Thursday, November 21, 2013

Keeping The Bears Off Balance

Markets are bouncing back this morning.  This has been a pattern we have seen quite a few times.  The market pulls back for 3 days or so, and then has a big bounceback.  It used to be that better rallies came from the market opening lower in the morning and rallying late in the day.  So I am always skeptical of this early day strength.  But this year has been different, and many of these early rallies have been able to maintain their gains into the close.  We shall see.

Retail stocks are lagging after names like Target (TGT) and Dollar Tree (DLTR) are lower after reporting disappoint results.

In economic news, the Philly Fed Survey for November fell to 6.5 from 19.8, a fairly large plunge.  Producer prices declined 0.2% last month and are up a tame 1.4% over the last 12 months.

Asian markets ended mixed.  China's HSBC manuf. PMI slipped to 50.4 from 50.9.  So far China has done a pretty good job about engineering a soft landing buts its speculative property bubble is still highly inflated and looms as a longer-term problem.  Singapore's GDP rose 5.8%.

Europe's markets are mixed.  Eurozone manuf. PMI ticked up to 51.5 from 51.3.  Services PMI slipped to 50.9 from 51.6.  Germany's PMIs were solid while France was weak, with both PMI readings coming in below the 50 level that marks expansion vs. contraction.

Germany's finance minister said the ECB cannot solve the Eurozone's debt issues, referencing comments yesterday that the ECB could implement negative deposit rates as another tool.

The yield on the 10-year note spiked higher yesterday after the FOMC comments about tapering.  It rose about 10 basis points and now sits near the 2.80% level.  While many folks thought the 10-year would linger in the 2.50% area into year-end, we raised the concern that a climb back towards 3.00% was a distinct possibility and added to our interest rate hedges via ETFs.

The volatility index is down -5% and back to low levels around 12.70.

Trading comment: A bounce today should not come as a surprise.  After three down days it is normal to see dip buyers come in and boost the market.  But we see more consolidation in the near-future and want to be patient here.  That strategy will likely yield a better buying opportunity.  Most stocks we look at still appear extended from recent rallies.  A few financials look good here as well as some services stocks.  REITs continue to lag which has to be due to interest rate concerns.


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