Monday, December 31, 2012

Say Goodbye To 2012

The market is mixed in early trading.  The market first ticked lower after the open, but quickly found its footing and regained a bid to move higher.  There appears to be some hopes that some sort of "deal" will be cobbled together today, but that remains to be seen. 

Senate Majority Leader Harry Reid said discussions are "progressing", and Congress will remain in session all day.  Senator Corker said that he thinks they'll get something done, but there likely won't be meaningful deficit reduction.  I agree that if anything gets done today, it will just be preliminary and meaningful details will still need to be worked out in January.

Asian markets were mixed overnight.  China led the action with a 1.6% gain after HSBC's final manufacturing PMI reading climbed to a 19-month high of 51.5.  Japan was closed for holiday.

Europe's markets are mixed.  France finished 0.6% higher after the French Supreme Court struck down a proposal for a 75% tax on citizens earnings over 1 million euros.  Germany was closed.

Other than that there isn't much going on today.  Everyone seems to be just sitting around waiting for the next headline out of Washington. What a terrible end to the year for the markets.  Investors don't like when the investment landscape is clouded with political uncertainty.  They would prefer a deal, any deal, so at least the economic impact can be quantified, price levels can adjust, and we can move on and figure out how to make money for our clients.

The 10-year yield is ticking higher to 1.73%.  And the VIX is dropping -8.5% back to 20.78 after a big spike on Friday up to the 23 level. 

Can someone please tell me how the volatility index can be down -8.5% and the inverse VIX etf (VIX) is down 1% and not up??  What a sham.

Trading comment: The market climbed the proverbial wall of worry in 2012.  There was a lot of economic uncertainty, Europe almost came completely unglued, the election provided lots of ups and downs, and a fiscal cliff deal was never struck.  All of that should have made for a pretty bad year for stocks, but the S&P 500 is poised to finish the year +11-12%.  Not too shabby.  And bonds did well also as interest rates continue to fade lower.  I don't think 2013 will see the same benign action.  I expect continued volatility, and think we could see another flare up in Europe as Spain's issues move to the front burner.  We have used the lift in the stock markets since November to continue to pare back equity exposure and get more conservative in our asset allocations.  I still think that is the prudent move heading into 2013.  If we do get a big pullback at some point in the first half of 2013, we would look to put money back to work in equities as that would probably be a good buying opportunity.  We shall see.

A happy, healthy, and prosperous New Year to all our readers!

Friday, December 28, 2012

Stocks Lower Again As Deal Hopes Fade

The market is lower again in early trading as hopes for a deal to avoid the fiscal cliff fade.  The market did get a pop from its early lows when a headline came across that Obama was going to propose a new plan which would scale back budget plans and renew tax cuts for all but top earners.  But this headline isn't really new, and I suspect the positive reaction will fade.

Although the action has been negative lately as hopes for a deal fade, longer term it might work out better as whatever deal that gets reached will have had more time to hatch vs. a hastily slapped together deal.  We have also not heard anything about the debt ceiling expiring.

In economic news, pending home sales rose 1.7% in November.  Also, the Chicago PMI rose to 51.6 in December from 50.4 the prior month.

Asian markets were higher across the board overnight, led by a 1.2% gain in China.  But European markets are lower amid weak economic data.  French GDP was revised lower to 0.1% in Q3.  Spanish retail sales declined -7.8% yr/yr.  And Italy auctioned off 5- and 10-yr debt, but was only able to place 5.88 billion euros of the 6 billion target.  10-year notes garnered a yield of 4.48%, slightly above the November auction's yield of 4.45%. 

The dollar is up a little today, and most commodities are weak. Oil prices are a bit lower to $90.70, and gold prices are lower near $1656.  Silver and copper prices are lower as well.

The 10-year yield is flat near 1.71%.  And the volatility index (VIX) continues to creep higher, up 3.6% today to 20.18.   These are levels we haven't seen since July.  But at that time the market was starting to move higher. 

Trading comment:  The S&P 500 had a late rally yesterday to recapture its 50-day average.  It would have been a positive if the market could have built on that positive reversal and added to it today.  It's still early, so anything could happen, but so far the market is weak again and the SPX is falling back below that 50-day support.  Volume is also light on this Friday ahead of the New Year's weekend.  Although the market is open on Monday, many traders might just pack it in and take a long 4-day weekend. 

Thursday, December 27, 2012

Stocks Give Back December Gains

The market is lower again in early trading after Senator Harry Reid says it is unlikely they will get something done to avoid the fiscal cliff before year end.  Stocks ticked lower on this headline, despite the President making calls to all 4 key Congressional leaders to try to get updates.

In addition to the fiscal cliff talks, under the radar is the fact that Treasury Sec Geithner said the country's debt limit will again be hit by December 31st.  They sure didn't buy themselves much time last August when they raised the debt ceiling.  Dumb.

In economic news, the latest consumer confidence number for December ticked lower to 65.1 from last month's reading of 71.5.  November new home sales hit 377,000 which was below expectations but higher than the previous month's 361,000.

Asian markets were mostly higher overnight, led again by Japan which continues to talk about more serious stimulus measures.  This time they are even talking about buying foreign assets.  China lagged and finished -0.6% lower.  The S. Korean finance minister cut their growth forecast for 2013 from 4.0% to 3.0%.

Europe's markets are mixed this morning.  Germany's finance minister said the country's economy will expand at a "decent" pace next year.

The dollars is flattish this morning, as our most commodities.  Oil prices are flat near $90.90 and gold prices are near $1660.  Silver and copper prices are getting a little more of a bounce today. 

The 10-year yield is fading back to 1.71%.  And the volatility index is up another +4.5% near the 20.50 level, which it has not seen since July.

Trading comment: The S&P 500 is slipping below its 50-day support right now, which sits near 1412.  The Nasdaq is also below its 50-day today.  The price action today has also erased the December gains in the market, and with 2-days left of trading for 2012 we could see traders look to lock in profits as hopes of avoiding the fiscal cliff fade.  We have continued to counsel a cautious approach.  We realize that even if we miss the 12/31 deadline and a deal is reached soon after, the market would likely rally on the positive news.  But even a deal is likely to contain policies that are not going to stimulate the economy in the near-term and are more likely to dampen economic growth.  As such, we want to remain conservative for the intermediate-term.

Wednesday, December 26, 2012

Deal Enthusiam Fading

The market had been running higher into last week on what seemed like optimism that Congress would get something done to avoid the fiscal cliff.  With 3 days left on the calendar in 2012, that optimism is fading into pessimism.  The market opened on a flat note this morning, but has since started to fade into negative territory.

So far, materials stocks are outperforming while consumer discretionary stocks are really lagging.  The early reports for holiday sales don't seem as robust as hoped for.  I heard that McDonald's was even urging franchisees to remain open for Christmas to help boost Q4 sales.

In economic news, the Case-Shiller Home Price Index rose 4.3% in October, a strong showing on top of the previous month's reading of 3.0%.

Asian markets were up across the board overnight.  Japan's new prime minister has promised unlimited money printing to end Japan's bout with deflation.  Japan led the action with a +1.5% gain. 

The dollar is lower vs. the euro and that is boosting commodities.  Gold prices are up only slightly near $1662, but oil prices are back above the $90 level near $90.77.

The 10-year yield is a little lower after last week's spike higher and trading near 1.74%. 

Volatility expectations are picking up with the VIX spiking +8.5% so far up to the 19.35 level.  The VIX has had a hard time maintaining these big spikes into the close.  Let's see if this early spike in volatility fades into the close today.

Trading comment: The Nasdaq 100 has fallen back below its 50-day average support.  And the S&P 500 is only 6 points away from testing its 50-day average.  It still feels to us like the time to be getting more conservative in our asset allocations.  The recent lift in the markets into mid-December may prove to be just a lift that offered investors better price levels to trim equities heading into the near year.  For us to be wrong, the markets would have to shoot higher as we enter 2013.  While anything is possible, we view the odds of such an outcome as relatively low given the headwinds and economic backdrop the market is facing.

Friday, December 21, 2012

Volatility Spikes On Fiscal Cliff Delay

In case you have been on the moon the last 18 hours, House Speaker Boehner cancelled last night's vote on the "Plan B" idea for the fiscal cliff.  Global markets responded negatively to the news, and last night the Dow futures were down nearly 250 points.  Currently, the market has bounced a bit from the morning lows but the Dow is still down around 170 points as of this post. 

Hard to call this one ahead of the holiday weekend.  Either we see some short covering and the market rallies a bit from here, or folks throw in the towel and take off more risk heading into next week which would likely mean we close at the lows for the day.  Take your pick.

Boehner said he is not walking away from the debate with the President, but there are no more votes before Christmas, and then the window before year-end gets pretty narrow.  Hard to see how the wide gap we are at right now gets closed in that short of a time frame.

We got some more positive economic data this morning in the form of a good durable goods report.  Durable goods rose 0.7%, which was better than expected, but ex-transportation the figure rose +1.6% which is pretty strong.  And personal spending increased +0.3%.

Asian markets were all in the red last night after the Boehner news.  And Europe is lower this morning on the same news as well as some light economic data.

Commodities are mixed with precious metals higher and energy lower.  Gold is up a bit to $1654 while oil is trading lower near $88.37.

The 10-year yield is lower to 1.75%.  And the volatility index (VIX) is spiking 10% this morning up to the 19.40 level.  I've been saying that the market felt a bit complacent lately, so this morning's spike is not all that surprising given the news backdrop.  But the VIX hit levels this morning that it hasn't touched since July.

Trading comment: I am leaning toward this being a one-day plunge and that dip buyers will be back next week trying to squeeze some more profits out of the market into year-end.  I don't think that the market was really pinning its hopes on the "Plan B" anyway, so while last night's no vote is an incremental negative it really seems like just more of the same in the fiscal cliff debate.  I think bulls will come back next week on hopes that Congress and the President cobble something together before year-end.  I plan to nibble on some long trades into the close today. 

Thursday, December 20, 2012

Quick Take: Morning Look

Markets are roughly flat in early trading.  Yesterday the markets really tailed off at the end of the day and ended on a weak note.  It's interesting that there is usually at least one big down day during the week of options expiration, so maybe yesterday was that day.

I'm a little surprised the market didn't bounce more on some of the positive economic data we got.  That could indicate some more weakness later in the day.  And as we get closer to Friday volume levels should tail off as people leave to take a long holiday weekend.  The market is open for a half day on Monday, but lots of folks will simply take off and get in a 4-5 day weekend.

The final estimate of Q3 GDP came in much higher than expected at 3.1%.  That's pretty solid growth, but of course its a rear view mirror datapoint, and at this point we are really concerned with how 2013 GDP will come in.   Current estimates are for growth of 1.5% - 2.0% depending on how fiscal cliff talks effect spending and taxes.

The Philly Fed survey ticked up to +8.1 for December from a low -10.7 reading last month.  And existing home sales rose to 5.04 million units from 4.76 million the previous month.

Asian markets were mixed overnight, after the Bank of Japan upped its asset purchase program by another 10 trillion Yen.  European markets are also mixed this morning.

The dollar is higher and metals are getting hit hard.  Gold prices are lower by $27 to $1640.  Copper prices are down -2% on the day and silver prices are off by more than 4%.  Lots of selling pressure.

The 10-year yield is hovering near 1.79%.  And the VIX is flat at 17.40.

Trading comment: With more individual stocks showing positive action, its hard to want to fight the tape here.  I am no more confident that a grand bargain is reached regarding the fiscal cliff.  Most congressmen are getting ready to go home for the holiday.  So they will have less than a week to get something done when they get back.  That should make for interesting action in the market.  And I still wouldn't rule out a brief pop on any hastily crafted agreement combined with some can kicking provision to push things into 2013.  But as we enter 2013 we have been moving our asset allocations toward a more conservative posture.

Wednesday, December 19, 2012

Climbing The Wall of Worry

I'm getting a late start today as I had to take the kids to school this morning, which cuts into market hours when you're on west coast time.  Unfortunately I am on drop-off duty for the rest of the week as well.  So my morning comments are likely to be truncated for the remainder of the week.

Stocks added to their weekly gains yesterday with a nice rally that came on rising volume.  No real progress has been made on the fiscal cliff talks, but the market continues to climb the proverbial wally of worry.  I remain concerned that we could either get a 'sell the news' reaction to some hastily crafted deal, or a sharper sell off if no deal is reached. 

The volatility index is popping 6% this morning to 16.52, so there are some traders who are expecting an increase in volatility in the market near-term. 

Two recent earnings reports from FedEx and Oracle (ORCL) are both being greeted with enthusiasm this morning as the stocks gapped higher.  Both beat earnings and revenue estimates, but in the case of FDX the company lowered next quarter's forecast.

Gold prices continue to pullback, and are now close to the 200-day moving average.  In this environment of printing money gold should continue to do well longer-term, but it doesn't go up in a straight line and these sort of pullbacks serve to shake out the weak holders.

Asian markets rose overnight led by a +2.4% spike in Japan.  China was flat.  And European markets are higher following an upbeat German business climate index reading.  Additionally, industrial production data in Spain and Italy both surpassed expectations.  The euro is higher again today.

The 10-year yield is pulling back from yesterday's spike, and sitting near the 1.80% level.

More stocks are starting to breakout, which adds to the notion of the market strengthening and continuing to climb the wall of worry.  But in this environment risk management remains important.

Tuesday, December 18, 2012

Talks Stall, But Stocks Still Looking For 'Cliff' Agreement

Stocks rallied nicely yesterday, and so far today have been adding to those gains.  It seems a bit odd that Congressmen keep coming on TV to say that they are still a ways apart on the fiscal cliff stuff but the market continues to rally as if an agreement is imminent.

I think there are two things to keep in mind.  One is the potential for a 'buy the rumor, sell the news' type of event where the market rallies in anticipation but if a deal gets announced the market sells off.  The other is that not all agreements are created equal.  And if one is hastily reached that doesn't bode well for the economy longer-term, than any enthusiasm over a deal could be short-lived once reality sets in.  So careful what you wish for.

In economic news, the NAHB Housing Market Index for December rose to 47 from the prior month's reading of 45.

Shares of AAPL tried to bottom yesterday and are up again today.  A judge has rejected its injunction bid vs. Samsung, and Samsung will drop its lawsuits against AAPL in Europe.  Barron's also had a positive article on AAPL today.

Overnight Asian markets were mostly higher, led by a 1.0% pop in Japan to an 8-month high.  The Reserve Bank of India opted to hold its key interest rate steady at 8.00%.  In China, the govt. reportedly stated its GDP target for 2013 will be 7.5%.

The dollar is lower today, but commodities are mixed.  Gold prices are slightly weaker down to $1693.  Oil prices are higher near $87.88.  Silver and copper prices are weaker as well. 

The 10-year yield is rallying on fears about no fiscal cliff deal.  The yield reached 1.80% this morning, which is the highest level since late October.

As for the volatility index, it had a delayed reaction yesterday and really didn't start to decline until late in the day.  But today the VIX is dropping by a lot, down 5% so far near the 15.50 level. 

Trading comment:  I have said recently that we didn't want to fight the tape as it was likely the market would work its way higher as investors anticipated a deal on the fiscal cliff and as portfolio managers looked to put money to work to try to add some performance before year-end.  But big picture we have still been getting more conservative in our asset allocations as we feel that there is still some downside risk as we enter 2013.

KAM Advisors has long positions in AAPL

Monday, December 17, 2012

Monday Morning Musings

The market is higher in early trading after the 2-day pullback seen at the end of last week.  I prefer a market that opens weak and ends strong, so let's see if the early gains can hold until the end of today's trading session.

The fiscal cliff talks continue.  House Speaker Boehner offered a tax hike for top earners (over $1M) if new revenue was met with spending cuts.  But the White House rejected  the offer, so even though discussions continue I'm not sure how much headway is being made.

In M&A news, Caribou Coffee (CBOU) is being acquired by a private equity firm for a 30% premium to Friday's close.

In economic news, the Empire Manuf. survey for December came in at -8.1, which is down from last month's reading of -5.2 and well below estimates.  It is not clear if the figure has been effected by Superstorm Sandy.

Overnight Asian markets were mixed.  China bounced +0.5% despite the new leadership there saying they may be more tolerant of slower growth.  This comes as the country is set to see its lowest growth rates since 1999.  The problem is that China needs the fast rates of growth to create millions of jobs required for all of the citizens moving to the cities from rural areas.

In Europe markets are generally lower this morning.  Germany's Bundesbank said the country's economy will suffer a notable contraction in Q4 and reiterated it sees the German economy growing at just 0.4% in 2013.

Apple (AAPL) is lower again this morning as it tests the $500 level.  Sometimes a stock needs a notable downgrade to bottom, and today it might have received it from Citigroup.  The analyst downgraded the stock to Neutral from Buy, but this downgrade comes just weeks after Citi initiated coverage of the stock with a Buy.  AAPL remains up +25% for the year. 

Commodities are mixed.  Gold prices are up fractionally to $1700.  Oil prices are higher near $87.50.  But silver and copper prices are lower.

The 10-year yield has held above its 50-day and is higher today to 1.72%.  It's nice to see that the 10-year yield is well above its July lows as folks start to question economic growth in 2013.

Trading comment: The market should be able to bounce here.  The S&P 500 just retested its 50-day average support, which is a logical technical level from which to bounce.  As of this post, AAPL is trying to bottom and rebound on the day.  If AAPL goes positive that would add fuel to the bulls' fire.  GOOG isn't being talked about at all, but its price action has been very solid. Today it is up another $13 to $715.  Not bad at all. 

KAM Advisors has long positions in AAPL and GOOG

Thursday, December 13, 2012

Looking For A Pause In The Action

The markets are mixed in early trading after yesterday's rally faded.  The Fed came thru with their version of QE4 as many had expected.  The markets, which were already up on the day, extended their rally a bit but as we headed into the close sellers emerged and stocks began to fade.  By the close the market had given up almost all of its gains.  This increases the likelihood that after a multi-day advance the market is due for a little breather.

In corp news, Best Buy (BBY) is bouncing again on news that founder Richard Shultz is expected to submit a bid to take the company private.  This rumor has been swirling for months, but this time around the CFO also just bought 100,000 shares.

CVS is also trading higher after raising its dividend as well as full-year guidance.  CIEN is also a bit higher despite missing earnings and issuing cautious Q1 guidance.

In economic news, November retail sales rose +0.3% vs. last month's -0.3% reading.  But excluding autos retail sales were unchanged.

Asian markets were mixed overnight.  China was -1.0% lower after an analyst at Commercial Bank of China suggested additional stimulus was unlikely due to rising property price concerns.

European markets are mostly lower after Eurozone ministers approved the next tranche of Greek aid for 49 billion euros through March 2013.  I'm sure in March we will be hearing about the "next" tranche of aid that needs to be approved.  What happens when Spain comes to the trough?

Commodities are mostly lower despite weakness in the dollar index again.  I would have thought more QE would be bullish for gold, but the yellow metal is lower today back below the $1700 level.  Silver and copper prices are also lower.  Oil prices are roughly flat near $86.76.

The 10-year yield is higher again up to 1.72%.  And the volatility index is flat near the 16 level.

Trading comment: Yesterday's downside reversal in the market usually portends further weakness in the near term as it represents some exhaustion among buyers.  I would look for a further pullback in the indexes, but the S&P 500 could find support at its 50-day average, which now sits near the 1415 level.  AAPL remains stuck in this trading range between 520-550, but GOOG is breaking above its 50-day average and could find some running room.

KAM Advisors has long positions in AAPL and GOOG

Wednesday, December 12, 2012

More QE On The Way?

Markets are mixed in early trading in subdued volume ahead of today's FOMC announcement and Bernanke press conference.  The Fed's "Operation Twist" is set to expire so many expect a new program of bond buying to be announced today.  It is debatable if the market has been running more on expectations of more quantitative easing (QE) or hopes of a fiscal cliff agreement.

Folks should be careful about wishing for a hastily reached fiscal cliff agreement.  Although the markets might breath an initial sigh of relief, if the terms of the deal aren't favorable for economic growth I think it could make 2013 more problematic for the markets.

In corporate news, Wal-Mart (WMT) made cautious comments about the company's holiday sales.  Costco (COST) is higher after reporting solid earnings.  And Joy Global (JOY) is also higher after solid results but cautious guidance.

Asian markets were mostly higher overnight despite N. Korea launching a rocket over the Japanese island of Okinawa.  Japan resisted the urge to shoot down the rocket.  China was 0.4% higher after Nomura sees GDP growing 8.2% in 2013.

Europe's markets are also mostly higher ahead of our Fed meeting.  Greece's debt buyback was a partial success but the country was unable to reduce its debt by the full target amount.

The dollar index is lower which is helping commodities.  Oil prices are up to $86.35 and gold prices are higher near $1712. 

The 10-year yield is getting a boost to 1.67%.  And the volatility index is currently higher by 2.5% near the 16 level.

Trading comment: The SPX is currently higher for a 6th straight day.  Of course, the real action will start after the FOMC announcement.  It feels like more QE is already being priced in, and so any announcement of such wouldn't produce much of an upside surprise.  I also think the markets are expecting some positive news regarding a fiscal cliff agreement.  Since we are getting short-term overbought in the market, a pullback would not be surprising.  But the overall price action remains constructive and it is not out of the question that the markets have a shot a making a run at the September highs. 

Tuesday, December 11, 2012

Bulls Get Back On The Offensive

The market is trading nicely higher this morning.  There hasn't been any huge catalyst to boost stocks this morning, so most likely it is just continued optimism that fiscal cliff won't be as bad as feared as well as a technical buy signal with SPX retaking its overhead 50-day average.

The Nasdaq is leading the action this morning, with the tech sector up 1.7% led by Apple.  AAPL is trying to put in a double bottom after three tests of the $520 level that held.  This morning its up $18 so far and trying to get back to $550.  A continued rally in AAPL will likely embolden the bulls as it remains a favorite among investors and as such is a pretty good proxy for sentiment.

In corporate news, Liberty Interactive (LINTA) bought a big stake in TripAdvisor (TRIP) for $62.50 a share, which is boosting the stock 7%.  Urban Outfitters (URBN) is up 6% after reporting strong sales.   And AIG is up 4% after confirming that the US Treasury will sell its remaining shares of AIG stock. 

Asian markets were mixed overnight.  China was down -0.4% after new loan data missed estimates.

European markets are generally higher this morning.  The FT is reporting that Italy's PM Monti is in talks with the centrist party who are encouraging him to stand in next election.  But the big boost came from the ZEW German Sentiment reading which came in well above expectations at 6.9 vs. estimates of -12.0.  It was also the first positive reading in 6 months.

The dollar index is lower today as the euro bounces.  Commodities are a bit heavy relative to stocks.  Gold prices are a touch lower to $1708.  Oil prices are also a little weaker near $85.39.  And silver and copper prices are lower as well.

The 10-year yield is getting a boost to 1.65%.  And the volatility index is sliding more than 3% back down to the 15.50 level. 

Trading comment: The other day I commented that the recent price action in the S&P 500 was setting up for another test of the 50-day average and that I didn't want to fight the price action.  Yesterday the SPX closed above its 50-day for a second day, and today we are seeing the big spike above that key moving average.  Moreover, all of the major indexes have now recaptured their respective 50-day averages.  That is a positive technical sign and likely has increased the confidence of the bulls to put money to work on the long side.  I still worry about the inability of any grand compromise on the fiscal cliff, but as they say-- don't fight the tape.

KAM Advisors has long positions in AAPL

Monday, December 10, 2012

Monday Morning Musings

Markets are slightly higher in early trading, led by healthcare stocks while financials are lagging so far.

Food stocks are getting a bounce after McDonalds (MCD) posted a better than expected +2.4% increase in global same store sales.  Expedia (EXPE) is lower after being the latest company to report a special dividend.  Normally a stock pops higher on this news.

In M&A news, Intermec (IN) is 22% higher after being acquired by Honeywell (HON) for $10 per share.  And Nexen (NXY) is 15% higher after getting Canadian approval  for the merger with Cnooc of China.

Apple (AAPL) was lower again in early trading but has since reversed off its lows and is inching its way back into positive territory, currently trading near $535.

Overnight Asian markets were mixed.  China outperformed with a 1.1% gain.  But Japan posted GDP contraction of -0.9%, marking its second quarter of contraction which puts it back in an official recession.

European markets are lower this morning after Italian PM Mario Monti announced his intention to resign.  Former PM Berlusconi has thrown his hat back in the ring to run again.

The dollar is up slightly, but not hurting commodities so far.  Oil prices are bouncing near $86.45.  Gold prices are higher to $1715.  And copper prices are higher as well.

The 10-year yield is a bit lower to 1.61%.  And the volatility index is higher by 2% so far near 16.20.

Trading comment: The S&P 500 is inching its way back above its overhead 50-day average.  We have been watching this key technical development, as it usually signals improved bullish sentiment among traders.  It seems odd to watch the market climb as we have all of this fiscal cliff discord in the headlines, but I guess that is the proverbial wall of worry that markets like to climb.  At least that is the case right now.  We still would not rule out the occurrence of a large selloff if and when markets get confirmation that no major deal has been reached and we begin to quantify what effects higher taxes, etc. will have on economic growth.  But for now the market is in the Alfred E. Newman mode of 'what - me worry?'

KAM Advisors has long positions in AAPL

Friday, December 07, 2012

Surprise Slowdown In Germany

Nonfarm payrolls for November came in nicely ahead of consensus estimates, but the enthusiasm among stock buyers was short-lived and the market was back at the flat line in the first hour of trading. 

Payrolls gained 146,000 last month vs. estimates for 90,000.  Also surprisingly the unemployment rate dropped to 7.7% from 7.9% last month.  I haven't parsed the figures but my guess is much of that decline is due to a continued drop in the labor force.  I haven't seen any big hiring announcements in the news, other than temporary workers for Christmas.

Asian markets were mixed to lower overnight.  After the close in Japan, a 7.3 magnitude earthquake shook the northeast.  But no major damage reports have surfaced.  The Philippines are still dealing with the cleanup efforts following a deadly typhoon this week.  China was the one Asian market to bounce +1.6% last night, after a former PBOC advisor said he expects 2013 GDP to bounce back to 8.0%.

European markets were lower before the US payrolls data came out, which helped put a bid under shares and lift markets off their lows.  Germany's Bundesbank came out with projections that 2013 GDP will slow to 0.4%.  That is a big downward revision from the 1.6% rate forecast in June.  The bank also warned of a possible recession.  A big slowdown in Germany and France would not be good for the bailout programs the ECB and IMF are trying to implement.  Germany and France are the biggest backers of said programs, and already the credit ratings of the ESM have been downgraded.

The dollar is higher and commodities are mixed.  Oil prices are roughly flat near $86.35.  Gold prices were lower earlier this morning, but have since bounced back above the $1700 level to $1705.  Copper prices are higher as well.

The 10-year yield got a little lift from the jobs report and is higher to 1.62%.  The VIX is a little lower again near the 16.25 level. 

Trading comment: Yesterday I commented that the sideways consolidation in the S&P 500 Index put it in better shape for another stab at breaking above its 50-day average.  This morning's early pop on the NFP news accomplished that feat, but the ensuing fade has put the senior index back below its key overhead moving average.  We are in a real push and pull market, but we still have some time before the close today.  The 50-day average resides around SPX 1417, so we are only about 5 points away right now.  If we don't have too weak of a close this afternoon, I do think we could see some further upside next week.  Boehner's comments on the fiscal cliff certainly did not inspire confidence this morning, so I'm not sure I want to get too bullish even if we do see an upside breakout.  But for those looking for higher prices to do any selling or rebalancing it is worth paying attention to the recent price action.

Thursday, December 06, 2012

All Eyes On Apple

The market was lower in early trading but has since bounced back into positive territory.  The Nasdaq lagged yesterday mostly due to the weak performance in AAPL shares.  AAPL has captivated investors interest lately, as many wonder if the stock is "done"?

I think that AAPL is just going through a normal correction after a huge run.  No one points out the fact that AAPL was up roughly 75% for the year in September, which is a huge move.  It has also become heavily owned by hedge funds, so the selling and angst over this pullback is not all that surprising.  All great stocks go through corrections, and I don't think AAPL should be sold yet.  Today the stock bottomed near its November lows and has so far bounced strongly from those levels.  It also looks like it is taking the market higher along with it.

Asian markets were mixed overnight.  Japan closed higher at a 7-month high.  And a Chinese state economist suggested that the economy is stabilizing but he doesn't see a V-shaped recovery.

In Europe, S&P cut Greece's debt rating to 'Select Default'.  The ECB and BoE held rates steady.  ECB Pres Draghi said they have lowered their forecast for growth as downside risks remain.  Q3 GDP for the Eurozone was in-line at a -0.1% contraction.

In corporate news, Safeway (SWY) is the latest company to approve an acceleration of its dividend to avoid the rise in dividend tax rates expected next year.  The stock has bounced +6% on the news.  I think AAPL should do a $20 special dividend.

The dollar is higher and having a mixed effect on commodities.  Oil prices are lower near the $86 level, but gold prices are bouncing back to the $1700 level.  Copper and silver prices are higher as well.

The 10-year yield remains weak at 1.57%.  And the VIX was higher in early trade but has since faded back to the 16.45 level, flat on the day so far.

Trading comment: All eyes remain on AAPL, which seems to be having an outsized effect on trader sentiment.  AAPL is rallying today, and if it can continue to rally it should help lift the market.  Yesterday the market had staged a strong upside reversal, but some very late selling took some steam out of the strong technical action.  Overall it was still a solid bounce from the earlier lows and if the market can hang on to these early gains I think it puts the SPX in a stronger position to make a successful attempt at rallying back above its 50-day moving average.  That would likely embolden the bulls to do a little more buying.  That said, I do find this action in the market somewhat surprising given I have little confidence in any grand resolution before year-end regarding the fiscal cliff.  But I don't want to completely ignore the price action.

KAM Advisors has long positions in AAPL

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

Tuesday, December 04, 2012

Stalling At Resistance

Some of the major indexes ran into their overhead 50-day averages yesterday and were turned away.  The S&P 500 reversed lower and basically closed at its lows for the day.  That made for an outside reversal day to the downside, which often indicates some further near-term weakness.

Overnight, Asian markets were mostly lower.  The Reserve Bank of Australia lowered its key interest rate 25 basis points to 3.00%.  I'm not sure the RBA would have cut rates again if it thought China has bottomed, but the move did little to boost investor sentiment.  China actually bounced overnight, but is still trading near 4-yr lows.

Europe's markets are slightly higher today.  Sentiment seems to be improving following some progress made on Greek's bond restructuring.  That has also helped lift the euro higher vs. the dollar.

Despite the dollar weakness today, most commodities are lower.  Gold prices have fallen back to the $1700 level and are trying to stabilize.  Oil prices are lower near $88.  But copper prices are higher so far.

In earnings news, DRI is lower after reporting earnings and lowering guidance.  AZO and MTN are also lower on earnings, while TOL is bouncing after beating on revenues.

The 10-year yield is slightly lower to 1.60%.  This level or zone has pretty much acted as a floor for the 10-yr yield for the last 4 months. 

The volatility index (VIX) is breaking above its 50-day average to the 16.90 level.  We got close to the 20 level in October, but haven't actually seen a 20-handle on the VIX since July.  It would be a little uncharacteristic to see the VIX spike that much in December, which is not the highest of volatility months, but that doesn't mean it couldn't happen.

Trading comment: Lots of tests of overhead resistance.  I mentioned the SPX in the opening paragraph.  But the Nasdaq 100 also bounced from its overhead 50-day and is already back below its 200-day average, as they were pretty close together.  Another stock struggling with resistance is AAPL, which has been hovering near the underside of its 200-day average for the last week.  But yesterday it failed to get above the 200-day (near 596) and today is moving lower again.  AAPL isn't the market leader it was earlier in the year, but if it does regain its footing it would help improve investor sentiment seeing as it is still a very heavily owned stock and a favorite of investors.

KAM Advisors has long positions in AAPL

Monday, December 03, 2012

Monday Morning Musings

Back in the saddle after being out of the office at the end of last week.  The markets finished the week on a slightly positive note in that the gains from earlier in the week held.  Now we have the tests of the overhead 50-day averages to deal with.

This morning the markets were higher in the first hour of trading, but have faded a bit after the first test of their 50-day averages.  There also hasn't been a lot in the way of market moving news.

Some of the wind behind the gains faded after the November ISM data came in worse than expected at 49.5, which is also well below October's reading of 51.7 and points to contraction in the manufacturing index.

Lots of other countries released their PMI manufacturing data as well.  China said its PMI rose to 50.6, which is a 7-month high for that reading.  The HSBC private PMI figure came in at 50.5, so these two gauges are now closer to each other.  Despite the data, China's stock market fell -1.0%.

In Europe, France's PMI was 44.5 and Spain was 45.3.  Both readings are still in the zone that markets contraction.  Spain's PM said it will be difficult to hit their projected debt target of 6.3% of GDP, and they would seek aid if needed.  Meanwhile, Moody's downgraded the ratings for both the ESM and the EFSF and maintained a negative outlook due to the credit deterioration of the program's large contributors-- namely France.

Commodities are mostly higher as the dollar trades lower today. Oil prices are higher to $89.62 and gold prices are up a bit to $1718. 

The 10-year yield is higher to 1.63%.  And the VIX is up +3% near 16.35, right at its 50-day average.

Trading comment: Last week I talked about the SPX trading right in the middle of its 50-day and 200-day averages.  Last Wednesday the SPX tested its lower 200-day support and successfully bounced off of it.  That put the senior index in position to rally to its overhead 50-day, which it has already bounced from this morning.  Usually the first test of a key overhead resistance level is not successful.  More often we see some sideways consolidation first.  As such, I would expect to see the market chop around a little in the near-term before any successful break above its 50-day average.  A successful break above said 50-day would likely also embolden the bulls and hedgies to put more money to work on the long side of the market.