Friday, October 14, 2011

Financials Lag Early Rally

The markets are higher again in early trading on the heels of improved sentiment in Europe and a blowout earnings report from Google (GOOG).

Treasury Secretary Geithner made a lot of comments about Europe and tried to instill some confidence. He said they will continue to pressure Euro leaders to act decisively, and also said that the IMF has considerable resources that have yet to be deployed. That hints at his relationship with Christine Lagard, who is in Geithner's camp that more needs to be done.

The positive action in Europe this morning bucked the weakness in Asian markets overnight, and also ignored the downgrade of Spanish debt by Fitch.

In the U.S., stocks are rallying following Europe strength and the strong results from GOOG. Additionally, the retail sales report from September came in stronger-than-expected at +1.1%.

The financials are the biggest laggards this morning after Fitch placed several large financials on its Negative Watch list.

The dollar is weaker so far as the euro bounces, which is boosting commodities. Oil prices are higher to $86.40, while gold prices are trying to lift above $1675.

The 10-year yield continues to bounce, now back to 2.25%. And lo and behold but the VIX has finally broken below that psychological 30 level, although just barely. It is currently trading near 29.80 after getting as low as 28.25 after the open.

Trading comment: The price action has been solid all week, but the leadership in the market is lagging. I just don't see a lot of quality growth stocks breaking out. So I have yet to get a lot more bullish, and at this point am still in the camp that this is an oversold market rally that is normal after seeing investor sentiment reach extreme bearish levels. I could be wrong, but it would take continued constructive action in the market combined with some real tangible solutions out of Europe that I have yet to see. At this point there is a lot more talk than action going on across the pond.

long GOOG, SKF


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