Monday Morning Musings

The market is nicely higher in the first hour of trading, after last week's pullback. Asian markets were higher across the board overnight after China's Premier said the China's economy is expected to grow by approx. 7% over the next five years.

The dollar is weaker this morning, but its effect on commodities is mixed. Oil prices have fallen back to $97.75 after Saudi Arabia has reported it fulfilled its promise to cover the supply shortage from Libya. Gold prices are higher to $1413.

In economic news, the Chicago PMI rose to 71.2 in Feb., well above expectations of 67.5.

Earnings season starts to wind down this week, although there are still a few companies left to report. But overall it was another solid earnings season, and now folks will begin to look at Q1 and Q2 EPS.

The 10-year yield is lower to 3.41%; and the VIX is also lower by -4% near 18.42.

Trading comment: Some of today's bounce could be month end buying as funds do some window dressing. Some folks are also pointing at the bullish tone struck in Warren Buffet's annual letter. Regardless, volume has been light on these bounces, and the market isn't out of the woods yet. Friday's jobs report looms large as well. I still think the market has some more work to do on the downside, but one never knows. That is why I put some money to work into last week's decline, just in case I'm wrong about seeing more downside. But for now, let's see if today's early strength holds and how the day's volume comes in.

GDP Revisions Lower Initial Growth Estimates

The market is rallying in early trading, lessening the declines for the week. If the market closed at current levels, the S&P 500 would be down roughly -2% for the week. From its recent peak to trough, this correction has been about -3.7% so far.

Unrest in Libya is still in full force, but news that Saudi Arabia was raising oil production has calmed he oil markets a bit. Oil prices are steady right now, near $97.45. Gold prices are down a little to $1403.

In economic news, the second read on Q4 GDP indicated that the economy expanded at a 2.8% rate, which is lower than the initial estimate of 3.2%. This is a slight negative, but I think most participants are looking for strong GDP readings starting in 2011 and firming throughout the year. On the consumer front, the Univ. of Mich. sentiment survey rose to 77.5 in February, the highest reading since January 2008.

In corporate news, there was a strong batch of earnings reports in the tech sector last night, including CRM, ADSK, and AMAT.

Asian markets were higher overnight; the 10-year yield is lower to 3.43%; and the VIX is currently plunging -10% back down below 20 to 19.08.

Trading comment: This is the normal course for markets. After a sharp 3-day selloff, the market had become oversold, so a bounce was in the cards and should be expected. But it doesn't mean we are out of the woods yet. It is possible, but the odds still favor more of a pullback after some relief to the selling. My game plan was to put a little money to work during the first phase of the selloff, and then step back. If we get a second wave, I will look to do a little more. But if you look at most market corrections, the typical duration is somewhere in the range of 3-6 weeks, so we are still early in terms of how much time has elapsed.

long CRM

Oil Prices, Mideast Turmoil Still Weighing On Sentiment

The market tried to rally in early trading, but the lift has been somewhat muted and lacking real buying power.

Ongoing social unrest in the Middle East has kept oil prices high, and is weighing on investor sentiment. If high oil prices lead to higher prices at the pump, that could crimp consumer spending and be a headwind for the economy. And many emerging markets are less resilient to higher energy prices than the U.S.

Brent crude oil hit $113.75 this morning, while WTI prices are hovering near $99.25. So far, that $100 level has acted as a bit of resistance for WTI prices, but we will have to see if it holds.

Other commodity prices are mixed. Gold prices are not rallying again today, falling slightly to $1413. And cotton futures are limit down for the fourth consecutive daily loss.

In earnings news, Priceline (PCLN) reported a strong quarter, and the stock surged +10% in early trading. A reader asked me last week my thoughts going into earnings, and I replied that I felt the recent pullback lessened the risk, and a strong report should lead the stock to rally. Glad I held on. VRX, TGT, and KSS are also seeing their stocks higher after earnings.

In economic news, new home sales fell -12.6% in January, reversing the prior months 15.7% gain. Housing seems to merely be bouncing along the bottom, unable to really mount a rebound that lasts for more than a few months. Weekly jobless claims fell more than expected.

Asian markets were mostly lower overnight. China bounced slightly, but India was very weak; the 10-year yield is lower again to 3.42%; and the VIX is down 4% today to 21.20, despite the ongoing heightened geopolitical concern.

Trading comment: Volume rose on the Nasdaq during yesterday's decline, making for another distribution day. That brings the count to roughly 5 distribution days in the last several weeks, which is another red flag. I think as long as Libya stays in the headlines, and oil prices flirt with $100, we are going to be in sell mode and stocks will be unable to mount sustainable rallies. As such, I want to space out any dip buying I do. I put a little cash to work yesterday, and now I'll take a step back to assess the price/volume action. The 50-day average on the SPX is at 1287 currently, a level that should come into play at some point.

long PCLN, VRX

How High Will Oil Go?

The market was up briefly after the open, but has since rolled over and is under selling pressure again. Just about everyone will point to the turmoil in Libya and concerns it will spread into the middle east, but we know that the news breaks with the cycles. That is, the market was overbought and due for a correction. So I think it could have been any news that would have served as the selling spark. But Libya gets the credit.

That is not to make light of the situation, or the real concerns about rising oil prices. Nymex crude prices are up near $97.50, while the Brent crude (like that of Libya) has hit $110 already. Rising oil prices could crimp economic growth if they persist, and prices at the pump are likely to rise as well. So that is the trend that bears watching. But if Libya cools, I could see oil prices falling back quickly.

While energy prices are higher - gold is up near $1415 also - most industrial and ag commodity prices are lower today.

Tech stocks are lagging today after a poor earnings report from HPQ and a big drop in its stock.

Asian markets were mixed overnight; the dollar is surprisingly weak today, at the expense of a rising euro; the 10-year yield is lower to 3.44%; and the VIX is another 4% higher to 21.70.

Trading comment: The SPX has broken support at its 20-day moving average (1315), and the next support area is the big round number of 1300. After that, the 50-day average comes into play at 1286. The Nasdaq is already at its 50-day average today (2723). I want to start dipping my toe in and adding to some stocks that have pulled back. I am starting with the more "blue chip" type names. Many of the growth leaders that have had such big runs likely have more consolidating to do, as they were more extended. For those types, I want to see them build new bases and then start to look for breakouts from those bases. We are not there yet.

Will Libya Halt Oil Production?

The market is trading lower this morning amid fears surrounding the turmoil in Libya. Libya has the largest oil reserves in Africa, so that is where we are seeing the most concern. Oil prices have spiked all the way to $95, and there is concern that prices could hit $100.

If oil continues higher and prices at the pump here in the U.S. begin to approach $4, that could be a headwind for the economy and dampen consumer spending. But let's see what happens with Libya first.

The usual flight to safety is on. Investors are flocking into Treasuries, pushing the yield on the 10-year yield down to 3.50%. Gold prices are also rallying, as buyers push prices back above the $1400 level.

In economic news, Consumer Confidence for February was released this morning, and hit its highest levels in almost three years at 70.4 (vs. 67.0 consensus). Rising consumer confidence would be a nice boost for the economy.

Asian markets were lower across the board overnight, with most markets down in excess of 2%. News that Moody's lowered the outlook for Japan only exacerbated the selling.

For its part, the volatility index (VIX) is spiking +14% higher this morning to 18.70.

Trading comment: The market was overbought coming into today, and obviously due for a correction. If oil prices continue higher, then this could turn into a deeper pullback, but if the Libya situation is contained I don't think this will be more than a normal consolidation. At this point, I think it is likely buying comes back into the market before anything more than a 2-3% dip. But for now, I am holding off on new buys, hoping for a little more of a pullback in prices.

long VIX calls

Weekly Recap

Here is Briefing.com's Weekly Wrap:

The major indices logged another weekly gain, with the S&P 500 climbing 1.0% after posting modest gains in four of the five sessions. The S&P 500 and Dow hit fresh two year highs, while the Nasdaq hit a three-year high and is 30 points away from its 2007 high. Overall it was a relatively slow week, with energy stocks acting as the primary driver of this week's gains.

Eight of the 10 sectors advanced. Energy (+3.7%) led the way as oil gained 0.7% and a dividend hike from ConocoPhillips (COP +7.0%).

ConocoPhilips rallied 7% after raising its quarterly dividend 20% to $0.66 per share, adding $10 bln to its share repurchase program and approving $13.5 bln in capex in 2011.

FedEx (FDX +3.0%) issued an earnings warning. But the stock managed to gain as the company cited rough weather.

Dell (DELL +10.5%) rallied on better-than-expected earnings results and guidance.

In economic news, retail sales increased 0.3% in January (Briefing.com consensus +0.5%). Excluding autos, they also rose 0.3% (Briefing.com consensus +0.6%). The January figures followed on the heels of downward revisions for December, which showed total retail sales up 0.5% (prior +0.6%) and retail sales excluding autos up 0.3% (prior +0.5%).

Retail sales have now risen seven months in a row. The Producer Price Index increased 0.8% in January (Briefing.com consensus +0.7%) on top of a downwardly revised 0.9% increase in December. Core prices, though, were up a stronger than expected 0.5% (Briefing.com consensus +0.2%), which was the largest rise since October 2008.

Core prices exclude food and energy. The jump in January was attributed primarily to the index for pharmaceutical preparations, which was up 1.4%, and higher prices for plastic products.

The January figures left total PPI up 3.6% year-over-year and core PPI up 1.6%. The Consumer Price Index for January validated the last point. Overall prices rose 0.4% while core prices, which exclude food and energy, increased 0.2%. The Briefing.com consensus estimates called for increases of 0.3% and 0.1% respectively.

Increases in the food and energy indexes accounted for over two thirds of the all items increase, according to the Bureau of Labor Statistics.

On a year-over-year basis, total CPI is up 1.6% and core CPI is up 1.0% versus 1.5% and 0.8%, respectively, in December. This is an encouraging uptick that supports a disconnect from a trend of disinflation.

Separately, initial claims for the week ending February 12 jumped 25,000 to 410,000. That was close to the Briefing.com consensus estimate of 408,000 and left the 4-week moving average fairly steady at 417,750.

In commodities, silver climbed to a thirty year high and the CRB Index climbed 1.2%.

The U.S. stock and bond market is closed Monday in observance of President's Day.

Early Look: More Tightening In China

The market is doing its thing again, hanging around near the flat line. Apple (AAPL) is holding back the Nasdaq as rumors swirl about the health of Steve Jobs after no photos were released from last night's dinner with Obama.

There was another batch of stocks that gapped nicely higher after reporting earnings, including ARUN, BRCD, VMI, and SPWRA.

Asian markets were mixed overnight, with China pulling back after they hiked their reserve requirement ratio another 50 basis points. China's market has been up for four straight weeks, but the continued monetary tightening has many participants worried about cooling growth.

The dollar is lower and commodities are mostly higher. Cotton prices were limit down this morning after reaching all-time highs yesterday. But oil and gold are both higher, to $87.28 and $1385, respectively.

The 10-year yield is bouncing to 3.63%; and the VIX is down 1.8% so far to 16.30.

Oil Not Rising Despite Geopolitical Tensions

The market was lower in early trading under mild selling pressure, but since then things have started to firm up and the declines are fading.

Commodities are rallying as there is some weakness in the dollar. Cotton is hitting more new highs, and gold prices have rallied back to $1380. But oil really can't get moving, and is lower near $85.15. This comes despite the news that Iran is sending war ships to the Suez. Normally, this would cause a big spike in oil prices. So the lack of strength in oil could be portending more weakness once the geopolitical scene eases.

In economic news, the Philly Fed survey surged to 35.9 (vs. 21.0 consensus), which marks the best reading in several years. It is surprising how many indicators we have seen lately hit levels that mark multi-year highs. Corporate earnings should surpass their all-times this year, which makes it more likely that the equity markets should reach new highs in the near future as well.

In corporate news, we got more earnings reports. Strong reactions can be seen in stocks such as WMB, TBL, and NVDA. While negative reactions are hitting NTAP and LIZ.

Asian markets were higher overnight, after strong GDP reports in Taiwan and Singapore. The 10-year yield is lower to 3.56%. And the VIX is up 1% near 17.0.

Trading comment: Semi stocks are especially strong. Look at VSEA, CYMI, LRCX to name a few. And the semi etf (SMH) continues to make new highs also. Energy stocks are strong so far today, while financials are lagging. Tech is solid as well, except for AAPL which is not participating today.

long AAPL

S&P 500 Reaches Milestone From March 2009 Bottom

The market is higher again, and there is a reason than some people have been watching this SPX 1334 level. You see, at the bear market bottom reached in March 2009 the SPX touched 667. Today, less than 2 years from that low, the market has now rebounded fully 100% from the bottom.

To be clear, the market is up 100% from the bear market bottom, but has yet to fully recoup all of its losses. It still needs to get back to SPX 1576, which would require an additional 18% rise from current levels.

The march higher in recent months has been relentless, and it certainly feels like each small dip is being bought as the fear of missing out on future gains is finally beginning to set in. Not to mention that stock funds saw 3 consecutive years of outflows at the expense of bond funds, so a reversal of that trend would be normal.

In corporate news, there were more good earnings reports last night. Deere (DE) topped estimates and raised guidance; ditto for DELL, and Comcast (CMCSA) also had a strong report. All of these stocks are nicely higher today.

Markets in Asia were higher overnight; the dollar is up slightly so far, and commodities are mixed; oil prices are lower near $84.80, while gold prices are higher to $1371.

The 10-year yield is a touch higher at 3.63%; and the VIX is down -3.1% so far to 15.86.

Trading comment: Sometimes the hardest thing to do is just do nothing. Sit tight and let your winners run, as they say. Famed investor Jesse Livermore said that he made his biggest gains by just sitting on his hands. It is very tempting to take profits on things, but the best course has been to hold. I took profits on MERU the other day, as I felt the big spike higher would surely be retraced. But after a very brief pause, it is much higher again today (without me).

long DE

The Song Remains The Same

The market is lower again in early trading, but it remains to be seen if the bears can gain any traction, or if the market will once again rally into the close. The financials are bucking the early weakness and trading in positive territory, so that is at least one sign that the selling isn't that pervasive.

Yesterday's winners, namely energy and materials, are down the most this morning. Advance retail sales for January came in at +0.3%, which was less than expected.

Asian markets were mixed overnight. China's CPI showed a 4.9% increase, up from last month's 4.6% rise. European markets are also mixed after eurozone GDP for Q4 grew by 0.3%.

The dollar is lower today, and most commodities are mixed. Oil prices are lower again to $85, while gold prices are rallying back to $1372.

The 10-year yield is lower to 3.60%, and the VIX is bouncing +3.6% to 16.53.

Trading comment: CRM continues to build its base as the cloud stocks mend themselves. And PCLN continues to add to its gains. Group rotation continues. Today energy and materials are seeing profit taking, while financials are rallying. That has been the hallmark of this multi-month rally. Corrections have come in certain sectors, in the form of group rotation, as opposed to the whole market being sold off at one time.

long CRM, PCLN

Monday Morning Musings

The market is slightly higher in early trading, after a strong finish on Friday and positive overseas action overnight.

Asian markets were higher overnight, led by a 2.5% gain in China. European markets are mixed this morning.

There haven't been any big corporate news items, nor any major economic releases. The dollar is rallying again, but most commodities are still higher on the day.

Gold prices are higher to $1365, while oil prices are lower again falling back to $85.72.

The energy sector (+1.21%) is the strongest sector so far, followed by materials (+0.88%). Utilities (-1.03%) are the weakest sector. Among industries, semis (+0.89%) are leading, while homebuilders (-1.14%) are among the biggest laggards.

The 10-year yield is lower to 3.62%; and the VIX is currently +2.5% higher to 16.08.

Trading comment: The market continues to march ahead, with little change in the action. When the bears can't knock the market lower, it appears that short-covering surfaces and helps push the market further to new highs. This looks like what happened on Friday as well. The market has been showing a patter of opening lower, but when the bears can't gain traction, the market reverses and closes on a high not. This is the 'stair-step' action that I often refer to.

The cloud computing stocks continue to build their bases, and CRM looks like it is in the best shape so far. Networking stocks are still hitting new highs daily, and semi stocks are strong as well. SNDK has come roaring back, and is now poised to breakout to new highs soon. I am focusing on tech stocks, but there are also plenty of leaders among the energy and industrial sectors as well.

long CRM, SNDK

Back In The Saddle

The market pattern looks similar to the last several days, where there is some brief selling in early trading, but then the market firms up into the close. This has kept the long-awaited correction at bay, and helped propel the Dow to an 8-day win streak.

Asian markets were mostly lower overnight (except China), and Europe is lower this morning. It was just announced that Egypt's president could step down and let the VP lead. This should offer some relief in the financial markets over there, although oil prices are still trading higher on the day.

The dollar has been higher on these middle east concerns, and that is pressuring most commodities today. Gold prices are lower to $1352.

In earnings news, Cisco (CSCO) and Akamai (AKAM) both offered tepid guidance, and their stocks are getting hit this morning. On the upside are Whole Foods (WFMI), which raised guidance, and Prudential (PRU). Both of those stocks are higher, with WFMI up by a lot.

In economic news, weekly jobless claims fell below 400,000 for only the second time since July 2008, which could be a good sign. As Bernanke said yesterday, unemployment has remained stubbornly high.

The 10-year yield is higher again to 3.68%; and the VIX is +3.5% higher to 16.45, but still trading below its 50-day average.

Trading comment: Sector rotation continues. Today, tech is out of favor (CSCO, AKAM), but food and restaurant stocks are strong, and materials stocks are bouncing as well. And the real estate etf (IYR) is at a new multi-year high. The market remains fairly overbought, but that has been a persistent condition for the last couple weeks, and hasn't been a good sell indicator. I think most participants remain in dip-buying mode for now.

Also, the cloud stocks (FFIV, CRM, VMW, etc) continue to work on putting in new corrective bases. This is constructive, and I wouldn't be surprised to see these stocks back on the leaders list at some point. Networking stocks (APKT, ARUN, RVBD, etc) remains strong right now, but the leader list is fairly broad, with good representations from a wide variety of industries.

long CRM, FFIV, IYR

Scheduling Conflict

We will be back on Thursday, Feb. 10th

Jobs Report Disappoints Again, Despite Surprising Drop In Unemployment Rate

The market was higher in early trading, but has since started to rollover and give back its early gains. Earnings reports have been good for the most part, but the economic data was mixed.

The nonfarm payrolls report for January was disappointing. Economists were looking for 148,000 jobs to be added, but the number came in at just 36,000. And private payrolls added was just 50,000. That's not the robust employment figures we would expect at this point in the economic recovery.

The unemployment rate fell from 9.4% to 9.0%. This doesn't really job with the small increase in payrolls, and is actually a result of changes in the calculation in prevailing population estimates. That is the kind of stuff that leads people to believe the numbers are being fudged.

On the earnings front, fiber optic stocks are on fire this morning after a strong report from JDSU. Stocks like AET and SRCL are also higher after earnings. On the disappointing side are LVS and CSTR.

Markets in China and Hong Kong remained closed for holidays, but Japan gained 1.1% overnight. Europe is slightly higher this morning.

Despite the lackluster jobs report, the yield on the 10-yr Note is moving higher, and breaking out of that 6-week trading range I have been commenting on. Today the yield is up nearly 10 basis points to 3.64%.

As for the volatility index (VIX), it is moving lower to 16.67.

Trading comment: More leading stocks are coming out of their recent corrections and look poised to move to new highs. CMG looks good, as does LULU. Yesterday we bought a little PCLN, which also looks poised to breakout to new highs soon. And the list goes on. After a big run in the energy sector, we could be seeing some rotation with profit taking in those names and buying resuming in the tech sector. Networking stocks are strong, chip stocks are up today, and cloud computing stocks are making a comeback as well. Happy hunting.

long PCLN, VIX calls

Market Ignores Strong Round of Economic Data, Retail Sales

The market is lower in early trading, despite a batch of solid economic news and a raft of better than expected same-store sales reports from retailers. There was also another round of earnings reports coming out last night and this morning, with mixed reactions among those stocks reporting (V, NOV, HIG, MRK, CVS, CI, etc).

A couple of notable retailers included Costco (COST), whose strong report spiked the stock to a new high this morning. And BJ Wholesale (BJ), which is rocketing higher after the company said it would pursue strategic alternatives (read: sell itself).

In economic news, the ISM Services index rose to a better than expected 59.4, which marks a five-year high. Weekly jobless claims fell by more than expected, and nonfarm productivity for Q4 rose 2.6%, above estimates. Also, unit labor costs fell -0.6%, dampening inflation fears. The 10-year yield is higher on the solid economic reports, topping the 3.50% level.

China and Hong Kong markets were closed overnight, and Japan fell slightly. Europe is also lower this morning as conditions in Egypt have become more violent.

The dollar is rising today, which is weighing on commodities. Oil is down slightly to $90.68, and gold is also a little lower near $1328. The volatility index (VIX) is higher by 1.3% to 17.50.

Trading comment: More growth stocks are emerging from their recent corrections, which makes me think we are more likely to see sideways consolidation for the overall market than an outright correction. But as we know, anything can happen, which is why we monitor conditions daily. Nonetheless, I am buying partial positions in breakouts I am seeing with an eye towards adding to them on pullbacks. Some of the stocks I am eyeing include CMG, LULU, PCLN, and GILD to name a few.

ADP Jobs Report Strong For A Second Month

The market is mixed in early trading, as earnings reports continue to roll in as well as some economic data.

On the earnings front, we are seeing positive reactions in names like APKT, DIS, ERTS, and CAT. Negative reactions to earnings are hitting stocks like BRCM, AFL, and WHR (to name a few).

In economic news, the ADP Employment report showed an increase of 187,000 jobs in January, above expectations. Last month's figure was revised lower to 247,000, which is still the highest tally since 2006. The early consensus for Friday's payrolls report is for a gain of 140,000.

Asian markets were higher overnight, while China was closed for a holiday. The dollar is higher today, which could be weighing on gold prices. Gold is a bit lower to $1337. But oil prices are higher today near $91.35.

The 10-year yield is higher again at 3.45%. It would need to top 3.56% to break out above its recent 6-week range. The VIX is a touch lower near 17.50.

Trading comment: Yesterday's action was surprising in its strength. Some of this was likely a combination of short-covering by hedge funds that loaded up on the short side when Egypt broke out, as well as some first of the month buying by mutual funds. There are plenty of strategists out there still calling for a pullback this month, but so far their calls have gone unanswered.

While the market leaders corrected late last week, other sectors like energy and ag took the lead. So it was more of a market rotation than a full blown pullback. I have added to a couple names recently (EMR, WDC, etc). So while I still have cash to put to work, I want to take advantage of specific buying opportunities as setups present themselves.

long EMR, WDC, VIX calls

Stocks Surge After Strong Manufacturing Data

The market is spiking higher again today, after a round of better than expected manufacturing reports, both here and abroad. The PMI for the UK rose to 62.0, its highest reading since recordkeeping began. The Eurozone PMI also rose to 57.3 last month. Here in the U.S., the January ISM Manufacturing index rose to 60.8, the highest reading in years.

Asian markets were higher across the board overnight, and Europe was nicely higher this morning. Greece's stock market rose 4% following an upgrade from Credit Suisse.

There was also another strong batch of earnings reports, including the likes of BIDU, APC, UPS, and PFE.

The dollar is down today, and so are most commodities. Gold prices are lower near $1329, and oil prices are down slightly at $91.89, after a big rise yesterday.

The 10-year yield is higher to 3.43%; and the volatility index (VIX) is down -10% today to 17.57, a big drop from its recent trip up to the 20 level.

Trading comment: The S&P 500 has rallied right back to its recent highs above the 1300 level. Yesterdays rally came on lighter volume, which is not what you want to see, but today I am seeing more stocks break back out to new highs.

When the market leading stocks began to correct recently, it looked like a sign the market needed to take a breather. But if those leading stocks quickly turn around and begin to move back to new highs, that would be telling. I don't want to make too much of one day's action (today), so we'll have to see if this trend continues or if the market is simply going to consolidate a bit longer around these levels.

long VIX