Tuesday, November 06, 2012

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


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