Tuesday, January 25, 2011

Is The Bloom Coming Off The Commodity Rose?

The market is slightly lower in early trading, as sentiment from overseas raised some yellow flags and commodity prices continue to trend lower.

There was a good economic report this morning, when the Conference Board said that consumer confidence in January spiked to an eight-month high at 60.6 (vs. expectations of 53.5). But the CaseShiller Home Price composite fell -1.6% in November as the housing market still struggles to find a bottom.

Overseas, Asian markets were mixed after India raised its key rate 25 basis points to 6.5%. In Europe, the UK's economy contracted 0.5% in Q4 after it was expected to grow. There is also concern that Spain's savings banks could need capital infusions.

The dollar is bouncing on these concerns, and that is weighing on commodities further. The CRB Commodity index is near a 3-week low, with oil prices down to $86.75 and gold all the way back near $1328. It certainly looks like the uptrend in gold is broken for the time being.

Earnings reports continue to roll in, and the reactions in stocks have been mixed. Some positive reactions today include TRV, BHI, and AMGN. But on the flip side we got some disappointing reactions in MMM and JNJ.

The 10-year yield is flat near 3.41%; and the volatility index is up +1.9% to 18.0, hovering just below its overhead 50-day average.

Trading comment: Tough juncture right here. There are several yellow flags on the horizon, with tightenings in Asia and commodity-related stocks rolling over. Also throw in the negative reactions we've seen in former market leading cloud computing and networking stocks. But other names like AAPL and GOOG have held in, and other sectors seem to be holding up as well, so the overall market is still barely off its recent highs. As such, I still think it is probably okay to buy the dips as well as those stocks who have already reported strong earnings.



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