Thursday, May 31, 2012

Disappointing Economic Data Weighs On Stocks

The market is lower in early trading on many of the same concerns as well as a fresh dose of economic data that came in below expectations.

The ADP Employment report showed private payrolls increased by 133,000 during May, but that was below forecasts for 157,000.  The ADP report hasn't been the best indicator of the govt. jobs report on Friday, but forecasts seem to be coming down for that report as well.

A revised reading for Q1 GDP came in at +1.9%, which is below the +2.2% preliminary reading.  Separately, the Chicago PMI index fell to 52.7 in May from 56.2 last month.

In corporate news, many retailers are reporting same-store sales figures for last month.  Of the reports I've seen, I'd say that more retailers beat expectations than fell short, but the reactions in the underlying stocks are mixed.

Stocks rising on SSS reports: COST, ZUMZ, SKS, TGT, TJX, ROST

Stocks falling on SSS reports: KSS, JWN, GPS, BKE

Among the sector ETFs, energy stocks are down the most again while defensive consumer staples and utilities are down the least.  But every sector is lower this morning. 

The dollar is higher again while commodities are moving lower.  Gold prices are down near $1560, but were able to reverse higher during yesterday's session.  Oil prices are lower to $86.50.  Has anyone started to see lower gas prices yet?

The 10-year yield is a disaster, breaking to new generational lows at 1.54%.  The only silver lining I suppose could be another wave of refis, but I would think most people have already refi'd.

As for the VIX, it has now broken out to new monthly highs and is currently +5% higher to 25.30.  So fear is building in the market.  The VIX hasn't been at these levels since December 2011.

Trading comment: The SPX is testing the 1300 level, which is an important round number, but the big line in the sand is SPX 1292.  That markets the lows from a couple of weeks ago from where the market bounced.  A break of those levels opens the door to further downside.  Bearish sentiment is on the rise, but not yet at extreme levels.  If SPX 1292 gives way, I would expect selling to accelerate and for pessimism in the sentiment indicators to spike.  That could offer a better setup for a tradeable bottom.  But we are not there yet so I want to stay defensive for now.

Wednesday, May 30, 2012

New Lows For Bond Yields Don't Inspire Confidence

The markets are down sharply in early trading after yesterday's low volume bounce.  There are no specific news items per se, but the general concerns out of Europe that were absent from yesterday's trading are back on the front burner today.

Yields on sovereign debt are on the rise as concerns about the financial conditions in the eurozone resurface.  Italy and Spain are the bond markets folks are watching.  Greek yields have already been extraordinarily high.

The opposite is occurring here in the US (and in Germany), where bond yields have moved to new generational lows.  The 10-year yield has broken recent support levels near 1.70% and plunged to 1.64% today.  Those are the lowest yields in my lifetime, and they are not a good indicator for the health of the US economy.  While bonds are being affected by a global flight to safety, a healthy outlook for our economy would normally correspond to higher yields in the bond market.

The dollar is also rallying in this flight-to-safety trade, and pushing the euro to new lows.  The dollar is nearing a 2-year high.  This is also weighing on commodities.  Oil prices have fallen to $88, gold prices are lower near $1540, and silver and copper prices are down as well.

In economic news, pending home sales for April unexpectedly fell -5.5%.  That's a big drop, and has taken some wind out of the sails of folks who have been pointing to a bottom in the housing market.

As for the VIX, I wrote yesterday that it was not a good sign that the VIX wasn't moving lower on the big rally yesterday.  Today shows why folks were skeptical.  The VIX is up over 11% to 23.42.  For the last few weeks the VIX has been trading within the 20-25 range.  Let's see if the upper end of that range holds next time we get there.

Trading comment: Yesterday's bounce came on very low volume.  That's not what the bulls want to see.  Bulls want to see rallies accompanied by rising volume, which has been missing of late.  And while the eurozone news was absent from yesterday's headlines, it looks like just a brief one-day reprieve.  I had been looking for the S&P 500 to rally at least into the 1340-1360 range.  If the market can reverse today's losses into the close, we still might have a chance.  But if we close near the lows for the day, then I think yesterday's high near SPX 1335 might be the high for the bounce in the short-term.  Right now there are just a lot of headwinds for the market and it is understandably having difficulty making headway.

Tuesday, May 29, 2012

How High Can Stocks Bounce?

The market is getting a nice bounce in early trading as investors return from their holiday weekend in a buying mood.

Asian markets rallied overnight after speculation is increasing that further stimulus will come out of China to deal with its slowing economy.  Europe's markets are mixed today as fears about Greece, etc. are off the front burner-- at least briefly.  I expect the headlines to resume shortly.  There are headlines out right now that the EU is planning on coming up with a new stability plan in June.

In economic news, the Consumer Confidence index came in below expectations in May at 64.9 from 68.7 last month. This differs from the Univ. of Mich. survey last week which was at a 4-year high.

The dollar is lower vs. the euro, which is helping commodities.  Oil prices are higher near $92.10.  Gold prices are also higher to $1576, as are silver and copper prices.

The 10-year yield is still languishing at 1.73%, not far from its recent lows.  And the VIX is only down 1% today to 21.50.  If folks were buying into this rally, I would expect the VIX to be down more than it is.  That likely means folks are still skeptical of this market's ability to hold these gains.

Trading comment: Last week I said I still felt that with the market oversold and bearish sentiment at high levels that the market should continue to move higher.  I thought the rally could carry the S&P 500 into the 1340-1360 range.  Today the SPX has reached 1335, which is pretty close to that lower band.  As we approach those levels, I want to look to lighten up on our equity exposure and add back to some ETF hedges.  I don't want to get too bearish, as I suppose its possible that the EU could come up with some good can-kicking ideas, and Greece could elect a govt. that sticks to the austerity plans.  But I don't think we've seen the last of the volatility and the summer swoon-type declines like we saw in each of the last 2 years.

Friday, May 25, 2012

Consumers Upbeat Despite Negative Headlines

The market is slightly lower in early trading, despite a surprisingly positive report on consumer sentiment.  The final reading from the Univ. of Mich. for May consumer sentiment improved to 79.3, which marks the highest level in more than four years.  I think that is pretty surprising given the constant negative headlines about Greece, the fiscal cliff, etc.  Or it may be that as a portfolio manager those headlines are front and center for me everyday, but for the general public they are not considered front page news.

Despite some lackluster action the last few days, the S&P 500 is up about 2% for the week if it were to close at current levels.  Among the sector ETFs, defensive utilities are again leading the early action, but surprisingly financials are getting a bounce this morning also.

The euro is bouncing around the flat line today, after having a very bad week.  This has helped the dollar rally for most of the week, and commodities faced a nearly 3% weekly loss.  This morning, oil prices are slightly higher near $90.85 and gold prices are also bouncing a bit to $1565. 

Europe's markets are mixed as eurozone leaders continue to call for the creation of a euro bond to help provide funds for dealing with the debt issues.  But Germany remains opposed to the measure since many believe they would be the ones paying for it.

The 10-year yield remains at low levels overall near 1.75%.  As for the VIX, it closed near its lows yesterday and is up slightly this morning to 21.65.

Trading comment: We haven't seen the follow through day bulls were looking for, but the window is still open next week for it to come.  It will probably take some positive developments out of Europe to light a fire under the market, but the conditions are in place for it since bearish sentiment remains high among investors and the put/call ratio is coming off a long streak of very high readings. 

Thursday, May 24, 2012

Will Euro Bonds Float The Market?

The market is slightly higher in early trading after a nice reversal yesterday off the lows.  Sentiment is slightly improved in Europe as leaders meet to discuss more plans for dealing with the debt crisis and the possibility of a Greek exit.  The issue of eurobonds has been floated around, and it seems like most members are in favor of the idea with Germany being the lone standout and strongly opposed to the idea.

There has also been some chatter that the Fed is helping provide liquidity by considering a cut to swap line fees as part of a large coordinated bank action.  History shows us that any time we get coordinated global central bank action the market usually rallies in the short-term.  But it doesn't always mark the low.

The improved tone in Europe is helping the euro bounce a tiny bit, which is also helping commodities lift.  Oil prices have bounced to $91.41, gold prices are higher near $1575, and silver and copper prices are higher also.

In corporate news, HPQ was able to top estimates and its stock is higher.  COST is also higher after topping estimates.  NTAP lowered guidance and the stock is taking it on the chin.  Other stocks lower after reporting include TIF, HNZ, SIG.

In economic news, durable goods for April were essentially in-line at +0.2%.  And last month's figures were revised higher. Jobless claims were also in-line, while continuing claims declined to 3.26 million from 3.29 million.

So far among the economic sectors etfs, energy stocks are lagging while defensive utilities are leading (so are consumer staples).

The 10-year yield is getting a bounce to 1.77% after successfully holding the 1.70% level yesterday for the 3rd time in the last week.  Hopefully this will provide a floor.  As for the VIX, it is right between that 20-25 level I have been talking about at 22.20 right now.  Yesterday it got close to the 25 level before a big downside reversal into the close.

Trading comment: If the central banks are coordinating something, that could be the catalyst that provides a spark to this weak oversold rally we've been seeing.  The lows at SPX 1300 held yesterday but we need to take out Tuesday's highs at 1328 for the uptrend to pick up steam.  We are still in the window for IBD-style folks to be looking for a follow through confirmation rally to Monday's rally.  I think the SPX can get up into that 1340-1360 range where it will run into stiffer resistance.  We would be looking to lighten up on equity exposure and add back to some etf hedges if and when we reach said levels.

Wednesday, May 23, 2012

Markets Worry About A Potential "Grexit"

The markets were acting fairly well yesterday until news hit the wires that Greece's PM was making comments about Greece leaving the euro.  This news shouldn't come as a big surprise, as the possibility has been bandied about for awhile now.  But I guess the fact that they are now entertaining the idea in public brings it into reality.

There have also been rumors going around this morning that eurozone officials have been telling members to make contingency plans for a potential Greek exit (which some are now calling  a "Grexit").  As a result European stock markets are down a fair amount today, and the euro is very weak as well.  The euro is nearing the $1.25 level vs. the dollar, which is just about a 2-year low for the currency.

The dollar is up vs. the euro, which is weighing on commodities as well.  Oil prices are down to $90.35 (when are gas prices at the pump coming down?), and gold has fallen back to $1536.  Copper and silver prices are also weak reflecting concerns about global economic growth.

Asian markets were also down overnight, with Japan down -2.0% following the downgrade of the country's debt rating by Fitch. 

In earnings news, a few retailers reported earnings and garnered positive actions.  PETM is the big winner as the pet retailer topped estimates.  AEO and GES are also trading higher after reporting earnings.  Today's big loser is DELL, which is down -16% after missing estimates and lowering guidance. 

The 10-year yield is also down a lot today, back near its recent lows at 1.71%.  And the VIX, which got down to the 20 level yesterday before snapping back is up another 8% today back to 24.23 in a hurry.  For reference, last week's high in the VIX was 25.14.

Trading comment: The market ultimately repeated its recent pattern yesterday of opening strong but closing weak.  That's not what bulls want to see.  Today the markets opened weak, which is better than opening higher but its the close that counts.  So hopefully the market can cut some of its losses into the close.  On a positive note, I am seeing lots of growth stocks bucking the early weakness and trading in the green today.  AAPL and GOOG are also both higher as of now.  The market is still coming off of grossly oversold levels, and sentiment is also coming off of very bearish levels.  So while the Grexit news is making for scary headlines, I think any positive developments out of the EU could lead to further rallies.

KAM  Advisors has long positions in AAPL, GOOG

Tuesday, May 22, 2012

Stocks Look To Add To Big One-Day Rally

The market is higher in early trading after posting its best one-day gains in two months yesterday.  Volume was nothing to write home about yesterday, but the price action was very strong and now we need to see if stocks can build on those gains.

A handful of retail companies have reported earnings this morning and the reactions in the underlying stocks is mostly positive.  Some of the stocks rising on earnings include: RL, BBY, DSW, WSM, URBN.  The big retail disappointment today is EXPR, which missed estimates and reduced guidance which is killing the stock.

In economic news, existing home sales were in-line for April at 4.62 million rate.  The homebuilders etf (XHB) is higher on the news.  But the leading sector so far this morning is financials (XLF) with JPMorgan bouncing back nearly 6% currently. 

Asian markets were higher overnight, closing before analysts at Fitch lowered Japan's debt rating.  Europe is also higher this morning, but the euro is not benefiting from the improved tone.  Bond yields in Europe are lower as well.

The dollar is higher vs. the euro, weighing on commodities.  Oil prices are weaker at $92.25 and gold prices are also a little lower near $1586.

The 10-year yield is getting a little bounce to 1.80%.  And the VIX is down another -7.5% today to 20.35.  It has now taken out last week's lows. My guess is it will find some support near the 20 level and bounce.

Trading comment: The price action so far this morning is impressive, especially with all of the naysayers saying yesterday's rally was just a one-day wonder.  IBD growth-style investors will be looking for a confirmation day to follow yesterday's rally.  This would come in the form of a 1% - 1.5% up day accompanied by rising volume in the next several days.  But the 50-day average on the S&P 500 has rolled over, and as such should offer stiffer resistance if and when the index gets up there to test it.  The SPX would have to rally to around 1375 to meet up with the downsloping key average.  Financials are up more than 2% as I finish this post, which is encouraging.

Monday, May 21, 2012

Monday Morning Musings

The market is getting a nice bounce in early trading.  Last week, this was a bad sign as every up open in the market sold off by the end of the day and the market would close weak.  That could still happen today, but the market is heavily oversold now and feels like there is a bit more bid to stocks than last week.  And stocks have been down for 11 of the last 13 trading days.

Industrials and materials stocks are leading the early action, as those groups were the hardest hit over the last few weeks.  Defensive consumer staples and utilities are lagging.  Financials are also faring well, but JPMorgan is not participating today after it said it will suspend its stock buyback but maintain its dividend in the wake of its large trading losses revealed last week.

There isn't a lot of news to attribute the strength to.  Asian markets were mixed overnight with little action.  But Europe is up slightly today and the message out of the G8 meeting over the weekend was that global leaders want to keep the EU intact and would like to keep Greece in the eurozone.  Somehow I still feel before all is said and done that Greece will decide it is better for them to exit the euro.

Despite the G8 news, the euro is basically flat on the day, but it is up from its lows earlier this morning.  Commodities are getting a bounce with oil prices up near $92.25 and gold prices trying to get back to $1600 (currently $1595).  I sure haven't notices a drop in prices at the pump here in LA.  Has anyone else?

In corporate news, CBE will be acquired by ETN for a nice premium.  And LOW reported earnings and the stock is getting hit due to lackluster guidance. 

The 10-year yield is getting a bounce from last week's ultra low levels, currently 1.74%.  And the fear premium is coming out of the options market in the form of a 10% drop in the VIX so far.  The VIX has broken below Friday's lows (23.07) and is close to taking out Thursday's lows at 21.87.  The VIX is trading near 22.50 as of this post.

Trading comment: I was early last week looking for an oversold bounce.  But bounces do come at some point, and it looks like now we have more ingredients lined up to make it happen this week.  The fear premium is coming out of the VIX, bearish sentiment spiked last week, and the market is as oversold by several measures as it has been since the bottom last October.  I still expect continued volatility this summer, so we would be looking to use any upcoming rallies to trim/sell lagging stocks and move to a more defensive allocation for the intermediate-term.

Wednesday, May 16, 2012

Still Looking For Upside

The market is getting a bounce in early trading, but it still needs to pick up some steam as the day wears on to have a real impact.  We did get some positive economic reports today which seem to be helping. 

Both Asian and European markets were both down overnight, but our market seems to be shrugging it off.  The euro is getting a small bounce today, which isn't surprising given the 10-day tear the dollar has been on.  Look at the chart of UUP to see what I'm talking about.

The relative weakness in the dollar today isn't helping commodities much.  Gold prices are still struggling to hang on to the $1550 level, and oil prices have dipped below $94 on demand concerns due to slowing economic growth.

On the earnings front, a handful of retail stocks have reported earnings with mixed reactions.  Target (TGT) beat estimates and its stock is higher, but ANF, JCP, and SPLS are all lower after reporting.

In economic news, industrial production for April grew by 1.1%, which is higher than expected.  And capacity utilization was slightly above expectations at 79.2%.  Also, housing starts increased in April to a rate of 717,000 units from 699,000 the prior month.

Later today we get the minutes from the last FOMC meeting.  I don't expect any surprises here.  Probably just more of the same debate over how much additional stimulus is needed vs. when the Fed should start removing said stimulus. 

The 10-year yield is up a touch to 1.80%.  And the VIX is down -3% to 21.25.

Trading comment: Yesterday's late action was disappointing.  That's not what you want to see.  Markets that open strong and close weak are the definition of a market that is not ready to rally.  Let's see if today can change that pattern.  We opened higher today and need to build on the gains into the close.  The S&P 500 needs to get above yesterday's high of 1445 just to change the near-term trend.  And above 1350 gives the market a shot at its overhead 50-day near 1384.  As for the Nasdaq, the 2900 level has held very well.  One stock that stands out today is Google (GOOG) which is retaking its 50-day average today on solid volume.  GOOG is regaining some respect after the Facebook IPO documents highlight the potential for mobile advertising and the fact that FB will come public at a price-to-sales multiple far higher than GOOG.

KAM Advisors has long positions in GOOG

Tuesday, May 15, 2012

You Call That A Bounce?

The market is only slightly higher in early trading despite the market back in oversold territory and down the last 7 of 9 days.  The futures were pointing to a stronger open early this morning, but the enthusiasm quickly faded.

The latest Empire State Manuf. Index improved to 17.1 in May from 6.6 in April.  Also, the NAHB Housing Index came in better than expected at 29 vs. 25 the previous month.

Futures were pointing to a strong open, but when the news hit that no agreement has been reached in Greece on an elected government the futures lost some ground.

The news also hit the euro vs. the dollar.  Commodities are slightly weaker, with oil prices at $94.70 and gold prices a bit lower to $1554.

The 10-year yield is still at low levels near 1.77%.  And the VIX is only 2% lower to 21.40, after reaching multi-month highs yesterday.

In earnings news, Groupon (GRPN) is soaring on a combination of short-covering, which began yesterday, and a solid earnings report that has caused additional short-covering today.  Home Depot (HD) reported in-line earnings but its stock is lower in reaction.

Trading comment: So far this is a very weak bounce.  I think bulls really would like to see the market build into the close and for volume to pick up as well.  The lack of buying enthusiasm so far is notable.  The SPX is hovering right near the 1340 level that marked the March lows.  Bearish sentiment has been on the rise lately, which should be supportive of a near-term bounce that I have been looking for.  It's hard to tell how much of this is concern from Greece (and Spain), but I'm sure that is certainly a factor.  Sovereign bond yields and also CDS prices have all been on the rise of late.  Credit default swaps are at multi-week highs, but still below levels seen earlier this year.  Maybe some good news out of Greece regarding its political strife would serve as a catalyst for a rally.

Monday, May 14, 2012

Monday Morning Musings

The markets are lower in early trading on the heels of increasing political unrest in Greece which is weighing on European markets.  Europe's markets are all lower this morning, while bond yields are rising in the peripheral countries.

Asian markets were also mostly lower overnight, including China, despite a move by the central bank in China to cut its reserve requirement for banks.  So China is easing monetary policy to help stem the slowdown they are seeing over there.  Time will tell how much additional stimulus might be needed.

The political rhetoric continues to heat up in Greece, with chatter about them leaving the euro.  This is causing the euro to drop further, while the dollar is adding to its back-to-back weekly gains.  The strong dollar is also weighing on commodities.  Oil prices are lower near $94.30 while gold prices are back down to $1560.  I haven't heard much about lower prices at the pump for consumers, but it should be coming.  A look at the chart of UGA (gas etf) shows it peaked a month ago and remains in a downtrend.

There is not much in the way of corporate news or economic data in the U.S. to distract investors from Europe.  Financials are down the most so far today, while defensive utilities are down the least.

The 10-year yield has fallen to new multi-month lows.  The yield at 1.77% is at its lowest levels since last October.  Of course, that was prior to a big multi-month rally in the markets.  But I think its too early to look for a similar setup.  As for the VIX, it has topped last week's highs and is up 8% near 21.65.

Trading comment: Last Friday I wrote that I felt the market was making a short-term bottom.  Trading is never precise, and I still feel that is the correct call.  Today the SPX has undercut last week's lows and also breached the March lows at 1340.  But so far the market seems to be hanging in there, and we will just have to see how the market fares into the close. If we can reverse some of this weakness and close in the upper range of the day I would feel better about more upside in the near-term.  What I don't want to see is the market to close at its lows.

Friday, May 11, 2012

Sentiment Improved In U.S., Deteriorating In Europe

The market is higher in early trader after starting out on a weak note.  The big news last night was this $2 billion trading loss at JPMorgan (JPM).  JPM said it was due to some hedges on their credit portfolios that went awry, and investors were not pleased.  Trading losses are often one-time in nature, so I think the news will fade, but JPM is always considered best-of-breed so this one caught some folks off guard.

The markets started out in the red, but quickly reversed the early losses and are currently up across the board.  The consumer sentiment survey for May from the Univ. of Michigan helped as it showed an improvement to 77.8 from a reading of 76.4 last month.

While sentiment improved in the U.S., it continues to deteriorate in Europe.  Markets are lower across the pond, and bond yields in Spain have topped the 6% level that traders view as a line in the sand above which markets are considered to be getting jittery.  Spain already had to nationalize one bank earlier this week.

Asian markets were also lower overnight.  The dollar is up a tad today, and most commodities are lower.  Oil prices are down near $96.75 and gold prices are weaker at $1588.

The 10-year yield has drifted back to 1.85% following yesterday's brief spike higher. And the VIX is down to 18.74 after failing to retake the 20 level.  But this was just the first stab at the 20 level, and a lot of traders expect volatility to pick up into the summer which would take the VIX higher.

Trading comment: Yesterday I said the market looked like sellers were getting tired and it could bounce.  More evidence of that this morning as the S&P 500 again poked below the 1350 level but found support.  We have now tested that 1350 level successfully 4 days in a row.  So although volume will likely be light today, I think the early action is constructive and supportive of my view that a short-term bounce is in the cards.  If the SPX is unable to retake its 50-day average, I would look to lighten up on stock exposure and get more defensive.  But I think a lift will allow us to do that at better prices.

KAM Advisors has long positions in JPM, SH

Thursday, May 10, 2012

Will The Market Bounce Be Convincing?

The market is higher in early trading after being down for 6 straight days, which is the longest streak since summer 2011.

The Nasdaq is underperforming after earnings reports from both Cisco (CSCO) and Priceline (PCLN) failed to impress.  CSCO beat by a penny but lowered guidance and its stock is down -8.7% currently.  PCLN beat estimates by a wide margin, but didn't raise guidance and its stock is down -4.5% so far.

Asian markets were mixed overnight.  China's trade balance figures showed imports and exports below expectations.  In Europe markets are higher after the Bank of Spain nationalized Bankia by taking a 45% stake.  I would think this is not the last bank that will need a lifeline.

The dollar is slipping a bit vs. the bouncing euro today, and that is helping commodity prices.  Oil prices are bouncing back near $97 and gold is trying to get above the $1600 level.

The 10-year yield is also seeing a bounce to the still low level of 1.90%.  And the VIX is down a touch today to 19.81.  Yesterday after reaching 2-month highs the VIX reversed lower and close right at 20.

Trading comment: Today is day 1 of the bounce and too early to make any calls about it.  It would be nice for the bulls to see some volume pickup as the day progresses.  The fact that the Nasdaq is lagging in early action is not a great sign, as that index has been a leader most of the year.  But it is possible we will see some rotation.  If the SPX can put together a multi-day bounce it should at least be able to get back to the underside of its overhead 50-day, which will now act as resistance near 1385.  Most leading stocks remain in corrections/consolidation so investors' best bet is to either average in with small trades, or wait for a new base to build and then watch for a fresh breakout.

KAM Advisors has long positions in PCLN

Wednesday, May 09, 2012

Market Could Be Ready For A Bounce

The markets are down again in early trading, and getting a bit oversold.  The Dow has been down for six straight days and the markets could be due for a short-term bounce.

The news today is more of the same.  The concerns out of Greece now focus around the prospect that they will not get another bailout and will actually exit the euro.  This was the story that was making the rounds yesterday, and the manager of one of the largest currency hedge funds said he tough it was likely to occur this summer.

Earnings reactions have been a mixed bag lately. 
  • Stocks rising on earnings reports today include: DIS, DF, EZCH, and SODA
  • Stocks falling on earnings include: M, FCN, AGU, TEVA
The dollar continues to bounce vs. the euro, which is hurting commodities.  Oil prices have been down below the $96 level today, while gold slips further below the $1600 level to $1587.

Asian markets were down across the board overnight.  The flight-to-safety trade is only occurring in Treasuries, which is pushing the yield on the 10-year down to 1.81%.

As for the VIX, it has broken out to new highs today above the 21 level but looks poised to reverse.  I still expect the VIX to pull back from these levels in the near-term, but if we get a deeper correction down the road it still has plenty of room to run.  Remember last summer the VIX spiked as high as 48.

Trading comment: The Dow has been down for six straight days, and the S&P 500 is basically the same.  The SPX has now pulled back more than 5% from its April highs.  That is pretty much an intermediate correction and I wouldn't be surprised to see a bounce in the near-term.  Also, yesterday I mentioned the March lows at SPX 1340 as next support.  The SPX touched 1343 this morning, which is close enough for govt. work.  As such, I am covering some of our hedges and decreasing our short exposure in anticipation of a bounce.  I think it is likely to just be an oversold bounce, so I plan to add back to our hedges from higher levels.

KAM Advisors has long positions in EFZ, SH

Tuesday, May 08, 2012

Are The Wheels Coming Off In Greece?

The markets are down sharply this morning, in what looks like continuation selling from last week's selloff.  Yesterday's action appears like a brief reprieve at the moment. 

The news washing up on our shores from Europe centers around the political turmoil in Greece again.  A new leftist leader is making some threatening comments that not only should Greece not accept any more bailout money but they should not ratify and even renege on the last 2 bailout deals they made.  His comments would seem to pave the way for Greece exiting the euro at some point.  Greece's stock market has plunged in recent days.

In earnings news, today's big disappointment comes from retailer Fossil (FOSL).  FOSL management lowered guidance and made some very negative comments about the picture in Europe.  FOSL stock is getting crushed by nearly -40% today, and it is weighing heavily on a host of other high end retail and apparel stocks.

Overnight action in Asia was mixed.  The dollar is getting a boost today, while commodities are lower again.  Oil prices have pulled back to $95.50 while gold prices are down all the way back near the $1600 level.  One silver lining would be if gas prices at the pump fell which would be a boost to the consumer ahead of summer.

The 10-year yield is fading further, now down to a yield of 1.82%.  As for the VIX, it is up more than 10% so far breaking above the $20 level and testing the April highs near 21.

Trading comment: The S&P 500 has broken the near-term support levels traders have been watching near the 1360 level.  It is currently trading near 1350.  I would say the next support area comes into play near the March lows at 1340.  Yesterday I cautioned that the recent price action meant the market has more work to do before this correction fully plays out.  But corrections are part of the investment landscape, so one should learn from their previous mistakes and try not to repeat them.  Stay defensive, raise cash to levels that you can sleep comfortably at night, and start making a list of stocks that are holding up well or are poised to rally when the selling looks exhausted.

Monday, May 07, 2012

How Deep Will The Correction Be?

The markets are slightly lower in early trading, although the Nazz is trying to buck the early weakness and go positive as I write.

The news over the weekend mostly centered around elections in Europe.  In France, the Socialist candidate  (Hollande) was elected over incumbent Sarkozy.  And in Greece the elections also point to a political shakeup.  So especially in France investors worry that the austerity plans in the eurozone could be in jeopardy, and the Franco-German leadership will likely lose one of its key leaders.

Overnight action in Asia was lower across the board, with Japan and Hong Kong down more than -2.5% each. 

The dollar is higher today, which is also weighing on commodities.  Oil prices are lower near $96.60 and gold prices are lower to $1634.

On the earnings front, this morning's big disappointment comes from a stock we really like, CTSH.  The company beat estimates but lowered revenue guidance for FY12 and the stock is getting killed.  I think this is an overreaction, and will likely present a good buying opportunity when the dust settles.

The 10-year yield continues to languish and is trading at 1.86%.  This is about a 3-month low.  As for the VIX, it is up fractionally and nearly reached the 20 level this morning before pulling back a bit.  The 20 level has pretty much acted as resistance since mid-January of this year.

Trading comment: Back-to-back higher volume selloffs on Thursday and Friday lend themselves to the notion that the market is still in correction mode.  The SPX and Nasdaq both broke back below their 50-day support levels.  When the SPX broke back above its 50-day in late April, I commented that the rally was on light volume and most market leaders were still in corrections.  As such I felt that the market would remain choppy and it was not the time to rush back into buying mode.  I think that was the right call, as last week's market action looks like it means this correction has more work to do-- both in time and price. 

At SPX 1370, the market is roughly 3.6% lower from its April highs.  A 5% correction would take the S&P down to 1350, while an 8% correction would bring the 1300 level into focus.  I think investors should be patient and wait for the market to mend itself.  Watch your individual stocks.  Some of them will begin to act positive again and break out ahead of the market.  Others could lag.  We will try to protect recent profits, stay defensive, and hold higher cash balances in the interim.

KAM Advisors has long positions in CTSH

Wednesday, May 02, 2012

Scheduling Conflict

I will be out of the office the remainder of the week.  Please check back on Monday for our regular updates.


Tuesday, May 01, 2012

1st Day Of The Month Effect

The market is nicely higher in early trading.  There was a strong manufacturing report this morning which helped boost the market, the strong reactions to earnings reports were also helping.  Does it feel like the first day of the month is always an up day in the market?

In economic news, the latest ISM Manufacturing index came in above expectations at 54.8, which is higher than the 53.4 reading last month.

In earnings news, I am seeing more stocks going up after reporting than falling.  Here are some examples:

Stocks rising on earnings reports:
Stocks rising on earnings reports:

Many foreign markets were closed for holidays overnight, but in Asia Japan was open and suffered a -1.8 loss.  In Europe, the UK is higher despite a weaker than expected PMI manufacturing report.  China's official PMI rose to 53.3, which puts it at the highest level in a year.  But as I have been saying, the govt. PMI figure is consistently higher than the private sector HSBC PMI data.

The dollar is slightly higher, and commodities are mixed.  Oil prices are above the $106 level, while gold prices are a tad weaker near $1663.

The 10-year yield is getting a boost today to 1.95%; and the VIX is down -4.6% to 16.35.

Trading comment: The market continues to act well technically.  We'll have to see if today's early rally lasts into the close and if is accompanied by any volume to speak of.  The S&P mid-cap 400 index is very near breaking to new highs again.  I had expected the market to remain in a trading range for a bit longer, which is still possible.  But remember the old saying that you have to accept the market as it is, and not how you wish it to be.