Tuesday, September 25, 2012

More Earnings Warnings Trickle In

Global markets were mixed overnight while US markets are higher this morning.

Asian markets were mixed overnight.  JPMorgan suggested that China has more room to cut rates while the China Securities Journal disputed the notion and said that the current monetary stance is appropriate.

European markets were mostly lower this morning after a weak Spanish T-bill auction.  The arguments over the ECB's bond buying program continues with the ECB and Germany's Bundesbank seeking legal advice to verify the ECB's new program.  Also, Angela Merkel reiterated her opposition to Eurobonds.

In the US, consumer confidence for September rose to 70.3 from 65.9 last month.  The July Case-Shiller home price index rose 1.2%.  I think a lot of consumer sentiment is tied to the housing market, and if prices continue to firm it should boost confidence.

In corporate news, we are starting to see more earnings warnings and guidance reductions creep up.  Semiconductor company Infineon (IFNNY) lowered guidance for the next two quarters citing demand.  Tesla Motors (TSLA) also lowered guidance.  But the one with probably the one with the biggest implications for the global economy is Catepillar (CAT).  CAT said recession remains possible but unlikely in the US, and while 2013 sales look locked in 2014-15 will be below earlier estimates. 

The dollar index is lower today, which is helping commodities.  Oil prices are higher to $92.71 and gold prices are up near $1775.  Silver and copper prices are higher also.

The 10-year yield is slightly higher to 1.72%.  And the VIX continues to hover around very low levels at 14.15.

Trading comment: Yesterday was another day where we saw early weakness in the market but dip buyers quickly came in and the market firmed by the end of the session.  Looking at the charts of the major indexes shows that since the big rally a couple weeks ago we have pretty much just consolidated in a sideways fashion.  This type of behavior is usually followed by more upside after the pause, as the market rebuilds its internal energy for another push higher.  There is some risk to chasing that next push higher as investor sentiment has become very bullish and the potential for a "fakeout breakout" is higher.


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