Friday, September 30, 2011

Early Look: Stocks Look To End Quarter On A Down Note

The market opened under selling pressure this morning, following its cues from Asian markets which were down overnight and European markets which are lower across the board this morning. So much for the German vote of confidence on the EFSF appeasing the markets.

We have seen a small bounce in the first hour of trading after some better than expected economic reports. The Chicago PMI reading improved to 60.4 in August, well above the 54.0 consensus. And the UofM consumer sentiment reading was revised upward to 59.4 from an earlier reading of 57.8.

Still stocks are set to finish the quarter on a down note. This quarter's decline on the S&P of roughly 12% is the biggest decline since Q4 of 2008. Pretty ugly. With all of the bad news getting priced in and bearish sentiment reaching extreme levels, one has to ponder the possibility of another October bottom and some sort of year-end relief rally.

The dollar is stronger today, and that is weighing on commodities. Ag commodities are much lower today on the recent crop report. Oil prices are lower below $80.50 so far, and gold prices are also soft near $1625.

The 10-year yield has slipped back below the 2.00% level, currently at 1.92%; and the VIX is spiking another 5.5% to 41.0. It still hasn't surpassed its recent highs, but the persistent high levels in the VIX are disturbing nonetheless.

Yesterday there was a lot of chatter about the slowdown in China becoming more pronounced. China sovereign CDS prices have really been spiking lately. If the wheels come off in China, I think those who are being complacent about a recession in the U.S. might rethink their stance. We shall see.

Trading comment: The trading range for the SPX continues to coil and sets up for a breakout fairly soon. I'm worried that we have tested the SPX 1120 level 3 times now, and a fourth test might not hold. That said, if we can get to earnings season and get some positive earnings reports, that could be a catalyst to breakout over the 50-day average which has acted as resistance for the last two months. As such, I am trying to stay balanced and nimble in the interim without making any big directional bets.

long SH

Thursday, September 29, 2011

(Not So) Early Look: Sigh of Relief In Germany

When the markets are volatile in the opening hour, sometimes my early post is a little late due to trading coming first. This morning I wanted to add to some hedges as I was nervous about the early gains holding.

The vote for the expansion of the EFSF was approved in Germany, which was a good sign. Some thought it might get voted down the first time, like TARP did here in the US. But Europe wasn't up all that much this morning, so I think it was the positive economic data that helped boost our markets.

Final Q2 GDP was revised upward to +1.3% from the prior reading of 1.0%. That's still sluggish growth, but it keeps the economy just above stall speed, imo. Obviously the big question for investors is the economic slowdown still ahead of us, as forecasted by things like the ECRI, stock price declines, and declines in key commodities like copper.

Pending homes sales fell less than expected at -1.2% in August. And weekly jobless claims also surprised to the upside be falling below the 400,000 level (391k).

Commodities are mixed this morning. Oil prices are higher to $82.50, while gold prices are flat near $1617. Copper prices are getting a small bounce.

The 10-year yield is hovering above the 2.00% level for a third day; and the VIX is -3% lower today, but still stubbornly close to that 40 level (39.70), signaling heightened volatility is still with us.

Trading comment: The financials were up the most this morning, so I bought some SKF just as a day-trade flier to hedge. I also added to our index etf hedges that I had taken profits on last Friday. Today is an odd day in that although the Dow is up 160 pts., the growth stocks on my screen are a sea of red. Lots of stocks are down 5-10% today, and the Chinese internet stocks are getting killed on rumors of an accounting probe.

long SKF, SH

Wednesday, September 28, 2011

Stocks Look Tired After Three Day Rally

The market was nicely higher in early trading, but has already given back those early gains and is now slightly in negative territory. Yesterday the SPX rallied back up to the 1195 level before losing momentum and closing at 1175.

This mornings burst of buying came on the heels of continued hope that plans in Europe are coming together and they will get the votes needed for their EFSF bailout fund.

In earnings news, both Accenture (ACN) and Jabil Circuit (JBL) reported stronger than expected earnings and their stocks are both higher.

Asian markets were mixed overnight, while Europe has been higher this morning. The dollar is roughly flat, while commodities are mostly lower. Oil prices are pulling back near the $83 level, while gold prices are also down so far to $1641.

The 10-year yield has climbed back above the 2.00% level, but just barely; and the VIX is 1.6% higher this morning to 38.35, and remains at elevated levels indicating traders continue to expect heightened volatility levels.

Trading comment: The trading range between SPX 1120-1220 has lasted for 8 weeks now and a resolution is likely to come soon. With heightened bearish sentiment among the indicators I track, I would not be surprised to see a breakout to the upside. But with the economy slowing and continued strains in the global credit market, I'm not sure how high such a breakout would even carry us. The flip side is that the market is highly news driven in this environment, and any negative developments out of Europe could push the market back to new lows in a hurry. As such, I continue to employ a balanced approach to the market as opposed to trying to get aggressive in either direction.

long SH

Tuesday, September 27, 2011

Early Look: Sigh of Relief Or Just Window Dressing

The markets are up nicely again in early trading, following yesterday's roughly 275-point gain in the Dow. Currently, the Dow is up another 230 pts. CNBC said this would be the first back-to-back 200-pt gains for the Dow since 2008, which seems hard to believe, but I haven't checked.

Asian markets joined in the action overnight, rallying across the board. Hong Kong bounced by an impressive +4.2%. European markets kept the momentum going this morning, with Germany up as much as 4.3% at one point.

The gains in Europe started yesterday with the chatter that officials are putting together a plan to stabilize financial conditions. There has been chatter about a Special Purpose Vehicle (SPV) to buy up some of the problem debt. We will have to see if this can pass, but the bank stocks are responding with gains of up to 7% today.

Consumer Confidence for September came in at 45.4, which is up slightly from last month but still a weak number overall. With all of the negative news out there, this reading isn't all that surprising. The correlation with this series and the stock market is fairly high.

Precious metals are bouncing back today, accompanied by a reprieve in the recent dollar rally. Gold prices have bounced back to $1665, and silver prices are getting a bigger bounce. The silver etf (SLV) put in a solid reversal yesterday, and is up 7% so far today. Oil prices are also higher near $83.60.

The 10-year is higher today, trying to get back to the 2.00% level. And the VIX is down -7.5% so far near the 36.0 level.

Trading comment: It's hard to tell if this week's rally thus far is truly due to a sigh of relief coming out of Europe that they are determined to get their arms around the problem, or if it is merely a bounce-back due to window dressing as underperforming portfolio managers look to put money to work after last week's outsized decline in the market. Volume on the Nasdaq rose yesterday, while NYSE volume failed to surpass Friday's level. But the list of market leading stocks remains sparse. I mentioned that I took some partial profits on our index ETF hedges last Friday, but soon I think I would look to add back to those positions.

long SLV

Monday, September 26, 2011

Monday Morning Musings

The market got a nice bounce out of the gate, but so far it has been short-lived as the volatility remains high and the enthusiasm is proving elusive. There was no real news out of Europe over the weekend, and the fact that no news is sometimes good news may have helped spark a relief rally.

Asian markets were lower across the board overnight, but Europe has been higher this morning, with Germany rallying as much as 2.7%. There has been talk that eurozone officials may be preparing new steps aimed at shoring up the fiscal and financial conditions across the pond, but no definitive news yet.

After last weeks sharp selloff, the markets are pretty oversold and it wouldn't take much to see a bounce this week, especially with quarter-end at the end of the week.

Precious metals remain under pressure, with gold prices dropping below the $1600 mark, and silver prices continuing last week's swoon so far.

The 10-year yield is higher to 1.86%; and the VIX is higher also, up another +3.5% to 42.70.

Financials are actually bucking the weakness so far and leading the early action. Technology shares are lagging, led by Apple (AAPL) where there is chatter of production cuts in iPad2s. Somehow I'm not buying that, as I think they are going to sell every single one they can produce.

Trading comment: The SPX held the 1120 level again last week, and is trying to build on its bounce since then. With the VIX this high, traders are still expecting large swings this week. My gut tells me after last week's sharp selloff, the surprise move this week should be to the upside. But it sure would be nice to have a catalyst for it. I took some small trading profits on our index etf hedges last week, but would likely look to add them back if we get the bounce I am looking for. Engine room...more steam!


Friday, September 23, 2011

Early Look: Stocks Bounce From Key Support

If you were up early enough to see the S&P futures before the open, it looked like the market was going to open lower again. But as the open of trading drew closer, the futures began to slowly improve. In the first hour of trading, the SPX came close to testing that 1120 level again but has since climbed back into positive territory.

Industrials, which have been hit really hard this week, are leading the early action. While energy stocks continue to lag here. The Nasdaq is outperforming the S&P so far also.

There hasn't been a lot in the way of market moving news this morning. Nike (NKE) posted better than expected earnings, and MCD raised its dividend. But there haven't been any economic reports to speak of.

Two times in August the SPX came down to test the 1120 level but held there. Yesterday and today (so far) the market has held those levels again. So it will be interesting to see if the market again bounces higher from here next week (into quarter-end), or if the third time down testing these levels is going to finally give way and we see a break.

Asian markets were lower overnight, and Europe is lower this morning as well. The dollar is lower today, but not really helping commodities much. Oil prices are struggling to hold the $80 level, and gold prices have pulled back further to $1675. Silver has also gotten hammered this week, and I am buying a little for a bounce.

The 10-year yield is bouncing a bit to 1.80%; and the VIX is only down -1.6% to a still high level above 40.

Trading comment: No sense making any big moves today. The market has been down a LOT this week, so it is normal to see some short-covering ahead of the weekend. But we are in that time period where there could be big news any weekend out of Europe, so I don't think many people are going to take big positions on this Friday. More likely, investors are going to square up their exposures, and try to be as flat as possible to minimize the overnight risk. Rest up, next week promises to be another fun one.

long SH, SLV

Thursday, September 22, 2011

Mid-Day Update: Europe Hogging The Spotlight

The global selloff started last night in Asia, partially in response to the selloff here in the U.S. but some slowing economic data didn't help the situation. When Europe opened early this morning, its markets were also down sharply.

The concerns about Europe are not going away, and I get the sense that the authorities over there aren't willing to do something "big" without the cover of a major disaster. Whether its a Greek default or a major financial institution in trouble, the potential outcomes are equally unpleasant to this investor.

The market seemed as if it was hanging around to see if the Fed might pull a surprise rabbit out of the hat. When the news came out yesterday about Operation Twist, the selling picked up steam. But the buying into long-date Treasuries picked up with a vengeance. This morning, the yield on the 10-year Note has fallen to a record low of 1.77%.

Commodities are also down sharply today. Oil prices have fallen back to $81.25, while gold prices are now down near $1733. The gold etf (GLD) is sitting just below its 50-day average.

The VIX has spiked higher again this morning, up 8.5% right now to 40.50. Interestingly, if you look at the VIX chart, today's action so far looks like a 4th lower high.

Trading comment: During the recent market rally I had been writing that I didn't want to get sucked in, and that I was trimming equity exposure and adding to our index hedges. That makes me feel at least a little better on days like today, when my screen shows a sea of red. I still think we could see some buying surface as we near quarter-end, but I would continue to employ the same strategy. Any buys I may look at on the long side will have a short leash attached.

Disclosure: Jordan Kahn and/or KAM clients are long GLD, SH though positions can change at any time

Wednesday, September 21, 2011

FOMC To Commence "Operation Twist" To The Tune of $400 billion

Here is the latest statement from the FOMC:

Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

Early Look: Tech Relative Outperformance Continues

The market was briefly higher in early trading, but has since dipped back into negative territory. Actually, the SPX is lower on the day right now, but the Nazz is still barely in positive territory.

Tech is handily outperforming today, and continuing the relative sector outperformance that we have seen of late. Materials are taking it on the chin so far this morning. The poster child for the group could be Freeport McMoran (FCX) which is down more than -5% as copper prices have plunged recently and there is chatter of slowing demand from big players like China.

In corporate news, solid earnings reports from ORCL, ADBE, and GIS have boosted all three of those stocks this morning. Also, Microsoft raised its quarterly dividend by 25%, but so far its not helping the stock.

In economic news, new home sales came in better than expected at 5.03 million units in August, which is up from last months rate of 4.67 million units. Not bad for a month like August, when it seemed like bad news was everywhere.

Asian markets were mixed overnight, but China was able to rally 2.7%. Europe's markets are down again this morning despite EU officials saying they believe progress is being made on Greece's debt.

The dollar is higher this morning, and commodities are mixed. Oil prices are higher near $87.88, while gold prices are lower to $1797.

The 10-year yield is lower again to 1.91%, and getting close to hitting new lows in yield. The VIX is bouncing higher from its 50-day average, up 4.5% to 34.38.

The Fed will make its policy statement today and there is a ton of chatter about "Operation Twist", where the Fed might sell short-dated Treasuries and buy long-dated ones. With yields on the 10-year already below 2.00%, I'm not sure how big of an effect this could possibly have. If it spurs more bank lending, I'm all for it, but it would seem there might be a better solution if increased bank lending is truly the aim. Let's see what the Bernank has to say about it.

Tuesday, September 20, 2011

Early Look: Italy's Downgrade Priced In

The market was slightly lower in early trading, but has since bounced back into positive territory. Asian markets were lower overnight, but Europe was actually higher this morning.

Europe's rally is somewhat surprising given that Italy had its debt rating downgraded last night by Moody's. Speculation about this downgrade has been talked about since last week, so it wasn't a total surprise. And news that Greece is closer to an austerity plan that will help them secure aid seems to be trumping the news on Italy today.

Healthcare stocks are leading the early action, while industrials are lagging. The dollar is also lower today, helping to push oil prices back towards $86.60 and gold prices back above the $1800 level.

The Fed will start its 2-day meeting today with its latest policy statement tomorrow afternoon. There is a lot of chatter about 'Operation Twist', so we will have to see how much detail the Fed gives us as well as their expectations for what they think this will accomplish.

The SPX is still trading below its 50-day average resistance, currently around 1223. For its part, the Nazz is enjoying its thirds straight day above its 50-day and showing relative outperformance over the SPX recently.

Trading comment: Yesterday, while the overall market was lower there was a growing handful of growth stocks bucking the broad weakness and trading higher. This is a positive sign for the bulls, and could continue into quarter-end as portfolio managers look to add performance after underperforming recently.

Monday, September 19, 2011

Early Look: Renewed Worries Over Greece

The markets are sharply lower this morning on the heels of overnight losses in Asian markets last night as well as pronounced weakness in Europe this morning. Last week was a nice reprieve to the selling, as the markets bounced back 5%. But this morning there are renewed worries about Greece's ability to meet its debt obligations.

President Obama is set to deliver a speech about balancing the federal budget, which will include some ideas for new taxes on the "rich". Don't expect this to do much of anything to help the markets.

Outside of that, there isn't a ton of news. There was some M&A speculation that Goodrich (GR) will get a bid, and Tyco is set to spit itself up. But most of the days action is simply sentiment driven.

The dollar is higher today relative to the euro and yen. And commodities are lower. Oil prices have fallen back to $85, while gold prices are also lower near $1785.

As for the 10-year yield, is has fallen back below the 2.00% level and currently is hitting 1.96%. The VIX bounced off its 50-day average and is up 12% right now to 34.75.

Trading comment: It was a little uncomfortable to remain so defensive last week as the market climbed higher for 5 straight days. But without any improvement on the fundamental front, it seemed that any bit of bad news to resurface could knock the market right back down. That is the feeling I have this morning, although technically the market is still in this rangebound battle. SPX 1140 has been holding in as support while 1230 has been resistance. As the range narrows, we will get closer to a breakout. The high levels of bearish sentiment support a breakout to the upside, but the fragility of the market make it a tough bet.

long SH

Friday, September 16, 2011

Early Look: Europe Considering TALF-like Program

The markets have been volatile again in early trading. Coming off the heels of very solid rallies in Asia and Europe, our markets began to climb in the first hour of trading but so far traders have sold into that rally and pushed the indexes back to the flat line.

It's very possible that folks are nervous about going long into the weekend, given that any piece of bad news to surface out of Europe over the weekend could hit the markets come Monday morning. Also, the markets have put in a very nice week already, with the major indexes up roughly 5% for the week so far.

Asian markets rallied overnight after news that the major central banks would provide dollar liquidity to Euro banks. Europe also rallied again today on news that a TALF-like program is also being considered in Europe.

In economic news, the Consumer Sentiment Survey for August actually rose to 57.8 from 55.7 last month. Go figure, someone must be looking at the silver lining out there.

The dollar is higher today, while commodities are mixed. Oil prices are lower near $88 right now, while gold prices are trying to get back to the $1800 level, still trading slightly below that.

The 10-year yield had a nice rise yesterday, and is hovering near 2.07%; and the VIX came all the way down to 30 this morning before bouncing higher as it approached its 50-day average.

Trading comment: A lot of people are watching key technical levels right now. The SPX needs to get above its late August highs at SPX 1230 to signal more upside. So far today it has been unable to hold the upside momentum. As for the Nasdaq, 2600 has been upside resistance of late. But the growth index is actually above those levels this morning, and sitting right on its 50-day average. Looks like we will have to wait until next week to see if the market can build on this week's gains.

Thursday, September 15, 2011

Early Look: European Banks Get Liquidity Boost

The markets are in rally mode in early trading after some good news out of Europe. The ECB has coordinated efforts with the Fed, Bank of England, Bank of Japan, and Swiss Natl Bank to offer European banks dollar loans. This liquidity injection has improved sentiment on the continent, and Europe's markets are higher this morning. Asian markets were also higher overnight.

The dollar is lower on the news, while most commodities are mixed. Oil prices are higher near $89.60, while gold prices are down again, falling back to $1782 currently.

Economic news was mixed this morning, with the CPI coming in higher than expected, and a slight improvement in the Philly Fed Survey to -17.5 from -30.7 last month.

Financials and industrials are leading the early action, while defensive issues like healthcare and consumer staples are lagging.

The 10-year yield is getting a nice boost, trading at 2.07%. And the VIX is down another 4% currently to 33.18.

Trading comment: Yesterday's rally felt like mostly short-covering, as it was led by low quality stocks and overall volume was below average. But that is how a lot of rallies start. I think performance anxiety is playing a factor, with most managers underweight and underperforming as quarter-end approaches. Not to mention this week's options expiration, which often leads to pronounced moves. If the SPX can get back above 1220, we could be back in rally mode.

long SH

Wednesday, September 14, 2011

Wall Street All-Stars

I am writing for a brand new website called Wall Street All-Stars. The site was co-founded by Cody Willard and Scott Rothbort. Both of these guys are talented writers and market thinkers, and both are former colleagues from

The site is still putting together a talented roster of contributors. So please check it out, and feel free to provide any comments you have about the new site.


Early Look: Geithner Says 'No More Lehmans'

The markets are choppy in early trading, after opening on a higher note. Early this morning Europe's markets were trading higher which help improve the tone of U.S. markets at the open. But after a brief bounce to SPX 1180 after the open, the markets have slipped back into negative territory. That said, it is still early in the session.

The improved tone in Europe today flies in the face of the downgrades of some of France's big financial institutions, but it is likely because that was already priced into stocks at this point.

The other news item that helped the markets bounce were comments from Secretary Geithner at a conference in NY where he said that there would be "no more Lehmans" in Europe, and that officials over there were committed to preventing a big institution from failing. Despite his comments, the markets want to see more concrete evidence in the form of a bigger EFSF of some other solution before they take Geithners words to heart.

The euro is bouncing at the expense of the dollar. But this isn't helping most commodities. Oil prices are lower near $89, and gold prices have pulled back to $1281.

In economic news, August retail sales were flat, and up 0.1% ex-autos. Both figures are below consensus estimates.

The 10-year yield is still struggling below the 2.00% level; and the VIX is slightly higher in early trading near the 37.25 level.

Trading comment: Still no change to my recent trading mantra that I prefer staying defensive at this juncture. We used yesterday's bounce to add a little bit to our index hedges. We are still net long in the equity portion of our balanced accounts, but have been decreasing our exposure at the margin.

long SH

Tuesday, September 13, 2011

Rumors In Europe Causing Short-Covering

The market was lower most of the day yesterday until late rumors surfaced that China might be willing to buy up some Italian debt. That caused the shorts to scramble, and the market rallied strong into the close. Although volume still finished below that of Friday's levels.

I doubt that China is looking to buy much sovereign debt in Europe. Maybe they would be looking to buy into strategic companies, like oil companies (Eni), electric producers, etc. Those would be strategic investments for China, not simply trying to throw the continent a lifeline.

This morning, the futures were lower until more rumors surfaced that Germany and France may be meeting to announce some support for Greece. So it seems like a lot of people are leaning short, but skittishly so as they look to cover those shorts on any perceived positive news out of Europe.

This type of volatility is one of the reasons that the VIX remains at extreme elevated levels. Despite this morning's rally, the VIX is still higher at 38.75. And Friday's options expiration will likely keep volatility elevated this week.

In corporate news, Best Buy (BBY) reported earnings that fell short of consensus. As a result, the stock is getting hit for -8% currently.

The dollar is lower today, which is boosting commodities. Oil prices have rallied back to $89, while gold prices are also higher near $1827.

The 10-year yield is trying to get back above 2.00%, but not having much luck so far. I recently added to my TBT position looking for at least a small bounce in yields.

Trading comment: The SPX has bounced a quick 30 points from yesterday's lows, and it is hard to tell which way options expiration will exert its force on the market for the rest of the week. But as I have said, until we get some actual improvement in the landscape (as opposed to rumors) I am maintaining our defensive posture and fading most rallies.

long TBT, SH

Monday, September 12, 2011

Monday Morning Musings

Another deja vu Monday with our markets opening up lower amid continued worries about the fiscal conditions in Europe. France's market is down sharply on news that three of their large financial institutions could have their debt ratings downgraded.

Asian markets were also down sharply overnight, with Hong Kong -4.2% lower but China was closed.

It has already been a volatile morning, with our markets opening lower but then rallying all the way back into positive territory. Currently, the markets are fading a bit and giving back some of that rally.

The flight to safety is mixed today, with Treasury prices flat and the 10-year yield steady at 1.92%. Gold prices are also lower to $1834, while oil prices are actually up a bit around $87.50.

The volatility index (VIX) is on the move again, rising +7% to 41.30 currently. That said, it continues to make a series of lower lows on the last 4 spikes higher on the chart.

In corporate news, Broadcom (BRCM) announced it will acquire NetLogic (NETL) for a 50% premium. Anyone who is long NETL this morning is feeling pretty good.

Trading comment: Until the news in Europe improves, all rallies seem temporary in nature. We continue to remain defensive and have been adding to our hedges on any large rallies. The earnings estimates for the S&P 500 for 2012 are starting to be revised downward, and that will be an important development. The ECRI weekly growth index fell deeper into negative territory last week.

long SH; short EFA

Friday, September 09, 2011

Obama Talks Big Game, Sparks Little Enthusiasm

Last night Obama unveiled his big jobs plan, but it looks like it did little to improve sentiment this morning. Maybe he should have been this diligent with his first fiscal stimulus plan.

Credit default swap prices are all higher this morning, with Greece surging to record highs. The market is acting like a Greek default is both a near certainty and also imminent.

Asian markets were lower overnight. Japan's Q2 GDP came in at -1.5%, and China's CPI eased a bit coming in at 6.2% for August. Europe is also lower this morning, with considerable pressure on the banks again.

The flight to safety trade is half on today. The dollar index is higher, reaching a five month high. And Treasury bonds are higher, pushing yields on the 10-year Note back down to 1.97%.

The higher dollar is pressuring most commodities, with oil prices pulling back to $87 and gold prices down slightly to $1850.

I have been talking about the stubbornly high VIX index. Today it is another 11% higher to 38.0. The market has not had any calm days this week. It has been either up big or down big each day. As of now, the SPX is slightly negative for the week while the Nasdaq is still positive. We will have to see if we get any short-covering into the close.

Trading comment: Every time I begin to question my cautious stance we get hit with another vicious selloff that validates my thesis. Until we get some clarity out of Europe, better economic data in the U.S., or good news on the earnings front I don't see how the market can muster much more than the trading bounces we have seen. For the last month, the SPX has traded in a range between 1120 - 1220. It will be interesting to see which side of said range gets broken first.

Thursday, September 08, 2011

ECB Not Cutting Rates Yet

The markets were lower in early trading, but as of this post they are firming and moving back into positive territory. Yesterday the markets enjoyed a strong rally, bouncing back from 3 straight down days. But volume yesterday was again nothing to write home about.

The dollar is gaining at the expense of the euro after ECB President Trichet relayed a downward revision to GDP forecasts for the eurozone. Thanks, Jean. Everyone knows growth is slowing. So why don't you lower interest rates instead of keeping them at 1.50%? You will cave eventually, so why not get out in front of the data? Silly.

Tech is leading the early action, while financials are lagging so far today.

The weak dollar has helped push gold prices higher to $1853, and oil prices are also up to $89.65.

The 10-year yield is flat around 2.02%; and the VIX is slightly lower to 32.80. For this rally to have legs, I think we need to see more of an allocation out of bonds and into stocks. That means we would have to see the yield on the 10-year move higher. I also think we need to see the VIX come down even more. It remains at historically elevated levels.

One indicator moving in the right direction is the AAII survey. Bears are now 40%, which exceeds the number of bulls (30%) by a healthy margin. We need to see bearish sentiment hit extreme levels in order for the selling to exhaust itself, and this is a step in the right direction.

This morning we will hear a speech from Bernanke at the Minnesota Economic Club, which could move the markets although I doubt we will hear much new stuff. And later tonight we will hear Obama's new jobs plan, which I have very little faith will actually have a big impact on the high unemployment rate.

Trading comment: I want to highlight that there are some stocks acting well during this market bounce. VRUS is making new highs; LULU looks like it could be breaking out again; JAZZ is at new highs; MJN is acting very well; AAPL has continued to hold up well; PSMT is also right near its highs. So it's okay to hold stocks exhibiting excellent relative strength. But rallies should be used to get rid of lagging stocks, and overall long exposure should be hedged to be safe. I prefer using the inverse index ETFs to hedge my downside exposure. Hope that helps.


Wednesday, September 07, 2011

Sigh of Relief In Germany

The markets are nicely higher in early trading after a German court rejected a lawsuit intended to block Germany's participation in EU bailouts. Europe needs Germany's support in a big way, so this lawsuit had many investors worried.

Before Europe opened, Asian markets were also higher overnight, and our markets opened higher as well. The flight to safety trade that I talked about yesterday is being sold today. All 3 safehavens are lower.

To wit, Treasury prices are lower, pushing the 10-year yield up to 2.03%. The dollar is also lower today, helping to boost most commodities. But gold prices are off sharply, falling back to $1815.

In corporate news, Yahoo finally got rid of CEO Carol Bartz, and the stock is rallying.

I mentioned yesterday that the VIX was making a series of lower highs. Today, the VIX is down -8% to 34.15. It has not traded below the 30 level in over a month. I suspect we will get back down there at some point this month, but it will be interesting to see if it bounces higher from its 50-day average, if and when.

Trading comment: Given the poor start to the month, I wouldn't' be surprised to see the market lift a little higher in the short-term. But I am still not changing my intermediate-term game plan of remaining defensive. I am only looking to add to stocks that are both defensive and high-yielding. I also want to add back to some of the index etf hedges I took off in late August.

Tuesday, September 06, 2011

U.S. Stocks Follow European Markets Lower

The market is sharply lower in early trading following sharp losses in Europe yesterday while our markets were closed. The debt issues in Europe continue to worry global investors, and the piecemeal solutions have done little to quell those concerns. 2-year Greek notes are yielding 55%, so you can see there is a lack of confidence.

Overnight, Asian markets were mixed with Japan down but Hong Kong bouncing. But that was little comfort to U.S. investors where sentiment remains downbeat.

There was a good piece of economic news this morning in the form of the ISM Services Index which rose to 53.3 in August from 52.7 the prior month. That reading was better than expected, and led to a brief rally in the markets.

The dollar is higher today, after the Swiss National Bank said that it will fight the appreciation in its currency at all costs. The SNB called the swiss franc "massively overvalued" and said it is willing to purchase foreign currencies in unlimited quantities to alleviate this condition. So far today, the Swiss franc ETF (FXF) is down -7.8%.

The flight to safety trade is alive and well today, with buying in the dollar, Treasury notes, and gold. The yield on the 10-year note has fallen to 1.95% currently, and gold prices have reached $1900. Interestingly, silver is lower today. As are oil prices, back near $85.50.

The volatility index (VIX) is spiking +16% today back near the 40 level. But as you can see in the chart below, it looks like the VIX is putting in a series of lower highs. At some point this could lead to a sharp move lower in the VIX, which would coincide with a move higher in the market. I'm just saying.

Trading comment: My recent cautious stance seems more than warranted given the sharp 3-day slide we are in the midst of. I am certainly glad we remained defensive and didn't get sucked into those low-volume rallies that made some folks feel complacent that the selling was over. That said, earnings estimates have held up remarkably well so far. And I think something needs to give. Either estimates start to get cut later this month, to justify the move lower, or the market will likely have a nice snapback rally into quarter end.

Friday, September 02, 2011

Once Again, ADP Report Shows No Correlation With Monthly Jobs Data

The market is lower in early trading on the heels of a very disappointing monthly jobs report. The nonfarm payrolls data showed that the economy added zero jobs in August. That is well below both the consensus figures (70k) as well as the whisper numbers going around yesterday.

Additionally, private payrolls only increased by 17,000, far less than the 110,000 that had been expected. And the unemployment rate remained elevated at 9.1%. Today's report was another indication that the ADP report that comes out two days before the NFP report has not bee a good leading indicator.

Asian markets were lower overnight, and Europe markets were down this morning amid weakness in the banking sector. Our banks are also sharply lower today after news reports that the FHFA is going to sue some large banks over mortgage-related matters.

The dollar is higher today, which is weighing on most commodities. Oil prices are down to $86.50, and ag prices are lower also. Gold and silver are both higher, benefiting from the flight-to-safety trade, with gold prices back up to $1875.

The 10-year yield is dropping again, back down to 2.06%. Last time down, we saw the 2.0% level hold. As for the VIX, it is up +5% currently to 33.35.

Trading comment: The last 2 sessions validate why I wanted to remain cautious. The volatility we have seen has not left the market, although I hope it peaked in August. But we have not heard any concrete solutions out of Europe, and recent economic data has not been all that great either. I would be surprised if we retested the August lows so quickly. Rather, I expect September to bring choppy trading, but one where traders might be able to buy into support levels and sell into resistance. For investors, my advice is to remain cautious and defensive.

Thursday, September 01, 2011

Stocks Flattish Ahead of Friday's Jobs Report

The market has been dancing around the flat line so far today. Asian markets were higher overnight, but Europe was lower this morning after some disappointing manufacturing data out of France and Germany.

Here in the US, the ISM Manufacturing Index for August came in at 50.6, which was better than expected. A reading over 50 indicates that the sector is still in expansion mode (under 50 signals contraction). Initial jobless claims were basically in-line.

Other than that, there has not been a ton of market moving news today. Participants are awaiting tomorrow's monthly jobs report. The consensus estimates are for an addition of 70,000 jobs, although I hear Goldman Sachs just lowered their forecast to just 25,000.

The dollar is lower today, but so are most commodities. Oil prices are flat near $88.75, and gold prices are down slightly around $1826.

The 10-year yield is lower today to 2.18%; and the VIX is down another percent near the 31 level, but still unable to break below that psychological 30 level.

Trading comment: The market has pretty much worked off its recent oversold condition with this last 4 day rally. Volume levels will remain light ahead of the Labor Day weekend, but next week things should start to heat up again and we will see if the market can continue to build upon its recent base and work back towards the SPX 1250 level. I continue to trim cyclicals on strength and favor defensive stocks with yield in this environment.