Tuesday, October 11, 2011

Bond Yields Lift From Very Low Levels

The market opened under a bit of profit taking this morning, but has reversed its early losses and is trading higher for the time being.

Asian markets joined the party and rallied overnight, led by Hong Kong. Interestingly, China lagged again and was only able to muster a 0.1% gain. Europe is lower this morning after a decision by the Troika to give Greece its next tranche of aid. Investors in the region feel that this will do little fix the longer-term problems of the country. As for news, we are waiting to here if the EFSF is ratified in Slovakia which is voting on it now.

Our financial sector is awaiting details from the Volker Rule, which is currently under a comment period. Banks stocks are mostly higher today, although tech stocks are leading the early action.

The dollar is getting a little bounce this morning, while most commodities are lower. Oil prices are down near $85.10, and gold prices are slightly lower to $1667.

The VIX isn't falling today, and is hovering near the 33.25 level. Yesterday it broke below its 50-day average for the first time in months, which is a good sign. But I would have thought if traders really think the market has more upside in store that it would have moved even lower. I would like to see it get below the 30 level to signal an expected decrease in all of this volatility that we have seen.

As for the 10-year yield, the bond market was closed yesterday but yields are on the rise today. You can see below that the yield on the 10-yr. is breaking above its 50-day average. While higher bond yields are not theoretically good for the market, I like to see the 10-yr lift a little from its recent depressing levels simply to signify that the economy isn't about to fall off a cliff.

Trading comment: We sold some of our trading index shorts yesterday as the market appeared to break out of its slump. Investor sentiment has become extremely bearish, with many of the indicators we follow at levels not seen since 2008. Even though I don't think we have seen the ultimate lows in the market for this cycle, I am aware of the fact that there can be interim trading rallies along the way. If we don't get hit with further unexpected bad news out of Europe, and no big earnings disappointments, I could see this market continue to lift a little higher while some of the recent bearish sentiment gets unwound. Stick and move, baby.


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