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


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