies that the VIX has topped, and will continue to move lower in the weeks ahead.

I have said that I would like to see it get back down below 30 to signify some calm in the markets. It is very difficult to trade when the VIX is over 30, as the market is very prone to large swings at any time.

Trading comment: We haven't done very much with our portfolios. I still think the market should bounce further, and I would look to make some further sales into that bounce. While I am getting a big defensive in our big picture asset allocation, I think for the intermediate-term, the market is more likely to stay in this wide trading range as opposed to breaking down further.

long GLD

Friday, May 21, 2010

TGIF: Market Bounces After Govt. Measures

The Senate passed its version of the financial overhaul bill yesterday. This morning, the market opened sharply lower, but it could have been exacerbated by today's options expiration. The markets quickly bottomed, and have since rallied back into positive territory.

Despite the whipsaw volatility, the volatility index (VIX) is on the decline, and that's a good sign. It spiked to as high as 48 early this morning, but has since reversed lower, and is currently down -8% to roughly 42.15. I would like to see it get back down below 30.

The euro is also bouncing after Germany's lower house approved its part of the EU's rescue package, and traders cover shorts amid speculation that the ECB could intervene to support the euro. While this may have the short-term effect or reducing uncertainty in the market, the bigger picture is more govt. involvement in markets and the economy, and that has never been a confidence inspiring move for investors.

Despite the lower dollar, commodities are weak as global participants continue to look to reduce risk. Oil is trading down near $70, while gold has fallen back to $1178.

The 10-year yield is also lower. It tested the 3.10% level early on, and has bounced back to 3.18% so far.

The financials are leading the action on this morning's rebound, up +2.68%; defensive sectors like consumer staples and utilities are lagging, and are lower by -0.57% and -0.67%, respectively.

Asian markets were mixed overnight. China bounce back +1.1%, while Japan fell -2.5%.

Trading comment: Many traders have been watching the "flash crash" lows in the S&P, which was 1065. That level was breached during this morning's dip, but we have since recovered those levels. I think a more important level to watch is SPX 1044, which marks the lows from February.

If the SPX breaks below its Feb. lows, it will mark the first "lower low" on the charts since March 2009. That would be a significant change in character for the market. Conversely, the market has also made higher highs on each rebound since March 09, but if we can't get back above SPX 1220, which is a tall order right now, that would also be a notable change.

Right now, I am planning on using any significant bounce in the market to get a bit more defensive. I'm glad that I raised cash back when I did, but big picture I will be looking to reduce our equity exposure a bit, and add to some safety areas like select fixed income.

While many participants are looking for lower levels this summer, I would not rule out a wide trading range to persist as well. So the range from SPX 1044-1220 are the levels to watch right now.

Thursday, May 20, 2010

Panic Selling Surges To 2008 Levels

The markets are under severe selling pressure again this morning. There was no real news catalyst, just the same recent trends stemming largely from concerns that problems in Europe are larger than perceived.

The major indexes have been down as much as 3% in early trading, pushing the S&P 500 Index below its key 200-day moving average, which is around the 1100 level. There has been considerable technical damage done to the market, and it won't be erased overnight.

I have said that it is a bearish sign that the market is this oversold and hasn't been able to put together a bounce. The folks at Bespoke put out a note that said that 61% of stocks are currently "oversold", a level that hasn't been seen since March 2009. Still, I feel a bounce coming.

Asian markets were lower overnight; the dollar is bouncing, as the euro weakens again; oil is trading down near $67.75, and gold is down also, touching $1184; the 10-year yield is down to 3.25%; and the VIX has spiked all the way up to 45, which is also a level that we have not seen since March 2009. Amazing.

Trading comment: Looking at the sentiment indicators, the 10-day CBOE put/call and ISEE ratios have surged to levels not seen since the fall of 2008. That's a huge amount of bearishness out there, and represents a true panic to rush into puts as traders scramble to put on downside protection.

Longer-term, if Europe worsens and if Asia continues to slow as well, it could lead to lower levels in the equity markets. But in the near-term, these levels of oversold stocks and bearish sentiment have almost always led to a significant bounce in the markets. I think that is the most likely scenario, so it makes more sense to get defensive after the market bounces than it does to do so today.

Wednesday, May 19, 2010

CPI Hints Of Lingering Deflation, Not Inflation

The market is lower again in early trading. Asian markets were lower overnight, and European markets are lower this morning. The Euro is actually getting a bounce today, but so far it is not helping to put a bid under stocks.

One of the things that is a bit worrisome to me is that the market is very oversold, yet it can put together a bounce. The chart below is from my colleague Helene Meisler, and shows how the 10-day moving average of upside-to-downside volume on the Nasdaq is the most oversold its been since 2008. Unfortunately, in 2008 the market bounced, but then went considerably lower. I'm not predicting the same outcome, but the similarity is worth noting.

The next chart shows the relentless decline in the Euro. Yesterday, Germany made some silly comments about banning short selling of its banks. I don't think they figured that if big institutions worried that they couldn't hedge themselves in financials, then they would just short more Euros. This has to be a crowded trade, and I'm wondering when we will see a short-covering rally. If you squint, you can see the small bounce so far today.

The move lower in the S&P 500 (shown below) is pushing the index closer to its 200-day moving average. This is obviously important support levels. But its also worth noting that the slope of the 50-day is flattening out, and will soon begin to slope downward. That usually makes for stiffer resistance on any rallies back. Just another thing to note.
The CBOE put/call opened at an astounding 2.44 (if the data is correct), which makes me think that too many people are leaning the same way. Again, we need some sort of positive catalyst to spark a rally. But if we get one, we could see quite a bit of short covering.
This week is also expiration week, and the VIX is up another +8.8% today to 36.50. So don't discount the potential for some fireworks.

Tuesday, May 18, 2010

Volatility Falling, But Still At High Levels

The market is slightly higher in early trading. Yesterday, the market was down quite a bit, but a big late day rally brought the major indexes all the way back into positive territory. This is a good initial sign, and possibly the beginning of a bottoming process. But we need to see the market find further support.

Also, the volatility index (VIX) is down -6.0% right now, but still at high absolute levels around 29.0. The VIX also spiked higher yesterday, reaching the 35 level, but reversed hard to close lower on the day. The VIX closed around the 26 level at the February bottom, so I would like to see the VIX come down a little from current levels to get me more bullish.

There were a few good earnings reports this morning from blue chips like Wal-Mart (WMT) and Home Depot (HD), and also a couple of solid economic reports. Housing starts rose +5.8%, above consensus estimates. And the PPI for April showed a -0.1% decrease when a slight gain was expected.

Looking at the macro picture, the Euro is bouncing further, which is holding back the dollar. This is helping commodities bounce, with oil bouncing +2.5% to $71.85. Gold is trading down, falling to $1215.

Asian markets rose overnight, with China bouncing back +1.4% amid reports the govt. may hold off on further tightening measures due to uncertainties in the global economic outlook.

The 10-year yield is lower to 3.43%.

Trading comment: Yesterday's late day rally was a nice start, but we need to see the market continue to find support. That doesn't mean we can't have a down day again here and there, but it means I don't want to see the SPX or Nazz undercut yesterday's lows. Additionally, I would be looking for a follow-thru day where the market has a big rally on above-average volume.

In the meantime, I am continuing to watch those stocks that are holding up the best during this correction. That is often a good indicator of which ones will rally the quickest when the market stabilizes.

Monday, May 17, 2010

Monday Morning Musings

The market is hanging in there in early trading, following Friday's selloff and Asian markets being down significantly overnight. China was hit especially hard, down -5.1%.

Despite Friday's selloff, last week still showed a bounce from the previous week's shellacking. The S&P 500 rose +2.23% last week, and the Nasdaq 100 recouped +3.12%.

The euro remains the primary story. Overnight, it fell to a 4-yr low vs. the dollar, but it has since bounced from those levels. The gain in the dollar is weighing on oil again, which is approaching $70.50. Gold is higher again, up another $8 to $1235.

This morning, Bank of America reported that credit card defaults in April rose slightly, while total delinquencies were down from March levels. Separately, the Empire State Manufacturing Survey fell to 19.1 from 31.9 last month.

Among sector ETFs, consumer staples (+0.8%) are leading the way, followed by industrials (+0.18%); energy (-1.46%) is the weakest, followed by financials (-0.52%).

The 10-year yield is a bit higher to 3.45%; and the VIX is hovering near the 31.34 level after Friday's sharp spike higher.

Trading comment: The markets feel calmer today, but I am surprised that the VIX isn't falling. I have not reviewed my sentiment indicator roundup from last week, but I hope to see an increase in bearishness to help put in another trading bottom. We are roughly 2 weeks into this current selloff, so in terms of time, I think we still have more to go. Corrections often take 4-6 weeks to run their course, although the timing can vary.

Technically, the S&P is kind of in no-man's land, floating halfway between its 50-day and 200-day moving averages. Soon, the 50-day looks like it will begin to slope downward, which has a way of acting like stiffer resistance if and when we get back there. Thus, I'm not ready to get aggressive, preferring to bide my time.

long BAC

Friday, May 14, 2010

The Drought Continues

I have been moving my offices yesterday and today (and all weekend), which is why my blogging has been disrupted a bit. This morning, I am officially in mourning for my beloved Cavaliers, who once again disappointed the Cleveland faithful by posted the best regular season record in the NBA but not making it past the second round of the playoffs. I'm sure LeBron will be leaving this summer (he is a free agent), and the drought for a Cleveland championship will continue. Such is life.

The markets look to be equally upset this morning, although I'm not sure the consternation emanating from Europe surrounds whether or not LeBron is leaving for another team. It appears that the enthusiasm that began on Monday over the Euro-TARP plan is slowly morphing into lingering concern about how it will truly cure what ails those countries.

European bourses are all lower, and Asian markets were lower overnight as well. The Euro is breaking down to fresh lows, which is boosting the dollar. The flight to safety trade is on, into the dollar, into Treasuries, and into gold.

Gold nearly hit $1250 this morning, but has since pulled back; The 10-year yield is lower to 3.43%; and the VIX is spiking +21% to 32.35.

Trading comment: I mentioned earlier this week that the major indexes had rallied back up to their overhead 50-day moving averages, but that those levels would likely act as resistance for now. This appears to be exactly what happened. I probably could have taken further profits around those levels, but I have already raised quite a bit of cash in our accounts, and I am watching this next leg of the pullback to see where I would like to add some exposure.

Last Friday's adds worked well, although we were quite a bit more oversold. I will most likely sit on my hands today, in terms of trading.

Have a good weekend.

long GLD

Wednesday, May 12, 2010

Market Attempting To Stabilize, But Early Gains Hard To Maintain

The market is rallying again in early trading, although we saw this pattern yesterday, and by the close the strength had faded such that the S&P 500 actually closed down yesterday. Let's hope today's strength proves more lasting.

The early strength seems to stem from Europe, where there was no significant news other than some tough talk from Spain about their deficits, but the markets there rallied and that emboldened buyers in the U.S.

The dollar was flat earlier, but it is starting to rally a bit as the euro slides again. Oil is trading up slightly near $76.70, but gold is having another strong rally, and breaking to new highs near $1240. That's a pretty big move, and the love affair with gold seems to be building. Although I have not had the usual calls from unsophisticated clients asking me to buy them more gold yet.

Among the sector etfs, tech is leading (+1.87%), followed by industrials (+1.52%), while consumer staples are lagging (+0.15%). Among the sub-sectors, transportation is up +2.0%, and defense is doing well (+1.60%) also.

Asian markets were mixed overnight; the 10-year yield is higher to 3.56%; and the VIX is falling -10% to 25.50, a good sign for the bulls.

Trading comment: The S&P and Nasdaq are rallying back toward the underside of their overhead 50-day moving averages. I need to see these key levels recouped to make me more bullish. On the plus side, the small-cap Russell 2000 has already recaptured its 50-day, so maybe it is acting as a leading indicator. We shall see. The S&P needs to close above 1173, and 2416 for the Nazz.

Another positive is that the put/call ratios have been very high for the past 5 days in a row. This is a good contrarian sign, in the sense that prior trading bottoms in the market have been preceded by spikes higher in bearish sentiment. So this too bears watching.

Some leading stocks continue to act extremely well (AAPL, FFIV, VMW, CRM, NFLX, DECK), while others look like they have broken down (GOOG, PCLN).


Tuesday, May 11, 2010

Enthusiasm Over Eurozone Bailout Package Fades

The market looks to be back to its recent trend of the euro falling, dollar rising, and funds flowing into gold. This is the flight to safety trade, into the dollar and gold, and highlights that even though the bailout package for eurozone countries was sizable, it doesn't really resolve the longer-term issues these countries face.

Most of the S&P sectors are lower so far. The only ones that are flat today are utilities and healthcare, classic defensive plays.

The higher dollar is boosting commodities, with oil up to $77.50, and gold registering new highs for 2010 at $1225.

Asian markets were lower overnight, and European markets were lower this morning; the 10-year yield is higher to 3.56%; and the VIX is pretty much even hovering near 29.0.

Trading comment: I used yesterday's market strength to take some profits on a few trades I had added to on Friday, as well as to trim some of our emerging market exposure. I sold our India etf (INP), as I think inflation is running too high there and the govt. is going to need to tap on the brakes a little harder. I have similar concerns for China (FXI), but haven't sold that one yet.

Last week I also mentioned we added Green Mountain Coffee (GMCR), and that chart is looking more and more like a bottom. I think the market overall is likely in a trading range for now, and if we bounce further I will likely trim a little more, as I do think the chances of another pullback are elevated.

long FXI, GMCR

Monday, May 10, 2010

EU and IMF Take A Page From The Fed's Playbook

The markets are rallying sharply after a large aid package was announced yesterday from European leaders. The EU has pledged 500 billion euros and the IMF another 250 billion euros for eurozone countries that face financial uncertainty. This comes in addition to word that the ECB will buy eurozone bonds in the open market, and the Fed has reactivated swap lines with foreign institutions.

The combination of all of the above has led to a strong wave of buying (and short-covering) in the markets, and has also spurred a rally in the Euro and out of the dollar. The ECB is essentially taking a page out of the Fed's playbook by directly buying EU bonds and expanding its balance sheet. We saw what a positive effect this had on US financial markets, let's just hope it can do the same in Europe.

I am a bit surprised that the Euro isn't up more today. The major indexes are up more than 4% so far today, but the euro (FXE) is only up 1%, and struggling. I would have thought with all the traders short the euro recently, we would have seen a bigger spike. Go figure.

The lower dollar is supporting commodity prices, with oil rising more than 2% to $76.75. Gold is lower, as people exit the flight to safety trade, but still holding $1200.

Among the sector etfs, financials and industrials are leading, both +5.3%, though all 10 sectors are higher. Among sub-sectors, homebuilders are surging +6.2%, and most emerging market etfs are up more than 6%, with Russia gaining +10.15%.

Asian markets were higher overnight on the news out of Europe; the 10-year yield is bouncing to 3.56%; and the VIX is plunging -28% down to 29.40.

Trading comment: Those trades I made late on Friday are up nicely, and I am taking half profits on them. Why? Because I don't want to look a gift horse in the mouth.

This rally could carry a bit higher, its hard to tell right now. But we are approaching resistance levels at the underside of the 50-day moving averages. I will look to lighten up into those levels, as I think it is likely that we will see a retest of the recent lows at some point.

Friday, May 07, 2010

Freaky Friday: Volatility Rules The Day

After yesterday's wild ride, investors were noticeably jittery today. Actually, some of yesterday's errant trades were cancelled by the exchanges, so I don't think in reality the market was actually down as much as it looked like. But that's a little inside baseball.

Today, the day started off with a much better than expected jobs report. The nonfarm payrolls report showed the economy added 290,000 jobs, far better than the consensus of 187,000. And the previous month's report was revised to show more jobs added as well. On a normal day, that would have induced a huge rally. But not today.

The market actually rallied a bit early on, and it looked like we might be okay today. But the euphoria quickly wore off, and the market swooned. This occurred two more times during the day, where the market rallied back to flirt with positive territory, but then traded back down. Talk about volatility.

The chart below shows the huge spike in the volatility index (VIX). The VIX has simply exploded the last 2 days, in an almost breathtaking fashion. I think the only other time I have seen a move like this was September 2008, which is not a fond memory.

Today the VIX spiked +25% to close just shy of the 41 level, the highest level since just after the March 2009 lows. Normally, a spike in fear of this magnitude would likely signal capitulation, and a buying opportunity could be close at hand. But the credit angst emanating from Europe, and the size of the sovereign (govt.) debt issues makes me want to be cautious in here, despite the contrarian signal we are getting from the sentiment indicators.

The fear is present in the options market as well. The CBOE put/call has closed above the 1.0 level for three consecutive days. And the ISEE call/put has made three consecutive 52-week lows, today closing at just 57. This likely means that we are pretty oversold, and should at least bounce.

Trading comment: I picked at some of my favorite growth stocks, which I have mentioned many times on this site, to play for a bounce next week. The ECB should come out with some news over the weekend about financial support they plan to provide. I just hope its enough to spark a rally. So that's how I'm playing it.

But I want to be careful in that these buys are just for a trade. I think the market should bounce from this week's shellacking (-6%), but the nature of these big spikes down is for the market to bounce, but then come back down again to retest the lows. This is the bottoming process, and even if we have seen the low levels (which I doubt), we still haven't spent enough time correcting, so caution is warranted.

Happy trading, and have a peaceful weekend--

Thursday, May 06, 2010

Europe: The Song Remains The Same

The markets were slightly higher after the open, but now they have sunk back into negative territory, with the Dow down roughly 100 right now.

The culprits are the same ones as yesterday. Namely, the euro is falling, boosting the dollar, and credit spreads on sovereign debt (in Europe) are widening. The ECB met and decided to leave rates unchanged at 1.00%. Some may have expected a rate cut, but that didn't seem likely.

The strong dollar is weighing on commodities again, pushing the CRB Commodity Index down -0.6%. Oil is down near $79, but gold, the new alternative to holding currencies, it up again close to $1188.

The monthly retail sales reports this morning were mixed, with some solid reports, but more negative reactions in the stocks.

Asian markets were lower overnight, some sharply. China fell -4.1%, and Japan declined -3.3%.

The 10-year yield is lower again to 3.47%; and the VIX is +5.9% higher to 26.38, but has not taken out yesterday's highs.

The put/call ratios are elevated again, with the CBOE put/call at 0.94, and the ISEE is very low at 64.

Trading comment: This is quite a 3-day slide, with the S&P 500 down -5.7% already. I guess I was a little early in calling for this correction, but timing trading tops is always difficult. I'm just glad I raised cash when I did, as we should be in better shape as a result to take advantage of what I think will be another good buying opportunity. I plan to make my first round of buys today.

Wednesday, May 05, 2010

Market Wrap: Market Not Celebrating Cinco de Mayo

The markets were lower again today, although there was a mid-day rally that brought the indexes into positive territory, but it didn't last. The main culprit was the macro picture, which trumped any economic data or earnings reports.

By this I mean the big picture focus coming out of Europe. The Greek bailout package is being viewed as the tip of the iceberg, and countries like Ireland, Spain, etc. are quickly becoming problems of their own.

The selling of their bonds, and the simultaneous purchase of credit default swaps on those countries is eerily similar to the way big traders shot against the investment banks in 2008. I'm not trying to be a conspiracy theorist, but its painful to watch.

The flip side is that all of this negative news is spooking investors, and causing them to rush out and buy puts to hedge their downside risk. I say this is a good thing because every correction we've seen since the bear market bottom has found support around the time that bearish sentiment began to spike higher.

Today, the VIX spiked as high as 27.25, matching its January highs, before trading lower into the close. Options players were equally as skittish. The ISEE call/put ratio hit a new 52-week low at 65, and the CBOE put/call spiked to a somewhat extreme reading at 1.15. This might not mark the bottom, but it is a start.

Additionally, the news out of Europe pushed the euro down to a new 52-week low of 127.85, and the dollar rose in turn. The stronger dollar weighed on commodity prices, in addition to fears that all of this will slow down economic growth. Oil fell to below $80, copper and nickel prices plunged, as did silver. Only gold gained ground as a flight-to-safety trade, as I have mentioned.

Energy and industrials sectors led the downside, while healthcare bucked the weakness.

The 10-yr yield fell to 3.55% amid worries of a slowdown; and the VIX finished +4.5% at 24.91.

Trading comment: I added a little bit to some of our gold positions today, but that was about it. But I will probably look to put a little of the cash I have been sitting on to work tomorrow. I think the market is short-term oversold, and will likely bounce. But after that it will likely come down again, which would present a better buying opportunity for more than just a trade.

long GLD

Tuesday, May 04, 2010

Worries Spread From Greece To The PIGS

The market is a funny thing. Yesterday the market rallied as it ignored the problems bubbling in Europe. Today the worry is back on the front burner, as yields in Greece spike higher, and the markets in Spain, Portugal, Ireland, etc. take a hit on fears that they could run into similar problems like Greece.

There were some more positive economic reports this morning. Factor orders were surprisingly strong at +1.3%, and pending home sales for March rose +5.3%. But that data is obviously being ignored at the moment.

Ditto the positive earnings reports from today for the likes of Merck (MRK), Pfizer (PFE), and MasterCard (MA).

The flight-to-safety trade appears to be in effect, as investors rush to safe havens like Treasuries. The price of the T-note is up today, pushing the yield down to 3.62%. Also, the new safe haven trade appears to be gold, which topped $1192 earlier.

The dollar is also at fresh 11-month highs, which is weighing on most commodities. Oil prices are down 1.8% near $84.50.

Among the sector ETFs, energy is down the most (-3.2%), followed by industrials (-2.9%). Healthcare is down the least (-0.55%). Among the industry etfs, homebuilders are down -3.38%, and emerging market etfs are being hit particularly hard.

Asian markets were also lower overnight; and the VIX is spiking +21% today to 24.43, taking out last weeks highs.

Trading comment: Today is one of those days where you wish you simply didn't own anything, although I do have a couple of stocks on my screen that are bucking the weakness so far. Visa (V) is up, and my recent pick GMCR is flat.

Yesterday I mentioned that the market rallying back up to resistance at its 20-day might not last. And right on cue the markets are back in correction mode. The next stop on the charts is the 50-day averages, which stand around 1169 for the S&P 500 and 2404 for the Nasdaq.

It hasn't been easy to hold all this cash lately, but it feels better on a day like today. The goal is to have a cash cushion during the decline to make it easier to ride it out, and also to have ample buying power to take advantage of the pullback and add to positions at lower levels.

long GMCR, V

Monday, May 03, 2010

Monday Morning Musings

The markets are bouncing after Friday's drubbing. There was news this morning that Greece will in fact receive a financial aid package from the EU and IMF to the tune of $146 billion. The problem, and one of the reasons that the euro is still lower today, is that many investors remain concerned that the problems with other European nations still looms despite Greece getting a bailout.

We also saw a strong ISM Manufacturing report this morning, rising to 60.4 from 59.6 in March. This is helping stocks in the industrial sector rally this morning, in addition to the news that United Airlines and Continental will merge.

Commodities are higher, despite a bounce in the dollar index. Oil prices are up to $86.60, and gold has topped $1187. Despite this, the energy stocks are mostly lower, with negative sentiment lingering from the oil spill in the gulf.

Japan and China markets were closed last night, but that didn't stop China from raising its reserve requirement for banks again. China continues to tighten its monetary policy and try to prick the property bubble there. We know that most bubbles don't deflate in an orderly manner, so the situation in China bears close monitoring.

The 10-year yield is higher to 3.69%; and the VIX is -3.75% lower after Friday's bug surge higher, down to 21.22.

Trading comment: I started a new position in GMCR on Friday, but that was about it. Although the markets are bouncing today, the major indexes are still below their 20-day moving averages that were broken on Friday. I still expect more choppiness ahead, and will look to use future down days to pick away at stocks/etfs at lower prices.

long GMCR