Monday, July 29, 2013

Monday Morning Musings

The markets are a bit lower this morning, but as we have seen recently dip buyers seem to be lurking everywhere.  Friday looked like we were going to see the markets have a decent pullback but dip buyers emerged and the markets climbed all they way back to finish positive.

Earnings season winds down a bit this week, but there are still several reports we will be watching.  This morning a few stocks such as WYNN, TEN, and CNA are higher after reporting earnings while BEN, HTZ, and SOHU are lower.

There was a little flurry of M&A over the weekend.  Saks got an offer from Hudson Bay to be acquired for $16, but that is just a 4.5% premium to Friday's close.  Perrigo (PRGO) agreed to acquire Elan (ELN) for $16.50, a 10.5% premium.  Michael Baker (BKR) will be acquired by Integrated Mission Solutions for $40.50, a 37% premium.  And Omnicom (OMC) and Publicis said they will enter into a merger of equals.

Asian markets were lower overnight, led down by Japan which slid -3.3% after the BoJ governor spoke but failed to offer anything new in his comments.  This disappointed markets which were looking for more of an update on BoJ thinking.

The dollar is up a touch today but so are some commodities.  Oil prices are up a little near $104.95 and gold prices are a bit firmer to $1330.

The 10-year yield is also up to 2.58%.  And the volatility index is up 7% to 13.65, around the same levels reached on Friday before a big turnaround lower into the close.

Trading comment: Like we have seen many times this year, the market was very overbought last week and probably should have pulled back more but dip buyers were lurking and quickly used the dip to put more money to work.  This has left a very shallow pullback on the charts.  But as we have said, one of the most bullish ways a market can work off an overbought condition is to merely consolidate in a mostly sideways fashion.  This seems to be what we have seen so far.  And the longer the market trades in this sideways fashion the more likely it is that we see another upside breakout and a push to further new highs.  The one wildcard is investor sentiment which continues to grow a bit complacent and that could lead to one of those surprising selloffs that seems to catch investors off guard once in a while.


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