Tuesday, September 10, 2013

Flight To Safety Trade Reversing

The market is higher again in early trading, after a surprisingly strong rally yesterday.  The fears over Syria continue to diminish  as the country has agreed to put its chemical weapons under international control.

You can see the fear coming out of the market by gold selling off ($1362), oil trading lower ($107), and Treasuries selling off, pushing the 10-year yield up to 2.96%.  In addition, money continues to flow back into stocks, with the Dow up over 100 points so far.

Speaking of the Dow, Dow Jones reported that 3 new stocks will be added to the DJIA: Goldman Sachs (GS), Nike (NKE) and Visa (V).  They will replace Alcoa (AA), Bank of America (BAC) and Hewlett Packard.  I like adding NKE and V, but am a bit surprised by adding GS and removing BAC.  BAC seems more representative of American financials.

Asian markets were higher across the board.  China posted strong data with retail sales +13.4%, industrial production +10.4%, and fixed asset investment +20.3%.  Reports out of Japan indicated the PM's cabinet is expected to raise their economic assessment for September.

Europe is also trading higher.  The European Parliament postponed its vote on a banking union to Thursday.  Italian GDP was revised lower to -0.3% from -0.2%.

We recently commented on the trading range of the volatility index (VIX).  Today the VIX is down -5.3% and trying to break below the 15 level.  So far this year stocks have enjoyed nice rallies when the VIX stayed under 15.

Trading comment: The S&P 500 is moving further above its 50-day moving average today.  That should embolden investors and put the offense back on the field.  Despite September having the reputation as the worst month for stocks historically, we know that the bull market loves to climb a wall of worry and that with the SPX back above its 50-day, the VIX moving below 15, and Syrian fears subsiding that we could see the major indexes make new highs in the near future.  So its time to look to put cash back to work, and buy any dips that surface near term.


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