Friday, February 24, 2012

Groundhog Day In The Markets

The markets are slightly higher in early trading. It seems like I am posting the same comments every morning, in a groundhog day like scenario for the markets lately. The major indexes are up a bit, one sector takes over the lead while another takes a breather, a handful of stocks gain on earnings, and a few new breakouts get added to the list. I don't know how long the pattern can continue before something comes out of left field and smacks investors upside the head, but for now we'll continue to focus on what's working and try to maximize profits.

In earnings news, stocks sporting positive reactions: MELI, MNST, AIG, and CRM. MELI was actually down last night after reporting, but by the time the market opened this morning investors were back in a buying mood. Stocks showing declines after reporting include ADSK and NEM to name a couple.

In economic news, the Univ. of Mich consumer sentiment survey improved to 75.3 in Feb. from 72.5 last month. New homes sales came in better than expected at 321,000 units in January, although that figure was slightly below the previous months level.

Asian markets were higher overnight, led by a 1.2% bounce in China. Europe is higher this morning as the concerns surrounding Greece calm a bit.

The euro is also getting a bounce at the expense of the dollar, while commodities are mixed. Oil prices are higher again near $108.15. Copper prices are also higher, but gold prices have eased back near $1775 and silver prices are slightly lower as well.

The 10-year yield is back below the 2.00% level, despite the improving economic data. It is very hard to tell how much of this is the Fed buying bonds to keep a lid on rates. Normally I would have expected the 10-yr to drift higher by now.

The VIX continues to drift lower also, down close to the 16.50 level this morning.

Trading comment: It's very hard to buy stocks that have broken out to new highs or that have gapped higher after reporting strong earnings. But those seem to be the stocks that are leading the market so far this year. One way to get comfortable with this is to buy a half position in stocks breaking out with the idea that you can add to your positions on a pullback. I remember buying a half position in JDSU in 1999 and it turned out to be one of my best trades ever. I'm not comparing this environment to 1999 but rather trying to highlight a strategy of staging your buys into growth stocks.

KAM Advisors has long positions in MELI, MNST


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