Friday, July 29, 2011

The Circus In Washington Continues

Yesterday's vote on Rep. Boehner's plan failed to garner enough support to go to a vote. One more black eye on the political process in Washington. Again, while most people will only look to those headlines and equate them to what is going on in the market, there is more to the story.

Preliminary readings on Q2 GDP came in below expectations at 1.3%. This is another datapoint highlighting the global economic slowdown we have seen recently. The Chicago PMI came in slightly above expectations at 58.8 (vs. 58.0 consensus).

There was another round of solid earnings reports, including the likes of SBUX, MET, CHK, and DECK to name a few. Most earnings reports have not garnered much attention as the debt ceiling talks have dominated the headlines.

The dollar is lower, and commodities are mixed. Oil prices are down near $96, while gold prices are higher to $1625.

Asian markets were lower overnight, and Europe was down this morning. Moody's has put Spain on review for a downgrade, and yields in Italy have been rising. The credit default swaps on most of the PIIGS nations have been breaking to new highs this week. Very few people are talking about this.

The 10-year yield is dropping sharply this morning, down to 2.85%; and the VIX has spiked to a 4-month high near 26 before settling back around 23.80 currently.

Trading comment: The markets opened sharply lower this morning, on disappointment over no debt deal and a lower than expected GDP reading. But within the first hour of trading, the selling seemed to dry up, and the markets began to rebound. Rumors on the trading floor was that traders wanted to get long ahead of the weekend in case a deal got done before the open on Monday. The markets rallied all the way back to positive territory as I am finishing this post. The SPX briefly touched its 200-day average at 1285, but has since recaptured 1300.

As for the fears about the debt ceiling, the chart below shows the persistent downtrend recently in the 10-year Treasury note. This is the exact opposite of the action witnessed in Italy, Spain, etc., where yields are rising. So the bond market isn't too worried about the debt ceiling.

long CHK

Thursday, July 28, 2011

Debt Ceiling Headfake

Most people are looking at the stalled talks about the debt ceiling as the culprit for the market selloff. But I think the debt talks are just a sideshow. If the markets were really worried about the potential for default and ratings downgrade, we would see that worry manifest in the bond market. Yields on the 10-year Treasury are still very low at 2.95%. So where's the worry?

All you have to do is look at Italy to see what real concern looks like. Italy held a bond auction yesterday for 10-year notes that saw the yield surge to 5.77% (from 4.94% previously). And bond yields have risen in many of the PIIGS countries in response to debt concerns.

A more likely scenario for the selloff in stocks is the global slowdown we are seeing. Emerson (EMR) talked about it yesterday and said how its affecting their sales. Other large industrials have said the same thing. The financials are also weak due to uncertainty about increased regulations here and possible capital raising requirements, and banks abroad are weak due to debt issues in Europe. All of these are more likely causes to the recent weakness in the stock market.

In earnings, one of our recent buys Borg Warner (BWA) is up 11% on a strong earnings report and raised guidance. This company continues to execute very well, in addition to be positioned for growth. On the flip side, the reaction in Stericycle (SRCL) looks overdone to me, as the company topped revenue estimates and only missed EPS by a penny. This is still a good growth story.

Asian markets were mostly lower overnight; commodities are mixed, with oil prices higher near $98 and gold lower to $1607; and the VIX is down -4% back near the 22 level after a sharp spike higher yesterday.

Trading comment: I still favor employing the strategy of picking at stocks that have pulled back to take advantage of the recent dip. I think that when the dust settles we will look back at this correction as another good buying opportunity. I also like to watch investor sentiment, which hasn't flashed the same signs of bearish extremes that we have seen at other trading bottoms, but we are starting to see some in terms of a spiking VIX and rising put/call ratios.


Wednesday, July 27, 2011

Markets Growing Impatient With Washington

The markets are lower again in early trading. The last couple of days have seen mild pullbacks, but this morning's selling pressure is more pronounced than we have seen. It is still early in the day, but the market seems to be growing increasingly frustrated with the delays in getting something done in Washington with respect to the debt ceiling.

Earnings reports have continued to come in strong for the most part. Amazon (AMZN) topped estimates and the stock is hitting all-time highs. Boeing (BA) and Aetna (AET) were strong also. Where we have seen weakness has been in the optical industry, and that likely hurt Juniper (JNPR) last quarter, as networking stocks have been laggards.

Asian markets were lower overnight, and Europe was down this morning. I think more than the debt ceiling, the continuing problems in Europe and the banks over there is weighing on investor sentiment. The euro is lower today on concerns about financials in Italy, U.K., etc.

Commodities are mixed, with oil trading lower to $97.65 but gold trading higher once again to new highs near $1625.

The flight to safety is not boosting Treasury prices today. Treasuries are lower, pushing the yield on the 10-year up to 2.96%. I think if the bond market were really worried about the debt ceiling, you would see these yields well above 3.00%, probably closer to 3.25% at least.

The VIX is getting jumpy this morning. It was more than 10% higher earlier, getting as high as 22.50. It has currently eased off from those levels, and is hovering around 21.85.

Trading comment: I still think that this whole debt ceiling show will prove to be a headfake for the market. Today is day 3 of this recent pullback, although the S&P 500 still remains above its 50-day average. (50-day for SPX = 1310). As the market continues to pullback, I want to continue to look for places to put money to work. I think the earnings picture remains strong, and that once this bit of uncertainty is behind us the markets should firm up and trade higher.

Tuesday, July 26, 2011

More Debt Ceiling Delays

The market is lower in early trading, although it is already bouncing from its opening lows. The President was on TV last night talking about the debt ceiling, and the continuing posturing that is going on. It's too bad that some are actually hoping for a market reaction to scare people into action.

There were more solid earnings reports last night, which would be garnering a lot more attention were it not for the debt debates. Positive reports came from Ford (F), Lockheed Martin (LMT) and Simon Properties (SPG). But Netflix (NFLX) gave lower guidance than the Street was looking for, and its stock is down -10% today.

In economic news, the Case-Schiller home price index fell -4.5% in May as the housing market continues to limp along a bottom.

Asian markets were higher overnight. India surprised markets by raising its benchmark rate 50 basis points to 8.00%.

The 10-year again tried to get above 3.0% but failed and currently sits near 2.97%. The bond market still does not seem too worried about the debt ceiling issue.

Oil prices are lower to $98.50, and gold prices are off a touch to $1611; the VIX is up 3% sitting right at the 20 level.

Trading comment: Some growth stocks (look at GOOG and AAPL) continue to power higher day after day despite all of the banter about the debt ceiling. I think the market could rip if we get some sort of resolution. My feeling is that there is considerable cash on the sidelines, waiting to get back into the market either way. If the market sells off from lack of action in Congress, the people will likely buy the dip. And if we get the resolution everyone wants, then a relief rally could unfold.


Monday, July 25, 2011

Monday Morning Musings

The markets are lower in early trading, after a failure to make any progress on the U.S. debt ceiling issue. While that is certainly being cited, a bigger issue might be another downgrade of Greek debt by Moody's, and saying that a Greek default was all but certain.

That has put the flight to safety trade back on so far today. Gold prices are hitting new records above $1615, and the Swiss franc is also trading at record levels.

The bond market does not at all seem worried about the debt ceiling, as the 10-year bond trades calmly with the yield barely higher to 2.98% after failing to get through the 3.00% level.

Corporate earnings have continued to come in at a healthy clip, and the markets were nicely higher last week.

Commodities are mostly lower so far today. Oil prices are down near $99.25. And ag prices are lower across the board.

The VIX is up 9.7% today to 19.22, still below the 20 level.

Trading comment: Despite the early pullback this morning, the market continues to hang in pretty well. It doesn't look like the market is overly concerned with the debt ceiling issue. The major averages continue to trade above their 50-day averages; the 10-year yield remains below 3.00%; and the volatility index is trading below the 20 level, signaling option investors aren't predicting a big pickup in volatility near-term. I think the debt ceiling issue is proving to be a head fake and diverting attention from strong corporate earnings. I agree with those who have said if there is some sort of market dislocation relative to the debt ceiling issue, I think it would be a short-term political event, and a buying opportunity for stocks.

Thursday, July 21, 2011

Euro Bounces On New Plan To Aid Greece

The market is nicely higher this morning on a combination of positive news items. Reports out of Europe hint at a new plan to help aid Greece, with the support of both France and Germany. This has boosted the euro, while the dollar is under pressure for a third straight day.

There were also more solid earnings reports, with strong numbers from Morgan Stanley (MS) and American Express (AXP) boosting the financial sector. Financials are leading the early action, followed by energy stocks. Surprisingly, technology shares are lagging. Investors were disappointed with FFIV's results, and the stock is down -9%.

A big merger between Express Scripts (ESRX) and Medco Health (MHS) has sparked enthusiasm in the healthcare sector. Usually the acquiring company's stock goes down on a big merger, but in this case both stocks are higher. ESRX (+4%) offered $71 in cash and stock for MHS (+12%), which represents a 27% premium to yesterday's closing price.

In economic news, the Philly Fed survey rose to 3.20, a nice bounce from last months low reading of -7.70.

Commodities are higher on the lower dollar. Gold prices are back at the $1600 level, and oil prices are back knocking on the door at $100.

The 10-year yield has rallied back to 3.00%; and the VIX is down -6% to 18.00.

Trading comment: The major averages are putting in more distance above their 50-day moving averages. I like the strategy of using pullbacks to add to stocks that reported good earnings. I think we could start to see performance anxiety set in, just at the time when news stories started to come out about huge hedge funds like Soros sitting with 75% cash.

long ESRX, MHS

Wednesday, July 20, 2011

Apple Trounces Earnings Estimates

Here is a copy of my write-up of AAPL's conference call yesterday:

I call Apple (AAPL) the Rodney Dangerfield of tech, since the stock gets no respect. I'm sure plenty would argue that Apple has had a huge run over the years, and the stock is also up nicely this year, as well as after hours today. But the valuation is a slap in the face considering the accomplishments of this company. If this were any time period other than the post-recession negativity bubble, Apple's stock would probably trade at 25x earnings. That would have it trading almost double where it stands today, at a mere 13x forward earnings (which go up every quarter).

The company absolutely trounced the estimates. The analysts who were appearing on CNBC when the earnings came out could only say "Wow". EPS topped consensus by almost $2, coming in at $7.79. That is up 122% from the year-ago period. Revenue was equally surprising, coming in at $28.57 billion, up 82% from a year ago. That is astounding growth for a company the size of Apple. So much for the law of large numbers catching up this quarter.

The company sold 20.34 million iPhones during the quarter, representing 142% year over year unit growth. This was way above Street estimates and helped drive gross margins higher to 41.7% this quarter. Asia-Pacific was particularly strong, with sales nearly quadrupling. The iPhone launched at 42 new carriers globally during the quarter and is now available in 105 countries.

iPads were also stronger than expected, with 9.25 million sold during the quarter (183% unit growth). The company sold every single iPad it made during the quarter. The iPad continues to revolutionize the way corporate sales forces are working, and 86% of Fortune 500 companies are either testing or deploying iPads in the enterprise.

Macs were a little light vs. Street estimates at 3.95 million sold. But the 14% unit growth still healthily outpaced the PC market and IDC estimates. Apple will launch the new Lion operating system tomorrow. One thing that could have limited Mac sales during the quarter was that some consumers opted for an iPad instead of another laptop. That's what I am looking to do.

As for guidance for next quarter, it was typically conservative. Earnings per share are expected to be around $5.50, and revenue was guided to $25 billion. Gross margins are forecasted at 38%. But as we have seen quarter after quarter, the company's guidance means very little in the end, and I believe it is almost being tossed aside in forming expectations.

The stock touched $400 after hours, a nice pop. That makes for a nearly 30% rally from the recent June lows. As such, it wouldn't surprise me to see Apple rest again around the $400 level. But looking out further, I still like the stock to go higher, and am holding on to the shares we own and keeping it as one of our largest positions.

long AAPL

Flight-to-Safety Trade Coming Off

The market is roughly flat this morning, after a nice rally yesterday on strong volume. The flight-to-safety trade that we have seen over the last week or so seems to be coming off today.

All three of the flight-to-safety components are lower so far. Treasuries are lower, pushing yields up slightly to 2.93%. Gold prices are lower, nearing $1589. And the dollar is lower, helping to push most commodities higher. Oil prices are back to $98.33.

There was another batch of strong earnings reports last night. Apple (AAPL) was the poster child. The company trounced the estimates, and more than doubled its profits. It was an astounding quarter for a company the size of AAPL. I covered the conference call for, and will post my write-up on the blog later (check back).

Other stocks that are higher after reporting earnings include ISRG and VMW, while RVBD missed revenue estimates and the stock is getting clobbered for -20%.

Asian markets were higher overnight on the improved tone in the U.S. markets and hopeful news on the debt ceiling. And markets in Europe were higher this morning after a relatively successful bond offering by Portugal.

Trading comment: The market is acting better in the big picture. The S&P 500 and Nasdaq are both trading above their 50-day averages. Growth stocks are acting better, and leading stocks continue to break out to new highs. But the market should be acting even better on the lessening of euro angst today. Plus, we're not fully out of the woods in terms of the debt ceiling issue. Another setback in the debates could whack the market again. That said, I do want to pick and add to stocks that are reporting solid earnings, I just don't want to get overly aggressive yet.


Tuesday, July 19, 2011

Midday Update

The market is nicely higher today, and holding on to its early gains so far. The improved tone started early this morning with Europe, where the markets across the pond bounced. There has also been a flurry of better than expected earnings reports which has bolstered sentiment.

Last night, IBM reported a strong quarter and raised guidance, and its stock is up nicely today. We have also seen bounces in Wells Fargo (WFC) and Coca-Cola (KO), to name a couple others. While Goldman Sachs (GS) has seen a disappointing reaction to its less than stellar results.

There was also some good economic data this morning in the form of stronger than expected housing starts for June.

The dollar is lower today, as the euro gets a bounce. This is helping commodities, with gold prices near $1603 and oil prices higher to $97.75.

The 10-year yield is higher to 2.92%; and the VIX is down -4.5% right at the 20 level currently.

Trading comment: It's tough to get aggressive here, even though bearish sentiment has been rising, the put/call ratio has been very elevated, and expectations seem to be low enough that companies reporting solid earnings are seeing nice pops in their stocks. I would rather take note of those stocks reporting strong earnings, and then looking to add to them on days when the overall market is down and they pull back. When the overall tone of the market improves, those are the stocks that should lead the next advance.

Monday, July 18, 2011

Monday Morning Musings

The markets are lower this morning on no real news, but rather a lack of any improvement in last week's issues. The bank stress tests in Europe last week did little to alleviate concerns about their financials. And the fact that no agreement on raising the debt ceiling here in the U.S. has been reached also continues to weigh on investor sentiment.

Other than that, there hasn't been a lot of market moving news. In earnings, Halliburton (HAL) posted an upside surprise, while IBM reports after the close this evening.

Financials remain the weakest group so far, while tech stocks are down the least as Apple (AAPL) and Google (GOOG) continue to buck the weakness and post gains in early trading.

Asian markets were mostly lower overnight. And the flight to safety trade is on today, which means the dollar, Treasuries, and gold are all higher.

Gold prices have hit the $1600 level, and silver prices are up nicely also. Treasuries are higher, pushing yields on the 10-year down to 2.90%. And the volatility index (VIX) is +10% higher today to 21.50.

Trading comment: No positive catalysts to embolden the bulls have the market in a position where it is vulnerable to pullbacks right now. The markets are working off their overbought conditions, and should be back to oversold again soon. Sentiment, which had become bullish again after the 2 week rally, should also begin to show more bearishness building. In addition, we are entering the low volume trading part of the summer. All of this makes me feel like staying defensive, raising more cash, trading around core positions, but waiting for a better buying opportunity down the road.


Friday, July 15, 2011

Google Blows Past Estimates

There are lots of stocks on the move this morning, but the biggest mover is Google (GOOG), which is up $65 (12%) after a big earnings beat. I don't think that expectations were that high for GOOG, given all the rumors about how much hiring they were doing. But they beat EPS numbers by nearly $1, and grew earnings +35% vs. year-ago, a pretty nice growth rate for a company of its size.

In the oil patch, BHP Billiton (BHP) said it will acquire Petrohawk Energy (HK) for a huge 65% premium. That news has ingnited the natural gas group. I am pleased that one of our holdings, Chesapeake (CHK) is up 7% in sympathy.

Also, Carl Icahn's company has made an unsolicited offer for Clorox (CLX) for $76.50. The stock is up 7% on the news, but I doubt the board will accept this offer. My guess is that it would have to be a lot higher for them to take it seriously.

This morning we will get the results from another round of bank stress tests in Europe. The big question is what their exposure to the PIIGS countries looks like, and how they would be affected by any sort of default. Bank stocks are flat here in the U.S., despite Citi beating estimates this morning, and JPM beating estimates yesterday.

Asian markets were mixed overnight; the dollar is slightly lower today; the 10-year yield is flat near 2.92%; and the VIX is up slightly to 20.87.

Oil prices are higher above $97, and gold prices are flattish near $1588.

I'll wait to update my daily trading comment until I see how the market finishes today--


Thursday, July 14, 2011

Earnings Trump Macro Data In Early Trading

The markets opened on a higher note, despite the headline news that Moody's has placed the U.S. AAA-rating on review for possible downgrade if the debt ceiling isn't raised. The market seems to be acting like they think the debt ceiling will get raised before the clock ticks down to zero.

JPMorgan (JPM) reported better than expected earnings, and that has helped sentiment. Its stocks is up 3% in early trading, although most other financials are not up as much. Google (GOOG) reports earnings after the close tonight.

Italy announced that it has passed a new budget plan with austerity measures, which probably helps in the big picture, but European markets are still lower on the lingering debt concerns. Yesterday I saw noted bond fund manager Bill Egan speak, and he said he wishes Greece would just default already and get it over with. Then markets could price it in and move on.

Asian markets were mixed overnight. Commodities are mostly lower today, thought not by much. Oil prices have dipped below $97, but gold is slightly higher near $1588 and silver is higher as well.

The 10-year yield is higher at 2.91%; and the VIX is 2% higher to 20.39 after reversing higher the last two days.

Trading comment: Yesterday's rally faded by the end of the day. And this morning's early rally is fading as I finish this post. This, on top of some higher volume selloffs in recent days has put the recent rally under pressure, and could mean the market has some more work to do on the downside. In addition to the summer months always being choppy, the persistent headline risk is adding to the volatility in the market. Actively managing positions in this environment can add value, by trading around your core positions. When the market swoons, I like to add to my favorite stocks and then look to lighten up after rallies. And I am measuring these trading windows in weeks, not days.

KAM has long positions in GOOG, JPM

Wednesday, July 13, 2011

Bernanke Hints At QE3

The markets are getting a nice bounce in early trading on the heels of positive data out of China, remarks from Fed Chairman Bernanke, and rumors that Congress has a backdrop in place to avoid defaulting on the debt ceiling.

Bernanke is testifying before Congress in his semi-annual monetary policy hearing, and in his remarks he said that the Fed stands by to provide additional monetary stimulus (i.e- QE3) if economic conditions warrant it. This boosted sentiment in stocks, but also led to a rally in commodities.

Commodities are higher across the board. Gold prices have hit new highs above $1585. Oil prices, which started yesterday below $95 have rallied back above $98. Ag commodities are higher today as well.

China released its Q2 GDP figures last night, which showed its economy grew 9.5%, above expectations. The data helped Asian markets rally overnight, and also boosted European markets this morning, briefly diverting attention from the debt issues.

The 10-year yield is higher today at 2.94%; and the VIX is falling -8% back to 18.22.

Trading comment: The SPX hit its 50-day average yesterday and has since bounced higher off of it. I continue to look for stocks that are breaking out to new highs and leading the market. Here is a short list of some of them: ALXN, LULU, PNRA, GSM, PTEN, and there are a host of others that are close to breaking out. Keep an eye on them, as they could be part of the new leadership among stocks if the market stays firm.


Tuesday, July 12, 2011

No Deal On Debt Ceiling Yet

The market is trading in lackluster fashion in early trading, after overseas markets fell overnight and no new news on the debt ceiling has materialized.

Ongoing concerns about the financial situation in Europe led to large losses in Asia overnight, and European markets were down this morning as well. Asia's declines were also led by Japan's central bank lowering its growth forecast.

Earning season kicked off last night with Alcoa, which was somewhat of a non-starter in terms of excitement. But semi stocks are lower across the board today after MCHP warned last night and NVLS traded down after reporting also.

The talks on the debt ceiling seem to have hit another impasse, which is acting as a big distraction for the market. Markets hate uncertainty, so whatever the deal is that is going to be cut in terms of tax reductions, etc., let's just get it done already and move on.

The FOMC will release its minutes from their last meeting today, but it shouldn't contain any real surprises given that Bernanke already held his press conference after the meeting and answered questions. Expect language about how the economy has slowed down, the recovery is uneven, and monetary policy needs to remain accomodative.

The dollar is higher again today, weighing on most commodities. Oil prices have dipped below $95, while gold prices are just above even around $1551.

The 10-year yield is lower again, now back to 2.90% after a big 2-day plunge. The VIX is up another 5% today to 19.42, nearing the psychologically important 20 level.

Trading comment: The SPX touched its 50-day average at 1315 this morning, as so far has bounced off of that level. The Nasdaq is still above its 50-day. After last week's rally, the markets are still overbought, though they are relieving that condition quickly. With earnings season upon us, I prefer to wait to see how my favorite companies report. No sense in buying ahead of what might be a disappointment in terms of guidance or just the market reaction.

Monday, July 11, 2011

Monday Morning Musings: More Euro Concerns

The market is down again this morning, continuing Friday's selling pressure. There are three main culprits, as I see it. The first and most obvious is the continued concerns out of Europe, where EU ministers held an emergency meeting over the weekend. Debt fears have migrated over to Italy, but all of the PIIGS countries are a concern.

The second reason is a lack of positive catalysts today. There are no economic reports out today, and no real corporate news either in the form of earnings reports. Alcoa kicks off earnings season tonight.

The last reason is simply profit taking. People forget that we just came off a huge rally in the market. In the last 2 weeks, the SPX bottomed at 1258 and rallied all the way back to 1356. That's more than a +7.5% move in a very short time span. That's also a rally that our readers were prepared for after I wrote several pieces on how bearish sentiment had again reached extreme levels that usually lead to a trading rally.

The flight to safety trade is back on today, with strength in the dollar, gold, and Treasuries. The dollar is strong mostly against the euro, which is weak for obvious reasons. The strong dollar is weighing on most commodities. Oil prices are down to $95.40, but gold prices are higher near $1556.

The 10-year yield has fallen back to 2.94% as Treasury bonds rally in price. And the VIX is surging +18% right now, retaking its 50-day average and reaching the 18.75 level.

Trading comment: If you put money to work into the mid-June pullback, when bearish sentiment was spiking, then it is normal to be taking some profits now and raising a little cash again. I don't think the rally is over after just 2 weeks, but right now the headlines are giving the bears enough cover to shoot against everything. The debt ceiling issue is also a big negative, but only to sentiment. It's not going to hurt Q2 earnings that we are about to get. But if they can get a deal done, we could see a relief rally.

Friday, July 08, 2011

Where Are The Jobs?

Boy, that strong ADP Employment report sure was a headfake going into today's jobs report. The data showed that nonfarm payrolls increased by only 18,000 in June, well below estimates of 80,000 jobs. Private payrolls of 57,000 were also considerably less than consensus estimates. And the headline unemployment rate increased to 9.2% (from 9.1%).

Not much to say that is positive about today's jobs report. Hopefully this will be a wake up call to Congress that they need to get this debt ceiling issue passed so that we can remove some of the uncertainty that is in the air and foster an environment where corporations have more confidence to increase hiring.

The market is selling off on the news, but let's not completely dismiss the recent strength. Yesterday's retail sales figures were fairly strong, but the true test will be how corporate earnings fair when earnings season kicks into gear.

The flight to safety trade is on this morning, with the only things trading higher being Treasuries, the dollar, and gold.

Gold prices are up near $1543, while oil prices are lower to $96.75. The 10-year yield has fallen back to 3.03%. And the VIX is currently 5% higher to 16.77.

Trading comment: The market has been up 7 of he last 8 trading days, so profit taking today should not be surprising, no matter what the news. The market was also very overbought. So I expect a weak day today, and maybe even Monday as well. But I think those folks that are trying to put money to work will view it as a buying opportunity, and I don't think the selling will persist for too long.

Things in Italy are deteriorating a bit, and if the situation there escalates to the point where Italy quickly becomes the next Greece that could present a wildcard to my bullish stance. So that will bear monitoring. But for now I think the focus should be on stocks that recently broke out and may be offering nice setups in the form of pullbacks.

Thursday, July 07, 2011

Group Leadership

Looking for groups of stocks that are exhibiting strong relative strength and leading the market? Check out this link below of 10 ETFs that are breaking out to new highs:,IYR,IYT,FDN,PBJ,XBI,IHI,PDP,PIE,EWMCB14

Stocks Continue To Add To Recent Gains

The market got a big boost from this morning's ADP Employment report, and stocks are adding to their recent gains. If the market closes higher today, it will be up for 7 of the last 8 sessions. That's quite a streak.

The ADP report was a positive surprise, as private payrolls increased by 157,000 vs. consensus estimates of only 60,000. Friday is the big jobs report, and the ADP doesn't always correlate that well to the monthly employment report, but hopefully it will be directionally right this time.

Asian markets were mixed overnight, but Europe was higher this morning after the ECB raised its target lending rate by 25 basis points to 1.50%. The Bank of England opted to stand pat at 0.50% and maintain its current 200 billion pound asset purchase plan.

Retail stocks are getting a big boost from a round of better-than-expected same-store sales reports for June. Financials are also rebounding from yesterday's weakness and leading the market so far.

Oil prices are higher to $98.60, while gold prices are flattish near $1529.

The 10-year yield is higher to 3.17%; and the VIX is down -3.3% to 15.80.

Trading comment: The chart below shows how quickly the SPX has rallied through resistance. The pink line represents recent resistance levels, and you can see that the SPX is now above those levels. The index is also well above its 50-day average now. These are both good signs for the market. We are overbought here, so I would not be surprised to see some consolidation, but more and more stocks are breaking out so its time to look for new leadership in the market.

Summer isn't usually the time for big market rallies, so I want to be a little cautious. But it's hard to argue with the market action.

Wednesday, July 06, 2011

Back In The Saddle

I hope that everyone had a good 4th of July weekend celebration. I was in Ireland, where they didn't much care about our Independence Day.

Back to the markets, after last weeks substantial rally, the markets are doing a good job of hanging on to the gains so far.

Moody's downgraded Portugal's debt yesterday, which is weighing on Europe's markets and also the euro. The resultant strength in the dollar is pressuring most commodities, although gold is higher near $1529. Oil prices are only slightly lower to $96.75. But most ag prices are lower.

In economic news, the ISM Services index came in lower than expectations at 53.3 vs. 54.6 last month.

Asian markets were mixed overnight. The PBOC there hiked its key interest rate by another basis points. And there were some reports out about the size of bank loans to local govts being larger than previously thought.

Financials are the weakest group this morning, while industrials are the strongest so far.

The 10-year yield is lower to 3.09%, after briefly topping 3.20% last week; the VIX is up +4.75% today to 16.82, bouncing off last week's low levels of 16.

Trading comment: Last week's sharp rally was surprising to most, including yours truly. I think it had more to do with hedge funds being out of position (read: too short) than a new era of bullishness coming in. Either way, it was nice to see, and many stocks participated. That said, I don't think it is time to chase the strength too much. The market is very overbought at these levels, so some rest and consolidation is in order. I'll be watching to see for any new leadership, as well as how current leading stocks act in the face of new breakouts. The macro backdrop, with sovereign debt issues surfacing, could remain a headwind.