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.

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