Stocks Ride The Political Roller Coaster

Yesterday the market was rallying on perceptions that progress was being made on the fiscal cliff.  Then Harry Reid came on tv and said the sides are still far apart.  That caused a market swoon right away.  This morning the markets opened very weak but then Boehner spoke with more comments about being flexible on tax rates and the market rallied a quick 100 points.

That is a huge amount of volatility on just political rhetoric.  But I don't think it is going away in the short-term.  I expect a lot more back and forth and political posturing that will continue to sway market sentiment in short bursts.  But we have yet to see any concrete progress other than words.

My guess is as time goes on the swings in the market will be less pronounced, but it does seem like we are going to continue to see the market rally on fiscal cliff hopes and decline on worries that nothing will actually get done before the deadline.  I am on record as saying that I think the best case will be a couple of items get addressed before 12/31 but the majority of the Bush tax cuts simply get extended until 2013 to kick the can down the road and give Congress more time.

Asian markets were lower overnight on concerns about US fiscal cliff.  China fell to a 46-month low.  A Japanese PM candidate suggested the country should employ unlimited money printing.  But at least someone is Asia is seeing a pickup in economic growth-- the Philippines saw Q3 GDP surge +7.1%, above estimates.

Europes markets are also lower this morning.  Spanish retail sales fell -9.7%.  And Eurozone private loans decreased 0.7%.

In corporate news, Costco (COST) is higher after reporting good same-store sales and declaring a special cash dividend of $7.00.  Analysts expect more companies with excess cash on their balance sheets to also declare special dividends.

Commodities are taking it on the chin today.  Gold prices fell close to the $1700 level and have started to bounce a bit.  And oil prices fell below the $86 level before but are also off their earlier lows.  Copper and silver prices are lower as well.

Trading comment: We mentioned the SPX in neutral territory between its key 50-day and 200-day averages.  This morning's selloff took the SPX down within 1 point of its 200-day support-- which is close enough for govt work.  Right on cue, buyers stepped in and the market began to bounce (aided by Boehner's comments).  But it supports the notion we laid out earlier this week that the 200-day could come into play if the market pulled back.  It's hard to forecast market direction short-term when so much sentiment is being swayed by political commentary, but that is the reality of things for the next few weeks.

Do Stocks Have More Gas Left In The Tank?

The market is mixed to lower in early trading, with the first early dip attracting buyers.  Yesterday the S&P 500 was down as much as 12 points but rallied back late in the day to close down only 3 points.  That's not too much of a give back following the outsized gains from Thanksgiving week.  The question is do stocks have any gas left in the tank? 

If the market was in a more bearish mode, we would have seen a bigger pullback already from last week's gains.  But the action so far looks more like consolidation.  If this can continue then it would normally point to another push to the upside for stocks.  Stay tuned.

In economic news, the latest consumer confidence reading for November came in at 73.7, up from 72.2 last month.  The Housing Price Index for September increased 1.1%.  And the Case-Shiller home price index rose by 3.0%.  Also, durable goods were unchanged for October, but rose +1.5% ex-transportation.  Both of these were better than expected.

In corporate news, ConAgra (CAG) will acquire Ralcorp (RAH) for $90 per share, a 28% premium to yesterday's closing price.

Asian markets were mostly higher overnight on new out of Europe.  But China failed to rally and fell -1.3% below the 2000 level for the Shanghai Index.  That marks the lowest levels seen in that index since January 2009.

Europe's markets are higher this morning after the EU and IMF were able to agree on Greece.  Greece will receive 34.4 billion euros in December, and its debt-to-gdp is targeted to fall to 120% by 2020.

Commodities are mostly lower as the dollar index gains for a second day.  Oil prices have eased back to $87.16 and gold prices are lower near $1744.  Copper and silver prices are lower also.

The 10-year yield is lower to 1.65%.  And the volatility index remains below its 50-day average near the 15.25 level.

Trading comment: The S&P 500 is still kind of in neutral territory between its 50-day and 200-day averages.   The more sideways consolidation it can muster the greater the likelihood of another push to the upside.  But for our balanced accounts we would be looking to trim equity exposures a bit more on a push towards the SPX 1420 level.  We still think that the uncertainty surrounding fiscal cliff progress coupled with a slowdown in economic growth and corporate profits is likely to weigh on stocks in the intermediate-term and want to reflect this concern in our asset allocations.

Monday Morning Musings

After one of the best weeks for the market last week, stocks are pulling back in early trade this morning.  The market had become quite oversold coming into last week, so a bounce was not unexpected.  But now that we have seen a big bouce, we will have to see if more profit taking sets in or if buyers will look to add more stocks into month end which occurs this week.

There is not much market moving economic news this morning.  In corporate news, AAPL is bouncing after a Citi upgrade and a $675 price target.  Facebook (FB) is also spiking +8% after receiving a pair of upgrades and bullish comments about its upcoming quarter.

On the downside, DreamWorks (DWA) is down -5% after "Rise of the Guardians" disappointed with $32.4 million in box office sales this weekend.  That's too bad.  I took my kids to see it yesteday and we all liked it.

Retail stocks are mostly lower this weekend on mixed sentiment over Black Friday sales.  Utilities are bucking the early weakness and boucing after the drubbing the sector has experienced since Superstorm Sandy.

Asian markets were mixed to lower overnight as traders remained cautious ahead of another EU finance ministers meeting in Brussels today.  Morgan Stanley put a note out that it expects China's GDP to grow 8.2% in 2013.

Europe is lower this morning amid chatter that finance ministers are considering a haircut for Greek bondholders that could reduce the country's debt-to-GDP ratio to 70% by 2015, down from 120%.  Seems like a big haircut that might be hard to push through.

Commodities are lower as the dollar index remains in positive territory.  Oil prices are pulling back to $87.67 and gold prices are a tad lower near $1749.  Silver and copper prices are also slightly lower.

The 10-year yield is down to 1.64%.  It was unable to break above its 50-day resistance near 1.70% last week.

The volatility index is 4% higher this morning to 15.77, still a relatively lower absolute level.

Trading comment: The S&P 500 is now right in the middle of the range between its overhead 50-day and its 200-day support.  We sold half of our trading ETFs last week, and will likely exit the rest today.  If the bulls are ready to do more buying into month end this week, then I could see the SPX testing the underside of its 50-day near 1425.  But if this selling continues and it looks like traders are reducing equity exposure again then we could be back at the 200-day in a hurry.  The 200-day currently sits near 1383.  I think another test of the 200-day could set up a bounce but at SPX 1400 right now I think the market is in neutral territory.

KAM Advisors has long positions in AAPL, FB

US Stocks Open Flat Despite Overnight Bounce in Asia

US stock markets are hovering near the flat line in early trading.  There hasn't been too much news, and I would expect that trading today would be relatively light ahead of the Thanksgiving holiday.  On Friday the market will only be open a half day.

In economic news, the Univ of Mich consumer sentiment survey for November slid to 82.7 from its preliminary reading of 84.9.  The latest weekly jobless claims figures totaled 410,000 which is down from last week's total of 451,000.

Overnight Asian markets rallied despite some weak Japan trade figures.  The latest traded data from Japan showed exports from Japan to China fell -11.6% and exports to Europe slumped -20.1%.

European markets are mixed to lower today after a bit of delay between the EU and IMF on agreeing to release the next tranche of aid to Greece.

In the Middle East, talks yesterday of a cease fire appear to be a bit premature as fighting continues.  a bus bomb exploded in Tel Aviv this morning killing 21 people.

Commodities are mixed as the dollar is relatively flat.  Oil prices are up a bit to $87.45 and gold prices are also a touch higher near $1725.  Copper prices are more than 1% lower on the day.

The 10-year yield is up again to 1.68%.  Its overhead 50-day resistance comes into play around 1.70%.  And the VIX is down fractionally below the 15 level. 

Trading comment: The market bent a little yesterday but was able to bounce back into the close and end in positive territory.  So far the pattern of consolidation after the strong 2-day rally looks normal.  But I would like to see the market push through to some more upside soon to keep these rally hopes alive.  I still feel like sentiment is fragile at this juncture and if the bulls don't keep their pedal on the gas this market could roll over again.  Volume levels today and Friday should be light and hopefully the bears have left early for their holiday festivities.

Are Stocks Catching Their Breath After Monday's Rally?

The markets are roughly flat in early trading following yesterday's solid rally.  Stocks rallied both Friday and Monday, so its rational for them to take a breather.  The question for investors is whether stocks are just catching their breath before another push to the upside or if the last 2 day rally was just a breather from the recent downtrend action?  I think the markets still have some more upside, though I don't see us getting back to the highs of the year.

This morning both BBY and HPQ are making new lows after reporting disappointing earnings.  BBY has lost all of its mojo that was surrounding the prospect of its founder taking the company private.  And HPQ took a huge charge related to improprieties and misrepresentations from Autonomy which it bought.

In economic news, housing starts rose to 894,000 units in October from 863,000 last month.

Overnight Asian markets were mixed, although China slid 0.4% hitting a new 45-month low.  That can't be a good sign.  I'm surprised the media doesn't mention this more whenever they are talking about secular growth theme in China.

European markets are also mixed despite the Moody's downgrade of France.  Moody's also mentioned the outlook for Italy's banking system remains negative.  In Brussels, EU finance ministers have agreed in principle to unfreeze loans to Greece.

Commodities are mostly lower following a rise in the dollar today.  Gold prices are near $1730.  Oil prices are pulling back to $87.50, down almost $2 as news hits the wires about a ceasefire from Israel.

The 10-year yield is up to 1.65%.  And the VIX is up fractionally to 15.38 after a big drop yesterday.

Trading comment: I still like the long side here for a trade.  We added some long ETFs in trading accounts and haven't sold them yet.  For our balanced accounts, we still want to stay defensive and reduce our equity exposures as we near year-end.  So for longer-term investors we are using any further strength in the market to continue to rebalance portfolios with an eye toward the fiscal cliff uncertainty and a continued slow growth economy as we enter 2013.

Monday Morning Musings

The markets are nicely higher in early trading, with the Dow up 150 points following strength on Friday's close and rallies in overseas markets last night and this morning.

Israel has said it may increase its assault on the Gaza strip, and that has oil rallying another $2 to $89.  But that has not derailed the rally in stocks so far this morning.  One thing that concerns me a bit is that I never like to see very strong opens as that leaves a lot of time during the trading session for sellers to emerge knock down the market.  I prefer to see stocks rally into the close like they did on Friday.

In economic news we got some more positive housing data.  Existing home sales for October rose to 4.79 million from 4.69 million last month.  And the NAHB Housing index for November rose from 41 last month to 46 this month.  Both readings were above consensus.

Overnight markets in Asia were higher.  Japan led with a 1.4% gain and China lagged with 0.1% rise as news came out that China saw housing prices decline in 17 of 22 major cities last month.

European markets are also higher today despite a member of the ECB saying Greece will be unable to return to public markets in 2015-16 and will likely need more aid.

The dollar is lower today and helping to boost commodities.  Oil is up past $89, aided by the escalating Israel conflict.  Gold prices are higher to $1733.  And silver and copper prices are higher as well. 

The 10-year yield is higher to 1.61%.  And the VIX is down -3.7% today back below its 50-day average to 15.80.

Trading comment: Last week I commented that the Nazz had been down 6 straight weeks and was overdue for a bounce.  We started to add some QQQ on Friday to trading accounts and I was looking to add to it today but with the markets up as much as they are this morning I don't want to chase and overpay. If we get an intraday dip I will likely add some as I still think the markets could see further upside this week.  The market is very short-term oversold and investor sentiment had recently become pretty bearish.  So that should provide a backdrop for more than just a one-day bounce.

KAM Advisors has long positions in QQQ

Oversold Nazz Looks Due For A Bounce

The market is lower once again in early trading as this market continues to trade heavy and just can't seem to bounce.  Bearish sentiment is on the rise, which should help the market bounce at some point.  Also, the Nasdaq has been down 6 straight weeks so it looks overdue for a bounce as well.

Fears about the fiscal cliff continue to manifest themselves in the form of high dividend paying stock getting hit the hardest.  Today telecom stocks are getting sold off, and the utilities sector has already seen heavy selling.  I think that is a mistake and that investors will realize that even if dividend taxes rise ultra low interest rates remain and that keeps these dividend streams attractive on a relative basis.

The latest news is that the White House is considering delaying the spending cuts.  We mentioned recently that this has been the call from our sources at Goldman.  They think Congress will kick the can down the road maybe to June 2013.

In economic news, industrial production fell by -0.4% in October, below expectations.  And capacity utilization fell to 77.8% from 78.2% the prior month.  This figure points to the continued slack in the economy and lends itself to the notion that inflationary pressures like unit labor costs seem a ways off.

Asian markets were mixed overnight with Japan rallying and China selloff off to a 7-week low after the Chinese press warned that the recent bounce in economic data may be temporary.

Europe is also lower this morning after Germany's Merkel made comments that the ECB should limit its bond buys from highly indebted states and that the OMT program should only be used in emergencies.

Elsewhere, the fighting between Israel and Hamas continues to escalate.  Oil prices are nearing $87, but I'm surprised that they haven't surpassed $90 on the escalation of these mideast tensions.

Gold prices are weaker today, near $1711.  Silver and copper prices are lower as well.

The 10-year yield has slid back to 1.56%.  And the VIX is up 2% back above the 18 level.  It bounced hard off its 50-day and still looks like it could test the 20 level.

Trading comment: This market feels very heavy.  We have held off from doing any buying, but with things very oversold now bounce candidates are looking more attractive.  I mentioned that the Nazz has been down 6 straight weeks.  That has often been about as long of a streak as we have seen and usually a good time to take a stab at the long side.  We are looking at adding some QQQ for a trade.  AAPL continues to pace the Nasdaq on the downside as it approaches the $500 level.  I hope that stock can make a stand soon as I am surprised it hasn't found better support already.  I would like to see the market bottom this morning and close higher into the close to make me feel better.  But that may be wishful thinking.  Stay tuned.

KAM Advisors has long positions in AAPL

Schedule Conflict

I have meetings this morning.  Please check back tomorrow for our next market update.
Thank you--

Can Market Reverse Its Recent Trend?

Yesterday I said that the market looked solid with the SPX testing its 200-day but that I needed to see a strong close for stocks in order to get more constructive.  Lo and behold the market sold off again at the end of the day and finished weak.  That has been the pattern for over a week, and we need to see that change.

This morning the market opened slightly higher, but quickly turned tail and moved into negative territory.  Obama is coming on TV soon, and if he is bearish about the fiscal cliff prospects stocks could sell off further.  But if he is optimistic in his tone then maybe we will see a strong finish to stocks which could unleash a further short-term bounce in the market.

Asian markets were mostly higher overnight as China's Party Congress concluded its leadership transition.

Europe is lower today after Greece reported a -7.2% drop in Q3 GDP. Ouch.  Workers in France, Spain, Italy, and Portugal are demonstrating against budget cuts.  And industrial orders in Spain declined -5.7%.

In the US, retail sales declined -0.3%, but were unchanged if you exclude autos. 

The Nasdaq is down less than the S&P right now after Cisco (CSCO) reported solid earnings and its stock is 7% higher.  Facebook is also up 8% despite the large share lockup expiration that is occurring today.  This could imply a short-term bottom for FB shares which have been weak for months.

Oil is trading higher as tensions heat up between Israel and Hamas.  Strikes are breaking out and both sides seem to be gearing up for a bigger conflict.  Not good.  Oil is up to $86 so far.

The dollar is lower helping precious metals.  Gold is higher to $1726, although copper is not participating.

The 10-year yield is firm at 1.60%.  And the VIX is up slightly to 16.87, bouncing off its 50-day support.

Trading comment:  I have not added to any trading longs recently due to the string of weak closes we have seen in the market.  I am looking for a change of character in the form of a strong close.  Maybe we will see it today.  Who knows.  But the SPX is moving further below its 200-day average, which becomes a more challenging technical setup.  Big picture for our balance accounts we remain defensive and are tilting our equity allocations below average until we get past the fiscal cliff hump and see how the markets fare in early 2013.

KAM Advisors has long positions in FB

An Early Rebound For Stocks

Stocks followed the overseas weakness and opened lower, but immediately bottomed and so far look to be staging a solid turnaround day.  We could use a strong day where the markets close at their highs.

There are still a few earnings reports trickling in.  Some stocks on the upside after reporting include HD. KORS, and TJX to name a few.  But earnings season is winding down.

The weakness started last night in Asia.  China fell -1.5% last night.  Japan reported a -4.1% drip in industrial production. 

Europe is also lower across the board this morning after the Eurozone meeting came up with few results and the decision regarding the next tranche of Greek aid will be delayed.  There is still lots of disagreement.  EU Pres. Juncker said Greece would be given two more years to get to 120% debt to GDP.  But IMF Director Lagarde publicly disagreed and said that the year 2020 is a more appropriate target.  Separately Germany's ZEW Economic Sentiment came in at -15.7, well below expectations of -9.8.

There were no big economic releases in the US this morning.

The dollar is a bit higher today, and commodities are flat to lower.  Oil prices are pulling back to $85 and gold prices are a bit lower near $1728. 

The 10-year yield is holding near 1.60%.  And the VIX is down another 3% after a big down day yesterday.  It is currently at 16.20 and sitting on its 50-day average.

Trading comment: I have been looking for an opportunity to get longer for a trade, but yesterday the market once again finished on a weak note.  I don't want to add any long ETFs until I see the market close at its highs for the day.  Maybe today will be that day.  The market is short-term oversold looking at a variety of technical indicators.  The SPX has also been hovering around its 200-day support for a 4th day and could be poised to bounce.  So that's what we are watching.

Monday Morning Musings

The market was slightly higher in early trading, but not much of a bounce given how far the markets have come down in recent weeks.  As of this post, the early gains are eroding and the indexes are flirting with going back in the red on the session.

Biotech stocks are leading the market this morning after some positive trial data.  CELG is up 7% after results from a pancreatic cancer trial.  And GILD is up as much as 12% after positive Hep C trial data.

In M&A news, Jeffires (JEF) is 22% higher after confirming plans to merge with Leucadia (LUK).  Also, TIE is surging 43% after being acquired by Precision Castparts (PCP).

There are no economic data releases scheduled today.

Asian markets were mixed overnight after China's trade balance showed exports grew 11.6% year/year.  This was enough for one BofA analyst to say that China has bottomed.  But in Japan Q3 GDP declined -0.9% sparking concerns another recession could be looming.

European markets are also mixed after the Greek parliament approved its 2013 budget.  Eurozone finance ministers meet today to discuss options to avoid a Greek default.

The 10-year yield is flattish near 1.61%.  And the VIX is down 5% despite the flat market, falling below the 18 level that has held support for the better part of the last week.

Trading comment: The market continues to feel weak.  The S&P 500 is sitting at its 200-day average, which would be a logical area from which to bounce.  But we need to see some strength in the form of a market that can rally into the close and close at highs for the day.  That has been missing lately.  Until we see some signs of strength like that, we are remaining defensive in our accounts.  Balanced accounts are seeing their equity allocations being lowered, and trading accounts are sitting on cash waiting for a buying opportunity. 

An End Of Week Bounce For Stocks?

Stocks are trying to muster a bounce in early trading, although it should be noted there is still a lot of time left in this trading session.  Coming into today, the S&P 500 was down -2.6% for the week.  So far it is bouncing roughly 0.5%.  AAPL bulls are also happy that at least for now the stock appears to have found some support and is up $11 so far.

The Univ. of Mich. consumer confidence number surprised everyone to the upside, coming in at 84.9.  That is the highest reading since July 2007.  Can anyone tell me where all this confidence is coming from?  Because it sure isn't being reflected this week in the chart of the S&P 500.

In M&A news, Kayak Software (KYAK) is up more than 25% after being acquired by Priceline for $40 per share.

Stocks rising on earnings: FWLT, COV, NNI, PSA, ENR

Stocks falling on earnings: JCP, AEE, STRA, GTY, GXP

Asian markets remained weak overnight, despite China retail sales and industrial production coming in above expectations.  The Bank of Korea left rates unchanged.

Europe is also seeing weakness this morning after Germany's economics ministry gave a downbeat outlook for the remainder of the year and the Bank of France predicted that French GDP will see a -0.1% decline in Q4.

The dollar is higher for a 3rd day, and commodities are mixed.   Oil prices are flat near $85.10.  Gold prices are slightly higher around $1732.  But copper prices are lower.

The 10-year yield is flat near 1.62%.  And the VIX is down 2% near 18.16.

Trading comment: Yesterday I cautioned that the SPX might have a date with the 200-day moving average.  I didn't think it would break below it by the end of the day, but that is why we show up each day.  If predicting the market were easy, we'd all be calling in our trades from our yachts.  So the SPX closed below its 200-day yesterday, and today is bouncing above it.  The markets are short-term oversold, so I would expect a bounce here.  But I don't like to buy on the first bounce.  I prefer to wait for the market to come down again and hopefully find more solid support, maybe around that 200-day again.  That should offer a better buying opportunity.  I would also like to see more constructive action among market leading stocks.

KAM Advisors has long positions in AEE, PSA, PCLN

Does The S&P 500 Have A Date With Its 200-day?

Markets opened higher but gave up those gains in the first hour of trading.  The S&P 500 bounced to 1401 but has given back about 10 points and is now trying to stabilize.  Yesterday's selloff came on pretty high volume, and it looks like the next level of support for the SPX will be near the 200-day average which currently sits at 1380.

Utilities (XLU) are bouncing the most, after selling off in the wake of Hurricane Sandy and the damage to East Coast electrical systems.  Financials (XLF) are also getting a bounce following yesterday's selloff.  BAC was upped to Buy at ISI, and JPMorgan got approval from the Fed to resume stock buybacks.

Stocks rising on earnings: QCOM, DF, AWK, TWGP, ETP, HE, AAP, AMCX, FE, DDS

Stocks falling on earnings: PANL, MNST, WFM, TRLA, VMC

In Asia overnight markets were sharply lower.  Hong Kong fell -2.4% and China skidded -1.6% following the handoff in power there.  Australia's unemployment rate held steady at 5.4%.  JPMorgan thinks the Reserve Bank of Australia will cut rates further in December.

In Europe, markets were higher this morning but have been fading.  Greece passed its key austerity vote yesterday in order to get more aid, but sentiment is souring that Spain will soon need to seek a bailout as well.  The ECB held rates steady at 0.75%, and President Draghi said that growth will remain weak in 2013.

The dollar is higher again, but commodities are holding up.  Oil prices are a bit higher to $84.80 and gold prices are firm near $1716.

The 10-year yield is getting a small boost to 1.67%.  And the VIX is lower by -3.6% to 18.38 despite the weak action in early trading.

Trading comment: The market sold off yesterday on strong volume.  It is now back at oversold levels so that should help it put together some sort of bounce in the near-term.  But the SPX is right in the middle of the range between its 50- and 200-day.  It hasn't touched the 200-day since June, and I think it is likely we see another test of that key moving average.  So I think a defensive posture remains appropriate and I would look to add to stocks and/or reduce hedges after we see a test of that 200-day.

KAM Advisors has long positions in AWK, FE, ETP

Market Jeers Election Results

Markets in the US are down sharply pretty much across the board following last nights presidential election.  As for this post, the Dow is down 300 points, although it is still early in the session so its possible we could recoup some of this decline into the close.  Let's hope.

Sectors that were perceived to benefit under a Romney administration are getting hit hard today.  Coal stocks are down sharply (KOL), and financials stocks (XLF) are also down more than the other sectors today.  Interestingly, consumer discretionary stocks (XLY) are down the least.

Commodities are also getting hit hard, and the dollar is higher.  Oil prices are down more than $3 to $85.15.  Even gold prices are lower near $1710 despite the perception that Obama will reappoint Bernanke and easy monetary policy should be supportive to gold prices.

Stocks rising on earnings: SODA, M, THC, HFC

Stocks falling on earnings: WLP, DVN, PRGO, TAP, AGU

Overnight Asian markets were mixed following the US election.  China was flat and now turns its attention to the handoff in leadership in their country.

In Europe, the euro is lower today and European markets are lower on slowing economic data.  Spain and Germany reported disappointing industrial production numbers.  Also, Greece is set to vote on austerity measures today which need to pass in order for the troubled country to receive its next tranche of financial aid.

The 10-year yield is sharply lower today falling back to 1.63%.  And the VIX is moving higher.  It had a bit of a delayed reaction this morning, but is now up more than 10% to 19.35 as the selling in the markets intensifies.

Trading comment: The market is having a decidedly negative reaction to the election results last night.  I don't think it will last too long, but our job is to trade the market in front of us and not invest based on hope.  The S&P 500 has broken below recent support at the 1400 level.  The mid-cap index has turned tail and broken back below its 50-day moving average.  So caution is warranted until we see signs that the selling pressure is abating.  So far, the SPX is about -5.5% off its recent highs.  So we could see further declines in this current correction.  Corrections don't usually reverse overnight.  It takes some time to build a new base from which the market can launch its next rally.  So be patient, but also defensive in the meantime. 

Is Australia Seeing China Stabilization?

Markets are higher in early trading on light volume ahead of tonight's presidential election.  There is much speculation about how the market will fare tomorrow depending on who wins.  I have said I think the market should bounce in the near-term either way due to the removal of uncertainty.  If the vote can't be decided tonight for some reason (remember Florida?) we could see some downside.

Overnight the action in Asia was mostly lower ahead of the election and the handoff in power in China.  The Reserve Bank of Australia surprised markets last night by holding rates steady at 3.25%.  The market had been pricing in another rate cut to 3.00%.  But the central bank noted that is seeing some signs of stabilization in China.  A pickup in growth in China would likely have impacts on global markets as commodity prices would rally, emerging markets would rally, etc.  China is the fastest growing large economy and is really the marginal driver of global growth these days.

European markets were lower early this morning but have since bounced.  Services PMI data in France and Germany both missed expectations.  EU commish Olli Rehn believes the Eurozone will start to recover next year and accelerate in 2014.  I think he is being a bit optimistic in his timeline, although I hope I am wrong and he is right.

Stocks rising on earnings: EXPD, AFSI, FUN, THX, AOL, EMR, VSI

Stocks falling on earnings: ESRX, Z, FOSL, NSM, DTV, CVC, DISCA

The dollar is down slightly and commodities are higher.  Oil prices are up to $86.20 and gold prices are rising to $1691.

The 10-year yield is up a tad to 1.70%.  The VIX is down -3% ahead of the election near 17.86, and has been consolidating around the 18 level for the better part of a week.

Trading comment: I'm still watching the dynamic of the S&P 500 consolidating underneath its overhead 50-day average while the S&P 400 midcap has recouped its 50-day.  If we see a favorable reaction to the election I think the SPX could break above its 50-day tomorrow.  But if the market trades down on the election results we will have to reassess the duration of this recent pullback and remain cautious.  Many leading stocks are still in correction mode, so I want to use them as a leading indicator as well.

KAM Advisors has long positions in ESRX, EXPD, EMR

Monday Morning Musings

The market is off to a bit of a weak start this morning likely due to the uncertainty over the US presidential election tomorrow. 

In economic news, the October ISM Services index came in at 54.2, which was below expectations and down from last month's reading of 55.1.

On the M&A front, KBW announced a merger with Stifel Financial (SF) at a 7% premium to Friday's closing price.

Markets were mostly lower in Asia overnight ahead of the US election as well as the hand-off in power Thursday to the 18th National Congress in China.  China also released its services PMI over the weekend, which rose to 55.5 from 53.7.  In Japan, shares of Sharp plunged 7% after getting a 6-notch downgrade from Fitch, which warned about the company's ability to survive.

European markets are also weak this morning after German Chancellor Merkel suggest the euro crisis could still drag on for another 5 years.  Also, the IMF is reportedly urging Greek debt holders to take a haircut on their bonds in order to help Greece reach sustainable debt levels.

Shares of Apple are trading higher after the company said it sold 3 million iPads over the weekend, a new record.  This figure included the new iPad minis as well as the other larger iPads.

The dollar is higher today, but commodities are mixed.  Oil prices are up to $85 and gold prices are also higher near $1683.  Copper prices are lower.

The 10-year yield has slipped back below its 50-day average to 1.68%.  The volatility index is up 3.6% to 18.25.

Trading comment: The market continues to trade thin and cautiously ahead of the election tomorrow.  The polls show the race being very tight, probably too tight to call.  But I think that the markets could be poised to enjoy a relief rally regardless of the outcome only because either way this element of uncertainty will be removed.  I'm not sure how far any relief rally can carry us since we still have the fiscal cliff ahead to deal with.  But let's focus on a potential rally first.

KAM Advisors has long positions in AAPL

SPX Turned Away At 50-Day Average

The markets were higher in early trading after a better than expected jobs report, but the S&P 500 ran into resistance and all of the major indexes turned lower such that they are currently back in the red.

Today's nonfarm payrolls report surprised to the upside with 171,000 payrolls added in October vs. consensus of 125,000.  The prior month's reading was also revised higher to 148k jobs added from the initial estimate of 114k.  The unemployment rate ticked a notch higher to 7.9%.

Separately, September factory orders showed an increase of 4.8%.

Overnight, markets in Asia ended mostly higher after the big gains in the U.S. yesterday.  Japan and Hong Kong led the way.

In Europe, markets got a boost this morning from the US nonfarm payrolls data.  The Financial Times reported that stock buybacks from European companies have slid to their lowest levels in three years.

Stocks rising on earnings reports: SBUX, PCLN, TRIP, WPO, RL, HAR, CTB
 
Stocks falling on earnings reports: AIG, SSYS, MHP, IT

The dollar is getting a big boost today and that is weighing heavily on commodities.  Oil prices are weaker near $85.44.  Gold prices have fallen back below the $1700 level to $1685.  And silver and copper prices are sharply lower.

The 10-year yield has gotten a boost from the economic data today, rising to 1.73%.  And the VIX has bounced off its 50-day support back to the 17 level.

Trading comment: Yesterday I commented on the price action of the SPX and how the overhead 50-day average would be a test.  This morning the senior index rallied right up to that resistance level and promptly was turned back.  I suspect after a little backing and filling that we will see a successful retest of the 50-day with a breakout above it.  The election still is a big element of uncertainty for investors, but next week that uncertainty will be removed one way or the other and that could lead to a rally in the markets. 

KAM Advisors has long positions in PCLN, SBUX

Is China's Economy Bottoming?

Markets are sharply higher this morning on what has to be the first of the month type of action in terms of portfolio managers putting money to work.  There was some positive economic data out also, but not so strong that it would cause a 150-point rally in the market.

The ADP Employment report showed that private businesses added 158,000 jobs in October, slightly better than the 143k consensus.  The October ISM manuf index also came in above expectations at 51.7 vs. last month's reading of 51.5.  Consumer confidence rose to 72.2 in October from 70.3 in the prior month.  And Q3 unit labor costs actually fell -0.1%, indicating little inflationary pressure on the labor front.

So those are all good economic data, and its nice to see the data coming in above expectations.  Another thing that could be helping the market today is some hope that China's economy may be bottoming.  China's stock market rallied 1.7% overnight after its PMI reading ticked up to 50.2, the first expansionary number in 3 months.  But the HSBC PMI reading is still below 50 at 49.5.  The Chinese press reported that the PBOC injected a record 379 billion CNY into their financial system last week.  So if manufacturing is bottoming and monetary stimulus continues, we could see the slowdown in GDP growth subside.  Time will tell.

In M&A news, Williams Controls (WMCO) will be acquired by Curtis-Wright (CW) for a 41% premium.

Retail sales numbers are also out this morning.  Some positive reactions can be seen in stocks like KSS, JWN, and M.  While I see disappointments in ZUMZ, ROST, as well as TGT.

Stocks rising on earnings: V, K, CBOE, ADP, CTRX

Stocks falling on earnings: PFE, CRUS, GNC, ITRI, EL

The dollar is lower again and commodities are mostly higher.  Oil prices are up to $86.75 and gold prices are a tad higher near $1720.  Copper prices are also rallying on the positive China sentiment.

The 10-year yield is getting a small boost to 1.73%.  And the VIX is down 6.7% this morning to 17.35.

Trading comment: I said earlier this week that I thought we could see some beginning of the month strength in the market.  I didn't think we would see a 150 point rally, but that's why we play the game.  The market is always surprising us.  Of course, it's still early in the session so I don't want to jinx the rally.  Looking at the charts of the major indexes, the S&P 400 midcap is rallying back above its 50-day average today.  This is the first index to recapture this key moving average, so it will be interesting to see if the S&P 500 and Nasdaq follow suit.  If they do, I think PMs will rush to buy stocks.  I don't think we will see too much buying enthusiasm ahead of the elections though, as there is still that element of uncertainty.

KAM Advisors has long positions in CTRX, V