Wednesday, July 25, 2012

Is More QE On The Way?

The market had a pretty big rally late in the day yesterday after the WSJ reported that the Fed is very close to another round of quantitative easing, and is considering action at either its August or September meeting.  Before the enthusiasm had a chance to spillover to Asia, Apple (AAPL) reported disappointing earnings and that seemed to weigh on Asian markets and sentiment more as markets there fell across the board.

I'm not so sure I agree with the timing of additional QE from the Fed at this juncture.  I would prefer to see them save some powder for later in the year when we get further down the line with Europe and even as we near the fiscal cliff. 

In Europe this morning, markets there are higher across the board after comments from an ECB council member who suggested Europe's rescue fund should receive a banking license.  This would allow the fund to leverage up its assets to fund bailouts.  One of the concerns is that all of these rescue funds still don't have enough assets to cover both Spain and Italy.

In earnings news, although AAPL was the big miss today and that is weighing down the whole Nasdaq, I'm seeing more stocks rising on earnings than falling.

Stocks rising on earnings: BA, PNRA, RVBD, ALXN, ARMH, BMY, CAT, TMO, IACI, PEP

Stocks falling on earnings: AAPL, NFLX, LO, GD, TRIP, IGT, BWLD

In economic news, new home sales in June fell to 350k rate from 382k in May.  Goldman has been calling for a big rally in the housing market, but most of the stuff I follow doesn't support that notion.  Prices in many parts of the country just aren't moving despite all-time lows in mortgage rates.

The dollar is lower today as the euro bounces after 3 rough days.  That is helping boost most commodities.  Gold has rallied back to the $1600 level.  Copper and silver prices are higher also.  But oil prices are weaker today falling back to the $87 level. 

The 10-yield continues to languish at the 1.40% level.  And the VIX is slightly higher this morning back above the 20 level to 20.60.

Trading comment: The SPX is again sitting right at its 50-day average support.  The other junior indexes are already trading below their respective 50-day averages.  Market leader AAPL is taking it on the chin today and is unlikely to resume as a market leader until we can put some time behind us in terms of this disappointing quarter they just reported.  That could leave a vacuum in leadership with no clear cut groups doing well at this juncture.  Given the above, I still want to focus on playing defense in the near-term.

KAM Advisors has long positions in AAPL, ALXN, BMY


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