Monday, October 15, 2012

Monday Morning Musings

The markets are mixed in early trading despite Europe trading higher before the open.

In earnings news, Citi (C) beat earnings estimates and the stock is 3.5% higher so far.  There were a handful of other companies reporting as earnings season heats up this week, but no big companies on par with Citi.

In economic news, September retail sales rose 1.1%, which is above the 0.7% expected.  And last month's figures were revised higher to reflect a 1.2% increase.  Also, the Empire Manuf. survey improved to -6.2 in October from -10.4 last month.  But that negative figure is still a weak reading for the industry.

Overnight in Asia markets were mixed despite CPI and PPI data out of China that came in in-line indicating inflation is in check there.  China's market actually finished lower, while Japan and Hong Kong were up small.

In Europe this morning, soothing comments from EU commissioner Olli Rehn have improved sentiment across the region.  Rehn said that reform talks with Greece should conclude by mid-November and that the nation will likely be given more time for reforms.  Go figure.  The Greek 10-year yield fell to 17.1%, the lowest level since the restructuring began.  He also said that Spain is open to a bailout request and he is confident in their ability to pursue reforms.  Last, he noted that the ESM could be leveraged up if needed.

Despite all the positive chatter, the euro is lower today which is weighing on commodities.  Oil prices are back down near the $90 level and gold prices are pulling back to $1733.

The 10-year yield is flattish around 1.66%.  And the volatility index is also flat at 16.17.

Trading comment: The S&P 500 is sitting right at its 50-day average support.  The other indexes, like the Nazz, mid- and small-cap indexes are already trading below their respective 50-day averages.  This is a yellow flag, and could indicate more time is needed to work off the recent multi-month rally and find new support levels.  Of course, if the market acts like it has been recently buyers are likely to return sooner rather than later.  But we have seen distribution days (higher volume selloffs) pick up in recent weeks and the leadership from growth stock begin to wane.  AAPL is no longer leading the market either.  So we prefer to be patient and let the market show us some strength before we decide to put more cash to work in stocks.  There are certainly still going to be select names which report strong earnings and I think those stocks can continue to hold up fine.  But I would not chase laggards here.

KAM Advisors has long positions in AAPL


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