Monday Morning Musings

The market is trading higher in early trading, despite some weakness overseas as well as in some areas of the tech market in the US.

Energy and materials stocks are leading the action so far, while networking and cloud computing stocks are lagging. The action in some leading stocks like FFIV, APKT, ARUN, RVBD, VMW, etc. lends itself to the notion that the market has more of a correction ahead of it.

Asian markets were mixed overnight, with some markets like Thailand down 4% overnight on fears of rising inflation.

The dollar is slightly lower, which is having a mixed effect on commodities. Cotton and lumber futures were both limit up this morning, while oil and gold prices were both lower to $87.70 and $1343, respectively.

There were a couple of earnings reports this morning worth noting. McDonalds (MCD) reported in-line results while Halliburton (HAL) topped estimates and its stock is higher. There are plenty more earnings reports out this week, as well as the FOMC meeting and an advance look at Q4 GDP.

The 10-year yield is lower to 3.38%; and the VIX is also lower near 18.20.

Trading comment: On Friday, we sold our VMWare (VMW) position ahead of earnings today. That looks to be a good call so far as cloud computing and networking stocks are under severe selling pressure today. After the horrible reaction in FFIV last week to its earnings report, I didn't want to take any chances. These stocks likely have a multi-week correction ahead of them, but I suspect they will be back at new highs at some point later this year.

The overall market has barely pulled back, but if the action in these leading stocks is a precursor, then we could see a broader correction unfold. I am not doing any forced selling, but in the areas where we have taken profits recently, I want to be patient about putting the money back to work.

long HAL, MCD