Monday, April 23, 2012

Monday Morning Musings

Markets are down sharply this morning on continued concerns about Europe as well as sluggish economic data from China.

Asian markets were lower overnight after HSBC said China's manufacturing PMI for April rose slightly to 49.1 from 48.3 last month.  But the reading is still below the 50 level that marks the difference between expansion and contraction in the economy.

Europe's markets are also down a lot this morning amid news that budget talks in the Netherlands fell apart.  This combined with potential shakeup in France's political makeup has investors worried about how the eurozone will hold it together to tackle their fiscal issues.  Additionally, PMI readings out of France and Germany were disappointing.

The flight-to-safety trade is on this morning, although it is not including gold.  The dollar is higher vs. the euro, and that is hurting commodities.  Gold prices are lower to $1630 and oil prices are down below $102.  Silver and copper prices are lower as well. 

The 10-year yield is plunging as investors pile into Treasuries.  The yield is down to 1.91%.  And the VIX is surging near 15% to the 20 level.

In earnings news, stocks are showing mixed reactions to earnings reports.

Stocks rising on earnings reports:
Stocks falling on earnings reports:
Trading comment: The action this morning lends itself to the notion that the market remains in a correction and needs more time.  The S&P 500 tried to recapture its 50-day last week but today is breaking back below it.  The SPX is also testing its earlier monthly low around 1357.  Additionally, the Nasdaq which has been the leading index has also broken decisively below its 50-day support.  And many growth leaders are also experiencing selloffs.  This type of action should not be surprising given the multi-month runup we saw for most of the last several months.  I think what we need to watch for is for bearish sentiment to pick up, as that will help the market bottom sooner.  It is never a good sign if investors simply remain complacent in the face of the falling market.  Be patient.

KAM Advisors has long positions in CHKP


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