Friday, December 31, 2010

Closing The Books on 2010

The market finished with another flat day, its 6th in a row, and volume was anemic again. Considering the market was down -6% as late as Aug. 31st, the rally in the latter half of the year was pretty impressive.

Here is a quick wrap-up from

Stocks were flat for most of the final session of the year, but ran into a flurry of selling in the final minutes. Their performance for 2010 was strong, though.

For most of December the stock market has made only incremental moves. This session was essentially the same as stocks spent the better part of the day hugging the neutral line before a late slip. Though most of the action has appeared to be a listless, sideways drift, today's narrow loss was only the fifth time in December that the S&P 500 actually settled lower.

Such a strong performance helped the benchmark index achieve a monthly gain of almost 7%, a quarterly gain of more than 10, and a near 13% gain for the year. Despite that, the S&P 500 is still at levels that were first seen in early 1999.

Telecom represented this session's strongest sector. It advanced 0.3% today, and 12% for the year. With a near 26% annual gain, consumer discretionary stocks made up the top performing sector of this year, but they ended today down 0.2%. In contrast, defensive-oriented health care and utilities made the most muted moves this year. They settled with annual gains of 0.7% and 0.9%, respectively.

Of the three major equity averages, the Nasdaq Composite closed out 2010 with the biggest gain. It advanced close to 17% this year. However, its performance today was lackluster as large-cap tech issues weighed on it throughout the session. Investors drove the Dow to a 11% gain this year. Caterpillar (CAT 93.66, -0.21) was the best performing blue chip. It ended 2010 64% higher than where it started.

Small caps and mid-cap stocks have had an even stronger year; specifically, the Russell 2000 and the S&P 400 both climbed about 25% this year. But today they fell 0.8% and 0.7%, respectively.

Little attention was paid to the dollar again today. It ended the day down 0.5% against a basket of competing currencies after it had notched a new one-month low earlier in the session. The greenback gained only 1.5% this year, however. Commodities had a quiet start to trade, but closed 2010 in impressive fashion.

Broad buying in the space sent the CRB Commodity Index 1.7% higher today. That helped to drive a 17.4% gain for the year. Among the more widely watched commodities, oil futures prices rallied out of the red to a 1.7% gain at $91.35 per barrel. Oil futures prices climbed 15.0% this year. Natural gas prices ended pit trade up 1.6% to $4.41 per MMBtu today, but down 20.7% for the year. As for precious metals, gold prices gained 1.1% to settle at $1421.95 per ounce. Gold futures prices climbed 29.6% this year and set a record high of $1431.10 per ounce in the continuous contract during the process. Silver settled the session with a 1.4% gain at $30.95 per ounce, which helped drive an 83.7% surge for the year. Just yesterday silver prices set a 30-year high of $30.90 per ounce in the continuous contract.

Treasuries put together a strong performance before closing early. The yield on the benchmark 10-year Note moved back below 3.30% for the first time this week.

Though the final trading day of the year marked a convenient time to put the stock market's moves into perspective, there weren't many traders around to read about it. Share volume on the NYSE came in just below 600 million, which is actually up from the past couple of sessions, but still well below the 1 billion shares that had been averaged each session at the beginning of the month. Participation is expected to pick up with the new year, though, since many traders will return from vacations and investors will be more willing to take on new positions in a fresh tax year.

With that, I want to wish everyone a happy, healthy, and prosperous New Year!!

Quote of the Day

"You were born to win, but to be a winner, you must plan to win, prepare to win, and expect to win."
Zig Ziglar: Motivational author and speaker

Thursday, December 30, 2010

Stocks In State of Suspended Animation

If you look at the chart of the market for the last several days you can see the extreme narrow movements. Today looks to be the 5th day of that pattern, so far. Of course, now that participants are becoming comfortable with this action, it would not surprise me to see the market take a little more of a hit tomorrow. That just seems to be the way these things go.

Market moving news is again sparse today, and I expect trading volumes to again be anemic. We did get a pending home sales report, which showed an increase of 3.5% for November. But that has done little to boost the market, which is hovering near the flat line on the day.

The dollar is lower again, but it is failing to boost commodities this time. Oil prices are down 1% to $90.15, and gold prices are 0.5% lower near $1406.

Asian markets were mixed overnight; the 10-year yield is higher to 3.40%; and the volatility index is +2.5% higher to 17.71.

Trading comment: I have been commenting for weeks how investor sentiment has become too complacent, and that makes a correction more likely. Lately, I have seen more and more people trotted out on CNBC calling for the same correction in January. We know that when everyone is looking for the same event in the market, it rarely happens. So that makes me a little less confident in my call, only become it is becoming a little crowded.

I still think a correction is coming, but maybe the timing of it will keep people off balance. It could be that the markets rally in the beginning of January, just to suck in more late-to-the-party bulls, and then we get the correction once everyone is off balance. This may sound like a convoluted thesis, but it's very common. Let's see how the beginning of January plays out, and I will update my thesis in real time.

long VIX calls

Wednesday, December 29, 2010

Stocks Continue To Levitate

Stocks are slightly higher again in early trading, as they continue to levitate around recent levels, while trading volumes remain low. I don't remember the last time I saw the S&P 500 close in such a narrow range for this many days.

This morning's positive tone comes after gains in overseas markets, both in Europe and in Asia. Even China was higher last night, for just the 2nd time in 11 sessions.

The dollar is lower, and commodities are mixed. Oil prices are down a tad near $91.33, while gold is up a bit to $1411.

The 10-year yield was higher, but is now a bit lower to 3.45%; and the volatility index is down 1.6% to 17.23.

There are no economic reports today, and little in the way of market moving news.

Trading comment: With volume this light, I think people are just marking time until year-end. There are some stocks that are breaking out and showing nice action (MOS, ROVI, etc), but they don't have a lot of volume behind them.

I think it is possible we could see a headfake in early January, where the market initially rallies due to new money coming in and getting invested, but then pulling back into a correction as sentiment has just gotten too complacent here and a shakeout seems likely.

long MOS, VIX calls

Tuesday, December 28, 2010

Will The U.S. Stock Market Follow China's Lead?

The chart below shows the relative performance of the U.S. stock market (pink line) vs. the Chinese stock market (black/red line). As you can see, for the most part, the two markets have moved pretty much in tandem with one another. That is, when the Chinese market began to move lower, the U.S. market would also succumb to weakness.

But if you look at the far right hand of the chart, you will see that this relationship has began to break down recently. To recap, Chinese stocks have been weak recently amid fears that the govt. would have to tighten monetary policy more to cool the economy and deal with creeping inflation. Two days ago the central bank raised rates another 25 basis points to 5.81%. This caused the Shanghai index to lose 1.9% in the following session and another 1.7% last night. The index has now closed just below its 200-day average as well.

So the big question now is, will the U.S. stock market follow suit, and turn lower in the immediate future. Or has this normal relationship began to decouple, and will the U.S. continue to move higher without playing follow the leader to China?

There are certainly plenty of red flags in China, namely the huge property bubble from which it looks like the air is beginning to escape. China's property stock index fell -3.5% last night, and is down -28% ytd. Engineering a soft landing is a difficult task, and China's govt. has less experience in this endeavor than some other more developed nations.

For the record, we have sold all of our direct China exposure (FXI), although we still hold various International funds. I think in the intermediate-term, the two markets can decouple and the U.S. will likely outperform China for awhile. The Chinese govt. has huge incentives to keep their growth engine humming, so I won't rule out returning to their markets longer-term, but right now I see formidable headwinds.

Monday, December 27, 2010

Monday Morning Musings

The market is down slightly in early trading, but there is not much in the way of newsflow. Volume will already likely be light this week after the Christmas holiday and before New Years eve on Friday. And with the giant snowstorms in New York, trading may even by lighter than usual.

The big news over the weekend was China's central bank announcing another 25-basis point rate hike, aimed at keeping inflation at bay. China's stock market fell -1.9% after the news. Japan had already closed with a gain, but I suspect most Asian markets will be lower in their first open session following the news.

Also look for retailers to be in focus as they start to leak initial reports of how strong or weak holiday sales were. So far, financials are leading the action in what looks to be like some sector rotation into a group that has lagged for several months.

The dollar is slightly lower today, and most commodities are lower as well. Oil prices are down a bit to $90.70, while gold prices are slightly higher near $1381.

The 10-year yield is higher again to 3.42%; and the volatility index is up nearly 9% to 17.95.

Trading comment: The market seems to be hanging in well on news of a rate hike in China, and Europe lower today as well. I think a lot of people are just trying to hang in there and let the remaining minutes for 2010 tick off the clock before making any big bets or repositioning portfolios for 2011. As such, I expect volume to pick up materially next week. But for now, I think most managers are just protecting their gains.

long VIX

Thursday, December 23, 2010

Bullish Sentiment Continues To Grow

The market is only slightly lower in early trading, after finishing higher again yesterday. I can only find a couple of down days this month. And the polls that are coming out with the strategists predictions for 2011 are pretty much universally bullish.

The weekly AAII poll that came out today showed bulls up to 63.3% and bears down to 16.4%. I haven't looked yet, but I'm pretty sure that's the most bullish reading we've seen since the market top in 2007 (I'll have to confirm that).

Asian markets were mixed overnight, as concern continues to linger surrounding the Korean peninsula. Europe was flattish this morning, with the sovereign debt issues there still a factor. There are always red flags on the horizon, the difficult part of the equation is figuring out if and when investors will worry to the extent that they begin to sell because of it.

The dollar is flattish again, and commodities are mixed. Oil is a bit higher to $90.70, while gold prices are trading down to $1375.

The 10-year yield is higher to 3.38%; and the volatility index is 4% higher to 16.10.

Trading comment: I am not doing all that much trading at this juncture, hoping that the market holds up into year-end, and I can look to do a little more trimming and raise a little more cash after 12/31. That would allow me to defer additional capital gains for another year, which is always preferable.

long VIX calls

Wednesday, December 22, 2010

Will Consumers Start To Fret Over Prices At The Pump?

The market is slightly higher again in early trading. If you have been trying to fade this market lately, you are likely in a world of frustration.

In economic news, existing home sales rose 5.6% in November, above expectations. The homebuilder ETF (XHB) is higher, and the REIT etf (IYR) is higher as well. Also, final Q3 GDP figures came in at 2.6%, which is slightly higher than earlier estimates of 2.5%.

In corporate news, Nike (NKE) and Walgreens (WAG) both reported solid earnings, but the reactions in the stocks are mixed. WAG is nicely higher, while NKE is selling off. I was also surprised to see TIBX selling off in reaction to better than expected earnings.

The dollar is flat so far, and commodities are mixed. Gold prices are off a bit to $1367, while oil prices continue to climb higher to $90.62. I wonder if investors/consumers will start to worry if oil rises to $100. The more important factor is obviously prices at the pump. I heard my parents talking last night about how gas prices in their town just topped $3, so I know it is on people's minds. Something to keep on the radar.

Asian markets were mixed overnight; the 10-year yield is flat near 3.32%; and the volatility index is another 3.7% lower to 15.88.

Trading comment: The persistent bid under the market remains, as stocks have not sold off one bit lately, and the desire to put money to work into year-end is evident. I have taken some partial profits, but for the most part remain invested into year-end. I do think that we have a correction looming on the horizon, so I want to be prepared. The sentiment indicators I follow are back to levels which have almost always preceded a correction in the past.

long TIBX, VIX calls

Tuesday, December 21, 2010

Commodities Hit New Highs On Dollar Dip

The market is higher again in early trading, as the buyers seem to show up each and every day lately. The S&P 500 surpassed the 1250 level this morning, a level that many investors associate with the "pre-Lehman" levels last seen in September 2008. As such, it is possible that the market could run into a little resistance at these levels.

The euro is getting a small bounce after China said it supports EU and IMF efforts to stem sovereign debt troubles in Europe. The dollar is weaker in turn, which is helping push commodities to fresh 2-year highs. Oil prices are higher to $89.85, and gold is up near $1390, but other commodities from copper prices to cotton futures have hit new all-time highs.

Asian markets also rose overnight amid easing tensions on the Korean peninsula. The 10-year yield is lower to 3.33%, and the volatility index is a bit higher to 16.55.

Among the sector ETFs, financials (+1.16%) are strongest so far, followed by materials (+0.90%). Consumer staples (-0.20%) are the laggards on the day so far.

Trading comment: Sentiment continues to be stretched up here, but it looks like fund managers have an agenda to put money to work before year end. But for anyone who doesn't have those performance pressures, I think a better buying opportunity will come on a pullback that almost always ensues when investor sentiment reaches these types of levels of complacency.

Monday, December 20, 2010

Monday Morning Musings

The market briefly poked its head into higher ground after the open this morning, but has since pulled back a little bit. One of the culprits mentioned has been a spike in the dollar and drop in the euro that occurred after the open.

The spike in the dollar is also weighing on commodities, with oil prices down to $87.79, and gold pulling back slightly to $1376.

Asian markets were lower overnight, but recouped much of their earlier losses after North Korea failed to respond to military actions conducted by S. Korea, as it promised it would.

There is not much else in the way of market moving news this morning on both the corporate front and economic data today.

Trading comment: Volume will probably lighten up as the week wears on, as we near the Christmas holiday. Chatter should also heat up about the potential for a 'Santa Claus rally', which I believe is supposed to start the day after Christmas. Given that the market is already up nicely in the month of December, and investor sentiment is near giddy levels, I would not be surprised if Santa doesn't show up this year for the markets (or maybe he already has).

That said, one can never rule out the potential for fund managers to rush to put more money to work into year-end, which could buoy stocks, but is hard to handicap. At this juncture, I prefer to trim positions and take some profits where I have them, as opposed to making aggressive new bets.

Friday, December 17, 2010

Congress Extends Bush Tax Cuts

The markets are mixed this morning, with the S&P 500 slightly lower despite Congress extending the Bush tax cuts last night. The Nasdaq is up a bit, after both Oracle (ORCL) and Research In Motion (RIMM) reported strong earnings and saw their stocks rally.

The fact that the market isn't up a bit more likely speaks to the fact that we are in overbought territory right now, and sentiment has become a little complacent. The markets are basically flat for the week, which is pretty good as the markets have refused to give back any of their recent gains.

The euro is lower this morning after Moody's cut Ireland's credit rating five notches. Seems like those guys are a little late if they had to jump down five notches. The EU also approved a permanent bailout mechanism for debt-ridden countries that will go into effect in 2013. That seems awfully far off into the future given the speed with which the markets move these days.

The lower euro is boosting the dollar, but commodities are mixed. Oil is higher to $88.35, and gold is also up a tad to $1371.

The 10-year yield is lower to 3.40%, after a big multi-day rally; and the volatility index is falling further to new multi-month lows to 16.42 this morning. The VIX isn't the best leading indicator, but it sure isn't signaling any pickup in volatility in the immediate future.

Trading comment: Although the market has been very stubborn in terms of giving back its gains, the fact that we are overbought and sentiment is still complacent make me not want to chase this market. The leaders that sold off hard earlier this week haven't broken their 50-day averages, and some have come roaring back (APKT, CTSH, etc). I doubt I will make any moves on this options-expiration Friday.


Thursday, December 16, 2010

Looks Like Things Are Heating Up In Greece

Li Chang - KAM Advisors

The Song Remains The Same

Yesterday morning I commented that stocks were higher, but the pattern had been for them to fade late in the day. True to form, that formula played out again yesterday. Interestingly, stocks are up once again in morning trade, so we will have to see if traders press their bets once again in a bid to knock down stocks into the close.

In economic news, the Philly Fed report came in much better than expected, improving to 24.3 vs. 15 consensus. This has probably helped push bond yields higher again, with the 10-year yield now trading all the way up to 3.56%. That is the highest level since May 13th.

The euro is lower this morning after disappointing bond auctions in Spain, where yields were higher than previous auctions. That has buoyed the dollar, which is also weighing on commodities. Oil prices are down to $88, and gold has fallen back near $1364.

Asian markets were mostly lower overnight, save for India, which rose after it held its benchmark rate unchanged after six increases this year.

And the volatility index remains low near 17.64.

Trading comment: Leading stocks seem to be holding up after Tuesday's selloff, but I still want to watch them to make sure there aren't further breakdowns. Healthcare has been picking up the slack the last few days, so its nice to see the rotation in the market that keeps the major averages from giving back too much.

Wednesday, December 15, 2010

Will Today's Higher Open For Stocks Be Sold Into Once Again

The market is trading higher in early trading, the same pattern for the last few days. But on Monday and Tuesday, those higher opens were sold into and the market gave back most of the gains by the close. We will have to see if that pattern shows up again today or not. Most of the time, when the market opens strong and closes weak it is a sign of selling pressure that soon knocks the market lower, but this has not been the case yet.

In economic news, the CPI for November rose just 0.1%; the NY Empire Manufacturing index rose to 10.6 in November (vs. 3.0 consensus); and the NAHB Housing Index showed a reading of 16 (basically in-line with consensus of 17).

The euro is lower today after Moody's put Spain on review for a possible downgrade. Also, Portugal held a 3-month bill auction that showed weak demand. The lower euro is boosting the dollar, which is in turn weighing on commodities. Oil prices are down near $87.85, while gold prices are lower to $1390.

Asian markets were hit overnight after the Japan's Tankan survey showed a drop in confidence among large manufacturers for the first time in nearly two years.

The 10-year yield is down a little to 3.41% after another big spike higher yesterday. The sharp rise in yields yesterday may have exacerbated the selloff in growth stocks, so that bears watching.

As for the volatility index (VIX), it is still at low levels of 17.52.

Trading comment: Yesterday's sharp selloff in many leading growth stocks could be a warning signal that the complacency I have been writing about lately is coming home to roost, or it could just be another one-day wonder of profit taking. At this point, it's too early to tell. So I will continue to watch the growth leaders to see how they bounce back. If they continue along their uptrends, then the market should be okay. But if they begin to break their 50-day averages, etc, then that would be a signal to get more defensive. As for me, I took some profits yesterday, just to be cautious.

Tuesday, December 14, 2010

Are Investors Becoming Too Complacent?

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

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

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

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

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

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

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


Monday, December 13, 2010

Monday Morning Musings: Sentiment Concerns

The market is higher again in early trade, after Asian markets were up nicely overnight. China soared +2.9% after failing to hike its benchmark rate over the weekend as many had expected. They said they would maintain a strong growth policy despite rising inflation.

The dollar is lower this morning, which has been boosting stocks lately, and is also helping commodities. Oil prices are nearing $90 (currently $89.17), and gold prices are back to $1391.

The 10-year Treasury is up to 3.35%, its highest level since June. And the volatility index (VIX) is down to 16.80, which is its lowest level since April. As you recall, April wasn't the best time to enter the market.

Among the sector ETFs, energy (+1.35%) and materials (+1.07%) are leading the early action, while consumer staples (+0.07%) are lagging.

Trading comment: The ISEE call/put ratio closed at 230 on Friday, after hitting 208 on Thursday. From my limited work, 230 looks like a record close, and it is very rare to find 2 readings above 200. This is just another example of investor sentiment becoming too complacent at this juncture. The Rydex nova/ursa ratio is also rising to levels not seen since April.

We know from past instances of sentiment getting this complacent that it is just a matter of time before the market experiences some sort of correction. So it pays to be on your toes. It could happen tomorrow, or it might not happen until January. But the longer sentiment stays this complacent, the more likely it is that we will get another market correction. Something to factor into the equation and have a game plan for.

Friday, December 10, 2010

Rising Consumer Sentiment Buoys Market

The market is slightly higher again in early trade, despite the numerous calls for a pullback in this area. The University of Michigan consumer sentiment report helped this morning, when it came in at 74.2, it's highest level since June.

The dollar is a bit higher today, which is weighing on commodity prices. Oil is hovering near $88.25, while gold has pulled back to $1375.

Asian markets were mixed overnight, with China higher after reporting strong export growth figures (+34.9%). China's central bank announced that it raised the reserve requirement ratio for banks by another 50 basis points, as it looks to try to reign in inflation.

Last night, F5 Netorks (FFIV) and Netflix (NFLX) were both added to the S&P 500, so index fund managers are buying those stocks and both are higher today.

Among the sector ETFs, healthcare (+0.55%) is leading so far, while materials (+0.03%) are lagging. But all 10 sectors are positive.

The 10-year yield is up a bit today to 3.25%; and the VIX index is still at the low levels of 17.35.

Trading comment: The growth leaders continue to hold up well, and break further into new high territory. Coinstar (CSTR) looks poised to move higher; Valeant Pharma (VRX) looks to be completing a short cup-and-handle breakout; Sandisk (SNDK) is surging higher so far; and the list goes on.

Bullish sentiment continues to climb, which as I mentioned yesterday is a yellow flag. And while it will likely matter at some point, I am mindful of the fact that sentiment is a secondary market indicator, while price and volume action are your primary indicators. The trend is your friend.


Thursday, December 09, 2010

Stocks Refuse To Go Down Easily

The early tone of trading is generally positive this morning, as the market is up slightly. Newsflow has been generally light, although this morning's jobless claims numbers were better than expected.

Asian markets were mostly higher overnight, while Europe is up this morning. England's central bank held rates steady at 0.50% and maintained the size of its asset purchase program at 200 billion pounds. Ireland had its debt rating cut by Fitch to BBB+.

The dollar is roughly flat so far, while gold is bouncing back to $1391 and oil is near flat at $88.45.

The 10-yr yield had a huge 2-day rally up to 3.33%, but today is pulling back to 3.22%. The volatility index continues to hover at low levels around 17.60.

Trading comment: The equity put/call ratio has been very low the last 3 days, which often raises a red flag for the market. I sold some things yesterday, and I know a lot of people who are watching this and expected the market to selloff because of it. I am not so sure of the timing. I still feel that this month dips will be quickly bought into year end. But if we get a real sharp selloff, it is possible that it could shake the confidence of the dip buyers.

That said, I do think that the rising complacency shown in these put/call ratios will lead to a selloff at some point. Maybe it will be a January event. With volatility levels as low as they are now, one can certainly buy protection in the options market cheaply. Just food for thought. But in case you are wondering, I am not abandoning my call to stick with the growth leaders of this market.

Wednesday, December 08, 2010

Quick Look: Bond Yields Continue To Rise

The market is struggling near the flat line so far this morning, after somewhat disappointing action yesterday. Remember that the market opened strong yesterday on the news of the Bush tax cut extensions, but it would up giving back those gains by the end of the day.

Investor sentiment has become a bit complacent in recent weeks, so it may be that a little shakeout is in order between now and year end.

Asian markets were mostly lower overnight, and Europe lower this morning. The dollar is up for a third straight session, which is weighing on commodities. Gold prices are down more than 2% to $1376, and oil is also down near $87.75.

The big move is in the 10-yr yield, which has been spiking higher the last 2 days. Yields are up another 11 basis points today up to 3.28%. As for the VIX, it has not risen yet, and is still at low levels near 17.77.

Trading comment: The market action yesterday sometime speaks of a market that is a little tired. It would not surprise me to see the market rest here a bit. Then again, given that we are close to year end and performance anxiety is a factor, one cannot rule out the same action playing out where we see a 1-2 day pullback and then continued stairstep higher action.

Tuesday, December 07, 2010

White House Extends Bush Tax Cuts

The market is rallying on the news that the White House has extended the Bush tax cuts and also extended unemployment benefits. I don't think that anyone thought it might not happen, given how late in the year it is. But the Administration also added a payroll tax deduction and some better treatment for business investments.

That has helped the S&P 500 gap to a new high for the year this morning, and all 10 economic sectors are higher so far. Industrials and technology are leading the action, while defensive utilities and healthcare are lagging.

The flight-to-safety trade that we have seen recently is being unwound today. The dollar is lower, gold is trading down, and Treasuries are being sold in favor of equities. The lower dollar is also helping boost most commodities.

The selloff in Treasuries has pushed yields on the 10-yr Note to a new multi-month high of 3.09%. While that may seem high relative to recent levels, remember that it was just back in April of this year that the 10-yr was at 4.0%. So I could see us trading back toward those levels if economic data continues to improve.

As for the volatility index (VIX), it is hitting fresh lows again at 17.57.

Trading comment: No change to my recent comments and outlook in terms of the market. Leading growth stocks continue to move higher, and the question is really whether sectors that have been lagging will play catch-up at all? I am not playing it that way, but I am watching things like financials to see if they can get moving. If financials start to move higher, this market could really get cooking. As it stands right now, the S&P 500 is up 10% on the year.

It's also nice to see Google (GOOG) quickly recapturing its 50-day average today.

long GOOG

Monday, December 06, 2010

Monday Morning Musings

The market opened under a bit of selling pressure this morning, but has so far stabilized just under the flat line. The market had a very strong week last week, and the S&P just needs to close above 1225 (currently 1223) to close at a new 52-week high.

There is not much in the way of economic news this morning. The big news was comments by Bernanke over the weekend on 60 Minutes about the Fed's ability to provide further stimulus to the economy if needed. I watched the interview, and didn't think his comments were surprising.

In Europe, Hungary had its debt downgraded, and that is causing weakness in the euro and boosting the dollar. Commodities are stable, with oil flat near $89 and gold nearing new highs at $1415.

Asian markets were mixed overnight; the 10-year yield is lower to 2.95%; and the volatility index (VIX) is up slightly to 18.18, after hitting fresh 7-month lows last week.

Among etfs, materials and technology are the strongest so far, while healthcare and industrials are lagging. The big tech companies like Google (GOOG) and Apple (AAPL) are leading the action this morning.

Trading comment: Last week's action in the market was very positive, and it feels like the market will continue to stair-step higher into year-end. Goldman Sachs (GS) raised its forecast for next year, calling for the market to rise to 1450 on strong earnings, an improving economy, and steady, low interest rates.

Not surprisingly, the Nasdaq closed at a new high for the year on Friday, and that continues to be the neighborhood to troll for stocks leading the market.


Friday, December 03, 2010

Jobs Report Much Softer Than Expected

The November payrolls report was much weaker than expected, with just 39,000 payrolls added last month vs. expectations for 130,000. Also, the unemployment rate saw a surprising climb from 9.6% to 9.8%.

But one of the ways you know investors are in a forgiving mood lately is the reaction in the stock market. Normally, a disappointing jobs report could knock the market down 100 points at the open. But as I write this, the Dow is only down approx. 10 points, and the Nasdaq 100 is flat. That is pretty benign action, especially given that it follows 2 big up days in the market.

The dollar is lower on the jobs report, and also due to further strength in the euro amid diminished stress over sovereign debt and narrowing yield spreads on eurozone bond offerings. The lower dollar is helping commodities, with gold bouncing above the $1400 level and oil hovering at $88.00.

Among the sector ETFs, materials (+0.54%) are bucking the overall weakness and leading the action, while financials (-0.93%) are the big laggards so far.

The 10-year yield is lower to 2.96% currently, after briefly topping the 3.00% level earlier; and the volatility index (VIX) is down another -6% today, falling to 18.19.

Trading comment: The market leaders just don't quit here. Semis continue to act well also. I think performance anxiety could be a factor, as fund managers see the clock ticking on the year and are eager to add some performance wherever they can get it. So this means adding to your winners, and letting them run. Today's positive reaction to the jobs report supports the notion that the buy the dip mentality is in full force right now.

For those who are curious what some of the market leading names are, here is a partial list:
  • Apple (AAPL)
  • F5 Networks (FFIV)
  • VMWare (VMW)
  • (CRM)
  • Coinstar (CSTR)
  • Illumina (ILMN)
  • Rovi Corp (ROVI)
  • OpenTable (OPEN)
  • Akamai (AKAM)
  • Acme Packet (APKT)
  • Riverbed Tech (RVBD)
  • Panera Bread (PNRA)
  • Chipolte Mexican Grill (CMG)
  • SXC Health (SXCI)
  • Freeport McMoran (FCX)
  • (PCLN)
  • Alexion Pharma (ALXN)
  • Netflix (NFLX)
  • Deckers (DECK)

long aapl, ffiv, vmw, crm, cstr, ilmn, rovi, open, apkt, pnra, sxci, alxn

Thursday, December 02, 2010

Trichet Doesn't Bite At "QE2" in Europe

The market is adding to yesterday's outsized gains, which is a bit surprising but likely speaks to the underlying strength of this rally. The Dow gained a whopping 250 points yesterday, with the S&P 500 up a similar amount on a percentage basis. The SPX rose further to 1217 this morning, and is now just 10 points away from its recent 52-week high (1227).

Asian markets were higher overnight, with Europe higher this morning. The ECB left rates at 1.00%, but Trichet made no mention nor hinted at any plans to extend bond purchases. Nonetheless, the euro is bouncing for a second day at the expense of the dollar.

The lower dollar is helping boost commodities. Oil has risen further to $87.33, while gold has rallied above $1390.

In economic news, pending home sales for October came in much better than expected, spiking +10.4%, which is the best move in 10 years for this datapoint. Also, many retailers have reported same-store sales for November, which have been mostly solid.

The 10-yr yield is higher again today, and touched the 3.0% level earlier. As for the volatility index (VIX), it's down another -8% today below the 20 level to 19.66.

Trading comment: Although volume didn't rise enough yesterday to qualify as an accumulation day, breadth was impressive. New highs expanded nicely, and up volume on the NYSE totaled 93% of total volume.

The leaders continue to distance themselves from the pack, so no reason to shift away from that strategy. I will continue to buy the dips.

Wednesday, December 01, 2010

Chart of the Day: S&P 500 Struggles Withing Trading Zone

I have mentioned recently that the S&P 500 was stuck trading within this zone marked by its 50-day average as support, and its overhead 20-day average acting as resistance. You can see these two lines in the chart below.

Its 20-day average has also coincided with the 1200 level, a big round number analysts like to watch. This morning, the SPX has briefly pierced that 1200 level to the upside, but we need to recapture it on a closing basis for it to really count. It would also be nice to see volume levels exceed yesterday's tally, so we shall see.

There have been several distribution days (read: high-volume selling) in recent weeks, so we need to see this trend reverse. For that, we need to see rallies start coming on higher volume, and pullback come on decreasing volume.

The recent pullback in the market is roughly 4 weeks old, so that is certainly enough time for a market pause to have run its course. If the positive action continues from here, it will be a textbook shallow pause in the market, which lasted approx. 4 weeks and saw the S&P pullback about -4.5% from its highs.

If you look at the action of many of the leading growth stocks, they have continued to power higher in recent weeks. I like to think of them as leading indicators, which would lend itself to the notion that the overall market will play catch-up and enjoy a year-end rally from here. Of course, we need the flare-ups out of Europe to subside, but there are always thorns in the thesis, so that's not new.

ADP Posts Strongest Reading In Three Years

The market was set to open higher this morning after Asian markets bounced overnight and Europe was trading higher before our markets even opened. There were comments from ECB President Trichet that helped calm markets in Europe, and even hints of increased bond purchases by the ECB. There were also several positive PMI manufacturing readings from abroad.

But the news that really juiced our markets was the ADP Employment report, which showed that payrolls expanded by 93,000 in November. Not only is that much stronger than the 58,000 consensus expectations, but it marks the best reading in three years. This has investors optimistic that Friday's jobs report could come in strong as well. (current consensus for Friday is 130,000)

The dollar is lower, on big gains by the euro. But the euro has already started to fade a bit from its early highs. Commodities are mostly higher, with oil up to $85.75 and gold up slightly to $1388.

The 10-year yield is bouncing sharply to 2.92% today; and the volatility index (VIX) has fully reversed its huge bounce yesterday. So far it is down -12% back to the 20.80 level.