Tuesday, July 31, 2012

Germany Pours Cold Water On ESM

The markets are mixed in early trading, with the Nasdaq up a little and the S&P a tad lower.  Overnight action in Asia was mixed despite reports coming out that the Chinese authorities are considering further monetary easing as inflation cools.

In Europe, the euro got a boost from French President Hollande defending the euro.  However subsequent reports indicated that the Bundesbank poured cold water on some of the ideas such as the ESM getting a bank license and said that monetary policy should focus on price stability. 

German retail sales grew +2.9%, while Spanish retail sales contracted by -5.2%.  Eurozone unemployment remained at 11.2%.

In US economic news, consumer confidence rose to 65.9 vs. 62.7 last month.  And the Chicago PMI also rose to 53.7 vs. 52.9 last month.

Stocks rising on earnings: IPGP, CRUS, PFE, LQDT, CRS, AMG, X, VLO, CMI

Stocks falling on earnings: STX, BP, COH, ADM, ALLT, ECL

The 10-year yield is back down below the 1.50% level to 1.47%.  And the VIX is slightly higher to 18.35.

Trading comment: This is a tough juncture here ahead of both the Fed and the ECB meetings this week.  The market is already anticipating either more quantitative easing or some measures by the ECB to address the debt issues with Spain, Greece, etc.  That sets up the market for some potential disappointment, or at least a sell on the news reaction.  As such, we are maintaining our defensive posture in portfolios at this juncture.

Monday, July 30, 2012

Monday Morning Musings

The markets are trading slightly higher in early trading following last week's nice gains.  The S&P 500 finished 1.7% higher last week for its third straight weekly gain.  Equity markets are obviously pricing in the possibility of further central bank action ahead of this week's meetings at the Fed, the ECB, and the Bank of England.

Asian markets were mostly higher overnight, but China was lower for a 4th straight session and the Shanghai Composite is now at its lowest levels since March 2009.  That's not a very good sign for the China bulls.

Europe was also higher this morning led by Spain and Italy, which would be the two biggest beneficiaries of any actions taken by the ECB.

In corporate news, Shaw Group (SHAW) is some 70% higher after CBI said it will buy the company for $46.  Best Buy (BBY) is also higher after reports suggesting that the company's founder Richard Schulze will try to take the company private.

Stocks rising on earnings: BEN, HBC, CALM, CIT

Stocks falling on earnings: MCY, DBD, L, LUFK

The dollar index is higher today, but commodities are mostly higher.  Oil prices are flat near $90, while gold is up a bit to $1618 and silver is up nicely.  Corn futures rose to a new all-time high overnight as drought conditions continue to plague farmers. 

The 10-year yield is easing back to 1.50% after a late week spike higher last week.  And the volatility index (VIX) is 7.6% higher so far today back to the 18.0 level.

Trading comment: All of the major indexes are back above their 50-day averages with the S&P 500 at its highest levels since May.  If the Fed or the ECB announces some form of further quantitative easing this week, it could boost stock prices more.  For the Fed, I still think they are going to want to keep some powder dry and that they will likely reiterate that they "stand ready" to take steps if the economy continues to falter.  For the ECB, they seem to be closer to doing something big, but I'm not sure they have Germany on board yet which is a critical factor.  As such, if they just try to talk up a good game without any new policy measures it would not be surprising to see a buy the rumor sell the news type reaction with stocks pulling back later this week.  We shall see.

Friday, July 27, 2012

Anticipating ECB Liquidity

The markets are higher again in early trading.  Asian markets rose overnight following the rally in the U.S. yesterday and the comments from ECB President Draghi about doing whatever is necessary to save the euro.  Some of that sentiment has been echoed in France by Hollande this morning.

Moreover, the French paper Le Monde wrote about the possibility of an asset purchase program by the ECB that would involve open market purchases of govt bonds in Italy and Spain.  The goal would be to reduce their borrowing costs, but again this would just be a short-term solution and only prolongs the day of reckoning as these countries need to deal with debt levels, deficits, and slowing growth.

In economic news, the advance GDP reading for U.S. GDP for Q2 came in at +1.5%, which was better than the 1.2% that had been expected.  But 1.5% is still a low growth rate for the economy.

Also, the Univ. of Mich consumer sentiment survey's final reading was adjusted slightly higher to 72.3 from 72.0 previously.

In earnings news, it has been another mixed back of reports with some high profile names taking it on the chin today.  Starbucks (SBUX) and Facebook (FB) are the two biggest disappointments today, with both of their stocks down double digits this morning.

Stocks rising on earnings: AMZN, EXPE, MRK, AMGN, EDR, GILD, N, VSI, HMSY

Stocks falling on earnings: FB, SBUX, CSTR, NTGR, QLGC, NEM

The euro is bouncing for a third day, pushing the dollar lower.  Commodities are also higher again with oil prices near $90 and gold prices up to $1618.  Copper prices are also higher, while silver looks flat.

The 10-year yield is finally seeing a bounce.  I'm not sure why 1.5% GDP is the spark, but the yield is rising above the 1.50% level today to 1.51% currently.  This is still a pretty low absolute level, but at least we've bounced from the 1.40% floor the 10-yr had been sitting at.

As for the VIX, it is down another -4% today to around 16.80.  I think the VIX can hang around these low levels while market participants are anticipating more QE from the Fed and the ECB.  But I also believe the VIX will get back above 20 if we get an August pullback.

Trading comment: Color me surprised by all the strength in the market, but I think folks are bidding up stocks given all the chatter about more QE from the Fed and now the ECB talking about it also.  Earnings season has been mostly a mixed back from where I sit.  I don't think we are going to see estimates for the S&P 500 revised higher.  And we know from past central bank interventions that it has the effect of boosting the market for a brief time, but eventually reality sets in and we are back to dealing with the underlying problems.  So enjoy the lift, and take advantage of it if you are nimble.  But long-term investors with a big picture focus don't need to chase here, imo.  If the market continues higher, I would look to trim equity exposure a little more and stay conservative as we head into fall.

KAM Advisors has long positions in FB, SBUX, EDR

Thursday, July 26, 2012

Draghi Gooses The Market

Asian markets were higher overnight, but trading was lackluster in Europe this morning before ECB President Draghi made heroic comments that really boosted the market.  Draghi was quoted as saying the ECB "is ready to do whatever it takes to preserve the euro" and that sharing national sovereignty is still to come. 

Those comments caused a sharp rally across global markets.  The euro also got a big boost, as did commodities.  Gold prices rallied to $1615, oil prices are higher near $89.85, and silver and copper prices are higher as well.

It is unclear what measures Draghi can come up with at this point, and the big issue is going to be how to get Germany to go along with many of the solutions that they have been opposed to.  So it will be interesting to see how long his comments soothe the markets for.  Some are also speculating that maybe the ECB will do some quantitative easing of its own, but in the long-run its hard to solve debt problems with more debt.

In economic news, durable goods orders rose 1.6%, boosted by aircraft demand.  Ex-transportation durable goods fell -1.1%.

Earnings reports continue to come in fast and furious.  This morning I am seeing more stocks rising on earnings than falling, but a few in-line earnings reports have been met with some outsized selling.

Stocks rising on earnings: ACOM, CAKE, TSCO, MMM, NOV, NEE, SHOO, UTX, S, WFM, XOM, V

Stocks falling on earnings: SRCL, GNC, POT, ZMH

The 10-year yield is also getting a small boost, up to 1.43%.  The 1.40% level has held so far this week and I would like to see the 10-yr yield bounce higher.  Call me old school, but these low levels don't incite much confidence in the outlook for the economy.

As for the VIX, it is down more than 5% this morning to around 18.25.

Trading comment: This feels like an oversold rally to me.  The SPX would have to get above last week's 1380 highs for us to talk about the market rallying back to its old highs.  I have said that I think markets will be choppy in the near-term, and today's rally fits that bill.  The markets had been down pretty sharply over the last 3-4 days so they were ripe for a snapback.  Let's see if the market can build on these gains over the next few days.  The SPX held its test of its 50-day support this week.  If that key support gives way in the near-term folks will be talking about retesting the June lows.  Tough environment = stay defensive.

KAM Advisors has long positions in NEE, SRCL, V

Wednesday, July 25, 2012

Is More QE On The Way?

The market had a pretty big rally late in the day yesterday after the WSJ reported that the Fed is very close to another round of quantitative easing, and is considering action at either its August or September meeting.  Before the enthusiasm had a chance to spillover to Asia, Apple (AAPL) reported disappointing earnings and that seemed to weigh on Asian markets and sentiment more as markets there fell across the board.

I'm not so sure I agree with the timing of additional QE from the Fed at this juncture.  I would prefer to see them save some powder for later in the year when we get further down the line with Europe and even as we near the fiscal cliff. 

In Europe this morning, markets there are higher across the board after comments from an ECB council member who suggested Europe's rescue fund should receive a banking license.  This would allow the fund to leverage up its assets to fund bailouts.  One of the concerns is that all of these rescue funds still don't have enough assets to cover both Spain and Italy.

In earnings news, although AAPL was the big miss today and that is weighing down the whole Nasdaq, I'm seeing more stocks rising on earnings than falling.

Stocks rising on earnings: BA, PNRA, RVBD, ALXN, ARMH, BMY, CAT, TMO, IACI, PEP

Stocks falling on earnings: AAPL, NFLX, LO, GD, TRIP, IGT, BWLD

In economic news, new home sales in June fell to 350k rate from 382k in May.  Goldman has been calling for a big rally in the housing market, but most of the stuff I follow doesn't support that notion.  Prices in many parts of the country just aren't moving despite all-time lows in mortgage rates.

The dollar is lower today as the euro bounces after 3 rough days.  That is helping boost most commodities.  Gold has rallied back to the $1600 level.  Copper and silver prices are higher also.  But oil prices are weaker today falling back to the $87 level. 

The 10-yield continues to languish at the 1.40% level.  And the VIX is slightly higher this morning back above the 20 level to 20.60.

Trading comment: The SPX is again sitting right at its 50-day average support.  The other junior indexes are already trading below their respective 50-day averages.  Market leader AAPL is taking it on the chin today and is unlikely to resume as a market leader until we can put some time behind us in terms of this disappointing quarter they just reported.  That could leave a vacuum in leadership with no clear cut groups doing well at this juncture.  Given the above, I still want to focus on playing defense in the near-term.

KAM Advisors has long positions in AAPL, ALXN, BMY

Tuesday, July 24, 2012

China PMI Trying To Rebound

The markets are lower again in early trading following a Moody's downgrade in Europe and rising bond yields in Italy and Spain again.

Overnight, Asian markets rebounded from early losses after China's HSBC Manuf. PMI reading rose to 49.5 from 48.2 previously.  Although it is a welcome rebound, the sub-50 reading still points to continued contraction in the Chinese manufacturing sector.

In Europe, last night Moody's placed the AAA ratings of Germany, Luxembourg, and the Netherlands on 'negative watch'.  Italian and Spanish yields are on the rise again, nearing 6.41% and 7.47% respectively.  Despite the above, European stock markets are holding up fairly well.

The dollar is higher again, but commodities are mixed.  Oil prices are higher near $88.60, and gold prices are steady near $1577.  Silver and copper prices are lower. 

In earnings news, there were a lot of reports last night and this morning and the results are mixed.

Stocks rising on earnings: UA, BIDU, PCAR, LMT, DPZ, SPG, JAH, EMC, MO, SAP

Stocks falling on earnings: UPS, DV, VMW, SIAL, ITW, BTU, T, LXK

The 10-year yield is languishing near 1.42%.  And the VIX is 4% higher to 19.42 after hitting the 20 level yesterday before turning lower.

Trading comment: The mid- and small-cap indexes are trading below their 50-day averages, the Nasdaq and Dow are right at their 50-day supports, and the SPX isn't too far away.  So those are the lines in the sand that could point out when the bulls pull in their horns and get more defensive.  Earnings reports so far haven't been to bad, but they haven't provided a big upside spark either.  AAPL reports today, and even if the company beats as they usually do I doubt the quarter was strong enough to excite the whole market.  I continue to expect choppy trading following the roughly 6-week rally the market just enjoyed.

KAM Advisors has long positions in AAPL, EMC, MO

Monday, July 23, 2012

Monday Morning Musings

Last week I wrote that while the news out of Europe had seemed to move to the back burner it was likely that one day we would awake to find the crisis back in our faces.  That day looks like today, as news came out over the weekend that the IMF could discontinue aid to Greece and more regions in Spain could seek additional bailouts.

Germany's Der Spiegel magazine made the comments about IMF aid, and the Vice Chancellor said if Greece can't meet its requirements there would be no more aid.  Also, both Italy and Spain enacted short-selling bans this morning amid severe pressure on European financials.  Spanish bond yields have topped 7.40% this morning.

Asian markets were also down overnight after a PBOC official said it will be harder for the central bank to cut rates and that GDP for the quarter could be closer to 7.2%. 

The euro is falling to new 2-yr lows while the dollar index is benefiting from the flight to safety.  Commodities are also lower, with oil prices falling back to $88.95 and gold prices slipping under the $1575 level.  Silver and copper prices are also lower.

There were a handful of earnings reports this morning.  Despite the large declines in the market this morning stocks like ETN, HAL, and HAS are all trading higher following their reports.  MCD missed EPS estimates and is trading lower.  Earnings season really heats up this week with some 750 companies set to report earnings, including AAPL Tuesday afternoon.

The 10-year yield continues to sink on the flight to safety trade.  It hit 1.40% earlier and is currently trading near 1.43%.  As for the VIX, it saw a huge spike in early trading all the way back to the 20 level, which is nearly 25% above Friday's closing levels.  It has now settled in around the 19 level.

Trading comment: Although the price action in the markets had been relatively positive for the last six weeks, the macro risk never went away and peripheral euro bond yields remained consistently high.  With the crisis back on the front burner, the market could easily be back in a defensive position for the intermediate-term.  The SPX is still a bit above its 50-day support which sits near 1333.  But the Nasdaq already broke its 50-day support this morning as have the mid- and small-cap indexes.  I want to stay defensive here and will look to selective add to ETF hedges if the market can't bounce.

KAM Advisors has long positions in AAPL, MCD

Friday, July 20, 2012

Spain Getting Ugly Again

Markets are lower around the globe this morning after Asian markets declined overnight and then news out of Spain that its Valencia region will seek govt. help to pay its obligations.  Spain's 10-year yield is back above 7.0% and its stock market is down more than 5% today.  Ouch.

The euro is breaking to new 2-year lows, pushing the dollar index higher.  Commodities are weak.  Oil prices have eased back to $91.25.  Gold prices are lower to $1580, and silver and copper prices are lower as well.

There is no US economic data to mention today.  But there were a large number of earnings reports last night and this morning.  Today we are seeing more mixed results in terms of the reactions.

Stocks rising on earnings: GOOG, GDI, SNDK, GE, SLB

Stocks falling on earnings: CMG, COF, ISRG, MSFT, IDXX

The 10-year yield is back down to 1.45%.  And the VIX is bouncing 7% to 16.56, which is still a pretty low absolute level.

Trading comment: While the market action has been seemingly more constructive lately, I have noted that the quality of the rally is a bit suspect as it has been led more by defensive stocks than classic growth stocks.  That is often an indication of a fleeting rally as opposed to one that has legs.  The wildcard has been the economic backdrop in the eurozone.  While headlines out of the EU have been sparse lately, it won't take many more days like today for the wheels to come off the market again.  Spain's stock market is now down -5.8% which is a huge plunge.  And the spillover to Italy is creeping in.  If the crisis heats up again I think it will put markets back on the defensive in a hurry.  So we are going to have the push and pull between US corp earnings and the reaction in stocks vs. the macro backdrop out of Europe and the potential global slowdown.

KAM Advisors has long positions in GOOG

Thursday, July 19, 2012

Investors In Forgiving Mood With Earnings

The markets are higher across the board this morning after most companies reporting earnings are seeing strong positive reactions in their stocks.  Global markets have also been higher last night and this morning as the eurozone concerns seem to be taking a back seat for the time being.

Asian markets were up across the board overnight on speculation of another reserve requirement ratio cut in China.  And in Europe markets are all higher despite yields on the Spanish 10-year climbing back to the 7.00% mark.  We've seen this movie before where Europe seems to fall out of the conversation for a short time and then one day you come in and its back on the front burner in a hurry.

In earnings news, there are way more stocks rising than falling after reporting.  It seems that even in-line earnings have been met with positive reactions, while beat and raises are seeing very strong moves.

Stocks rising on earnings: YUM, COF, FCX, UNP, VFC, PM, FFIV, IBM, QCOM, EBAY, and the big one MLNX

Stocks falling on earnings: MS, SYK, UNH, GHL

In economic news, jobless claims came in higher that last week at 386,000.  Existing home sales also disappointed at 4.37 million units for June which was down from the prior month.  The Philly Fed survey rose to -12.9 for July from -16.6 last month, but this is still a pretty weak reading.

The dollar index is higher today, but it doesn't seem to be hurting commodities.  Oil prices are higher near $92.10 (also Iran concerns) and gold prices are rallying to $1590.  Copper and silver prices are higher also.

The 10-year yield is barely moving, stuck at that 1.50% level.  And the VIX is falling further, now below the 16 level to 15.90.  I still think protection is being priced pretty cheap.

Trading comment: I am surprised by how strong the positive reactions to earnings are.  As more stocks continue to break out I might look to add some long exposure to portfolios.  The SPX has broken above its earlier July highs, and the next resistance doesn't look to come into play until we get above 1400 (around 1415).  Summer rallies are rare, and I think this latest move has caught a lot of investor flat footed.  The quality of this rally still isn't great, but it's slowly improving so I don't want to be blind to giving stocks the benefit of the doubt.

KAM Advisors has long positions in IBM, QCOM, PM, VFC, YUM

Wednesday, July 18, 2012

Lots Of Positive Reactions To Earnings

The market is higher this morning on the heels of lots of positive reactions to earnings reports.  I have often said that the most important thing is to see how stocks react to earnings to gauge sentiment and expectations.  The recent drop in many stocks ahead of earnings appears to have already priced in any subdued outlook, and that is allowing lots of stocks to bounce after reporting.

I see a lot more stocks rising on earnings than falling.  Here are some of the positive reactions: CHKP, INTC, USB, AGU, GWW, HON, WYNN, APH, SWK

Here are a few that are lower today: BAC, NTRS, STJ

In economic news, housing starts hit a rate of 760,000 units which was above consensus.

Overnight, most Asian markets were lower.  China was higher after a leading news journal suggested the PBOC should ease monetary policy further in order to foster growth.  In Europe most markets are higher this morning as there is a lull in news coming out of the eurozone.

Fed Chairman Bernanke is continuing his second day of testimony before Congress, and hasn't hinted at any additional QE around the corner.  The market doesn't seem too concerned so far.

The dollar index is higher, which is weighing on most commodities.  Gold prices are lower to $1580 while oil prices are slightly higher near $89.75.

The 10-year yield is flattish near 1.48%.  The recent rise in equities hasn't done much to boost yields yet.

As for the VIX, it is down another -1.5% to 16.25.  The last time it was this low was back in April just prior to the market peak and before a 10% correction. 

Trading comment: The market continues to push higher.  I had been worried about potential selloffs after earnings announcements, but so far most stocks are showing positive reactions following reporting.  The recent high in the S&P 500 was 1375.  Today we have already approached 1372, so if the 1375 level can be taken out that potentially opens the door to a run at the April highs.  Given my concerns that this rally has been led by defensive stocks, as opposed to classic growth stocks, I thought we would see more choppy trading.  That is still a possibility, but you have to respect the positive price action so far.

KAM Advisors has long positions in BAC, HON; short APH, SWK

Tuesday, July 17, 2012

Earnings Season Heating Up

The market suffered a quick reversal in the opening minutes of trade. After opening higher, the indexes reversed into negative territory where they currently remain.

Fed Chairman Bernanke is giving his semi-annual testimony before Congress. Some investors were probably hoping for him to announce more quantitative easing measures. But as I have said before, the Fed said they remain open to the possibility but they are not announcing it at this time. I think they want to keep some powder dry in the event that the economy slows and also if the fiscal cliff comes to fruition.
Earnings season is starting to heat up, and as I look at the stocks of the companies reporting my sense is that more stocks are showing positive reactions than vice verse. This is a good early sign, especially the rallies we've seen in financial stocks of reporting companies.
Stocks rising on earnings: GS, MOS, SCHW, KO, CME, MAT
Stocks falling on earnings: JNJ, STT, JBHT, MFRM
In economic news, the housing market index for July rose to a reading of 35.
Asian markets rallied overnight. The Reserve Bank of Australia said in its recent minutes that China may not be slowing much further. This is an optimistic outlook, and probably depends on how much stimulus they push through and its effectiveness.
The dollar index is higher this morning, which is weighing on most commodities. Gold prices have fallen back to 1575, likely exacerbated by the disappointment over no additional QE from the Fed. Oil prices are also down a bit, near $88. Silver and copper prices are lower as well.
The 10-year yield is steady at 1.48%, still a low absolute level. And despite the decline in the major indexes, the VIX is lower this morning to 16.90. This could augur well for a push higher today at some point.

Trading comment: The SPX is currently lower for the 8th time in 9 days. That's a pretty long streak. Given that earnings reports are coming in fairly well so far, I would not be surprised to see another push higher by the market. The SPX tested its 20-day average this morning at 1345. This area of 1335-1345 is a big support zone. If it holds, I expect another push higher. The SPX would need to get above its early July highs near 1375 to be in a position to attach its highs for the year. That might be a tall order. I find myself more in the trading range camp rather than looking for new highs. And as I have said for quite some time, this market is not being led by the traditional growth stocks that usually power a market higher. One good whack to this market would easily put investors back on their heels and playing defense again.

KAM Advisors has long positions in JNJ, KO

Monday, July 16, 2012

Monday Morning Musings

The market has started out the week on a lower note following Friday's 200-point surge in the Dow.  It should be an interesting week given the lingering concerns out of Europe and now China, and the heating up we will see in the number of companies reporting Q2 earnings results.

The only company reporting this morning was Citi (C), which beat estimates and its stock is higher in the weak tape.  Visa and Mastercard are both nicely higher after the settlement of their longstanding lawsuit which has been going on for roughly 7 years.

Asian markets were mixed overnight, but China lost -1.7% after its Premier suggested that China's economic recovery may take more time. 

Europe's markets are also lower this morning after the ECB is said to be looking to impose losses on bondholders of Spanish banks.  That has helped push Spain's stock index to a loss of more than -1.5% this morning. 

In economic news, retails sales in the U.S. for June declined -0.5%.  The Empire Manuf. Index for July rose to 7.39 from last month's low level of 2.30.

The dollar is firm this morning and commodities are mixed.  Oil prices are a bit higher to $87.30, while gold prices are a bit lower near $1590. 

The 10-year yield has fallen back near record lows at 1.45% as money continues to flow in Treasuries despite these record low yields.

As for the volatility index (VIX), it has been higher this morning but not by much.  It is currently only fractionally higher to 16.85.

Trading comment: This mornings pullback seems to have found some support near the SPX 1350 level.  The senior index remains above its 50-day average and looks poised to continue higher unless we get some bad earnings reports that cause a sharp reversal.  The volume on Friday's rally was nothing to write home about, and I haven't seen a lot of leading growth stocks breaking out to lead the market.  This is another one of those rallies that seems to be led by defensive stocks (utilities, REITs, etc).  Those usually don't have the same staying power as a rally led by growth stocks.  As such, no change to our intermediate-term outlook to remain defensive in our asset allocations.

KAM Advisors has long positions in MA and V

Friday, July 13, 2012

China GDP Sparks Rally

On Day 7 they rallied.  That's the mantra this morning as markets are higher around the globe.  The big news overnight was China's latest GDP figures which showed the economy grew at a 7.6% rate.  That's roughly in-line with the 7.7% consensus but higher than some of the whispers numbers that were looking for a number closer to 7.0%.  There are also folks out there that believe the slowing growth in China will be met with a new stimulus program.

Elsewhere in Asia, Singapore's economy contracted 1.1% in the quarter.  That's not a good showing, and highlights the global contraction we are seeing in economic growth.  Overall Asian markets were higher overnight.

In Europe, Italy held a "successful" bond auction of 3-year notes that garnered a yield of 4.65% vs. 5.30% previously.  Moody's also downgraded Italy's rating two notches to Baa2.  Nonetheless markets across Europe are higher this morning, and the euro is bouncing as well. 

In earnings news, bank bellwethers JPMorgan and Wells Fargo both reported earnings that are being met with buying by investors.  This is helping boost the financial ETF more than 2% higher so far today.

In U.S. economic news, the Univ. of Mich. consumer sentiment survey came in below expectations at 72.0 vs. 73.2 the prior month.  This data is mostly being shrugged off this morning.

The dollar index is lower today which is boosting commodities.  Gold prices are rallying to $1592.  Oil prices are higher near $86.90.  Silver and copper prices are higher as well.

The 10-year yield is up a bit to 1.50%, still a very low absolute level.  And the VIX is getting crushed down -8% below the 17 level on this morning's rally.  I still think the VIX gets back above 20 this summer.

Trading comment: Yesterday we commented that although we are remaining defensive, the market has been down for 6 days and a bounce would not be surprising.  I think many are breathing a sigh of relief that China's GDP figure wasn't worse than the headline print of 7.6%.  But we still have plenty signs of slowing growth, and some potentially difficult earnings announcements ahead of us.  So I don't want to be lulled into a sense of complacency by the price action today.  Bounces are part of the trading process.  It is also very likely that traders are covering short positions which have been profitable over the last week and closing them out ahead of the weekend to reduce event risk in case there is policy news out of China, the EU, or even the U.S.

Thursday, July 12, 2012

Why Are Investors Surprised By The Fed?

Global markets are weaker this morning, with all of the major indexes now trading back below their 50-day averages.  The main culprit I'm hearing is that the market is disappointed with yesterday's FOMC minutes in that the Fed failed to call for more immediate quantitative easing.

I think this is silly.  I wasn't the least bit surprised by the FOMC minutes.  Members said they stand by ready to provide further support to the economy.  But if you're on the FOMC, you know that the Fed has already provided ample liquidity and stimulus.  As such, you would probably want to keep some powder dry in case things get worse again.  But impatient investors act as if the Fed should throw out more QE every time we start to see a bit of a slowdown.

The fact of the matter is that this recovery has been slow and choppy, and will likely remain so.  The deleveraging process takes years, and the Fed can't do all the heavy lifting.  So that's my mini rant for this morning.  And I suspect while the FOMC minutes are getting the headlines, a lot of the weakness in the market also has to do with reductions in revenue forecasts and slowing economic growth in China.

Asian markets were mostly lower last night.  The only one that finished higher was China.  The Bank of Korea surprised markets with a 25 basis point interest rate cut (to 3.00%).  Employment figures in Australia were disappointing.

Europe is lower this morning after the ECB Monthly Bulletin suggested further downside risks remain a threat to the region.  The euro has moved to a new multi-year low below $1.22, and peripheral bond yields are a bit higher.

In earnings news, INFY lowered revenue guidance and its stock is down sharply.  MAR and PGR are also lower after reporting earnings.  On the plus side are FAST, SAP, and TXI which are all trading higher following their earnings announcements.

Commodities are also lower today with gold prices down near $1555 and oil prices lower to $84.40.  Copper and silver prices are also lower. 

The 10-year yield has been unable to hold the 1.50% level and has slid to 1.48%.  Amazing.  As for the VIX, it has been up as much as 8% this morning back above the 19 level.  But I think it will get back above 20 in the near-term.

Trading comment: I have been making cautious trading comments for awhile now, and the recent weakness supports that thesis.  Although we had a rally at the end of June, I didn't think it would lead to new highs as we were starting to see more signs of slowing growth and concerns I had about Q2 earnings and cautions guidance we were likely to get from corporate managements.  With the major indexes back below their respective 50-day averages, defense is still the best course of action for the near-term.  I think we need to see a bigger build-up in bearish sentiment again before another good trading opportunity is upon us.

KAM Advisors has long positions in FAST; short positions in INFY

Wednesday, July 11, 2012

China Trying To Talk Up Growth

The markets are mixed in early trading, with little in the way of a bounce following 4 straight down days.  But it is still very early and it's how the market closes that counts.

Global markets have been mixed and newsflow has been light.  Asian markets rallied late in their sessions after Premier Jiabao suggested that "it is important to promote a reasonable growth in investment".  We get an update to Chinese GDP on Friday, and the Premier may be trying to talk up growth as global investors worry about the degree of the slowdown in China.

In Europe, markets are also mixed.  Spain's market is more than 1% higher after their PM announced new austerity measures which are expected to trim the country's deficit.  Some of the measures include tax hikes and spending cuts, which won't help boost growth but the bond market likes it and Spanish yields have eased back to 6.58%.

There weren't any earnings reports this morning, but electronics retailer HHGregg cut its earnings guidance and the stock is getting hit pretty hard.  It is also weighing on BBY.  More earnings reports start tomorrow and Friday.

Commodities are mostly higher.  Oil prices are up to $85.60, but gold prices are flat near $1577.

The 10-year yield is flat near 1.50%.  And the VIX is down slightly around 18.58.

Trading comment: I didn't think it would happen so quickly, but yesterday's decline brought the S&P 500 right back to its 50-day average support.  Traders will be watching the 1335 level to see if it can hold.  Earnings news has been mostly negative in the first few reports we've heard, and the companies that have warned about slower growth leading to reduced forecasts.  That has been my concern coming into this earnings season, and I think it will still play out.  There will be some very strong report that lead to big rallies, but I think those will be more the exception than the rule.  As such, we are maintaining our defensive asset allocation and would look to add to ETF hedges if 50-day supports give way in the major indexes.

Tuesday, July 10, 2012

Lowered Guidance Coming From Semis

The market was higher in the early minutes of trading, but the gains have mostly been given back so far and all of the major indexes are slightly in the red currently. 

The big news this morning was the latest round of lowered guidance, this time from some semi companies.  Bellwether AMAT lowered its 2012 sales guidance and said EPS will come in at low end of range.  AMD also lowered its Q2 guidance.  And in the medical device arena, MAKO is getting absolutely killed after dramatically reducing its forecast for unit sales.

Overnight, the action in Asia was lower after import figures out of China came in at only 6.3%, half the rate that was expected.  But European markets are higher this morning after EU finance ministers announced plans to expedite the 30 billion euro recapitalization of Spanish banks.  That helped push Spanish bond yields lower to 6.74%, after they had been flirting with the 7.0% level.

The news hasn't helped the euro much, which is lower again vs. the dollar and near its June 2010 lows.  Commodities are mixed with gold prices firm near $1590 but oil prices weaker around $85.00.

The 10-year yield is flat at 1.51%, nearing its June lows.  As for the volatility index (VIX), it has found some recent support near 17 and bounced to 18.20 so far.

Trading comment:  Given the news backdrop of companies lowering forward guidance, and more signs of slowing in China, I feel comfortable with our defensive posture.  That said, I just heard a guy on CNBC remind us of the saying "never short a dull market".  And the market does feel a bit dull lately.  I think a key tell will be how the S&P 500 handles its next test of its 50-day average.  If it breaks back below it, that would put the market it a more defensive position.  We will have to await some earnings reports from some of the big boys before investors make decisions one way or the other.

Monday, July 09, 2012

Monday Morning Musings

Back in the saddle after some time away last week for the holiday.  Re-entry is always challenging, but time to shake off the cobwebs and get down to business.  The market has opened in slightly weak trading following Friday's disappointing jobs numbers and cautious comments out of China.

Last week's jobs numbers further support the thesis of a slowing economy.  I haven't done a full roundup yet of the other econ data that came out, but the question at this juncture isn't if the US is going to slow down but rather how much?  Also, how much of this slow growth environment is priced in to earnings?

Asian markets were down overnight, led by a -2.4% drop in China.  Premier Wen Jiabao warned of the potential for "huge downward pressure" on China's economy, citing weaker demand out of Europe.  Chinese banks were also under pressure as traders price in more interest rate cuts by the PBOC. 

Europe's markets are also lower today as peripheral yields are on the rise again, and yields in Spain top the 7.0% level again.  Euro finance ministers meet today in Brussels to discuss the ongoing issues.

Merger Monday came thru again today with a big merger between Wellpoint (WLP) and Amerigroup (AGP) with WLP paying $92 per share for the latter.  Also, Thomson Reuters (TRI) will acquire FX Alliance (FX) for $22 per share.

The highly anticipated Q2 earnings season kicks off today with Alcoa reporting after the close.  Alcoa isn't that much of a market mover, and will likely make cautions comments given slowing global markets and weak commodity prices.  But there are some big heavyweights (GOOG, JPM, WFC, etc) reporting later this week which could produce stronger reactions.  Overall, I think that the upcoming earnings season will produce more disappointments that upside surprises with a lot of cautious guidance. 

Trading comment: The S&P 500 continues to pullback from its recent rally to the 1375 level.  The SPX is still above its 50-day average support, which comes into play around 1338 as of now.  We are marinating our conservative portfolio postures as we enter the summer doldrums.  If the market pulled back enough I would probably add some stock exposure for a trade, but at this juncture I think the market could be fairly rangebound for the near-term.

Monday, July 02, 2012

Monday Morning Musings

The market was higher after the open, with several deals getting done over the weekend bringing about a big Merger Monday.  But a weak ISM report took some of the wind out of the market's sail.  The ISM Index for June fell to 49.7 (below consensus) from 53.5 last month.  A reading below 50 signals contraction in the industry.  For comparison purposes, China's latest PMI reading fell to 48.2 while Europe held at the low level of 45.1.

It was a big morning for merger announcements, some of which were already discounted in the market.  DELL will acquire Quest Software (QSFT) for $28 per share, BMY will acquire AMLN for $31, CELL will be acquired by IM for $9, and LNCR will be acquired by the Linde Group for $41.50.  This supports the notion that corporate buyers, flush with cash on the balance sheet, still find value in the market and M&A should continue.

Asian markets were relatively flat overnight, while Europe is higher this morning.  Spanish and Italian bond yields are also lower today.  The ECB meets this week and will issue a new policy statement on Thursday.  Many are speculating about a rate cut, but I still think they will likely hold off and keep some powder dry for when they really need to pull it out.

The dollar is higher today, which is weighing on commodities.  Oil prices are lower near $83.50 despite news that Iranian lawmakers are drafting a bill to propose blocking the Straight of Hormuz for oil tankers.  Gold prices are also weaker near $1601.

The 10-year yield is back below the 1.60% support level on the weak ISM report.  Currently it has fallen all the way back to 1.56%.  As for the VIX, it is bouncing a bit from Friday's plunge to 17.75, still a relatively low overall level.

The US markets close early tomorrow and then all day Wednesday for the 4th of July holiday.  I will be on vacation for the remainder of the week so my next update will be on Monday.

Trading comment: The S&P 500 surged above its 50-day on Friday by a wide margin.  That helps as even this morning's pullback isn't in jeopardy of violating that 50-day support.  The 50-day currently sits at 1340, some 15-16 points below where the market is trading.  A couple of closes above this key average should put the market in position for more upside, as many investors have probably moved to an overly conservative posture recently.  My concern has been the upcoming earnings season and how individual stocks would react to the likelihood of conservative guidance from corporate managements.  That issue is still in front of us, so I don't want to get too aggressive ahead of it.  But big picture, if the market action stays solid I would look to lighten up on our ETF hedges.

KAM Advisors has long positions in BMY