Wednesday, October 24, 2012

Hopes For A China Growth Rebound

Markets are only slightly higher following yesterday's sharp selloff.  In economic news, new home sales for September came in better than expected at 389,000 units.  And the FHFA said the Housing Price Index for August rose by 0.7%.

Other than that the focus has mainly been on all of the companies reporting earnings this week.  I think the surprise this morning is Facebook (FB), where sentiment had grown extremely cautious.  But investors liked what they heard on the conference call about the ability to monetize mobile ads and the stock has spiked more than 20% this morning.

Stocks rising on earnings: FB, LL, DOW, GILD, BA, LMT, TUP

Stocks falling on earnings: T, BWLD, NFLX, EAT, ATI, NEE, IACI, KMB, BMY, GLW, LO

Overnight most Asian markets were lower.  China bucked the weakness after its HSBC Manuf. PMI reading came in above expectations at 49.1.  That still is in the contraction zone, but its the highest reading in 3 months so folks are getting their hopes up that China is stabilizing and could be poised to see a pickup in economic growth.  I remain cautious on China.

Europe's markets are mixed this morning.  Most were lower initially after PMI readings for France, Germany, and Italy all came in below expectations.  That pushed markets lower early but many have rebounded since.

The dollar is higher again today, which is weighing on commodities.  Oil prices are weaker to $85.80.  Gold prices are lower near $1705.  Copper prices are lower also and do not trade very well given the sentiment that China is picking up.

The 10-year yield is getting a rebound to 1.79%.  And the VIX is down slightly near 18.35 after yesterday's spike to 19.65 and reversal from there.

Also, the FOMC announcement comes out today but I don't expected any changes from its current stance for rates to stay at 0.00% - 0.25% and the QE program to remain at $40 billion.

Trading comment: The action in the market yesterday was pretty bearish.  The SPX moved deeper below its 50-day moving average.  Most leading stocks remain in corrections.  So now is the time to be patient.  Wait for bearish sentiment to build, wait for stocks to find some support, and look for leading stocks to begin to show signs of rebounding.  We continue to be positioned defensively for the near-term.

KAM Advisors has long positions in FB, NEE, BMY


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