Tuesday, November 20, 2012

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.


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