Tuesday, July 23, 2013

China Sets A Floor For Growth

The markets are mostly lower in early trading as earnings season heats up and reports come rolling in.  Of all of the stocks reporting earnings last night and this morning, the reactions in stocks seems to be mostly a mixed bag with nearly an equal number of stocks rising on earnings as falling.

Stocks rising on earnings: UTX, DD, TXN, FCX, BTU, LMT, CPLA, PII, BEAV

Stocks falling on earnings: NFLX, STM, MO, TRV, ALGT, ITW, R, WAT

In economic news, the FHFA Housing Price Index for May rose 0.7% on top of a 0.5% gain the prior month.

Asian markets were higher overnight.  The big news was the Chinese Premier saying that China would not tolerate growth below 7%.  He didn't elaborate on what exactly they would do to ensure it, and plenty of skeptics think that current Chinese GDP figures are overstated.  In Japan, the PM's cabinet upgraded its economic assessment for the third consecutive month.

In Europe, markets were higher this morning as well.  The Bank of Spain upgraded its growth expectations for Q2 GDP, although the central bank still expects the economy to post its 8th consecutive quarter of contraction (-0.1%).

The dollar is a bit lower today.  Oil prices are roughly flat near $106.90.  Gold prices are slightly lower after yesterday's big rally, and trading near $1332.

The 10-year yield is up a little to 2.51%.  And the VIX is up 5% today but still at a very lower absolute level at 12.90.  I would expect to see some spikes in the VIX as it bounces between this 12.5 - 15 level in the near-term.

Trading comment: The SPX came close to the 1700 level this morning before turning lower.  With the market still in overbought territory, this is a logical level for the market to pause.  There is still a chance that the market could make another stab higher and try to suck in more folks, but our sense is that we are due for some consolidation at the very least.  The healthiest action is always some sort of sideways trading action that works off the overbought condition.  There is also an outside chance that we have a bigger correction.  I don't know what the catalyst would be, but sentiment does seem a bit complacent at this juncture and sometimes that provides a slippery slope in and of itself.

KAM Advisors has long position in BEAV, UTX


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