Thursday, April 18, 2013

S&P 500 Testing 50-day Support

The markets started out lower this morning, but so far have already staged a nice bounce in early trading.  As we have said, its how the market closes on the day that is really key.  So we will have to see if this early bounce has legs.

The S&P 500 it testing its 50-day average for the second day.  This is often a level where buyers step in and we could see the market bounce from here.  But if the SPX closes below its 50-day for more than a day that often signals that the market still has more work to do before finding support.

In economic news, leading indicators for March fell -0.1%.  The Philly Fed index slipped to +1.3 from +2.0 last month.  And weekly jobless claims rose to 352,000 from 348,000 last week.

Earnings reports continue to roll in.  Results from last night and this morning appear to be a mixed bag in terms of looking for a trend.  Tonight we hear from bellwethers MSFT and GOOG.

Stocks rising on earnings: CVA, VZ, PEP, SHW, UNP, APH

Stocks falling on earnings: MS, PM, EBAY, SNDK, BX, FCX, UNH

Asian markets were mixed overnight.  India rallied again while Japan was lower.  In China, home prices rose +3.6% last month.  Hong Kong's unemployment rate ticked up to 3.5%.  And the Nikkei News is suggesting that the Bank of Japan may hike its inflation expectations at its upcoming meeting.

Europe's markets are higher this morning on no real news.  The Italian parliament failed to elect a president at its recent vote.  And German's Merkel fell short of reaching a coalition majority vote regarding the Cyprus bailout.

The 10-year yield is lower again to 1.69%.  And the volatility index was higher this morning to as high as 17.87 which is just below yesterday's high.  It has since fallen back to 16.75.  We have been discussing the low VIX for weeks and saying we would expect a spike back above the 15 level.  I think the buying signal will come when the VIX moves back below the 15 level convincingly.

Oil prices are slightly weak today near $86.55.  And gold prices are a bit higher around $1395.

Trading comment: As we mentioned above, the SPX is testing support at its 50-day average (1543) and could bounce.  But most of the other leading indexes (Russell small-cap, mid-cap, and Nasdaq) remain below their respective 50-day averages which is usually a sign investors should be a bit cautious.  A better signal is when all the indexes are back above their 50-days.  And in terms of individual stocks its always risky to buy ahead of their earnings reports, since the reactions in stocks can be so unpredictable.  We would rather wait to see which companies report solid quarters and then look to add to those on pullbacks.  But when the market finds its footing, those stocks are likely to be the ones that fare the best in an ensuing rally.

KAM Advisors has long positions in CVA, VZ, MS, PM, GOOG


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