Thursday, October 11, 2012

Europe Shakes Off Another Downgrade of Spain

Our markets are higher this morning, reversing the trend after four straight down days for the SPX.  Of course, it is still early so we will have to see if the markets can hold on to their early gains but the news so far today has been pretty supportive.

M&A activity remains strong.  The big news was Japan's Softbank interested in purchasing Sprint Nextel (S) which is driving the stock up +18%.  Also, India's Apollo Tyres is looking to acquire Cooper Tire (CTB).  So foreign entities still see value in US companies.

In earnings news, Fastenal (FAST) is showing an interesting +10% spike after matching earnings estimates.  The company also raised the divy 10%, but I'm not sure what is driving the renewed buying today. 

On the flip side, Safeway (SWY) is trading lower after reporting mixed earnings.

The big news overnight was S&P downgrading Spain's credit rating to BBB-, leaving it one notch above junk.  Asian markets traded mostly lower in reaction to the news.  S. Korea's central bank cut its key rate 25 basis points to 2.75% and trimmed its growth forecasts for both 2012 and 2013.

In Europe, Spain's market is lower but most other bourses shook off the news and are trading higher.  The euro is actually up on the day now also, reversing early losses and showing that the news of the downgrade was pretty well expected.

Commodities are trading higher on the dollar weakness.  Oil prices are up near $92.50 and gold prices are higher to $1773.  Silver and copper prices are higher as well.

The 10-year yield is higher to 1.71%.  And the volatility index is nearly 5% lower to 15.55.

Trading comment: The 4-day pullback in the market has left some of the major indexes below their 50-day averages.  The S&P 500 has remained above that key moving average, but the Nasdaq is now below it.  The mid-cap and small-cap indexes briefly violated their 50-day support yesterday but are trading back above those levels this morning.  So the near-term battle lines have been drawn.  The Nasdaq needs to recapture its 50-day to put growth stocks back in the lead.  Otherwise, the defensive rotation will remain in force.  As for the sector ETFs, most remain in good shape with the tech etf looking the most vulnerable.


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