Tuesday, November 27, 2012

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.


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