Monday, January 27, 2014

Monday Morning Musings

Markets are seeing continued indecision in early trading after the indexes opened with a bounce into positive territory, but so far that bounce has been sold into by traders and the major indexes have moved back into negative territory for a third day.

Friday's session saw heavy selling which took many of the major indexes below their 50-day averages.  It is still very possible that we see dip buyers step in and buy stocks for a trade, but so far the markets have not fully stabilized.

In economic news, December new home sales came in below expectations at 414,000, which is also below last month's rate of 457k.

In earnings news the only big company reporting this morning was Catepillar (CAT), which beat earnings and announced a $10 billion buyback.  That is helping push the stock higher and supporting the Dow Jones average vs. the others like the S&P 500 and Nasdaq.

Asian markets were lower across the board overnight.  Emerging market currencies continue to slide vs. the dollar.  A strong Japanese yen also hurt Japan's stock market to the tune of -2.5%.

Europe's markets are mixed to lower today also.  Moody's affirmed France's sovereign debt rating and the ECB President said the central bank could buy securitized bank loans if it does launch a quantitative easing program.

The 10-year yield is roughly flat so far at 2.73%.  The volatility index saw one of its biggest spikes in years Friday when it surged 32% to the 18 level.  Today it is just down fractionally to 17.90.

Oil prices are weaker to $96.40 and gold prices are down just slightly around $1260.

Trading comment: After last week's big selloff it would be pretty normal to see some sort of bounceback.  But the market has been overdue for a correction, and chances are it has a little more time to go before we are back in bull mode again, maybe a few weeks.  The S&P 500 fell pretty far below its 50-day average on Friday.  A common scenario would be for the SPX to rally back to its now overhead 50-day, but then turn lower again after an initial test of that resistance level.  As such, we think there is time to be patient and would look to start buying again when the SPX regains its now overhead 50-day line.


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