Tuesday, July 17, 2012

Earnings Season Heating Up

The market suffered a quick reversal in the opening minutes of trade. After opening higher, the indexes reversed into negative territory where they currently remain.

Fed Chairman Bernanke is giving his semi-annual testimony before Congress. Some investors were probably hoping for him to announce more quantitative easing measures. But as I have said before, the Fed said they remain open to the possibility but they are not announcing it at this time. I think they want to keep some powder dry in the event that the economy slows and also if the fiscal cliff comes to fruition.
Earnings season is starting to heat up, and as I look at the stocks of the companies reporting my sense is that more stocks are showing positive reactions than vice verse. This is a good early sign, especially the rallies we've seen in financial stocks of reporting companies.
Stocks rising on earnings: GS, MOS, SCHW, KO, CME, MAT
Stocks falling on earnings: JNJ, STT, JBHT, MFRM
In economic news, the housing market index for July rose to a reading of 35.
Asian markets rallied overnight. The Reserve Bank of Australia said in its recent minutes that China may not be slowing much further. This is an optimistic outlook, and probably depends on how much stimulus they push through and its effectiveness.
The dollar index is higher this morning, which is weighing on most commodities. Gold prices have fallen back to 1575, likely exacerbated by the disappointment over no additional QE from the Fed. Oil prices are also down a bit, near $88. Silver and copper prices are lower as well.
The 10-year yield is steady at 1.48%, still a low absolute level. And despite the decline in the major indexes, the VIX is lower this morning to 16.90. This could augur well for a push higher today at some point.

Trading comment: The SPX is currently lower for the 8th time in 9 days. That's a pretty long streak. Given that earnings reports are coming in fairly well so far, I would not be surprised to see another push higher by the market. The SPX tested its 20-day average this morning at 1345. This area of 1335-1345 is a big support zone. If it holds, I expect another push higher. The SPX would need to get above its early July highs near 1375 to be in a position to attach its highs for the year. That might be a tall order. I find myself more in the trading range camp rather than looking for new highs. And as I have said for quite some time, this market is not being led by the traditional growth stocks that usually power a market higher. One good whack to this market would easily put investors back on their heels and playing defense again.

KAM Advisors has long positions in JNJ, KO


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