Monday, October 22, 2012

Monday Morning Musings

Markets are slightly weaker in the US this morning on the heels of unspectacular action in Asia overnight and Europe this morning. 

There was no real economic data to move the markets this morning, and earnings reports continue to roll in with mixed reactions.  CEOs continue to make caution comments regarding guidance, but you could argue that much of it was already priced in by the recent declines in industrial stocks, for example.

Catepillar (CAT) beat earnings but lowered 2012 guidance.  Management commented that CAT dealers have lowered order rates well below end-user demand to reduce their inventories.  Peabody Energy (BTU) also beat estimates but said global macro conditions continue to be constrained due to the sluggish US economy, European recession, and decelerating China growth.

AAPL is higher by $11 this morning ahead of tomorrow's event where the company is expected to unveil a smaller version of the iPad.

Stocks rising on earnings: CAT, BTU, PHG

Stocks falling on earnings: FCX, VFC, STI, EW

Overnight action in Asia was mixed.  The Chinese press does not see grounds for further loosening of monetary policy at this time.

European markets are also mixed this morning.  An article out of Spain indicated the ECB rejected specific yield targeting , the their OMO program could be triggered if yields top 7.00%.  Greece's Finance Minister believes 90% of the work is done to get its next tranche of aid.  And Fitch has commented that it believes the Eurozone will survive the crisis.

The 10-year yield is higher back to 1.80%.  And the VIX is roughly flat at 17.10 after a big spike higher on Friday. 

Trading comment: The selloff really picked up steam on Friday and pushed the Nasdaq further below its 50-day average.  The SPX is just a tad below its respective 50-day, but the action in the other indexes leads me to think the SPX could play catch-up on the downside.  Additionally, many former market leaders are undergoing their own corrections so I think the consolidation in the market could continue for a bit.  I continue to believe a good strategy is to focus on those stocks where the company reported solid earnings and the stock reacted positively but has since pulled back to offer an entry point (or is in the process of pulling back).

KAM Advisors has long positions in AAPL


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