Monday, August 13, 2012

Monday Morning Musings

The markets are lower in early trading after coming off a week where every session saw gains for stocks.  There isn't a lot of market moving news this morning.  The big news is actually on the political front with the announcement that Romney's VP candidate will be Paul Ryan.

Apple (AAPL) is bucking the weakness and trading higher after reports out that it will introduce its iTV possibly in December of this year.

Asian markets were lower overnight, led by China's -1.5% decline as investors were likely disappointed that there have been no further comments or actions regarding stimulus measures for their slowing economy.  Also, Japan reported that Q2 GDP grew only 1.4% when a figure closer to 2.7% had been expected.

In Europe, markets are mostly higher after Italy held a bond auction that was met with pretty solid demand.  This helped boost the euro, and overshadowed comments from Finland's prime minister who reaffirmed his opposition to granting the ESM a bank license and said he is not convinced the ECB should continue with additional govt. bond purchases.

The dollar index is lower today, but commodities are mostly flat.  Oil prices are lower near $92.25, and gold is down slightly to $1620.  Copper prices are also lower this morning.

The 10-year yield got a big boost last week reaching 1.72%, but has pulled back to the 1.63% area so far.

As for the VIX, it is lower again despite the pullback in the market this morning.  Volatility continues to creep lower and does worry me a bit that too much complacency is creeping into this market.  At its current level of 14.50, the VIX is at  a 5-month low.  It briefly dipped below 14.0 in early March.

Trading comment: The low VIX does concern me a bit.  The last time it was at these levels didn't lead to an immediate selloff, but it was a better time to add portfolio protection that it was a time to chase the market higher.  The S&P 500 has been up 6 days in a row, and so far looks poised to break that streak.  If we just get a mild pullback, my guess is that it will be bought again.  As such, until this stair-step higher pattern in the markets is broken the indexes appear poised to challenge their Spring highs.  This is a development that few were expecting in August, but we know that often the market's main goal is to keep folks off balance.

KAM  Advisors has long positions in AAPL


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