Friday, February 17, 2012

Are Bond Yields Poised To Move Higher?

The market was higher in early trading, but has since given up those gains and is slightly in negative territory. The S&P 500 is down less than the Nazz so far, as financials and industrials are leading the early action while biotechs and other large-cap tech are lagging.

The yield on the 10-year note has moved above the 2.00% level by just a bit. The 10-year first fell to the 2.0% level last August and has been trading in a volatile but sideways fashion for the last six months. With economic datapoints improving, I would expect the 10-year yield to move a little higher despite the fact that the Fed is likely still buying long-term bonds.

Stocks trading higher after reporting earnings include AMAT, CPB, and HNZ to name a few. Stocks falling in reaction to earnings are BIDU, JWN, GIS, and HMSY.

Asian markets were higher overnight. The euro is also higher this morning, despite the fact we have no definitive news regarding the Greek debt situation.

Commodities are mixed. Oil prices are higher and have traded above $103; gold prices are slightly lower near $1724. Copper and silver prices are lower as well.

The VIX recently bounced off of its overhead 50-day near the 21.50 level but then moved sharply lower. Today it is down another 5.5% back to 18.15. At the time of the spike, I surmised it might have been exacerbated by this week's options expiration, which finishes today. So we will have to see if traders reload on puts next week and volatility spikes again.

Trading comment: The relentless march continues. The market has hit 9-month highs this morning. Growth stocks look to be subject to some profit taking today, but I don't expect it to last long. I still think the strategy of buying leading stocks on pullbacks will outperform, and by leading stocks I mean those that recently reported strong earnings and have been breaking out to new highs.

KAM Advisors has long positions in GIS


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