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


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