Was That The Bottom In Gold?

The markets started off lower this morning but have since bounced and are trying to stay in positive territory.  Also, gold was down again this morning breaking below the $1200 level but it also reversed sharply by more than $30 and is now higher near $1215.

I'm sure gold has been under a lot of pressure from portfolio managers whose performance is hurting due to the sharp decline in gold prices this quarter.  But gold is very oversold down here, and it could easily be due for a rally.

In economic news, the June Chicago PMI fell to 51.6 from 58.7 last month.  This weak report helped pressure the market in early trading.  But the Univ. of Mich. final June consumer sentiment survey rose to 84.1 from 82.7 before.  So consumers remain upbeat about the economy.

Asian markets were higher across the board overnight.  Japan spiked 3.5% higher after some positive economic data.  China bounced 1.5% after the PBOC made some calming remarks about the economy.  That helped push the overnight SHIBOR rate down to 4.94%.

The 10-year yield is a little higher near 2.50%.  Fed gov. Lacker made comments that the Fed could trim QE as early as September.  This seems stupid to me, as recently as yesterday the Fed was trying to backpedal on Bernanke's comments that unnerved the markets.  The Fed does not seem to have a cohesive message and that is likely confusing the markets more than anything.

The volatility index is -3% lower to 16.30 today.

Trading comment: The S&P 500 traded down to the 1600 level this morning before bouncing back to 1613.  Yesterday the SPX ran right into resistance at its overhead 50-day near 1619.  This is a logical place to pull back from.  While we still think that the stock market has more of a correction in its future, the question is will the 50-day continue to act as resistance or will the SPX make one more push higher into July before running out of steam.  That question is now knowable in advance but we continue to look for opportunities to get a bit more defensive.  That said, our big picture thesis is that any summer correction will likely prove to be a good buying opportunity.

Fed Backpedals On Recent Communications

Markets are nicely higher this morning on a combination of dovish comments from NY Fed President Dudley as well as some better than expected economic news.  The Dow is up over 100 points once again in early trading.

Dudley spoke this morning and basically backpedaling on the Fed's recent communique and saying that market expectations of an earlier rate hike is "quite out of sync" with the FOMC.  He also said that QE could increase if there aren't improvements in the labor market.  Investors have been solely focused on how soon QE would end, but it is looking more and more like that won't be anytime soon.  PCE inflation is also still well below the Fed's target.

There was also some positive economic news this morning.  Pending home sales rose a better than expected 6.7% in May.  Personal incomes rose 0.5% while personal spending rose 0.3%.  The savings rate has gone from 2.1% at the beginning of the year to 3.2% currently.  So there has been a pullback in consumer spending that could reverse and add to GDP in the second half.

Markets in Asian were mostly higher overnight.  Japan rallied 3.0% but China couldn't bounce again.  The PBOC again refrained from injecting liquidity into the banking system but said it would provide funds to large lenders.  That helped the 1-week SHIBOR rate ease 52 bps to 6.88%.

Europe's markets are modestly higher today.  Germany's unemployment held steady at 6.8%.  And the UK's Q1 GDP rose 0.3%, as expected.

The 10-year yield is easing back after Dudley's remarks to 2.50%.  And the volatility index is down another 3% near 16.75.

The dollar is higher for a 7th straight day, but commodities are bouncing a little.  Gold prices are flat near $1230 while oil prices are higher around $96.45.  I wonder how quarter end window dressing may have pushed gold lower as portfolio managers don't want to show they held gold during such a bad quarter.

Trading comment: The market is now getting its 3rd day bounce after reaching very oversold levels on Monday.  At the time, we said we thought we would likely see a bounce into quarter end but that we would use it to get more defensive.  That's what we are planning for today.  The SPX bumped its head on its overhead 50-day average this morning near 1620.  We think the 50-day will act as near-term resistance on this try.  We will have to see how trading goes in early July.  If the market can pullback slightly and take another shot at 1620 we might see higher levels for a little while.  But our big picture thesis is still that we will see more of a correction into the summer.

Guessing About A Retest

The markets are nicely higher again this morning.  Of course, there is still a lot of time left in today's trading session.  I actually prefer a market that opens weak and strengthens into the day.  A market that opens higher leaves a lot of time for sellers to surface and pressure a weak close.

This morning's bounce comes despite a GDP report that wasn't very strong.  The third and final estimate of Q1 GDP showed the economy grew just 1.8%, worse than previous estimates of 2.4%.  The Fed has GDP growing as much as 3.25% in their forecasts, which would be quite a pickup from current levels.

Asian markets were mostly higher overnight, led by peripheral markets.  Japan was down 1% and China was 0.4% lower despite its overnight SHIBOR rate dropping another 44 basis points to 7.20%. That rate is still about the twice as high as the long-run average.

Europe's markets closed higher.  ECB President Draghi said the ECB stands ready to act again if needed.

The dollar is higher for a 6th straight day, and that is weighing on commodities.  Gold is falling further to $1235.  Oil prices are lower near $94.40.  Silver and copper prices are lower as well.

The 10-year yield fell back near 2.50% near the open but has since risen back to the 2.55% level, down 3 basis points from yesterday.

The volatility index is lower again today, down -3.5% to 17.80.

Trading comment: This is day 2 of the bounce from the SPX 1560 level that we touched Monday morning.  But the bounce is coming on somewhat lighter volume than the selloff that preceded it.  Additionally, the index remains below its 50-day moving average.  So a more defensive posture is warranted until the market can prove itself.  More often than not trading lows in the market are retested at some point.  That means the SPX is likely to trade back down towards that 1560 level again.  I would be surprised if the S&P 500 broke back above its overhead 50-day average on the first try.  More likely, those levels will act as resistance and we will have to endure the retest scenario I just outlined.  Patience.

Looking For A Bounce

Markets are higher in early trading, which isn't surprising.  Over the last 4 days, the S&P 500 has pulled back a sharp -5.5%.  That's not as bad as what occurred in China, but severe nonetheless.  So this morning investors are looking for bargains and putting money back to work.

There was also some positive economic data out today.  First, May durable goods rose by a better than expected 3.6%.  Consumer confidence also came in above expectations at 81.4 for June from 76.2 last month.

Housing data was also strong.  May new home sales hit a rate of 476,000, up from last month.  And the April Case-Schiller home price index rose a strong 12.1%.  The CEO of Lennar also made comments about the strength and durability of the housing market.

Asian markets were mostly lower overnight.  China was down sharply again during trading, but rallied off its lows to finish only marginally lower.  The PBOC still did not act and said that conditions are seasonal.  Also, the overnight SHIBOR rate in China eased back 75 basis points to 5.74%.

The dollar index is up again for a 5th straight day.  Commodities are mostly lower.  Oil prices are down a bit to $94.92 and gold prices are slightly weaker near $1273.  Copper prices are higher today.

The 10-year yield reversed lower yesterday, but this morning it is higher to 2.58%.  I heard that the percentage rise in interest rates recently was the fastest in over 50 years.  Ouch.

The volatility index neared 22 yesterday morning before closing in the lower half of the day's range.  Today it is down another -8.5% to 18.40. 

Trading comment: After a 5-day global selloff investors can expect markets to bounce.  We could also see some additional strength from end of quarter window dressing.  So far the S&P 500 still hasn't surpassed yesterday's highs of 1588.  But it could easily do so.  I wouldn't be surprised to see the 1600 level come into play at some point.  But the now overhead 50-day average hovers near 1618 and I doubt we are going to power over those levels on the first try.  So somewhere in the 1600-1615 zone is a target area where we would look to lighten up or get more defensive for a potential retest of the recent lows (at some point).

Monday Morning Musings

Markets are in global selloff mode, led by a big plunge in China overnight amid continued concerns about a credit crunch.  Bond yields are also on the rise again in the US, so there is no safe haven benefiting from the selloff today.

The credit concerns in China unnerved markets.  Basically, China is trying to curb its excessive credit growth.  So the PBOC doesn't want to step in too quick.  It is basically telling banks to manage their cash better and suggested that liquidity levels are appropriate.  But this did little to stem a -5.3% plunge in the Shanghai Composite, the biggest drop in almost 4 years.  Goldman Sachs also cut their growth estimates for China GDP to 7.4% from 7.8% for this year.

Here in the US the continued rise in yields is also exacerbating the selloff that started overseas last night.  The yield on the 10-year T-note hit 2.65% this morning.  It has currently eased back a bit to 2.61%.  But bond funds, bond etfs, and closed end funds are also lower again on rate fears. 

The panic selling showed up in the volatility index this morning, with the VIX spiking +15% to 21.90.  It has also reversed lower for the time being, currently up 7% near the 20.25 level.  We wrote about the inability of the VIX to move back below the 15 level in the last couple weeks as a yellow flag for the market.

The dollar is a bit higher and commodities are all lower.  Gold prices are down near $1285 and oil prices are a bit weaker near $93.50.  Copper and silver prices are lower also.

Trading comment: The S&P 500 is now down -5.5% in just 4 days.  That is pulling the rubber band back a bit far, and we still think we will see some sort of quarter end bounce this morning.  But any bounce is unlikely to take the SPX back above its 50-day average, which means we will still be in correction mode big picture.  That means for folks who haven't lightened up at all you can use any bounce to get more defensive. 

We have been looking for a summer correction which looks to have started, albeit it a little earlier that we first thought.  It is impossible to know ahead of time how deep a correction will run and for how long.  So the goal is to get defensive enough that you can ride it out and be in position to take advantage of it when the market shows signs of bottoming.  But until then patience will be required.

Searching For Support

The market really took it on the chin yesterday following the selloff that began on Wednesday after the FOMC meeting.  Yields started to move higher on Wednesday and that will likely be viewed as the catalyst for the selloff.  But there were other things going on in the global markets that may have exacerbated the selling.

For one, there was a huge liquidity crunch in China.  China is an important market and we know that in today's global markets a liquidity crunch in one region has a way of reverberating through the markets.  So when short-term rates spiked to crazy levels in China and the central bank didn't step in to provide any liquidity, that likely spurred concern among investors.

There is also the ongoing issues in Greece.  We haven't heard much about Greece in the headlines lately, but the reports that the IMF will suspend aid to Greece if the country doesn't plug its budget gap could be rekindling fears of what transpired last summer.

Our markets did open higher this morning.  There were reports that the Peoples Bank of China finally stepped in to inject $8 billion into the system.  China's overnight rate (SHIBOR) eased back to 8.49%.  It had been as high as 25%.  But after an early bounce, sellers surfaced again and the major indexes are back in the red as of this post.

Asian markets were mixed overnight.  Japan was higher, but most markets were lower though not as bad as the US yesterday.  Europe's markets are mixed today.

The rise in the 10-year yield has certainly been disconcerting.  Any sort of income oriented stock sold off very hard yesterday (REITs, utilities, etc).   The 10-year yield traded north of the 2.40% resistance level that has held for the last 18 months.  Today it is rising further and touching 2.48% currently.  Some bond strategists like Jeffrey Gundlach have cited the 2.50% level as a new ceiling.  We shall see.

The dollar is higher again today.  It has been rising along with interest rates.  Commodities are mostly higher.  Gold is higher to $1291 after a big plunge yesterday.  Silver and copper prices are higher as well.  But oil is a bit weaker to $93.80.

And the volatility index which showed a huge spike higher yesterday is down slightly, but still high at the 20.0 level.  That indicates expectations for continued high volatility in the very short term.

Trading comment: It certainly seems like the combination of high volume selling, the spike in the volatility index, and the sharp rise in interest rates is ushering in the long awaited market correction that folks have been talking about.  Most people said they wanted to wait for said correction to do some buying, but now that it is at hand we will see where their conviction level is.  I could still see one more push higher before quarter end in some window dressing attempt.  But we have been saying that into that scenario we would look to get more defensive for a potential summer correction.  So far the SPX is -6.0% off its May highs.

Has The Summer Correction Started?

Our markets sold off hard yesterday after the FOMC meeting and global markets continued that trend overnight.  I am a bit surprised by the severity of the selloff given that the market pretty much already knew what Bernanke was going to say.

The Chairman said that we must see continued improvements in the economy before adjustments can be made to the asset purchase program.  So I don't view those comments as nearly as hawkish as the market seems to be interpreting it.  If we get weak economic data in the second half of the year I could see the Fed pushing any tapering into 2014.  But we knew it was coming at some point.

The 10-year yield reversed higher yesterday and is rising again today.  It is currently testing resistance levels at 2.40%.  This is a key level to watch as the 2.40% level has basically marked the high range for bond yields for the last 2 years. 

Economic data was pretty good this morning, but that doesn't seem to matter right now.  May existing home sales rose to 5.18 million units from 4.97 million the prior month.  The June Philly Fed survey rose to 12.5 from -5.2 in May.  Yet homebuilders are one of the weakest groups today.

Asian markets were down sharply overnight, as a liquidity crunch developed in China but the central bank did not step in to provide liquidity.  Reports indicate overnight repo rates spiked as high as 25%.

Europe's markets are also lower.  Economic data showed the Eurozone manuf. PMI rose to 48.7 from 48.3 and the services PMI rose to 48.6 from 47.2.  So those surveys are showing modest improvement even as they remain below 50 which markets overall contraction.

The dollar is higher as interest rates rise.  The Yen is lower, but folks seem to have forgotten about their Yen worries for now.  Commodities are lower, with gold prices falling below $1300.  Gold seems to have lost its safe haven status that folks used to go to in times of market stress.  Oil prices have fallen back to $95.50.

The volatility index is spiking 16% higher today to 19.30 currently.  This is the highest level we have seen so far in 2013.  The fact that the VIX couldn't get back below 15 recently may have been a sign that higher volatility was in store for the markets.

Trading comment: A couple of days ago we were writing about the positive resolution to the short-term double bottom pattern in the S&P 500.  I didn't think we would see this big of a freak out to the FOMC statement.  But as you know, anything can happen in the markets.  The SPX is back to testing that 1600 level that has held recently.  If it holds again, we could see more of a bounce into quarter end.  This has been our operating thesis as underperforming funds look to chase performance.  We thought this could lead to a short-term top in early July and a larger summer correction.  But it is possible that we have seen the highs in the market so far and said correction may be starting a little earlier.  We would watch the 50-day moving averages for clues.  If the SPX can't get back above its 50-day average soon, then we would look to get more defensive as lower levels might be in the cards.

Hurry Up And Wait

The markets are fairly flat this morning as everyone awaits the testimony from Fed Chairman Bernanke today.  I don't remember a time when there was so much anticipation of an FOMC meeting.  And it's not about a rate hike or rate cut this time, but rather if he mentions any hint of whether the Fed may begin to taper its QE purchases as early as September.

The market could see some volatility on Bernanke's comments, but I would expect it to settle down again soon after.  Even if the Fed does taper they are still far away from tightening monetary policy.  Taking their asset purchases from $85 billion to something in the $60s is still quantitative easing, albeit it slightly lower.

In corporate news, both Adobe and FedEx topped earnings estimates and both stocks are higher today.

Among the sector ETFs so far, energy and materials stocks are leading while defensive utilities and healthcare are lagging.  But by the close today we could see a reversal of this.

Asian markets were mixed overnight with China and Hong Kong lower and Japan higher.  Europe's markets are also mixed so far today.

The 10-year yield is still hovering around that 2.20% level.  It will likely see some fireworks around 2pm EST when the FOMC statement comes out.  It recent closing high was 2.23% for reference.

The volatility index hit 17 this morning before fading back near 16.50 for a second day.

Trading comment: Yesterday's action in the stock market was more positive than I expected and it now looks like the short-term double bottom pattern in the S&P 500 is complete.  The SPX is trading near the 1650 level and its high this year was around 1687.  So our thesis that the market could challenge its highs into quarter end certainly looks more plausible than it did a couple of weeks ago when the SPX was testing the 1600 level.  But the task at hand is to see what the Bernank has to say and try not to be shaken out of positions on any short-term volatility.  I still see the buy-the-dip mentality persisting into quarter-end.

KAM Advisors has long positions in FDX

Bulls Keep Their Foot On Gas Pedal

The market is higher again this morning with the Dow rallying another 100 points in the first hour of trading.  Of course, it's still very early in the session so we will have to see how the market closes.  I have always said the closing hour is much more important than the opening hour.

Bernanke's press conference is tomorrow so traders will have to wait another day to see if he gives any further insight about when the Fed might taper their asset purchases.  My guess is with growth slowing and inflation still low September might be too early to look for it.

The CPI data out today showed a 0.1% uptick with core prices up 0.2%, as expected.  Separately, housing starts rose 6.8% to a rate of 914,000.  But housing starts have trailed the last few recessions and the level of housing relative to population growth remains low, which should continue to act as a tailwind for the housing and construction sector.

Most Asian markets were mixed overnight.  Chinese home prices rose 6.0% last month.  And Hong Kong's unemployment rate ticked down one notch to 3.4%.

Europe's markets are also mixed today.  Eurozone economic sentiment rose to 30.6 from 27.6 last month.  Standard & Poor's pushed back its expectations for a European recovery to 2014.  It had previously forecast a rebound in the second half of 2013.

The dollar index is higher today and the yen is lower.  Commodities are mostly lower also.  Oil prices are up a bit to $98.15, but gold prices are lower near $1365.  Silver and copper prices are lower as well. 

The 10-year yield is rising again, back to the 2.20% level.  Last week the 10-yr touched 2.26% but never closed above 2.23%.  So we are watching those levels for any potential breakout. 

The VIX is a little lower to 16.60 but still above that 15 level we continue to monitor.

Trading comment: The market continues to show constructive price action.  The S&P 500 looks to have put in a short-term double bottom pattern recently at its 50-day average support.  To complete this pattern the SPX needs to trade above the 1648 level.  It is currently at 1647 so this seems likely to happen.  Tomorrow's FOMC meeting could cause a hiccup in trading, in either direction, but from there we are likely to get back on track with our quarter end strength thesis.

Monday Morning Musings

Markets are back in rally mode this morning after Friday's selloff that closed near its lows.  The one saving grace from Friday was that volume levels ran low, which means there wasn't as much conviction behind the selloff.

There was some positive economic news this morning when the Empire Manuf. index came in at 7.84.  That's a pretty big jump from last months reading of -1.4.  It was also well above expectations.  Also, the June NAHB Housing Index rose to 52 from 44, which was also well above estimates.

Of course, the big news this week is the FOMC meeting.  It's big because traders are hoping the Fed chairmen will give more of a glimpse into when they might start "tapering" their asset purchases.  I really don't think he will change his tune that much.  I also don't think they will do much more than tinker with the size of purchases between now and 2014 when Bernanke's term ends.

Asian markets were mixed overnight.  Japan spiked +2.7% higher after reports suggested that the BoJ's REIT purchases will exceed previous targets.  China's markets were lower after Fitch warned that China's credit bubble is 'unprecendented in modern history'.  And the Bank of India left rates unchanged at 7.25%.

Europe's markets are mostly higher today.  Italy reported a trade surplus of 1.91 billion Euros, but this was below expectations.  Germany's Merkel said she would serve a full third term if re-elected in the fall.

Commodities are lower again today.  Oil prices are slightly weak near $98.15 and gold prices are lower to $1383.  Copper and silver prices are lower as well.

The 10-year yield is trying to hold support at it's short-term 20-day moving average around 2.13%.

And the VIX is lower on today's rally, but still holding above that 15 level at 16.77.

Trading comment: Last week's action was pretty constructive, with rallies coming on strong volume and selloffs coming on lighter volume.  The outlook for our thesis of another push higher in stocks into quarter end remains intact.  Bears will probably try to knock the market down this week with the FOMC meeting and all, but if they are unsuccessful we wouldn't be surprised to see more performance chasing by portfolio managers.  More growth stocks appear to be breaking out or nearing breakouts, which is also a good sign for investors.

Bond Yields Beginning To Ease

Markets were slightly higher near the open but have since faded into negative territory.  Yesterday's action was very positive.  The market gained strength all day and finished with what we call an outside reversal.  That means the low yesterday was lower than the previous day, but then the rally carried the indexes to a higher high than the previous day as well.  So the range expanded on both sides but finished at the highs.

One positive today is the action in the 10-year yield.  After hitting 2.25% on Tuesday, yields continue to ease back.  The 10-yr yield today is at 2.10%.  This should give some breathing room to bond funds that have been hit hard in recent weeks.

Some of this morning's softness is being attributed to the Univ. of Mich consumer sentiment reading falling to 82.7 in June from 84.5 last month.  But last month's reading was very high and anything around these levels is indicative of positive consumer sentiment.  So I am not worried there.

May industrial production was unchanged and capacity utilization actually fell to 77.6% from 77.8%.  Capacity utilization probably needs to rise before we start to worry about more inflation.

Asian markets were higher overnight.  Japan bounced back +1.9% amid reports the govt is expected to implement a corporate tax cut.  There are also rumors the Peoples Bank of China may cut interest rates over the weekend.  I find this one less plausible given its property bubble.

Commodities are trading higher with crude prices nearing $98 and gold prices higher to $1388.  Folks must be surprised to read on the cover of the Wall St. Journal yesterday that oil and gas production in the US is hitting record levels but at the same time oil prices are hitting $98 and look like they could get to $100.  Frustrating.

The volatility index reversed sharply lower yesterday which is another positive.  This morning it touched 16 before bouncing to 16.65 currently.  We are still watching for a potential move below the 15 level.

Trading comment: Yesterday's action was very positive and lends itself to our thesis that we could see another push higher in the markets as we move into quarter end and portfolio managers look to get more fully invested.  There could also be some performance chasing if and when.  But we also need to watch the SPX 1687 level that marked the highs at the end of May.  If the market is unable to break above those levels that could set things up for a deeper pullback as we enter the summer.

Is Japan In A Bear Market Already?

The markets were roughly flat at the open and have since pushed slightly into positive territory.  If you're like me and you check the futures before you go to be each night, you are probably breathing a sigh of relief given how negative things looked last night.

Asian markets slid across the board, led by a -6.4% plunge in Japan.  The volatility in Japan has been severe, and the Nikkei is now down 20% from its recent peak.  Technically that qualifies as a new bear market.  But I think it needs to be put in perspective.  The Nikkei was up over 50% in just the last 6 months since the BoJ announced its new quantitative easing program.  That program isn't over, so I suspect the Nikkei will find its footing at some point.

In economic news, May retail sales rose 0.6%, which was better than expected.  Ex-autos, retail sales were up 0.3% implying solid auto sales as well.  Weekly jobless claims also came in lower than last weeks tally.

China was also lower overnight to the tune of -2.7% after reopening following a 3-day holiday.  The World Bank lowered its growth forecast of China for 2013 from 8.4% to 7.7%.  But I'm not sure how good the World Bank has been with its forecasts.

In Europe, the ECB put out its monthly bulletin which singled out Italy for failing to control its deficits.  Peripheral bond yields in Europe have been on the rise, but hopefully the ECB has tools in place to prevent another flare up like we saw last year.

Commodities are lower today despite dollar weakness.  Oil prices are lower near $95.60 and gold prices are down to $1382.  Copper prices are weak today also.

The 10-year yield is easing back to 2.18% so far.  This positive move lower in bond yields seems to be trumping a stronger Yen today (at least so far).  Traders are worried that a rising yen will unwind the carry trade in Japan and hurt stocks.

The volatility index closed at 18.60 yesterday which was its 2nd highest close this year.  But today it is down -6% to 17.40.  We continue to watch the 15 level for an all-clear sign that the market might be ready to rally again and test its recent highs.  The longer we continue to hover with the VIX above 15 the higher the chance that the market breaks below recent support.

Trading comment: Traders are watching the S&P 500 1598 level for support.  That is the level the SPX hit last week.  It is usually not a great sign to see the market retest support levels that quickly.  The SPX came within 10 points of that level this morning.  But the market can do anything at any time and we are still leaning towards the scenario that favors the market making another push higher into quarter end.  If this were not to occur and the SPX broke back below both its 50-day and recent support levels it would likely indicate the summer correction  we said could be on the horizon may unfold sooner rather than later.  So for now the market looks okay, but watch SPX 1598 if and when.

Back On Yen Watch

Markets in the US opened on a higher note, but have since faded back into negative territory.  Lately, strength in the Japanese Yen has been associated with weakness in stocks.  Today the yen started out lower but has reversed higher.  So it appears for the time being we are back in that mode where we have to watch the yen (FXY) to gauge stock sentiment.

There hasn't been any economic news today.  In M&A, Cooper Tire (CTB) is up 40% after it agreed to be acquired by Apollo Tyres for $35 per share.

Asian markets were lower overnight.  China and Hong Kong markets were closed for the Dragon Boat Festival.  In a surprise move, the Bank of Indonesia hiked rates 25 basis points to 4.25%.  S. Korea's unemployment rate ticked up to 3.2%.  And Australia's consumer sentiment rose to 4.7% from -7.0% in the prior reading.

In Europe, markets are mostly lower.  The German high court continues its debate on the constitutionality of the ECB's Outright Monetary Transaction (OMT) program.  Also, Eurozone industrial production rose 0.4% last month, above expectations.

The dollar is roughly flat today but commodities are mostly higher.  Gold prices are up to $1385.  Oil prices are higher near $95.85.  And silver and copper prices are up as well.

The 10-year yield is barely higher at 2.20%.  And the recent selloff in stocks this morning has pushed the volatility index +2.5% higher to 17.50.  We have seen larger intraday swings in the stock market as long as the VIX has been above the 15 level.

Trading comment: The market looks like it needs to find its footing soon to keep this uptrend intact.  There are some red flags on the horizon in the form of a stronger Yen, rising bond yields, and deteriorating credit conditions in emerging markets.  Look at the emerging market bond etf (EMB) for an example of a plunge.  CDS prices on emerging markets have also been rising sharply lately.  So there are some emerging strains in the financial system.  While we are still looking for another push higher for stocks into quarter end, we are mindful of the potential for a summer correction as well.  As such, we are being less aggressive about buying the dips here.

Continued Volatility From Rising Bond Yields

Global markets began to selloff overnight after the Bank of Japan concluded its latest policy meeting with no new changes announced.  That was a disappointment to some investors who hoped the central bank would take steps to address bond market volatility or increase its ETF program.

So Asian markets were generally lower overnight.  China was closed again for a holiday. 

Most European markets are also lower as yields in countries like Spain and Italy are on the rise.  The sharp rise in rates over the last month has added to volatility in financial markets. 

There wasn't much market moving news in the US, so trading here took its cue from overseas markets and started out weak.  The Dow was down -150 points in early trading but has since climbed back all the way to positive.  That's quite a turnaround so far, but its still very early in the trading session.  As we have said many times, it's how the market closes that matters most.

Part of the reason for the snapback is that though the yield in the 10-year Treasury rose to 2.26% this morning, it has since given back most of that rise.  It currently is hovering near 2.22%.

Commodities are mostly lower today despite weakness in the dollar.  Oil prices are down near $94.65 and gold prices have fallen back to $1374.

The volatility index couldn't get under 15 yesterday, and today is back above the 16 level.

Trading comment: No change to our recent stance.  We continue to think that although we are having some near-term volatility that the stock market will rally into quarter end as portfolio managers continue to address being underinvested.  Yesterday some stats came out that hedge funds and small investors are as heavily invested in equities as they have been since 2007.  Although that could be a slight negative, we still don't see the type of extreme bullish sentiment that has market prior market tops.

Monday Morning Musings

Stocks in the US were higher after the open but so far are struggling to stay positive in early trading.  This isn't all that surprising after Friday's outsized rally, which was on the back of Thursday's big reversal.  The S&P has quickly bounced from testing the 1600 level to nearing 1650 this morning.

On a positive note, Standard & Poor's has raised the US debt rating outlook to Stable from Negative, saying that some of the downside risks have receded.  Bond yields are slightly higher despite the news, with the 10-year yield trading at 2.20%.

A couple consumer staples stocks that are higher today are McDonald's (MCD) after reporting solid global same-store sales and B&G Foods (BGS) which announced the acquisition of the company that makes Pirate's Booty (kids reference).

The St. Louis Fed President made comments today that the still low rate of inflation could justify the Fed's aggressive monetary policy stance. 

Asian markets were mostly higher overnight, led by a sharp snapback rally in Japan (+4.9%).  Consumer confidence in Japan hit its highest level since 2007.  China was closed for a holiday, but the Chinese ETFs are lower today after several economic datapoints showed slower growth in China.

The dollar is higher today, and commodities are mixed.  Gold prices are slightly higher while oil prices are a bit lower near $95.50.  Gold is back below the $1400 level ($1383).

The volatility index is sitting just above that 15.0 level that we have been watching as a barometer for investor sentiment.  If it can get back below the 15 level we would not be surprised to see the market rally back to recent highs.  But a move higher in the VIX could mean more consolidation is needed first.

Trading comment: We used the weakness last week to add to stocks.  Our recent worry that investor sentiment would become too complacent seems not to have happened as some of the investor surveys we follow show that bearish sentiment quickly spiked higher last week.  Some of our indicators are showing the highest levels of bearishness so far this year.  High bearish sentiment is okay at this juncture because it keeps the wall of worry high and as the old saying goes "bull markets love to scale the wall of worry".

KAM Advisors has long positions in BGS and MCD

A New Twist On The Goldilocks Economy

Markets are nicely higher this morning after investors cheered this morning's jobs report.  Nonfarm payrolls rose 175,000 in May vs. expectations for 159,000.  The unemployment rate ticked up a touch to 7.6%.

In a normal recovery, 175k new jobs would not be enough to get excited about.  It certainly doesn't paint a picture of a robust economy, which used to be able to add 300-400k jobs per month.  But this is anything but a "normal" recovery.  Investors today are more worried about the Fed taking their foot off the gas and tapering back their bond purchases.

So today's luke warm jobs report fits into a new sort of Goldilocks scenario where it isn't so hot that the Fed feels pressure to stop its QE program, but it also isn't so bad that it looks like the economy is weakening.

Also, the unemployment rate ticked up to 7.6%.  The Fed has said they want to see it near 6.5% before they think about raising rates.  Given that so many people have dropped out of the labor force, we could see some of those folks re-enter as the economy strengthens.  That would lengthen the time it might take for the unemployment rate to get down to 6.5%.  Adding 175k jobs a month just isn't going to cut it.  And youth unemployment remains extremely high.

Most folks are talking about the end of this year for the Fed to begin tapering its bond purchases, but not until mid-2014 before they curtail the program altogether.  And that assumes that the economy continues to improve.

Asian markets were mostly lower overnight.  Japan was down as much as -3.0% before a notable spike from the lows that was attributed to a large ETF purchase by the Bank of Japan.  Japan's finance minister also said pension funds would be allowed to diversify away from bonds. 

European markets are higher today.  Germany's Bundesbank lowered its GDP outlooks for 2013 and 2014, with next year's growth projections coming down to 1.5% from 1.9%.

The 10-year yield is moving higher today on the jobs data to 2.14% so far.  Last week's highs were around 2.21%. 

The volatility index is plunging today, down -7.5% to 15.35.  We have been highlighting that 15 level and if we get a couple of closes back below 15 that would increase the probability that the recent pullback is over.

Trading comment: We said that as the S&P 500 came down to its 50-day average and tested the 1600-1605 level we wanted to be buyers.  So far that has worked out well, as the SPX bottomed right at 1600 yesterday and rallied into the close.  Today it is up another 1% nearing the 1640 level.  We could see some resistance at the 1645 level where the overhead 20-day average resides.  But its still early in the day, and we would also like to see a strong close today as opposed to the market fading into the close.

Is That The Pullback Everyone Was Looking For?

For months as the stock market rose folks said they liked the market but wanted to wait for a pullback to buy.  Of course, the market never really paused to give them a good buying opportunity.  But now we are getting a 5% pullback from the highs.  So my question is: are you buying now?

Often times when the correction finally comes, those folks looking to buy get cold feet.  But the Dow, S&P 500 and S&P midcap 400 are all at their 50-day averages.  This looks like a good spot to put some money to work and yesterday we were buyers on the weakness. 

There isn't much in the way of market moving news this morning.  Initial jobless claims totaled 346,000 which was below last week's tally.

Asian markets were lower across the board, with continued high volatility in Japan.

European markets are higher today after the ECB meeting.  The ECB held rates steady at 0.5%.  ECB President Draghi said once again the central bank is 'technically ready' for negative deposit rates.  The Bank of England also left its rates and purchase program unchained.

Elsewhere, French unemployment rose to 10.8% from 10.5%, while Greek unemployment rose to a record 26.8%.

Among the sector ETFs, financials are leading the early action and utilities are bouncing from their recent drubbing.  Tech stocks are lagging so far.

The dollar is lower today and commodities are mixed to higher.  Oil prices are back above $95 and gold prices continue to struggle to stay above the $1400 level.  Copper prices are lower today.

The 10-year yield is slightly lower to 2.09%.  And the VIX is a tough higher near 17.60, highlighting expectations for market volatility to remain elevated in the near-term.

Trading comment: We were better buyers into yesterday's weakness, and would continue to buy on weakness.  We said we had been hoping for a 5% pullback in the market and now that it is upon us we want to stick to the plan.  We still expect another push higher into quarter end, although the markets could need some further consolidation to setup a new base.

Watching The 50-day Averages

The S&P 500 continues to pullback this morning.  We have been saying for the past week that we could see a pullback that takes the SPX to its 50-day average.  Today that seems more of a reality as the SPX currently tests 1616 while its 50-day average sits near 1605.

The S&P mid-cap index already tested its respective 50-day this morning, while the Nasdaq remains well above its 50-day for now.  Not every index tests these moving averages at the same time, and we tend to put more weight on the SPX since it is a big institutional benchmark.

In economic news, the ADP employment report showed the private sector added 135,000 jobs in May but that was below the 157k that was expected.  Also, the May ISM Services index came in at 53.7, which was ahead of April's reading of 53.1.

Separately, Q1 productivity data was revised to show a 0.5% increase from 0.7% first reported.  And unit labor costs were revised sharply lower to show a -4.3% decrease.  No signs of inflation here.

Asian markets were lower again overnight, led down by Japan which slid -3.8% after PM Abe revealed the third stage of his growth plan which didn't contain anything new to embolden investors.  Australia's GDP rose 0.6%, which was below expectations.

European markets are also lower today after disappointing economic data.  Eurozone GDP in Q1 was unchanged at -0.2%.  But the Services PMI fell to 47.2 from 47.5.  And retail sales declined -0.5%.  Several peripheral European services PMIs were also weak.  IMF Director Lagarde said the global economy could be headed for a bit of a soft patch due to slowing momentum in some emerging markets.

Commodities are mostly higher as the dollar index is down today.  Oil prices are at $94.05 while gold prices are back above the $1400 level that has been a struggle.  Silver and copper prices are higher as well.

The 10-year yield is lower today to 2.09%.  And the volatility index is 7% higher to 17.50.  This would be a 1-month high for the VIX if we closed here, but we could see the VIX fade if the market firms later in the day.

Trading comment: As the SPX approaches its 50-day, we want to look to add to equities and bolster our allocations away from some fixed income that was sold during the quarter.  Rather than bottom fish in stocks that have been hit the hardest, our strategy prefers to focus on what's holding up and poised to lead the market higher should we get our envisioned push higher into quarter end.  Financials have been one area that remains attractive,

Volatility Picking Up From Day to Day

If you aren't sure what is meant when you hear the talking heads speak of increasing volatility, just look at the intraday swings from yesterday.  The market opened higher in the morning, then reversed fairly hard into negative territory before firming and closing the day with solid gains.  Those intraday swings have been absent from the market for most of the year.

The volatility index is slightly higher today near 16.50.  We have been using the 15 level as our indicator for when volatility is picking up (above 15) and when it is quieting down (below 15).  So for the short-term we are continuing to look for increasing daily swings and staying a bit more defensive as a result.

There wasn't much in the way of market moving economic or corporate news this morning.

Asian markets were mixed overnight.  Japan bounced back +2.1% but China was lower by -1.2%.  The Reserve Bank of Australia held its key interest rate unchanged at 2.75% but left the door open to more rate cuts due to the tame inflation outlook.

European markets are showing modest gains.  The EC will propose a single bank oversight mechanism which will be funded through bank contributions.

The dollar is higher this morning, and weighing on commodities.  Oil prices are weaker near $92.50 and gold prices are back below the $1400 level ($1393).

The 10-year yield is slightly higher at 2.14%. The 10-yr has been consolidating around this 2.15% level for the last week.  If it breaks above these levels, next resistance doesn't really come into play until 2.40%.  We are not saying this is in the cards, but the bond market could experience more volatility on any breakout.

Trading comment: The S&P 500 has been making a short series of lower highs and lower lows since the May 22nd peak reversal.  We still expect another push higher into quarter end so we are buyers on dips.  As for our old friend AAPL, it has been acting okay, but a convincing move above $460 looks needed to embolden the bulls again.  Hopefully the company is in there putting their buyback to work.

KAM Advisors has long positions in AAPL

Monday Morning Musings

I was out of the office Friday but did notice the market end the week with a thud.  The high volume reversal reveals some institutional selling was behind it.  This morning the market tried to muster some strength at the open but has since faded back into negative territory.

The May ISM index didn't help matters after it showed that the index fell to 49.0 last month from 50.7 the previous month.  The 50 level marks the line between expansion and contraction, so a reading below 50 means the manufacturing sector contracted last month.

The manufacturing index is an important economic indicator, and if this Friday's jobs report doesn't show any renewed strength I think that will put an end to the Fed QE tapering argument that has been making the rounds lately.

Asian markets were down across the board overnight.  Selling was heaviest in Japan (-3.7%).  China was down the least (-0.1%) after its manuf. PMI improved to 50.8 from 50.6 the previous month.

Europe is mixed today.  The Eurozone PMI improved to 48.3 from 47.8.  Several other PMI readings improved as well, but most still remain below the important 50 level.  ECB Pres. Draghi said tha the region's bank supervisory mechanism will become effective this month.  And Spain's PM said the country's unemployment figures due out this week will be "encouraging".

The dollar index is lower today, and that is helping boost commodities.  Oil prices are higher above $93, gold prices are back above the $1400 level to $1413.  Silver and copper prices are higher today also.

The 10-year yield is roughly flat near 2.16%.  The sharp rise in the 10-year yield lately has wreaked havoc in interest-sensitive investments.  Prices in things like preferred stocks and closed-end bond funds plummeted last week.  Skittish investors likely panicked during the action, which made matters worse.  But we have seen this sort of thing play out many times before.  And in this yield-starved world, we think it is likely investors will gravitate back into these investments once the dust settles.  Current Treasury yields are still far away from offering any real competition.

The volatility index is also spiking higher, today up 7% to 17.50.  We said last week that when the VIX is above the 15 level you can expect volatility to show up in daily trading.  That is what we saw Friday, and again today with the markets reversing early gains and moving sharply lower.  So we want to remain defensive in these environments.  The all-clear signal would be when the VIX closes comfortably below the 15 level again.

Trading comment: Volume picked up on Friday which meant more distribution.  While dip buyers could step in earlier, our best guess is that a senior index like the S&P 500 probably has a date in its future with its 50-day average (currently near 1600).  That lever will likely offer support, at least the first time around.  We still expect another push higher into quarter-end.  From there a lot will depend on how this current pullback effects investor sentiment.  If sentiment gets very defensive and pessimistic, that would be good.  But if sentiment remains too complacent then we could see a deeper summer correction.  But for now let's watch the indexes as they near their respective 50-day averages.