Tuesday, August 31, 2010

S&P Tests 1040 Level Again

The market has been both lower and higher already in early trading, as a few economic releases swayed early trading. The CaseShiller Home Price Index for June rose to 148.0 from 146.5. That was a slight improvement, but most of the housing slowdown that has been talked about began in July, so this report will likely be taken with a grain of salt until we see how July fared.

The Chicago PMI for August hit 56.7, which is below the 57.0 that was expected. This likely weighed on stocks early on. But the consumer confidence report surprisingly rose to 53.5 from an expected reading of 50.0. This was a bright spot, and stocks rallied after the number was reported.

The dollar is lower today, as are oil prices (down near $74), while gold is higher near $1245.

Asian markets were lower overnight, led down by Japan which is still struggling with the Yen trading near 15-year highs, which hurts their export-driven economy.

The 10-year yield is back down to 2.50, after briefly spiking to 2.65% last Friday; and the volatility index (VIX) is still above its 50-day average at 26.51.

Trading comment: The market once again tested that SPX 1040 support level this morning, and so far it has held. Friday's rally was very solid, with excellent volume and good breadth. But this type of follow-thru action is not inspiring. Technically, as long as Friday's lows are not broken, the nascent rally attempt is still considered valid, and we still could get a follow-thru day. But if 1040 is broken, it could open up the gates to further technical selling.

First, this is August and trading volumes have been very light. Yesterday was one of the lightest days of trading all year. So its not surprising to see the market get whipsawed. Second, the price action can often be frustrating as long as the major averages are trading below their 50-day and 200-day moving averages.

The market remains in a tough technical picture, with lots of overhead resistance. But we remain oversold, and bearish sentiment is already very high. This combination makes me think the downside should be relatively limited at this juncture, while another rally could spark additional short-covering.

Friday, August 27, 2010

Market Shrugs Off Lowered Guidance From Intel

The market was higher right after the open, after Q2 GDP was revised down to 1.6%, which was still higher than the 1.4% many were expecting. Additionally, personal consumption for Q2 was actually revised higher to 2.0% from 1.6%.

So the GDP report gave a boost to the market, but then Bernanke's comments from a symposium in Jackson Hole were released and the market gave back all of its early gains. I'm not sure what people were looking for, as I think the message from the Fed Chairman has been fairly consistent. Maybe its another case of expectations being too high.

The other news item that pushed the market lower was updated guidance from Intel (INTC). Intel said it expects revenue for Q3 to come in a range of $10.8 - $11.2 billion, which is below Street forecasts for $11.5 billion right now.

But after the brief swoon lower this morning, bears look like they are having difficulty gaining traction, and as of this post the market is rallying again back into positive territory. If the bears can't regain any traction into the close today, I think we could see additional short covering boost the market.

Energy and materials stocks are leading the early action, while tech is lagging.

Asian markets were mostly higher overnight; the dollar is higher today while the euro is lower; oil prices are down to $73.20, and gold prices are roughly flat near $1237.

The 10-year yield is nicely higher to 2.58%. I want to see yields move a bit higher, just to take the fear of deflation off the table. And the VIX is down -2.8% today to 26.61, which is still above its 50-day average.

Trading comment: The S&P 500 once again held that 1040 level that I mentioned the other day. So for now this looks like solid support, and hopefully we can build on today's early gains. The market is still oversold, and sentiment is very bearish. Those are the normal ingredients one usually see before a relief rally in the market.

I took more of my hedges off yesterday, and added to a couple of long positions. While the market could still have another move lower in the always feared Sept.-Oct. timeframe, I think we should get a short-term bounce first.

Thursday, August 26, 2010

Investor Sentiment Reaching Bearish Extremes Again

Below is a graph from my colleague Helene Meisler at TheStreet.com which shows this week's Investor's Intelligence poll.

As you can see, if you add up the number of bears in the survey plus those looking for a "correction", you can see that we are back to levels that have marked trading bottoms in the past.

Given that the market is oversold again, I think we could be at a juncture where we again see a nice bounce. I am selling off some of my hedges, and looking to add to long positions in anticipation of any relief rally.

Nice Drop In Jobless Claims

The market is slightly higher in early trading after a solid jobless claims report, and some positive action out of Europe.

Initial jobless claims for last week came in at 473,000, which is below expectations and also down 31,000 week-over-week. Continuing claims were also lower, another good sign. This is positive for the employment picture, and weakens the double-dip case many are making right now.

Asian markets were mixed overnight, while Europe is higher this morning after a strong debt offering in Ireland. This came despite the news that Ireland had its sovereign credit rating downgraded.

The news in Europe has boosted the euro at the expense of the dollar. Oil prices are higher to $73.25, while gold is flattish near $1237.

Among sector ETFs, materials and industrials are leading, while consumer staples and healthcare are lagging. Financials are holding up well also.

The 10-year yield is a touch higher to 2.54%; and the volatility index is flat near 26.70.

Trading comment: The S&P held support yesterday at 1040 and bounced nicely from there to close positive on the day. I mentioned that the market was oversold and likely due for a bounce. Today, the AAII investor sentiment survey confirmed that bearish sentiment has risen sharply of late, which also supports the case for a further bounce in the market. I have a chart to post on sentiment, which I will put up later.

Looking for stocks that have held up the best during this correction is a good strategy. A few that I am watching that have shown nice relative strength include: SXCI, CMG, FFIV, VMW, ANDE, NFLX, and APKT.


Wednesday, August 25, 2010

Back In The Saddle

I am back from my visit of taking my kids to see their grandparents in Cleveland. It sure does seem that the market always falls out of bed when I am away from my desk. Of course, these days you can access your systems from anywhere, but it's just not the same thing.

That said, last week I left off by saying that the markets rally looked tepid, and I wanted to remain cautious. That stance certainly seems warranted in hindsight. And the data this morning is doing little to inspire bullishness at the moment.

In economic news, durable goods for July were much weaker than expected at +0.3%, when a rise of +3.0% was expected. Participants are also ignoring that last month's data was revised higher. There was also another weak housing report, with new home sales for July falling -12.4%, weaker than expected.

There was also news that Ireland's sovereign debt rating was reduced by S&P to AA- from AA. This has the credit default swaps for Western Europe trading higher, but interestingly the reaction in the Irish stock market has been totally muted, implying that this move was already anticipated.

The dollar is moving higher, as the flight to safety trades looks back on. Gold is also higher, near $1237, and Treasuries are higher also. The latter is pushing bond yields down to 2.47%, the lowest levels since March 2009.

Asian markets were lower overnight; and the volatility index (VIX) is 3.3% higher so far, rising to 28.37 after bouncing above its 50-day average yesterday.

Trading comment: The market is once again extremely oversold, and likely due for a bounce. But again, until some of this technical resistance is broken, I think most bounces will be short-term in nature. The S&P 500 is currently trying to hold the 1040 level, where it found some support in May and June.

Prior to my mini-vacation, I had been saying that the action in the market warranted caution. I still feel that way, but obviously the market has already moved lower and we need to be flexible. As such, I will be looking to sell some of our hedges that we had put in place, and add to stocks that have come back down to attractive levels.

Wednesday, August 18, 2010

Slogging Through The Summer Doldrums

The market rallied nicely yesterday, but volume was again quite low. That's how it often is in August, as traders and portfolio managers get their summer vacations in prior to September, when things kick into high gear again.

Target (TGT) and Deere (DE) both reported earnings this morning, and both earnings reports were good. But TGT stock is higher while DE is lower. Of course, DE has had a much bigger rally, so this is likely just profit taking. I hope that DE pulls back more, as I view it as an attractive play on the ag cycle.

The dollar is firm in early trade, which could be weighing on commodities. Gold prices are lower to $1218 and oil prices are down again to $74.40. With all the talk about Iran, hurricanes, etc., one would think that oil would be trading better.

Among the sector ETFs, financials are firm (+0.35%), while energy is lagging (-1.46%).

Asia was mixed overnight, with Japan higher but China lower; the 10-year yield is down a bit to 2.61%; and the VIX is up to 24.37.

Trading comment: Yesterday's rally was nice, but again it doesn't really change the intermediate-term picture yet. I would still need to see the S&P rally over its 200-day (currently at 1116) to change my near-term cautiousness. The market is still bouncing from its oversold condition, but if it can't get through some of this overhead resistance, another move lower is probable.

Tuesday, August 17, 2010

Potash (POT) Finally Gets Long Rumored Bid. But Rejects It

The market is nicely higher in early trading. There have been a handful of solid earnings reports in the retail space, including Wal-Mart (WMT), Home Depot), and Urban Outfitters (URBN), and those stocks are higher.

But the big news is in the ag space, namely fertilizer company Potash (POT). It has long been rumored that someone like BHP Billiton (BHP) would make an offer for POT, but it has never happened for one reason or another. Lo and behold, this morning POT is up +25% to $140 after receiving an unsolicited bid for $39 billion from BHP. But the best news may be that POT management rejected the offer, saying it substantially undervalues the company. Looks like things are heating up in the ag space.

Asian markets were mixed overnight, while Europe is nicely higher this morning. The euro is also higher for a second day at the expense of the dollar. Commodities are mixed with gold flat near $1224 and oil prices higher near $76.

Among the sector ETFs, materials are leading the way (+2.23%) followed by industrials (+1.40%); consumer staples (+0.45%) are lagging, but all sectors are in positive territory.

The 10-year yield is bouncing from yesterday's new lows, up 5 bps to 2.62%; and the volatility index (VIX) is down -5%, back below the 25 level to 24.78.

Trading comment: Nice bounce this morning, but it doesn't really change the overhead resistance equation. Yesterday I said I expected a bounce to relieve the oversold condition of the market. But at this point I am not expecting more than an oversold bounce. I could be wrong, so I'll take it one day at a time, but I want to stay defensive until proven wrong. Remember, opportunities are easier made up than losses.

long POT

Monday, August 16, 2010

Monday Morning Musings

The market opened on a down note this morning, but it attempting to bounce as of this writing.

There hasn't been much in the way of market moving headlines so far today. The Empire Manufacturing index was a little light at 7.1 ( vs. 7.5 consensus), but that is up from last month's reading of 5.1.

Buyers seems to be rushing into Treasuries and gold for the most part. Gold prices are up near $1223, while the rise in bond prices have pushed yields down to an astounding 2.59%. I have held off adding to my inverse bond etf (TBT), but at this level of yields I think it is very attractive again.

The euro is bouncing after last week's selloff, which is coming at the expense of the dollar. Oil prices are down a bit to $75.

Asian markets were mixed overnight, with China bouncing +2.1%. And the volatility index (VIX) is slightly lower at 26.0.

Trading comment: The S&P 500 continues to hover below its 50-day and 200-day moving averages. That, in and of itself, warrants caution. But shorter-term, the market is once again oversold after last week's selloff and likely to bounce. I want to remain defensive when the market is trading below these key moving averages, so I will be looking to use any strength to exit marginal positions, and probably add to some hedges to protect portfolios against a further pullback in the market.

long TBT

Saturday, August 14, 2010

Weekly Wrap

Here is the weekly recap from Briefing.com:

Additional signs that the strength of the global recovery is waning sparked selling pressure, resulting in sharp losses for the major indices.

The S&P 500 declined four consecutive sessions, with the bulk of this week's loss occurring on Wednesday (-2.8%). Losses were broad-based and trading volume was light, with the NYSE not surpassing 1 million daily shares for the 20th consecutive session.

Nine of the 10 sectors declined, with tech (-5.6%), industrials (-5.0%) and financials (-4.9%) coming under the most selling pressure. Defensive-oriented sectors outperformed on a relative basis, with the telecom gaining 0.6%. Risk aversion was also seen in the relative underperformance of smallcap shares, with the Russell 2000 tumbling 6.3%.

The FOMC meeting Tuesday marked one of the major events of the week. The Fed held rates unchanged at 0.00% to 0.25%, as expected, and also announced plans to use proceeds from its more than $1 tln holdings in agency MBS and debt to buy longer term Treasuries. The news was not unexpected after last week The Wall Street Journal reported that the Fed would be considering the action. But it is a clear sign that Fed is concerned about the economic recovery effort. The news helped drive the 10-year note yield down to 2.64%, marking the lowest level since April 2009.

In corporate news, Hewlett-Packard (HPQ) dropped 12.5% for the week after company reported that its CEO was stepping down due a violation of HP's standards of conduct related to expense reports. At the same time, the company reported upside preliminary third quarter EPS of $1.08 versus the $1.07 Thomson Reuters consensus and raised its Fiscal year 2010 EPS forecast. A total of 18 S&P 500 companies reported earnings as second quarter earnings reporting season enters its final stretch. Of those that reported, 13 topped EPS estimates.

Cisco (CSCO) reported quarterly results that were slightly ahead of estimates. But the company's outlook stoked fears of a slowdown, with the CEO saying customers were sending "mixed signals", sending shares down 11% for the week.

Walt Disney (DIS) posted a strong quarter, benefiting from advertising sales at ESPN. The company reported a 16.4% y/y rise in revenue to $10.0 bln, topping the $9.4 consensus. Earnings per share came in at $0.67, easily topping the $0.58 consensus. Despite the beat, shares fell 4.0% for the week.A handful of retailers reported quarterly results. JCPenney (JCP), Kohl's (KSS) and Macy's (M) reported better-than-expected EPS, while Nordstrom (JWN) posted in-line results. Only Macy's stock managed to post a gain for the week, up 3.9%.

In economic news, overseas data that supported the notion of a slowdown in the global recovery weighed on U.S. stocks. China reported weaker-than-expected retail sales and the Bank of England lowered its economic outlook.

Back in the U.S., weekly new unemployment claims rose to a six month high of 484,000, which was worse than the Breifing.com consensus of 465,000. Initial claims have remained between 450,000 and 500,000 since the middle of November 2009.

Retail sales rose 0.4% in July, slightly below the Briefing.com consensus of 0.5%. Almost all of the gain can be attributed to increased demand for gasoline and motor vehicles. Core sales -- which excludes sales from auto dealers, gasoline stations, and building materials and supply stores -- declined 0.1%. As a result, Briefing.com economist Jeff Rosen reduced his third quarter GDP forecast to 0.7% from 1.0%.

On a related note, the trade deficit expanded by a greater-than-expected amount which will negatively impact the second estimate to Q2 GDP.

Earnings report season continues to wind down in the upcoming week, but there are some potentially market-moving names slated to report. Dell (DELL), Lowe's (LOW), Home Depot (HD), Wal-Mart (WMT), Deere (DE) and Target (TGT) are among the 14 S&P 500 companies confirmed to report on Briefing.com's economic calendar.

Friday, August 13, 2010

Happy 'Friday the 13th'

The market is roughly flat in early trading. If the index closed here, the S&P 500 would be down roughly -3.5% for the week. Interestingly, since the July 2 lows, the market has not been able to put in 2 consecutive up weeks or down weeks in a row. This demonstrates the push-pull that is in place right now between the bulls and bears.

The August Consumer Confidence Survey came in in-line at 69.6, which is up from last month's reading of 67.8. And advance retail sales rose slightly less than expectations at +0.4%.

Asian markets were mixed overnight. Hong Kong fell slightly after news that Q2 GDP grew 1.4% there last quarter, less than expected. China rose 1.2% overnight. There were also GDP reports in Germany and France this morning, with Germany's GDP rising 2.2% in Q2. Europe's markets were also down a bit this morning.

The dollar is trading higher again today, capping off a very solid week for the greenback. This could be weighing on commodity prices, with both gold ($1213) and oil ($75.60) prices down slightly.

The 10-year yield is lower, back down near its recent lows at 2.71%; and the volatility index (VIX) is roughly flat at 25.75.

Trading comment: The SPX is still hovering below its 50-day average. Given this week's sharp pullback, I would not be surprised to see a bounce next week. But I think that unless the market rallies back above its 200-day moving average, we are likely back into trading at the lower end of the recent trading range. As such, I am holding off on new buys right now, and will look for a better buying opportunity at lower levels.

long GLD, VXX

Thursday, August 12, 2010

Investors Down On Cisco Earnings

The market is lower this morning, after Cisco (CSCO) reported results last night that were a little light on the top-line, and also issued cautious guidance. Investors hoped CEO Chambers would be more bullish, but he said that his customers are uncertain right now, and that makes him uncertain as well. That said, I think the -10% move down in the stock today is an overreaction.

In economic news, the jobless claims figures came in higher than expected for the week, reaching their highest level since February. Regardless, the 10-year yield is bouncing from yesterday's new lows at 2.70%, up slightly to 2.74%.

The dollar is higher again today, which is weighing on oil prices ($76.50), but helping boost gold prices to near $1215. Gold did not initially have a positive reaction to the Fed announcement of further monetary accommodation, but it seems to be having a delayed positive reaction today.

Asian markets were lower overnight, and Europe is mixed so far today. The volatility index (VIX) is flat right now, after rising to its 50-day average yesterday. It is currently at 25.30.

Trading comment: I had been commenting that as long as the S&P 500 stayed above its 200-day average, that looked bullish. But the price action yesterday negated that scenario, and now the SPX has sliced below both its 200-day as well as its 50-day average. As such, the near-term uptrend has been broken, and that former level of support at SPX 1115 now stands out as resistance.

As such, I want to hold off on new buys right now, and even look to trim marginal positions if we get a bounce back towards SPX 1115. The market rallied for about 6 weeks from the early July lows, so it could be that it needs to consolidate our pullback before another good buying opportunity is upon us, possibly for Q4.

Wednesday, August 11, 2010

What A Difference A Day Makes

It seemed the market was generally pleased with yesterday's FOMC statement, as the S&P 500 rallied back from its early lows and closed above the 1120 level for the 7th straight day. But after thinking about it overnight, it seems investors have reached a difference conclusion this morning, and view the Fed's statement as more worrisome.

The fact that the Fed said it still needs to be extremely accomodative, and rollover existing bonds on its balance sheet, is really a testament to the fact that this economic recovery remains fragile. We are now roughly a year into this recovery, and usually at this point we are not talking about additional stimulus measures needed to boost the economy.

I don't really think additional easing would do all that much right now. The tax uncertainty and increased regulations is keeping big businesses on the sidelines right now from making big moves, and small businesses are equally worried about taxes, healthcare costs, etc., and this is keeping them from hiring. Hopefully some of this uncertainty will be alleviated after the November elections.

Credit concerns are rising again in Europe, and this is causing a big drop in the euro today. Conversely, the dollar is having its best percentage gain in two months. Gold is higher today near $1202, but most other commodities are lower.

China reported disappointing data, which weighed on Asian markets overnight. Japan was down -2.7% as the Yen continues to clime to 15-year highs.

Bond yields continue to move lower, with the 10-year yield falling to new lows at 2.70%. And the volatility index (VIX) is not surprisingly spiking higher, up 14% to 25.55.

Trading comment: Time to manage risk, and adhere to stop losses if they are hit. I have recently mentioned that we needed to watch the SPX 1131 level, as that represented the June highs in the index. For the last few days we have gotten close to that level (see horizontal line below), but today it looks as if that resistance will remain in place for the time being.

This is just day one of what could be another pullback. Given that the market had rallied nearly 12% over the last 6 weeks, a pullback at this juncture would be a normal occurrence. I just want to keep some powder dry, and hopefully look for opportunities to get into some of the leaders that have been hitting new highs and now could pull back to offer attractive entry points.

Tuesday, August 10, 2010

Federal Reserve Indicates It Will Maintain Low Rates

The FOMC met today and pretty much issued the same message, that the still weak economy warrants a very low level of interest rates for the near future. The one change that they did make was that the proceeds from bonds on their balance sheet that mature will be reinvested in longer-term Treasuries.

So basically the Fed is keeping its foot on the gas pedal, which should go a long way towards avoiding outright deflation, and put to rest the comparisons about Japan.

Here is their statement:
  • Information received since the FOMC met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.
  • Housing starts remain at a depressed level. Bank lending has continued to contract.
  • Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.
  • Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
  • The Committee will maintain the target range for the federal funds rate at 0-0.25% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
  • To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.
  • The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

So rates hikes are on hold and quantitative easing will remain in place. I don't think this changes the outlook for equities much. Growth stocks who can grow their earnings despite a lackluster economy should outperform. Bond yields moved lower on the news, with the 10-year yield falling to 2.78%. And gold prices rallied to $1205, as low rates should keep a lid on the dollar.

long GLD

Will The Fed Comment On Further Easing Measures?

The market is lower in early trading on the heels of a weak economic report. Of course, the Fed meets later today, and most participants will take their cues from their statement that will be released later.

The big question is whether the Fed will make comments about further easing measures. I doubt it. I think it is more likely that they will talk about the economy still being weak, saying they will keep rates low, and maybe something about policy remaining flexible. But I doubt the message will change all that much from what they have said the last couple of meetings.

If the market were higher, then I would say it is possible investors could be disappointed by today's Fed statement. But if the market is down going into the meeting, maybe the reaction will be more muted. I tend not to read too much into the market action on Fed meeting days, as it tends to be volatile.

The economic report that caused the selling in the markets this morning was the nonfarm productivity report, which showed a -0.9% decrease when a slight gain was expected. Unit labor costs increased 0.2%, but this was lower than expected.

Asian markets were lower overnight, and Europe is down this morning also. The euro is down for a second day, while the dollar is higher. Commodities are mostly lower, with oil prices down below $80, and gold below $1200 again at $1195.

The 10-year yield is up at 2.83%, and the volatility index (VIX) is spiking +7.2% to 23.75.

Trading comment: Although volume was light yesterday, the action was pretty positive. Lots of leading stocks making new highs. Today, the S&P 500 is testing that 200-day average I have been talking about. The 200-day is currently at SPX 1115, so today's action bears watching.

As for investor sentiment, it remains subdued. The AAII bull/bear survey last week showed more bears than bulls (30% bulls, 38% bears) for the 4th time in 6 weeks. So sentiment is not so bullish that it would make me cautious yet. I think the market could rally higher, which would bring out more bulls, before running out of steam. But let's take it one day at a time, and see how the market reacts to the Fed today.

Monday, August 09, 2010

Monday Morning Musings

The market is barely higher in early trading, on relatively light newsflow. There are no economic reports to speak of this morning, and little in the way of corporate news.

The big story in the headlines over the weekend was the CEO of Hewlett Packard (HPQ) Mark Hurd stepping down amid sexual harassment claims. Wall St. liked him, and thus the stock is lower in today's trading. The big debate today is should he still walk away with such a large severance.

Asian markets were mostly higher overnight, except for Japan which is struggling with the Yen near its best levels in the past decade. Japan is a very export driven economy, so a high Yen is problematic for them as it makes their goods more expensive.

The dollar is up fractionally, and commodity prices are mixed. Oil is up a bit over $81, and gold is down a little near $1202. Wheat prices have come off their highs from last week amid the halt in exports out of Russia. I still think that ag stocks have upside.

The 10-year yield is barely off its lows from Friday, trading near 2.82%. The volatility index (VIX) is up +4.7% so far to 22.75.

Trading comment: Last week's action was solid overall. I said after the S&P 500 broke above its 200-day moving average that the best action would be to see some benign consolidation, whereby pullback in the index don't do any real damage to the chart.

If you look below, you can see that the S&P traded in a tight range, and closed every day last week above that key 200-day average. That is textbook benign consolidation, and leads me to lean towards the market pushing further to the upside in the near-term. The next level to watch is the June highs for the S&P at 1131.

Friday, August 06, 2010

Bond Yields Break To New Lows On Weak Jobs Data

The market is lower in early trading on the heels of a weaker than expected jobs report. The nonfarm payrolls report showed the economy shed 131,000 jobs in July, more than the 87,000 forecast by economists. The private sector added 71,000 jobs, but this too was below expectations. The unemployment rate held steady at 9.5%.

On the plus side, I would say, is the reaction by the stock market so far. The S&P 500 could have easily traded down through its 200-day support level near 1115. But those levels held once again, and stocks have bounced off of their early lows and are now down about half of what they were at the open.

On the negative side is the reaction by the bond market. I have been watching that 2.90% level in the 10-year yield, and today that level gave way easily. Bond yields are now down to 2.85%, which marks the lowest level since April 2009. So on the face, the bond market continues to signal a significant economic slowdown. Although it is hard to tell how much of this action has been exacerbated by a flight to safety trade into Treasuries.

The only sector that is higher so far is the materials sector, led by the continuing rally in agriculture stocks in response to rising wheat prices. Energy and financials are down the most so far, both down -0.80%.

The dollar is lower while the euro is spiking higher again. This is having a mixed effect on commodities. Oil prices are down to $81, while gold is rallying back above $1200 to $1207 currently.

Asian markets were mostly higher overnight, led by China (+1.4%) after its banking committee said that the stress tests will not be done on banks, but risk control measures will be taken.

Trading comment: I guess I spent too much time writing this post, because the market just turned lower and is now testing that SPX 1115 level where the 200-day average currently resides. I think this is an important near-term test for the market. If it closes below that level, it probably means the market will spend a bit more time consolidating recent gains. But if we hold it, I think it could spark some short-covering and keep the offense on the field (support the bulls). Let's see how the day unfolds.

long FXI, MOO

Thursday, August 05, 2010

Trichet Talks Up The Euro

The market is lower this morning in early trading, although it has already bounced from its opening lows. The jobless claims figures look like the primary culprit for the selling early on. Weekly jobless claims were higher than expected at 479,000, but continuing claims were lower week-over-week.

Of course, the big jobs report is tomorrow's nonfarm payroll report, but today's figures probably are causing additional concern about what tomorrow's numbers look like. Current estimates are for a drop in payrolls of roughly 87,000.

The euro is bouncing this morning after ECB President Trichet offered a bullish outlook on the European economy, including comments about the fiscal progress of Greece. The ECB held its benchmark interest rate unchanged at 1.00%, and the Bank of England held steady at 0.50%. European markets are higher this morning.

Asian markets were also nicely higher overnight, except for China which fell on rumors that a series of bank stress tests would make banks be prepared for a 60% drop in property prices.

Commodities are mixed, with oil prices lower to $82.20 and gold slightly higher at $1194.

The 10-year yield is right back down testing that 2.90% level, and it would seem the more times it tests those levels the more likely they are to give way at some point to lower yields. The volatility index is up a bit to 22.66.

Trading comment: Today is day 4 that the S&P 500 is holding above that 200-day average we have been talking about. Despite the strong rally over the last month, investor enthusiasm remains subdued. Case in point is today's AAII survey, which shows bears outnumbering bulls to the tune of 38.2% bears vs. 30.4% bulls. That increases my confidence that after some pullback or consolidation, the market is likely to experience another push higher.

Earnings season was better than expected, the averages are in positive territory for the year, and leading stocks have been holding up very well. Color me still constructive on the market, at least for the near-term.

Wednesday, August 04, 2010

Is Today's ADP Employment Report A Positive Precursor to Friday's Jobs Numbers?

The market is slightly higher in early trading after a couple of better than expected economic reports, and some more strong earnings.

Last night, Priceline (PCLN) reported very strong earnings and guidance, and the stock has surged +20% higher in early trading, up $50. Why did we sell that one again?!? Oh yeah, something about a slowdown in Europe hurting their business. Ugh.

In economic news, the ADP Employment report came in better than expected showing 42,000 jobs were added to the private sector in July. This report doesn't always correlate well with the govt. payrolls report (due out Friday), so we'll have to see if Friday's numbers top the consensus as well. Right now, estimates for Friday's payroll report is for a loss of 100,000 jobs.

Also, the ISM Services Index for July came in above expectations at 54.3, up from last month's reading of 53.8.

Asian markets were mixed overnight, and Europe is lower this morning. The euro is finally lower today, boosting the dollar. Commodities are mixed; oil prices are down a bit to $82.20 after a big rally yesterday, and gold prices are higher, back near the $1200 level.

The 10-year yield is again trying to bounce from those low 2.90% levels, currently higher to 2.95%; and the volatility index is just slightly higher at 22.73.

Trading comment: Yesterday I mentioned that I wanted to see the S&P 500 hold the 200-day average above 1114, and that is exactly what happened. We'll see how today goes, but if we can hold around these levels, I think it puts the market in good shape for another move higher, and above the June highs (SPX 1131).

Friday's employment report is always a wildcard, and can cause some volatility in the market. But overall the action is constructive, and favors the bulls at this juncture.

Tuesday, August 03, 2010

Stocks Pull Back After Yesterday's Rally

The market is a bit lower in early trading after a couple of soft economic reports and some earnings misses as well.

Most earnings reports have come in strong this reporting season, but today Proctor & Gamble (PG) and Dow Chemical (DOW) both came up short of expectations, and their stocks are lower as a result.

In economic news, factory orders for June were also below expectations at -1.2% (vs. -0.5% consensus). And pending home sales for June decreased -2.6%, but that was actually better than forecasts.

This morning's pullback likely also has some profit taking going on as well. If this news was out yesterday, it probably wouldn't have halted the rally. But today the tone is softer, and so these types of news hitting the wires get used as an excuse to do some selling.

Asian markets were mixed overnight, with Japan rallying but China falling after reports that there could be further increases to bank reserve requirements in China. I have to admit, there are a lot of cross currents coming out of China, making the bull/bear debate between a soft landing and further tightening very difficult to handicap.

The dollar is lower again, extending its recent slide (which is getting long in the tooth). This is helping boost commodities, with oil prices higher to $81.50 and gold still hovering around $1187.

After a brief one-day bounce, the 10-year yield is back down to testing the 2.90% level. The volatility index is also at low levels, up slightly today to 22.33.

Trading comment: Yesterday's action was very strong, and market breadth was positive. The major indexes are now back into positive territory for the year. Looking at the oscillator chart below, the market is now back into overbought territory, so I would not be surprised to see some backing and filling in the near term.

The S&P 500 is now above its 200-day moving average, which currently sits near 1114. Ideally, this 1114 level will now act as support, and after the market works off its current overbought condition, we will see more upside ahead. Ideally being the key word.

Monday, August 02, 2010

Monday Morning Musings

The market is sharply higher in early trading, following strong overseas action. Asian markets were higher overnight after China's PMI report showed a little cooling, which eased fears of tighter monetary policy. In Europe, upbeat earnings from some of their largest banks helped boost markets.

Here in the U.S., the ISM Manufacturing Index for July rose to 55.5, better than the 54.2 that was expected.

The dollar is lower again, and this is helping boost commodities. Oil prices are above the $80 level near $80.85; and gold prices are up a bit to $1187.

Among the sector ETFs, energy is leading the way (+3.0%), followed by materials (+2.20%); consumer staples are lagging (+0.85%), but all 10 major sectors are higher.

The 10-year yield is bouncing from Friday's of the 2.90% level, currently up to 2.95% (which is still a low level overall); the volatility index is down -4.85% to 22.35 currently (last week's low was 21.86).

Trading comment: Last week I suggested that if the S&P 500 could just consolidate in a benign fashion after running into resistance at its overhead 200-day average, that it would probably be in good shape to make another stab at it. Today that is what we are seeing. The SPX has spiked through that level (currently at 1114). This is very positive action. And market breadth is solid with upside volume levels running near 90%.

Additionally, the S&P if it stays up here is now back into positive territory for the year. That will start to put increasing pressure on portfolio managers to put cash to work to continue to keep pace with the averages.