Friday, January 25, 2013

S&P 500 Tries To Make It Eight Straight

The market is putting in a pretty surprising rally here, with the SPX currently higher for an 8th straight day.  That's a pretty rare feat.  We looked at several different breadth indicators and all of them are in overbought territory.  That makes a short-term pullback likely, but it also could highlight the early stages of fund flows out of bond funds and into equities.

In economic news, new home sales for December came in below expectations at 369,000, which was also below November's reading of 398,000.

Earning season continues and again our quick scan of stocks reporting showed more stocks rising in reaction to earnings that falling.

Stocks rising on earnings: HAL, SBUX, MSFT, INFA, PG, COV, KLAC, CVD, TPX

Stocks falling on earnings: HAS, SCSS, WY, FLS, CYN

Asian markets were mixed overnight.  Japan rallied +2.9% after their CPI came in at -0.5% sparking hopes for more monetary easing.  China was lower by -0.5%.

European markets are higher this morning after a better than expected German Business Climate Index.  In the UK, Q4 GDP contracted -0.3%, which was worse than expected.    The ECB also announced that 278 banks have repaid 173B EUR of LTRO loans made last year.  Of course, the ECB lent out more than a trillion euros, so this is just a drop in the bucket so far.  The ECB also didn't indicate which countries paid back their loans and which ones didn't.

The 10-year yield is bouncing higher today to 1.91% as bond sell off.  The recent highs come into play around 1.96%.  If the 10-yr got above those levels it would be trading at roughly one-year highs.

The VIX is up slightly on the day, but still at a very low absolute level of 12.90. It will be interesting to see if it settles into this range or quickly moves out of it on the next market pullback.

Trading comment: Never underestimate a prolonged uptrend to make folks more bullish.  The market is already short-term overbought, and bullish sentiment is on the rise.  I suspect that the market will have a brief pullback and then continue to move higher.  That second leg up will likely pull even more bulls into the market, at which point we could see the sentiment indicators reach extreme levels that in the past have signaled a caution sign of a pending correction.  But let's not put the cart before the horse.  In the short-term, we would look to add to stocks on a near-term pullback.

KAM Advisors has long positions in SBUX, PG


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