Wednesday, February 01, 2012

Stocks Back In Rally Mode

The markets are nicely higher in early trade on a combination of solid economic data, good news out of Europe, and a bevy of solid earnings reports.

Europe's markets are higher today after a successful short-term debt offering in Portugal. Additionally, Germany, France, and the UK posted solid PMI manufacturing data. Asian markets were mixed overnight after one of China's PMI readings showed the sector still in contraction.

In terms of earnings reports here in the U.S., I like to look at how stocks are reacting to those reports. This morning we are seeing the number of stocks rallying on results significantly outnumbering those that are falling.

Among the positive reactions today are: BRCM, FTNT, STX, WHR, IACI, AET, TMO, and BEAV.

Declining stocks on earnings include: CHRW, AFL, and the big loser today - AMZN.

In economic news, the ISM Manufacturing index rose to 54.1 in January from 53.1 last month. Construction spending data for December showed a 1.5% rise, above expectations. The ADP payrolls report showed payrolls rose by 170,000 in January, but this was below the 200k figure economists were looking for.

The euro is getting a big bounce today at the expense of the dollar. This is helping commodities. Oil prices are up above $99 after falling hard yesterday. Gold prices are back to $1750. And copper and silver prices are higher also.

The 10-year yield is getting a small bounce to 1.83%. And the VIX is down -5% so far down to 18.45.

Trading comment: 'Don't fight the tape' is the mantra traders live by. So far this year, we have seen stocks stair-step higher and sector rotation keep the market moving up with few pullbacks along the way. Overbought conditions be damned. I often talk about performance anxiety among portfolio managers and I think the strong January we just had probably has most PMs caught flat-footed and looking for opportunities. One day we will wake up to a big enough selloff that it will make sense to step aside. But for the time being dips are being bought.

KAM Advisors has long positions in FTNT


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