Tuesday, January 07, 2014

Dip Buyers Return

Markets are nicely higher in early trading.  After three consecutive down days to start off the new year dip buyers have surfaced and are trying to help the markets enjoy their first positive day of 2014.  The Dow is up over 100 points in the first hour, but it's still early so we will have to see if sellers resurface later in the session.

Commodities are mostly higher, but metals are lower with gold prices down near $1226.  Oil prices are higher around $93.90.

Bond yields are still subdued with the 10-year T-note yield flat near the 2.95% level.  Interest-rate sensitive groups from REITs to preferreds to many closed-end funds have enjoyed bounces so far in 2014 after being subject to heavy tax-loss selling at year end.

The volatility index is down over 4% this morning below the 13 level.

Asian markets were mixed overnight.  Money market rates in China eased further with the 1-week SHIBOR rate down 55 basis points to 5.93%.  Separately, Japan's monetary base expanded 46.6% year-over-year.

Europe's markets are closing near their highs of the session.  Eurozone core CPI rose 0.7%.  And Germany's retail sales rose 1.5%.  Also, Ireland made its official return to international bond markets.

Trading comment: We haven't done much buying yet as we feel the markets likely have some further consolidation in the near-term.  Many stocks we look at remain extended, but we are not opposed to buying fresh breakouts in good stocks if they occur.  You still hear a lot of talk about the market being overdue for a bigger correction, something in the 5-10% range, but we don't think it is upon us at this juncture.  Our best guess is that something like that could come in the next few months.  As we mentioned above, we put money to work before year-end in many beaten down preferreds, which have bounced nicely already in the first few days of the year.  Nice bonus for fixed income investors who didn't have much to cheer about in 2013.


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