Tuesday, December 27, 2011

Monday Morning Musings

The market has opened fairly sluggish, possibly nursing a small hangover from the holiday festivities. I took Friday off for a little golf as the weather in LA has been sunny and nice. Now its back to the grind and seeing if the markets can add to their nice finish to last week.

Asian markets were mostly lower overnight, with Hong Kong still closed. And Europe's markets were mostly higher today despite the yield on Italian bonds hovering back near 7.0% again.

Volume levels will likely remain light for this shortened week. Corporate news is relatively light this morning, but SHLD is getting whacked on poor retail sales and the announcement that it will close more stores and draw funds from its credit facility.

In economic news, the Case-Shiller home price index showed another decline in home prices for October, as prices fell 3.4%. But the Consumer Confidence index for December rose much more than expected to 64.5 from 56.0 last month. We have seen some strong consumer confidence numbers this month and it will be interesting to see if that sort of sentiment continues in early 2012.

The dollar is a bit lower but so are most commodities. Gold prices have slipped below $1600 and copper and silver prices are lower as well. Oil prices are above $100, but this has more to do with comments out of Iran about possible supply disruptions.

The 10-year yield is roughly flat near 2.01%. And the VIX, which had gotten down near the 20 level last week, is spiking +6% to 22.15 currently despite the flat market. It could be that traders are anticipating a pickup in volatility in January and are buying ahead of the turn of the calendar. This is actually a trade that I am considering.

Trading comment: The market finished last week on a strong note after 4 straight up days. I had said I was looking for an early Santa Claus rally, and it will be interesting to see how things shape up this week. I have a sense that trading could simply be quiet as traders look to just hang on into year-end. But we could also see another push higher as last minute window dressing plays out. I would start looking for things that could reverse in January. Some stocks are very extended in here, and looked primed for a pullback. Other stocks are likely being sold just to take the losses and could rebound in January. But for now I am focusing on the former.


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