Friday, November 16, 2012

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


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