Thursday, August 22, 2013

Strong China Data Boosts Stocks

Yesterday was a wild ride in the market.  Stocks were lower in the morning but rallied after the FOMC minutes were digested, but then stocks swooned again into the close.

Overnight, the China HSBC PMI manuf. index jumped to 50.1 from 47.7.  That data will be warmly greeted by investors who have been worried about the slowdown in China.  It is also helping to boost commodities even in the face of a rising dollar today.  Oil prices are higher to $104.35, gold prices up up near $1376, and silver and copper prices are higher as well.

In Europe, the Eurozone manuf. PMI increased to 51.3 from 50.3 and the Services PMI also rose to 51.0 from 49.8.  So both sectors are now above the 50 level that marks the difference between contraction and expansion in these surveys.  Separately, a Bank of England member said the central bank has not ruled out fresh stimulus measures.

In US economic news, the June FHFA Housing Price Index rose 0.7% following a 0.8% increase the prior month.  Also, leading indicators for July increased 0.6% following no change in June.

The 10-year yield continues to be a big focus.  This morning it again touched the 2.90% level and is currently at 2.89%.  Traders have cited these levels as important to watch, but I don't see why they are any more important that the round 3.0% level that could be in the cards. 

But as yields have risen many interest rate-sensitive groups such as REITs and preferreds have sold off far more than seems warranted by the rise in rates.  I think around the 3.0% level in the 10-year there will be some attractive opportunities to add to some of the yield stocks.

As for the VIX, it closed near the 16 level on yesterday's selloff.  Today it is down -7% back below the 15 level to 14.81.  We had been in that 12-15 level trading range for the last 6 weeks.  It will be interesting to see of the 15 level turns from resistance to support.  Watch for that.

Trading comment: Today's bounce came early but there is still a lot of time left in today's session for sellers to emerge.  Also, we need to watch volume levels as they have been very low recently.  Even if today's bounce holds, I think it is just part of the consolidation process.  Markets never move in a straight line.  But it still feels like the market has more work to do in this correction process and we want to be patient awaiting what we think will be a better buying opportunity.


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