Monday, June 13, 2011

Merger Monday Makes A Comeback

The market is slightly higher in early trading on Monday, but not quite as much as I had hoped we might see after Friday's sharp selloff. Last week's decline market the 6th straight weekly decline for the market, a streak not seen in quite some time. With the markets oversold again, and bearish sentiment growing, I think another bounce is likely overdue.

While there hasn't been any big market moving news this morning, we did see a wave of merger announcements. Namely, VF Corp (VFC) is buying Timberland (TBL) for $43, a hefty premium. Honeywell (HON) is buying EMS Tech (ELMG), also for a nice premium. And Gerber Scientific (GRB) will merge with Vector Capital for a big premium as well. So this wave of mergers shows that equity valuations remain attractive for acquirers.

The dollar is down today, but commodities are mostly weak also. Gold prices have fallen back to $1527, and oil prices are lower near $98.66.

Asian markets were mixed overnight, but China didn't announce another rate hike so far. The 10-year yield is higher to 2.99%; and the VIX is slightly lower to 18.75. It is a bit surprising that all of the recent selloffs have not been able to push the VIX above 20.

Trading comment: The bounce looks a bit tepid so far, but it is still early in the day. The market is very oversold, which makes a bounce this week more probable. That said, the markets remain in a big picture defensive posture, withe all the major averages well below their 50-day averages, and nearing their 200-day averages. I think the markets will likely bounce, but that the next leg down will likely bring the 200-day averages into play. That will likely present a better buying opportunity, so any near-terms buys are strictly for trades to play for a bounce.


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