Wednesday, December 05, 2012

New Party In China Promises Reforms

Our markets are lower again in early trading.  Traders are selling shares of AAPL which seems to be weighing on the Nasdaq the most.  One brokerage firm raised margin requirements on AAPL, but that doesn't seem to account for this much weakness.  AAPL has been down nearly 5% this morning.  I think the technical action in AAPL is not that out of the ordinary and would be a better buyer on the weakness vs. seller.

Asian markets were higher across the board overnight after China's new political party promised more economic reforms.  They indicate plans to invest in more urbanization and infrastructure as well as allowing insurance companies to invest in banks.  This helped China's stock market spike 2.9% and Hong Kong to rally +2.2%.  In other news, Australia said Q3 GDP rose +0.5%.

Europe's markets are generally higher despite another round of weak PMI Services readings.  Germany and Spain beat expectations while France  and Italy lagged.  Overall the Eurozone Services PMI came in at 46.7, which marks further contraction.  Only the UK reported a PMI reading above 50.0.

In the US, the ISM Services index was 54.7, ahead of estimates.  The ADP Employment report showed the private sector added 118,000 jobs in November, and this number was said to be hurt by Superstorm Sandy.  Last, nonfarm productivity showed an increase of 2.9% while unit labor costs fell by -1.9%, so those are both good trends.

In corporate news, Freeport (FCX) is buying both McMoRan Exploration (MMR) and Plains Exploration (PXP) in transactions totalling $20 billion.  But investors don't seem to like the foray into oil for this big copper producer as FCX shares are down -14% on the news.

Citi (C) announced plans to cut costs and improve efficiencies which will also entail laying off 11,000 employees.  Its stock is rallying 5% on the news. 

The dollar is bouncing a bit which isn't helping commodities.  Gold has fallen below the $1700 level to $1690.  And oil prices are lower near $87.80.

The 10-year yield has slipped lower to 1.58%.  And the VIX was higher earlier but has since moved lower on the day down to the 16.70 level.

Trading comment: We talked about expecting a pullback once the SPX reached its overhead 50-day average.  That is exactly how things have played out so far this week.  Currently the SPX is back in neutral territory basically right in the middle of the range between its overhead 50-day average and its underlying 200-day average.  This push and pull should continue with the same political backdrop of fiscal cliff rhetoric and negotiations.  I don't see how the market makes much headway under this scenario.  But the market has been defying the bears and climbing the wall of worry most of the year, so nothing would really surprise us at the moment.  We are staying conservative and not making any big bets before year-end.

KAM Advisors has long positions in AAPL


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