Friday, June 29, 2012

How Long Will The Relief Rally Last?

The market is rallying nicely this morning on the heels of the headlines out of the EU summit.  I had been skeptical that anything material would come out of the meeting.  Despite the reaction this morning, I don't think the policies they put in place are really enough to tackle their problems.  But I think many market participants had probably gotten too defensive lately.

The EU leaders did say that bailout funds could be used to recapitalize banks directly, as opposed to having to go through the sovereigns.  This helps at the margin, but the 120 billion euros intended to boost the lending capacity of the EIB doesn't seem all that large.  The debt loads of Italy and Spain are well over a trillion euros.

Despite the above, the markets are breathing a sigh of relief at this latest attempt to kick the can down the road.  We have seen this each time the troika has proposes solutions, but the relief rally has faded each and every time.  So the question this time around isn't if we've found the ultimate solution, but rather how long will the current relief rally last?

Spanish and Italian bond yields are lower today, and the euro is getting a big boost relative to the dollar.  This is also helping commodities.  Gold prices are testing the $1600 level, and copper and silver prices are higher as well.  Oil prices have bounce back to $82.25.

The 10-year yield, which has fallen back below 1.60% yesterday is bouncing higher today as funds rotate out of bonds into stocks.  The yield is currently 1.65%.

As for the volatility index (VIX), it had been holding around the 20 level as support, but today it is down 9% back below 18.

Trading comment: The S&P 500 is bouncing back above its 50-day average currently which was at the 1340 level.  The SPX is currently above 1350, and if it can hold above the 50-day for a couple sessions we could see more upside in the market as we head into Q2 earnings season.  But one of the patterns we have started to see already is that companies that are giving cautions guidance for the back half of the year have seen their stock selloff sharply.  Nike (NKE) is the most recent example.  As such, our recent calls for remaining defensive still seem appropriate as we enter this upcoming earnings season.  At the least, I expect trading to remain choppy while we get through the summer months.

KAM Advisors has long positions in NKE

Thursday, June 28, 2012

Waiting on EU Headlines

The market is lower this morning on a pullback following 2 straight days of gains, as well as uncertainty ahead of the EU summit.  Most of the headlines this morning have centered around the Supreme Court decision about Obamacare.  The court upheld the plan, but said the individual mandate could be upheld as a tax not a penalty.  Hospital stocks have rallied while insurance stocks are mostly lower.

While the healthcare industry is the most affected by this ruling, I don't think it has sweeping meaning for the overall market.  It does add to the element of uncertainty going forward, which is never good for the markets.  But the bigger picture right now is still the EU and whether or not Germany acquiesces on its stance and becomes more flexible about shared debt liabilities for the eurozone.

In corporate news, there are rumors that the losses at JPMorgan could be larger than initially estimated.  JPM stock is lower on the news, and weighing on the financial sector. 

In economic news, final estimates for Q1 GDP held steady at 1.9%.  I'll take this as a win for the bulls considering many thought we could get another downward revision to these figures.  Of course, this is still rear-view mirror and the big question is what Q2 GDP will look like and more importantly how much of a slowdown will 2H12 see. 

Asian markets were mixed overnight, while Europe is lower this morning.  The dollar is higher and that is weighing on commodities.  Oil prices are lower to $78.50 and gold prices are down near $1555.

A flight to safety has bid up bond prices again today and pushed the 10-year yield back below that 1.60% support level that has held for most of June.  The 10-yr yield is currently 1.57%.

As for the VIX, it has spiked higher this morning, back above the 20 level to 21 currently.

Trading comment: No change to our near-term cautious stance and call to remain defensive.  The 2-day bounce we saw this week appears to just have been a relief rally aided by window dressing.  Now we have to see if the selling picks up again and how the market reacts to headlines out of the EU summit and the potential for disappointment.  The SPX is still below its 50-day average (which is now downward sloping) which is an intermediate-term indicator that a new uptrend is not yet at hand.  As such, patience is key.  We are still holding many of our defensive, dividend stocks but haven't added to any growth stocks lately.  And asset allocation still favors a larger weighting toward fixed income for the time being.

Wednesday, June 27, 2012

China Stimulus Rumors Boost Market

The market got a couple of boosts this morning that have helped push stocks higher for a second day ahead of quarter end.  Overnight, Asian markets rallied on hopes that China would provide more stimulus measures to its economy.  Not sure if there's any validity to the rumors, but our markets were poised to open higher this morning.

Europes's bourses were also higher across the board this morning ahead of the EU summit.  I don't think anyone is expecting earth shattering news to come out of the summit, which does set the market up for some disappointment.  But if no one has their hopes up, you have to wonder how much is priced in.  Remember how worried everyone was about the Greek elections and the markets rallied.

Our markets got an extra boost this morning on the heels of some better than expected economic data.  Durable goods orders rose +1.1% in May, more than double the consensus.  That also reversed last month's decline in durable goods of -0.2%.  Also, pending home sales for May rose +5.9%, far better than the 0.5% expected and another reveral from last months negative figures.

Energy stocks are showing leadership as oil prices bounce back above $80 today.  The MLP stocks are up nicely, which is a group that where I think the selling was overdone, especially since many of them have their production mostly hedged for the next couple years.

Gold prices are lower today to $1571, and silver prices are weaker also.  But copper prices are higher so far.

The 10-year yield is steady at 1.63%, remaining in this month long trading range between 1.60-1.70%.

As for the VIX, it is back below the 20 level today to 19.60 currently.  I don't think it will stay below the 20 level too long, so I am going to start adding back to our VXX hedge.

Trading comment: I thought we would see some window dressing this week ahead of quarter end.  Regardless of the news, the bounce the last 2 days have fit the bill.  Despite the tepid bounce, I still want to remain defensive ahead of the EU summit which I don't think will produce anything to write home about.  Then as we enter July we start Q2 earnings season which I think will have more disappointments than usual in the form of conservative guidance from corporate managements.

KAM Advisors has long positions in VXX

Tuesday, June 26, 2012

Watching Peripheral Bond Yields

The market is only slightly higher in early trading following yesterday's big selloff.  Investors are awaiting the EU summit later this week and the big question is can the leaders come up with something that will assuage markets.  Today, Spanish bond yields are topping 6.8% and Italian bond yields are on the rise as well.

The Conference Board's consumer confidence index came in below consensus at 62.0 vs. a reading of 64.4 in the prior month.  Economic data seems to have been slowing lately, the news backdrop remains negative, so it is not surprising to see consumer confidence fade.

Homebuilding stocks are higher after the Case-Shiller home price index came in above expectations, but still showed another -1.9% drop.

In corporate news, Harley Davidson (HOG) is trading lower following its earnings report, while APOL is bouncing higher.  I remain concerned that earnings guidance during the upcoming Q2 earnings season is going to be very conservative and met with disappointment.

Asian markets were mixed overnight, while Europe was actually higher this morning by a little bit despite the rise in peripheral bond yields. 

The dollar is higher vs. the euro, which is weighing on commodities.  Gold prices are lower to $1572 and oil prices are down to $79.  Silver and copper prices are also lower.  Ag prices are the only commodity prices that are higher recently, which have boosted stocks like AGU, POT, and CF.

The 10-year yield is flattish near 1.61%.  It has basically been trading in this 1.60-1.70% range most of June.  As for the VIX, it is also flat near the 20.40 level.

Trading comment: I think we have dueling forces here between the quarter end window dressing buying that we usually see, and the cautious tone that participants employing ahead of the EU summit.  The recent price action in the market certainly supports maintaining a more defensive posture.  The S&P 500 needs to find some support, and the 200-day average could be the spot.  It currently sits at 1297.  If you're an investor, as opposed to a trader, I think you need to be patient and await a better buying opportunity.

Monday, June 25, 2012

Monday Morning Musings

Mr. Market is not in a good mood this morning as concerns swirl that this week's EU summit will not produce any tangible solutions.  Asian markets were lower across the board overnight, and Europe is under pressure again this morning.

Spain made a formal request for 100 billion euros to recapitalize its banks.  And peripheral yields are on the rise with selling in both Spanish and Italian bonds.  I too am skeptical of a viable solution from this week's summit, but I do hope they can at least come up with something to assuage the markets while they work on these big issues.

Here in the US I have not seen much in the way of meaningful corporate data or market moving economic news.  May new home sales did come in better than expected, but it hasn't mattered much so far.

We were also expecting to hear from the Supreme Court on the healthcare decision, but that looks like it will be delayed until later this week.

Flight to safety buying is benefitting Treasuries this morning, which is pushing yields down to 1.61%.  Gold is also hanging in there, higher on the day near $1571.  But nearly everything else is lower on the day, led by declines in the energy sector.

As for the VIX, I said last week I didn't think it would stay under 20 for long.  Today the VIX is up +12% so far to 20.35.

Trading comment: The S&P 500 has taken out last week's lows at 1325 and it looks like a test of the 1300-1307 level is in the cards.  Of course, a lot depends on the EU summit this week.  Everyone is already pricing in a negative outcome, so there is always the possibility as we have seen lately that the worst case scenario doesn't come to fruition and the market bounces on a relief rally.  We also have quarter end this week which could see some window dressing buying.  That said, we continue to position portfolios conservatively and want to remain defensive as we enter Q2 earnings season.

KAM has long positions in VXX

Friday, June 22, 2012

Looking For Next Support Levels

The markets caught folks asleep at the wheel yesterday and took a good shellacking.  After the FOMC meeting, there was little reaction in the markets on Wednesday, and that may have lulled some investors into a sense of complacency.  But on Thursday the rug got pulled out, and the selling accelerated and pushed the major indexes back below their 50-day averages.

Last night Moody's downgraded several banks, but it looks like the news was well telegraphed and mostly priced in.  To wit, the financials are leading the market this morning with the XLF up +0.70% right now.  Energy and materials stocks are lagging again.

One of the culprits for yesterday's selloffs was the steep drop in commodity prices, which makes a lot of global investors fear a slowdown in economic activity.  But we know that some companies benefit from lower commodity prices, so investors should soon start to differentiate and not paint all stocks with the same brush.

This morning there hasn't been a lot in the way of market moving news.  The bounce back in the major averages feels a bit shaky, and if financials rollover later today I doubt the indexes will hold up.

The 10-year yield is higher to 1.65%.  And the VIX really spiked higher yesterday back above 20.  Today it is down -4.5% to 19.15, but I think it will retake the 20 level again soon.

Trade comment:  Traders will now start looking for the next areas of support in the market.  Right now, SPX 1325 has held, but if that gives way many are looking at 1300-1307 again.  Below that the call yesterday from Goldman Sachs was to expect a correction that would take the S&P down to 1285.  But I wouldn't rule out yesterday's selloff bringing out a lot of bearish sentiment again, which could present another rally attempt into quarter end.  I'm just saying--

KAM Advisors has long positions in VXX

Wednesday, June 20, 2012

Will The Fed Announce More QE Today?

The market opened flat this morning after four consecutive up days in a row.  Normally, I would think the setup going into today's FOMC meeting would be a classic buy the rumor, sell the news reaction.  By that I mean the market has run up for the last four days so it is ripe for a pullback.

It is certainly possible that if the Fed announces more QE at today's meeting that the market can rally further.  But it wouldn't surprise me to see it selloff either way.  I mean, if the Fed does announce more QE aren't they acknowledging that the economy has slowed more than previously thought?

In corporate news, both Adobe and Proctor & Gamble lowered profits guidance and both stocks are lower.  We know Europe has slowed, China has also slowed, and if the US is slowing we could see more companies issue cautious guidance during upcoming earnings reports for Q2.

Overnight action in Asia was mostly positive, and Europe is slightly positive this morning.  Spanish yields are down a bit more, which is good.  And the G20 meeting in Cabo has ended without much fanfare or substantial plans.  The IMF was successful in getting countries like Brazil and China to contribute more money to its coffers.  I was in Cabo last week before the meeting, and you should have seen the military presence there.  That place was on lock down.

The dollar is slightly weaker, but commodities are mostly lower.  Oil prices have eased back to $82.60, and gold prices are lower to $1607.  Silver and copper prices are lower as well.

The 10-year yield is higher again to 1.66%, and looks to be putting in a constructive basing pattern.  The VIX is bouncing 2% to 18.82.  I don't think the VIX will stay under 20 for too long in this environment.

Trading comment: It is very constructive that the major indexes have regained their 50-day averages.  If we do get a pullback today after the FOMC announcement, I want to see those 50-day lines act as support to the market.  Leading growth stocks have also been acting better, with more breaking out to new highs and another group building solid bases and retaking their respective 50-days.  This could turn into a positive trend, but things need to calm down in Europe.  CDS prices are still high there, indicating continued angst from investors.  But for the near-term I am growing cautiously optimistic.

Tuesday, June 19, 2012

The Relief Rally Continues

The market is up again in early trading.  There isn't really any concrete news that would account for the strength we are seeing.  Rather, it seems that investors were too cautious last week as they prepared for the weekend, and that fear trade is being repealed over the last few sessions.

Asian markets eased back overnight, but Europe is higher this morning as Spanish yields come down a little and the euro gets a bid vs. the dollar.  Oil prices are higher to $84.15, while gold prices are flat near $1626.  Silver prices are lower, but copper prices are higher.

In economic news, housing starts were slightly below expectations for May but building permits rose nicely with last month's figures seeing upward revisions.  The debate about whether or not the housing bottom is in continues.  I have no positions in the homebuilding stocks and no desire at the moment.

In earnings news, both FDX and ORCL reported last night and both stocks are higher today.

The S&P 500 is breaking above its 50-day average today.  I had thought it might run into some resistance at this key overhead moving average, but such is not the case today.  Of course, we need to see the SPX hold above this average for more than just one day, so the reaction to tomorrow's FOMC announcement will be interesting.

The 10-year yield is slightly higher to 1.62%; and the VIX is lower again after a really big plunge yesterday.  The VIX is currently -2% lower below the 18 level.  I think this is an overshoot, but somewhat typical of what we see in the summer months.  I still think the VIX will offer a good upside trade in the near-term.

Trading comment: Last Monday the Dow opened higher and faded completely into the close.  It opened Tuesday morning near 12,400 with all the headlines about a potential Greek disaster.  A week later it is 450 points higher.  Famed trader Humphrey Neill said, "When everybody thinks alike, everyone is likely to be wrong."  This quote comes to mind when thinking how everyone likely got defensive ahead of the big weekend and quickly scrambled when they realized that they had gotten too cautious.  I myself am a bit guilty of this.  But as market leaders begin to emerge from their consolidation bases, there should be ample opportunities.

Monday, June 18, 2012

Monday Morning Musings

The relief rallies we are seeing with each new twist in the eurozone saga seem to be getting shorter and shorter.  I made this remark last week when the market rallied on the Spanish bank bailout requests but the early rally completely faded by the end of the day.

So far this latest reaction to the Greek elections has been even shorter.  On Sunday when the news came out I saw that the Dow futures opened up around +150.  When I checked after the US Open the futures had cut those gains in half.  But what really surprised me was when our new puppy began barking at 4:30am this morning and I woke to see the futures had actually turned from +50 last night to -50 this morning.  Talk about fading euphoria.

The positive development out of the Greek elections take a potential negative scenario off the table, but it doesn't do much in the way of proactive solutions to the debt issues.  So the market quickly turns its focus of attention back to Spain, where yields on its 10-year debt spike to 7.16% and its stock market falls -2.0%.  If the market is this worried about Spain, what happens when it turns its attention to Italy (and heaven forbid France)? 

The can they're trying to kick seems to be getting bigger and heavier each time.  Investors will be looking for comments out of the G20 meeting today, but I expect little more than an increase in the size of the IMF bailout funds.

That said, we are seeing some positive action among individual stocks, especially in the tech sector.  AAPL has broken back above its 50-day average, and may be pulling the Nasdaq higher.  Facebook (FB) is also seeing a nice pop back above the $30 level. 

The dollar is up again vs. the euro, which is weighing on commodities.  Oil prices are lower near $83.05 and gold prices are weaker to $1622.  Silver and copper prices are lower as well.

The 10-year yield is a bit weaker at 1.57%; and the VIX is plunging from last week's close, down -6.6% back below the $20 level to 19.70.  I have said I think the VIX will trade between 20-25 in the near-term, so I think we could be getting close to another trade to the upside in the VIX.

Trading comment: I am glad the worst case scenario for Greece has been taken off the table.  I think that staved off a lot of potential downgrades from the ratings agency.  But Spain isn't going away.  This week we have the FOMC meeting, with many probably looking for some comments about further QE policies.  I think that could be setting the market up for some disappointment if the Fed doesn't feel the same sense of urgency to announce any big new initiatives.  I also want to see how the S&P 500 handles its upcoming test of the overhead 50-day average which is just about coming into play today.  So for now, I'll retain our conservative posture.

KAM Advisors has long positions in AAPL, FB

Friday, June 15, 2012

Is It All Priced In??

The markets are up for a rare second day in a row.  I would have expected to see some weakness yesterday but the market closed fairly firm and today is has taken out recent highs at SPX 1335.  It is possible that some of the upside skew yesterday and today is being affected by today's options expiration.

Another possible thesis is that maybe all of the scary potential news this weekend has for the most part been priced in?  Markets are good at telegraphing things that are already well known.  We have been talking about the Greek elections for weeks.  As a result, portfolio managers have had plenty of time to reduce exposure, hedge positions, buy protection, etc.  Even central banks are in the headlines saying they stand ready to add liquidity if needed. 

It sort of reminds me of the Y2K scare, which turned out to be a dud.  Of course, the fact that the market is up for the last 2 days ahead of the weekend does raise the odds for disappointing action on Monday.  But I am growing more skeptical of the potential for a huge selloff regardless of the outcomes of the elections.  That said, I do expect the sovereign debt issues to remain on the front burner as the focus of attention has yet to turn to Italy, but its coming.

There isn't much in the way of corporate news this morning, but there was some economic data.  The Empire Manufacturing survey showed a big decline to 2.3 in June from 17.1 last month.  That's a pretty big plunge.  And the Univ. of Mich. consumer sentiment survey declined to 74.1 for June from 79.3 the prior month. 

In this perverse environment, markets aren't selling off as much as they normally would to downbeat economic data because investors feel that weaker data will give the Fed cover and support for additional quantitative easing. 

Asian markets were higher overnight, and Europe is higher this morning.  The dollar is lower which is helping commodities.  Gold prices are higher near $1630.  Oil prices are up to $84.20.  And silver and copper prices are higher also.

The 10-year yield is lower to 1.56% as investors buy Treasuries for safety.  And despite the early strength in the indexes, the VIX is 2.6% higher still.  Some of this could be related to options expiration, as traders roll their positions out to future months.

Trading comment: As the S&P 500 breaks above that 1335 level that has acted as resistance since mid-May, I wonder if I have been too conservative of late.  But I also see the downward sloping 50-day moving average closing in fast on the SPX and I would expect it to offer stiff resistance.  I know bearish sentiment has been building recently and I acknowledged that a move higher could be in the cards to keep investors on their toes.  But I still don't get the sense that the market is poised for a sustainable run here.  There are not enough growth stocks breaking to new highs, and it would be rare for the market to keep pushing higher while led by defensive stocks like consumer staples and utilities.

Thursday, June 14, 2012

Are Investors Anticipating QE3?

The markets are higher in early trading, on little real news.  The is the 7th day in a row of flip-flopping by the market, where we are up one day and down the next.  I also think that speculation is growing that the Fed will embark on another round of quantitative easings.  Though remember that each subsequent round of easing seems to have a less lasting effect on the markets.

Asian markets were lower overnight, and Europe is down this morning.  Moody's downgraded Spain's debt rating last night pushing yields on Spanish debt to record highs near 7.00%.  And the Swiss National Bank said that Credit Suisse should look to raise additional capital. 

With the pressures on Europe mounting, Germany seems to be softening its stance on some sort of Eurobond-like solution.  Of course, treating debt with more debt is no solution, but the market will probably cheer it in the same fashion it has with all of the previous kick-the-can provisions.

In economic news, the core CPI rose 0.2% in May, while overall consumer prices fell -0.3% when food and energy prices are included.

In corporate news, SFD is down after missing earnings; and KR is higher after topping estimates, raising guidance, and upping its stock buyback.

The dollar is down slightly, and commodities are mixed.  Oil prices are up a bit near $83 while gold prices are flattish around $1620.  Copper prices are higher, while silver prices are lower.

The 10-year yield is getting a small bounce to 1.63%;  And the VIX is currently -2% lower to 23.75.  It got close to the 25 level this morning before turning lower.  Yesterday's high VIX was good tell for late day weakness.  Given the 100+ point rally this morning in the Dow, I would think the VIX would be down more than 2%.  This could be another hint that this current market strength fades later today. 

Trading comment: We remain at an interesting juncture for the market.  The S&P 500 is putting in a fairly constructive consolidation pattern.  I admit I would not be surprised to see it break in either direction.  The pressures on Spain and Italy continue to grow, and that is a big red flag.  But in the near term, the G20 meeting this weekend, the possibility of QE3 from the Fed, some sort of eurobonds from the EU-- all of these have the potential to spark some near-term enthusiasm in the market.  It is always difficult when we are in these headline driven periods, but the 52-wk high list is littered with defensive stocks and that tells me it is okay to remain patient.

Wednesday, June 13, 2012

Still Holding The Recent Range

The market dipped in early trading but is currently attempting to bounce from those levels and get back into positive territory.  Yesterday's trading showed solid price action with good volume.

In economic news, retail sales fell by 0.2% in May, and fell 0.4% when you exclude auto sales.  Also, producer prices declined 1.0% in May, while core producer prices rose 0.2%.  So really the big declines came from food and energy prices.

Overnight action in Asian was generally positive, while Europe's bourses are lower today.  Yields among eurozone countries are mixed, and the euro is getting a bounce relative to the dollar.

Commodities are mixed.  Oil prices are higher near $83.85 and gold prices have bounced to $1623.  Copper prices are lower so far.

Jamie Dimon, the CEO of JPMorgan, is testifying before the Senate Banking Committee this morning about their trading losses.  I find these kind of things somewhat laughable.  Most of the folks on the panel don't understand the banking activities of a large money center bank like JPM.  I would bet that the same types of activities take place in all of the large banks.  I'm not sure Dimon needed to disclose it in the manner in which he did in the first place.  And I'm sure he regrets it now as he has been called to Washington to testify about a trading loss.

So far today, healthcare stocks are leading the action while materials and industrials are lagging.

The 10-year yield is down a touch to 1.64%.  And the VIX is up +5.5% to 23.35.  The VIX seems like it is up quite a bit relative to the flat action in the major indexes.  Normally I would view this as a red flag on the day.  But sometimes in expiration weeks you get a day or two where normal correlations/signals get skewed.

Trading comment: Yesterday's action was generally positive.  It was not quite big enough to qualify as the IBD-style follow through day I have been looking for since last week.  The biggest missing ingredient is the number of fresh breakouts by leading stocks.  Most market leaders are still in the midst of forming corrective bases in their stock action and not yet ready to breakout to new highs.  So I am not yet ready to materially increase our long exposure to stocks.  The SPX has held that 1307 level nicely the last several days, and it wouldn't surprise me to see another push higher in the senior index.  But we also have the 50-day average looming overhead, which is now downward sloping and should offer resistance if and when it comes into play.

KAM Advisors has long positions in JPM

Tuesday, June 12, 2012

Stocks Bounce Despite Spanish Strains

The markets are higher in early trading.  Yesterday's action was clearly disappointing as the early gains quickly dissipated and the market closed near its lows.  I thought we would see more weakness this morning, but the markets so far have been bouncing despite ongoing strains in Spain.

Spanish yields continue to rise, and Fitch made further ratings cuts to some Spanish banks.  Despite these issues, Europe's stock markets are higher today.  Asian markets were lower overnight after the selloff in the US.

TXN narrowed its earnings outlook last night, but it's stock is up a little.  AGU is also higher on revised earnings guidance.  KORS topped estimates last night and raised guidance and its stock is up 6%.  On the downside, FDS lowered guidance and its stock has gapped lower.

Other than that there is not a whole lot of news or economic reports moving the markets.  Things are still very headline driven, mostly out of Europe. 

The 10-year yield is getting a bounce to 1.63%.  The dollar is down a bit, which is helping lift gold prices near $1610 and oil prices close to $83.50.  Silver and copper prices are higher as well. 

As for the VIX, it is currently down -2.5% as the market bounces, just below the 23 level.

Trading comment: Market action remains choppy.  Yesterday's action was pretty bearish in that there was a real lack of buyers.  On the NYSE, downside volume totalled 91%.  That said, today is the third day that the SPX has held this 1307 level and it is currently trying to bounce.  So maybe the market has another push higher up its sleeve.  That said, I am still inclined to remain defensive as conditions in Europe remain tentative and economic growth appears to be slowing (recent ECRI drops).

KAM Advisors has long positions in KORS

Monday, June 11, 2012

Monday Morning Musings

There is little in the way of corporate news or economic data to move the markets this morning, with the entire focus pretty much on the announcement that Spain has requested a bailout for its ailing banks.

When the news came out over the weekend, enthusiasm spiked that the fresh capital for the banks would bring some stability to Spain, and the futures spiked higher.  Asian markets were up 2% of more overnight, and Europe's markets sported strong gains this morning.

But the enthusiasm seems to be quickly waning as investors ask more questions and contemplate how long this panacea can actually help fiscal problems in the eurozone.  It could also be that the market is still wondering that even if Spain gets some assistance, the one country that has yet to be dealt with is Italy.  That said, the day is still young so let's see how it plays out.

Additionally, this weekend brings the elections in Greece which many investors are still worried about.  The question of whether Greece will adhere to its austerity agreement or decide to take its chances and exit the euro is still up in the air.

One stock that is bucking the early weakness is Apple (AAPL), which is hosting its Worldwide Developers Conference today and is expected to announce some new exciting products.  This will also be the first WWDC hosted by Tim Cook as CEO.

Among the sector ETFs, economically sensitive materials (XLB) are lagging the most, while defensive utilities (XLU) are bucking the weakness and trading at new highs. 

The euro is still higher vs. the dollar, and commodities are mixed.  Oil prices have eased from their earlier highs and are near $83.75.  Gold prices have also faded and are down slightly to $1586.  But copper prices are highly, likely aided by positive sentiment out of China about further stimulus.

Right after the open today, the VIX traded down to its 50-day average below the 20 level but has quickly bounced back up to 21.40.  I have said that in this environment I expect the VIX to oscillate in the 20-25 level for awhile. 

The 10-year yield is down a bit to 1.61%.

Trading comment: I am very surprised the enthusiasm for the Spanish bailout has faded so quickly.  I understand the continued skepticism and all of the unanswered questions that remain, but I still felt that the market would experience a bounce today.  The stock futures were up over 150 points last night when I checked, and Asian markets rallied sharply.  Go figure.  Interestingly, the S&P 500 traded up to 1335 today before running into resistance.  Guess what the May highs were?  Yep - 1335.  So if we give the market time, it's still possible that it is putting in a bottoming formation.  Bottoms are never perfect of smooth, and the upcoming Greek election news will be a wildcard.  So we will maintain our conservative posture for the time being, and await stronger evidence that this market correction which began in early May has run its course.

KAM Advisors has long positions in AAPL, XLU

Thursday, June 07, 2012

China Cuts Rates Again

The market is higher in early trading, adding to yesterday's outsized gains.  The S&P 500 got as high as 1329 this morning before running out of steam.  Last week's high was 1335, so we see where near-term resistance is for the time being.

Overnight China cuts its benchmark rate another 25 basis points to 3.25%.  That follows a rate cut yesterday by the Reserve Bank of Australia.  The Bank of England stood pat at its current rate of 0.5%, half that of the ECB's 1.0% level.  I still think the ECB should have cut rates, but maybe they are trying to save some ammo.

Asian markets rallied overnight on the news of the Chinese rate cut and also in response to the rally here in the U.S.  Europe's markets are higher again this morning on continued optimism that Europe's leaders will come up with some solutions to address Spain.

Our markets lost some of their early steam after remarks from Bernanke were released.  He said that our banks have improved their strength, that inflation remains contained, but that the fiscal cliff looms large as a significant threat to the fledgling recovery.  He is now getting grilled by Congress, which is always comical due to their lack of true understanding of complicated monetary policy.

Outside of the above, there is little in the way of market moving economic data or corporate news.  On report of note was LULU's earnings, which were okay but the company reduced guidance which is the kiss of death for a growth stock.  The stock is currently down -9% on big volume and weighing on other growth retailers. 

The dollar is slightly higher this morning as the euro takes a breath after yesterday's spike.  That has commodities mixed.  Gold is easing back to $1609 while oil prices are higher near $86.10.

The 10-year yield has had a nice bounce from last week's lows.  It got back to 1.65% today and is currently just below those levels.  As for the VIX, it plunged yesterday and was down further this morning to 20.75 before bouncing.  It is currently up on the day near 22.43.  I don't see it getting below 20 and staying there on this rally.

Trading comment: I have been talking about how investor sentiment had gotten very bearish and that was likely setting us up for a bounce.  We have certainly seen that bounce with a nearly 5% move in the SPX from Monday's lows to this morning's highs.  That puts the market at an interesting juncture here.  I think if the market can digest this recent bounce without giving too much of it back, it is possible to see another push higher for the major indexes.  But of course, a lot will have to do with the fluid situation in Europe.  Greece's elections are June 17th, and the financials markets and European leaders will be anxiously awaiting those results.  We are still more in defensive mode than aggressive, and we have used this recent strength to add to some of our ETF hedges.

Wednesday, June 06, 2012

Scheduling Conflict

I have a meeting this morning, so look for my market comments after the close of trading today--

Tuesday, June 05, 2012

Should The ECB Cut Rates?

The market is slightly higher in early trading, but the S&P 500 is still not back above its 200-day average.  The 200-day resides near 1285.  The SPX briefly bumped its head at 1285 this morning before pulling back.  So that's a level bulls would like to see recaptured by the close today.

I'm glad we didn't have a big up open in the market, since that often is just a setup for a failed rally attempt.  I would rather see the markets open flat and then build some strength into the close.  We shall see.  There is a teleconference today between the G-7 finance ministers who will discuss eurozone conditions.  But there is some confusion as to whether the details from the call will be released.

Tomorrow is the latest announcement from the ECB.  Some believe they should cut interest rates, while others think that it won't help.  I still find it odd that the ECB is at 1.00% and our Fed is at basically 0%.  China has cut rates, Australia cut rates today, I think the ECB should cut rates also.  I don't think it will have a huge effect but it could help at the margin.

In economic news, the ISM Services index for May came in better than expected at 53.7, which is higher than last month's reading of 53.5.  In Europe, the eurozone services PMI improved a touch to 46.7 for April.  However, retail sales for the region fell during April by 1.0%.

The dollar is up again today vs. the euro, but it isn't weighing on commodities as much as usual.  Oil prices are a little higher near $84.40 and gold prices are up to $1619.  Copper prices are lower.

Asian markets were generally higher overnight.  The 10-year is bouncing a little more to 1.56%.  And the VIX fell back below the 25.0 level but is currently bouncing back above it.  Bulls are hoping for a VIX close below that 25 level.

Trading comment: Yesterday's action wasn't great, but it wasn't that bad either.  The market was able to erase its intraday losses and close flat.  Today the market is mostly hanging in so far also.  I think a lot of folks are waiting for some sign out of Europe that hints at their next policy response.  Its difficult to see our markets held hostage like this to Europe, but as the old saying goes "you have to trade the market as it is, and not how you wish it to be".  Small and mid-cap stocks are outperforming so far this morning.  And financials are the biggest sector leader so far.  So there is potential for today to shape up positively.

Monday, June 04, 2012

Looking For The Elusive Bounce

The markets are mixed in early trade after opening slightly higher but quickly fading back into negative territory.  The first hour dip was relatively shallow and the indexes are trying to make a stand.  The Nasdaq has moved back into positive territory while the S&P 500 is still a few points shy.

The disappointing non-farm payrolls report on Friday really took the wind out of the sails of this market.  I thought folks would have already be expecting a poor jobs report, but the figures turned out weaker than most expected.

The selloff on Friday probably weighed on Asian when it opened last night, as markets there fell across the board.  China dropped -2.7% after the country's services PMI fell to 55.2 from 56.1 the prior month.

Newsflow in the US is very light today, with no big corporate or economic reports to speak of.  Hopefully that will provide a backdrop for stocks to bottom and try to put in some upside reversal today. 

The dollar is lower today after its big recent rally.  Commodity prices are mixed.  Oil prices are slightly higher near $83.45.  Copper prices are higher as well.  But gold prices are lower to $1618 and silver prices are down as well. 

The 10-year yield is higher today after plunging to breathtaking generational lows last week.  The 10-yr currently sits at 1.50%.  Some folks think yields could drift lower, which is always possible, but I think the TBT trade (short Treasuries) is looking pretty good.

As for the VIX, I would like to see it start moving lower.  It nearly hit 27.75 this morning but is currently back down near flat for the day at 26.70.  The days lows are 25.75.

Trading comment: Friday's plunge took the SPX right down to its 200-day moving average, and even a bit below.  The SPX is currently trading at 1276 vs. the 200-day average that sits near 1284.  So my first wish would be to see the SPX retake that 1284 level and its 200-day.  Sentiment has gotten pretty bearish with the put/call closing at 1.37 on Friday.  So we should be setup for a bounce, even as the macro backdrop remains chock full of negative headlines.  June brings another Fed meeting as well as the Greek elections, but hopefully we won't have to wait all the way until those events occur to see some action.

KAM  Advisors has long positions in TBT