Monday, August 20, 2012

Monday Morning Musings

Global markets are struggling for direction, and the US markets are slightly lower in early trading.  Financials are leading the early action, and there is some strength in healthcare stocks after a big acquisition, but the rest of the market is mixed at best.

Aetna (AET) said it would buy Coventry Health (CVH) for $7.3 billion, and CVH is trading nearly 20% higher than Friday's closing price.

Asian markets were mostly lower overnight.  The latest report on Chinese home prices showed gains in 49 of 70 major cities, which is the best showing in over a year.  But sentiment has soured after the Chinese media are now saying they do not expect the PBOC to cut rates in the near-term.  This helped push Chinese stocks lower, closing at a 3-year low.

In Europe, markets are flat to mixed after Der Speigel speculated that the ECB could implement a new bond buying program aimed at specific yield triggers.  The ECB quickly denied the rumors. 

In earnings news, Lowes (LOW) is lower after reporting disappointing earnings and lowering guidance.

Outside of that, there are not a lot of big earnings reports or economic data to move the markets.  The dollar is down a little, but not enough to have a big impact on commodities.

Gold prices are slightly higher near $1621 while oil prices are a bit lower to $95.50.

The 10-year yield is holding the 1.80% level that it finally got above last week.

As for the VIX, it hit new lows last week at 13.30.  According to my charts, I had to go all the way back to June 2007 to find levels that low.  That is pretty surprising.  Today the VIX is bouncing 8% higher from said low levels.  I would tend to think the VIX should find some support around these areas and at some point we will likely see a spike higher, if we ever get any news again that spooks investors.

Trading comment:  The equity markets are overbought once again.  The S&P 500 has put in 6 consectutive weekly gains, which is a bit of a rare occurrence.  My bet is for a down week this week, just to break the streak.  I know that sounds a bit like amateur roulette theory, but I would still bet that way.  I am also seeing more complacency show up in the sentiment indicators.  The 10-day CBOE put/call ratio hit a new low for the year last week, and the NAAIM investor survey tied its yearly high in bullishness.  Technically, the SPX is building a large cup-and-handle formation and appears poised for a breakout.  SPX 1422 is the level to watch for new highs on the year.  But keep an eye on bullish sentiment, as it could be sowing the seeds for the next pullback in the market.


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