Monday, December 05, 2011

Monday Morning Musings

Market participants are back in buying mode this morning despite last week's outsized gains. The positive sentiment has been helped by rumors out of Europe that the ECB is preparing to inject 1 trillion euros into its financial system to support the debt purchases in the region. It is unclear where the trillion euros will come from.

Also, Italy has established a new austerity plan. While the markets applaud this long-term thinking, don't forget that austerity measures will weigh on growth for years to come.

In economic news, the ISM Services index slipped a bit to 52.0 from 52.9 last month, but is still at a level that signals expansion in the sector.

Asian markets were mostly higher overnight, but China fell -1.2%. The dollar is lower today as the euro gets a boost. This is helping most commodities, but gold is heavy and trading a bit lower near $1748. Copper and silver prices are higher, and oil prices are up to $102.

The 10-year yield is getting a boost to 2.10%; and the VIX is drifting lower down -3.5% to 26.55 currently.

Trading comment: On Friday I showed that chart of the SPX reaching resistance levels. That level held as resistance on Friday and turned the market lower. But this morning a little good news (Europe) goes a long way, especially when you are in the final stretch to year-end and performance anxiety among portfolio managers is at a high. Buyers have pushed the SPX right back to that resistance line, which also coincides with the overhead 200-day average of the market. I'm not sure if we will stay comfortably above this level (1265) this week, or if we need to see a little more consolidation. But it does feel like if we don't get any real disappointing news that the market does want to make a successful push above these levels.


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