Friday, August 03, 2012

Markets Jump On Delayed Reaction To ECB

The markets are up strongly this morning on the heels of big gains in Europe this morning.  While the headlines will only focus on the jobs report that came out this morning, our futures were already up strongly before that report was released.  Europe was rallying on a delayed reaction to the ECB meeting, coming to the conclusion that they have successfully kicked the can down the road again.  Spain and Italy's markets are up nearly 5% today.

In Asia, markets were mixed overnight.  China was one of the few gainers as hope bubbles that Beijing will announce further support for their financial markets.  Recently there were rumors that the govt. was urging companies to buy back their own stock.  Can you imagine if that happened here?

In economic news, our jobs report was much better than expected, which helped boost stocks.  Nonfarm payrolls for July came in at 163,000 vs. expectations for 100k.  And private payrolls rose 172,000 vs. 105k consensus.  The unemployment rate ticked up a bit to 8.3%.

Also, the ISM Services index rose to 52.6 in July from 52.1 last month.  So at least we are getting some economic reports that don't point to further slowing in the economy.  We still know growth is slowing, but at least its not across the board and in a straight line. 

Among the sector ETFs, financials (XLF) are leading the early action, while utilities (XLU) are lagging.  Energy stocks are also rallying after a big spike in oil to $90.75.

The boost in the euro is helping most commodities.  Gold is back above $1600, and silver and copper are higher also.

There were also a ton of companies that reported earnings last night and this morning, with many stocks rising after reporting. 

Stocks rising on earnings: MELI, KFT, PG, LNKD, NILE, IT, SIRO, TM, NYX, PSA, EOG, AWK, FEIC

Stocks falling on earnings: HNT, WCG, PKT, MCP, SWN

The 10-year yield is getting a rare boost on the strong economic data, bouncing to 1.57%.  It is barely breaking above its 50-day overhead resistance, which would be the first such penetration above that key moving average since early April.

As for the VIX, it is down -7% back down to 16.30.  The 16 level has acted as good support the last few times with the VIX bouncing from these levels.

Trading comment: I don't think most investors were positioned for such a strong jobs report.  The S&P 500 just broke above its July highs at 1391, which leaves the door open to 1400 near-term.  The SPX has been holding in this channel of higher lows and higher highs since its recent bottom in early June.  I still have concerns about the macro backdrop, as we know that sentiment towards Europe can change on a dime.  But I don't want to ignore the price action, which is very positive.  We are not looking to increase our equity allocations much at this point, but we also don't want to be too aggressive in adding to our ETF hedges unless we get another technical breakdown in the indexes.  So far now we are just sitting tight.

KAM Advisors has long positions in MELI, PG, PSA, AWK


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