Thursday, January 26, 2012

Is The Market Tired Yet?

The market was higher in early trading, but has since faded back into the red. Yesterday's FOMC announcement provided some fireworks when the Fed said they would essentially be on hold with interest rates until "late 2014", and that they would remain extremely accomodative.

That isn't an explicit announcement of more quantitative easing (QE), but it sure is an implied one. Commodities wasted no time rallying, and everything from gold to silver to copper and oil took off. The CRB is up again this morning. Gold prices have reached $1725, silver and copper are higher, and oil is back above $100 to $100.50.

In earnings news, we are seeing positive reactions in stocks like: CAT, MMM, OI, JCP, and especially NFLX which is up 22% on a short squeeze.

Negative reactions include: T, VAR, UA, NVR, CTSX and SNDK.

In economic news, durable goods for December were better than expected at 3.0%, and last months orders were revised higher to +4.3%. Not bad. New home sales came in below expectations at 307,000, which is also below the prior months units of 314,000.

Asia was mixed overnight, while Europe is higher today on renewed optimism that progress is being made on Greek debt negotiations. The euro is also bouncing vs. the dollar.

The 10-year yield really plunged after yesterday's FOMC announcement, and today it is sliding further down to the low level of 1.95%. It is hard to tell if this is more a statement of a slowing economy or just the Fed pinning the long-end of the curve down with its 'operation twist'.

As for the VIX, it is up 2.1% this morning but still low overall at a level of 18.70.

Trading comment: I enjoy reading Jeff Saut's commentary each week. I have read him for years, and he often talks about these "buying stampedes" that we see in the market. Said stampedes usually last from 17-25 days, with very brief pullbacks along the way before eventually tiring out. Well folks, since this buying stampede started on Dec. 20th that is exactly what we have seen. And by my count today is day 25 of the current run. As such, I want to be careful about chasing things higher here. The market does appear poised for a rest. Hopefully that will provide a better opportunity to add to stocks that reported strong earnings and are poised to continue to lead.

KAM Advisors has long positions in: GLD, SLV, VAR


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