Thursday, May 24, 2012

Will Euro Bonds Float The Market?

The market is slightly higher in early trading after a nice reversal yesterday off the lows.  Sentiment is slightly improved in Europe as leaders meet to discuss more plans for dealing with the debt crisis and the possibility of a Greek exit.  The issue of eurobonds has been floated around, and it seems like most members are in favor of the idea with Germany being the lone standout and strongly opposed to the idea.

There has also been some chatter that the Fed is helping provide liquidity by considering a cut to swap line fees as part of a large coordinated bank action.  History shows us that any time we get coordinated global central bank action the market usually rallies in the short-term.  But it doesn't always mark the low.

The improved tone in Europe is helping the euro bounce a tiny bit, which is also helping commodities lift.  Oil prices have bounced to $91.41, gold prices are higher near $1575, and silver and copper prices are higher also.

In corporate news, HPQ was able to top estimates and its stock is higher.  COST is also higher after topping estimates.  NTAP lowered guidance and the stock is taking it on the chin.  Other stocks lower after reporting include TIF, HNZ, SIG.

In economic news, durable goods for April were essentially in-line at +0.2%.  And last month's figures were revised higher. Jobless claims were also in-line, while continuing claims declined to 3.26 million from 3.29 million.

So far among the economic sectors etfs, energy stocks are lagging while defensive utilities are leading (so are consumer staples).

The 10-year yield is getting a bounce to 1.77% after successfully holding the 1.70% level yesterday for the 3rd time in the last week.  Hopefully this will provide a floor.  As for the VIX, it is right between that 20-25 level I have been talking about at 22.20 right now.  Yesterday it got close to the 25 level before a big downside reversal into the close.

Trading comment: If the central banks are coordinating something, that could be the catalyst that provides a spark to this weak oversold rally we've been seeing.  The lows at SPX 1300 held yesterday but we need to take out Tuesday's highs at 1328 for the uptrend to pick up steam.  We are still in the window for IBD-style folks to be looking for a follow through confirmation rally to Monday's rally.  I think the SPX can get up into that 1340-1360 range where it will run into stiffer resistance.  We would be looking to lighten up on equity exposure and add back to some etf hedges if and when we reach said levels.


Post a Comment

<< Home