Wednesday, February 06, 2013

Japan Surges On Hopes Of More Quantitative Easing

Markets are slightly lower this morning on the heels of some weakness in Europe and mild profit taking.  But the indexes found their lows in the first hour of trading and have since started to bounce back into positive territory.  Dip buyers continue to surface quickly on declines.  It is still early in the session, and it is how the market closes that counts.  But recent selloffs have not been able to gain much traction.

Overnight Asian markets were higher, led by a 3.8% surge in Japan.  That puts the Nikkei at its best levels since September 2008.  To put that 3.8% move into perspective, if the Dow rallied that much it would equate to a 530 point surge.  China was up only 0.1%, but that was good enough to push its winning streak to 8 consecutive days.

It's a different story in Europe, where concerns over derivatives losses at Italian banks are weighing on sentiment.  Italy and Germany are both leading on the downside.

On the earnings front, we are seeing more stocks rising that falling in reaction to their reports.

Stocks rising on earnings: RL, DIS, CERN, CMI, STE, TWXS, WYN, MAC, CMG

Stocks falling on earnings: EXPE, NUS, SYT, SU

Commodities are mixed with the dollar index in positive territory today.  Oil prices are a bit lower near $96.15 while gold prices are up a bit to $1675.

The 10-year yield continues to consolidate around that 2.0% level, currently hovering just below it at 1.99%.  The longer the TNX trades sideways around these levels the more likely it is that we see another push to the upside in yields.

The volatility index is up slightly today, but still below the 14.0 level.

Trading comment: We are always looking for signs that bullish sentiment is hitting extreme levels.  Last week the NAAIM investor survey surged to a level of 104.  We went back and looked for another reading above the 100 level and could not find once instance.  This indicator started back in 2006, so this is the highest reading it has ever registered.  Food for thought as the market continues to churn near its highs.  This is the first red flag among the sentiment indicators, but if more join the fray on the bullish side it would make this rally more risky and raise the odds of a more meaningful pullback.  Food for thought.

KAM Advisors has long positions in EXPE


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