Banks Stocks In Action

The market is up slightly in early trading, following its best rally of 2012 yesterday on the heels of the bank stress tests.

The latest bank stress tests showed that 15 of the 19 largest firms passed. Several of them announced dividend increase and share buybacks on the heels of the results. JPMorgan led the way by announcing a big divy hike and buyback before the Fed had even released the results from the tests. Banks stocks rallied strongly on the news with many of the big name stocks up 5-7% yesterday. Most of the banks are higher again today. But a few big banks that didn't pass include Citigroup, SunTrust (STI), and Metlife (MET).

Asian markets were mostly higher last night, except for Japan where investors were disappointed by the lack of increased monetary easing. Europe is also higher today, but the dollar is gaining relative to the euro.

The strong dollar is weighing on most commodities. Oil prices are flat near $106.75 but natural gas prices are lower. Gold prices are down further back to $1650, and silver and copper prices are lower as well. Gold prices are now back below their 200-day average, which is a negative technical development.

I have been harping on the 10-year yield lately and its inability to get above recent resistance around 2.10%. Today we are seeing a nice breakout above those levels with the 10-year yield reaching 2.23%. I view this as a positive development in that it both reflects an improving tone about the economy and hopefully some selling in bonds that could flow into the equity markets.

As for the VIX, it is up slightly after yesterday's big plunge lower and trading near 14.95. I have added some VXX positions for a trade and as a portfolio hedge as I think volatility levels have gotten quite low.

Trading comment: The S&P 500 almost touched 1400 this morning which is the highest level since June 2008. It is also the type of big round number where the market could pause to take a breather. Of course, AAPL continues to surge to new highs and with the banks back in favor we could see the market simply run right through SPX 1400. Sentiment indicators have yet to show excessive optimism but it will be interesting to see if this weeks action brings out more bulls.

KAM Advisors has long positions in AAPL, GLD