Still Looking For New Highs

While the bears continue to point to a number of factors that will cause an imminent decline in the markets, the price action of the major indexes paints a different picture.  Most indexes continue to hover in new high territory.  The one lagging index as been the Dow, but it too looks poised to climb higher in the near term.

In economic news, the January durable goods report was pretty solid.  The overall figure fell -1.0% as expected, but this included a -7.2% drop in transportation orders.  The ex-transportation figure for durable goods rose a better than expected +1.1%.  Not bad.

The other news today is the testimony of new Fed Chair Janet Yellen before the Senate Banking Committee. 

Asian markets ended mixed again.  The People's Bank of China said the country's economy is likely to be more volatile in 2014.

Europe's markets are lower today.  Germany's unemployment rate held steady at 6.8%.  Swiss GDP climbed 0.2% last quarter and Spain's GDP also rose 0.2% last quarter.

Oil prices are slightly weak near $102.32 while gold prices are firm around $1333.

The 10-year yield continues to slide, down to 2.65%.  And the volatility index is steady at low levels of 14.10.

Trading comment:  There are certainly some areas of froth in this market, but there are also plenty of stocks and sectors that are doing well.  Yesterday the home construction ETF (ITB) broke out to 7-year highs.  We have owned this one for awhile and view the price action as pretty bullish.  We are also paying attention to the retail etf (XRT) which broke back above its 50-day average in convincing fashion.  As for large-cap growth stocks, the one big laggard continues to be AAPL.

KAM Advisors has long positions in AAPL, ITB, XRT

The Slow Upward Drift

Markets continue to trade in benign fashion with an upward bias and little traction on the downside.  All of the major indexes except for the DJIA are at new highs for the year.

In economic news this morning, January new home sales rose to 468,000, which was better than expected.  Not sure if this data was before the bad weather started.  But the homebuilding stocks are rallying nicely on the news.

Asian markets were mixed overnight.  Hong Kong's GDP rose 3.0% yr/yr.  And the Bank of Japan said that the country's recovery remains on track even though Q2 GDP could come in below expectations due to the sales tax hike expected.

Commodities are mixed this morning.  Crude oil prices are higher to $102.50, while gold is lower around $1328.  Silver and copper prices are lower as well.

The 10-year yield continues to ease lower and currently trades about 2.69%.

The volatility index is up slightly on the day but still at a low level overall at 14.0.

Trading comment: Hard to argue with the strength in the market.  All of the indexes are confirming the strength and despite the market reaching short-term overbought levels it hasn't sold off hard but instead just quietly consolidated in a sideways fashion.  This is usually a bullish sign.  We continue to feel comfortable adding to leading stocks that are breaking out or pulling back to obvious support levels.  But we admit to shying away from some of the speculative stocks that seem overdone to us- stocks like TSLA or NFLX- which could be prone to large selloffs. 

Consolidating Near New Highs

The S&P 500 rallied yesterday to make a new intraday high, but sold off late in the day.  This morning markets opened on a down note, but are hanging in there and consolidating near these recent highs.  The healthiest action would be if we saw some continued sideways consolidation before breaking out again to new highs.

In economic news, consumer confidence for February came in at 78.1, down from 79.4 last month.  Separately, the Case-Shiller Home Price index for December rose another 13.4% on top of the previous month's 13.7% gain.  This data lags a bit, but it does confirm the strength in home prices into the end of last year.

In corporate news, JPMorgan lowered its profit target and said the company plans to cut additional jobs in its mortgage division.  This news is weighing on bank stocks relative to other sectors.  

Asian markets were mixed overnight.  China was down -2.0% but Japan was higher by +1.4%.  Japan said the approval rating for the prime minister's cabinet improved to 52.9%.

Europe's markets are lower this morning.  Germany's GDP was unrevised for Q4 at 0.4%.

Oil prices are down slightly to a still high $101.50.  Gold prices are firm near $1339.  Gold is now trading comfortably above its downtrending 50-day average near $1306, and its 200-day average is turning upward sloping which is bullish.

The 10-year yield is lower to 2.71%.  And the volatility index is also down slightly near the 14.05 level.

Trading comment: This market still trades bullishly.  It doesn't take too much good news to move the market higher.  And pullbacks again so far this year are more short and shallow that deep and scary.  Folks are still calling for that elusive 10% correction at some point, but the key is from where.  It is very possible that the market moves to considerably higher levels before we see such a correction.  So we continue to focus on leading stocks and let them march on while the market stays in this benign environment.

US Stocks Buck Overseas Weakness

Overnight markets were pretty weak, as a rising Yen again sparked concerns about the unwinding of the global carry trade.  Japan's market was lower, but China bounced as SHIBOR rates fell to their lowest levels since last May.

Europe's markets were also weak this morning as the Yen climbed.  Great Britain's unemployment rate ticked up to 7.2% from 7.1%.

While pre-market futures in the US pointed to a lower open for stocks, by the time the bell rang our markets opened higher and remain in positive territory (the Nasdaq is slightly lower).

In corporate news, Zales (ZLC) is 40% higher after announcing it will be acquired by Signet Jewelers (SIG) for $21 per share.

In economic news, housing starts fell -16% in January, but again this big drop is likely clouded by the impact of severe weather.  We might not get a good handle on normalized rates until March figures come out.

Bond yields continue to ease back with the 10-year yield down slightly to 2.69%.

The volatility index hit 15 at the open but has pulled back to 14.50 (+4.5%).  A move back above 15 could be a sign that more volatility is in the cards.

Trading comment: The price action in the market continues to impress.  The S&P 500 is only 4 points away from moving back into positive territory for the year.  If we make new highs, it could also lead to some short covering as those folks who were betting on a bigger decline cover their bets and await a better opportunity.  We continue to look for leadership in the market, with many of the stocks on our list hailing from the healthcare sector.  There are also some tech and industrial stocks breaking to new highs, but it is amazing to see how many healthcare and biotech stocks continue to rally.

Tuesday Tidings

Stocks are slightly higher in early trading after the long holiday weekend.  Storms continue to hit the east coast and weather could be a factor is some of  the economic data that was released today.

The Empire Manuf. Survey for February fell to 4.5 from 12.5 last month.  But not a big surprise given the weather, and that is likely why we are not seeing stocks react negatively.  Also, the NAHB Housing Market Index plunged to 46 from 46.  But the homebuiler ETFs while lower aren't down huge either.

In the bond market, the weaker economic data could be helping to push yields lower, with the 10-year yield falling back to 2.71%.  But again, this is not a dramatic move lower and the economic data is likely noisy at best given the weather disruptions.

In corporate news, Actavis (ACT) has agreed to acquire Forest Labs (FRX) for $25 billion in cash and stock.  This is helping push both stocks higher as well as improving sentiment for the whole biotech and pharma group.

Asian markets ended mixed.  China was lower but Japan surged +3.1% after the Bank of Japan held its interest rate policy and doubled the level of its bank lending facility.  This was in response to a weaker GDP reading (+1.0%), which also helped push the Yen lower.

European indexes trade mixed.  Germany's ZEW economic sentiment index fell to 55.7 from 61.7.  And ECB member Nowotny said the central bank would not lower its deposit rate without reducing its key lending rate.

The volatility index is higher by 3% back above the 14.0 level as of now.

Trading comments: The stock market put in a strong showing last week with the major indexes regaining their overhead 50-day averages in convincing fashion.  We sold the small hedges we were starting to put on as it now looks like the market is back in rally mode and could test their highs in the short-term.  The SPX pulled back about 6% from peak to trough.  While not the classic 10% correction some were looking for, the 6% is about par for the course in recent years.  That doesn't mean we might not have a 10% pullback at a later date, but for now it looks like the market wants to probe higher levels.

Stocks Reverse Early Weakness

Stocks opened this morning on a down note following weak overseas action and some weak economic data.  But within an hour or so stocks managed to reverse all of their early losses and move into positive territory.  Of course, it's still early.

In economic news, retail sales for January fell -0.4% and this weakness worried investors.  But as the news sunk in it seems many are willing to asterisk the data as being impacted by the severe weather.  Guess we will have to wait until probably March for a rebound, as the severe weather continues this month in many parts of the country.

Asian markets were weak overnight.  We seem to be back in that scenario where folks are watching the yen and seeing any yen strength as more reason to unwind the global "carry trade".  The yen was higher overnight and Japan was down by -1.8%. 

In corporate news, several stocks of companies that reported earnings last night are trading lower today.  Those include PEP, CSCO, WFM, and Z.

The 10-year yield is down slightly to 2.75%.  And the volatility index is lower again to 14.11, still hovering below that 15 level that for the last year has coincided with uptrends in the market.

Oil prices are off slightly but still above the $100 mark.  And gold is trying to close in on the 1300 level, sitting at $1298 right now.

Trading comment:  We noted the other day that the SPX had knifed through its overhead 50-day average, and that if former resistance becomes support the 50-day should hold when the SPX comes back down to test it.  True to form, this morning the S&P 500 opened lower and found support right at its 50-day average.  From there it bounced and is working on putting in a positive reversal day.  But it's still early and emerging markets are still weak, so we will have to see if this early reversal is sustainable.  We did a little buying yesterday looking for fresh breakouts that could lead during the next uptrend.

Is The Correction Over?

Markets are slightly higher again in early trading.  Yesterday the markets enjoyed outsized gains in a surprisingly strong rally.  Janet Yellen was testifying and it could be that the market interpreted her testimony as more dovish, although she did say that the taper will continue apace.

This morning there are no big economic reports to move the market.  A few earnings reports continue to trickle in, and this morning many of the stocks reporting are moving higher (DVA, DE, FOSL, TRIP).

Commodity prices continue to move higher also.  Oil prices are very high again, although we haven't heard much about it.  Crude prices topped $101 this morning.  I suppose if prices at the pump continue higher than more people will start to complain.  Right now most of the folks in the east are too busy worrying about freezing weather.  Gold prices are also higher again today, moving up to $1293. 

The 10-year yield is higher today to 2.76%.  And the volatility index is just slightly lower to 14.45, closing below the 15 level yesterday.

Asian markets were higher overnight.  China's trade surplus expanded on 10.6% export growth.

Europe's markets are also higher.  The Bank of England said it sees the potential to keep its key interest rate at 0.5% even after the 7.0% unemployment threshold is hit.

Trading comment: Yesterday's rally was quite strong.  It helped push the S&P 500 and the mid-cap index right through their overhead 50-day averages on the first attempt.  We had said there was a good chance the 50-day would act as resistance, but that didn't happen.  You have to respect the price action, and right now it is telling investors that the lows for this correction are likely in.  The S&P 500 pulled back 6% from its recent highs to lows, and that is about an average pullback.  Some were hoping to get the 10% correction that we haven't seen in a long time, but that doesn't look to be in the cards right now.  We have been holding higher cash balances, but are looking to get more invested by using upcoming dips to buy.

All Eyes On Yellen

Stocks are higher in early trading after some positive overseas action last night as well as a positive response to Janet Yellen's testimony before Congress.

Yellen is testifying in front of the House Financial Svcs Committee and has pretty much put forth the same tone that Bernanke had laid out before her. She said that the Fed intends to maintain its current pace of asset purchase tapering.

Despite talks of continued taper, markets are sensing her dovish tone.  Stocks are near their highs of the day, and gold prices have rallied to $1285, nearly a 3-month high. 

Also, volatility expectations continue to come down with the VIX falling below the 15 level for the first time in two weeks.  It is currently -3% lower to 14.80.  But we will have to see if this early enthusiasm in the markets persists into the close later today.

Asian markets were higher overnight.  Japan was closed for a holiday.  In China, money market rates came down despite the PBOC choosing not to add additional liquidity.  Overnight SHIBOR rates fell 17 bps to 4.14%.

Europe's markets are also higher today.  Germany's finance minister said there is no danger of deflation in Europe.  In Spain, their finance minister said they are likely to hike their forecast for the country's GDP growth in 2014, which currently stands at 1.0%.

The 10-year yield is higher today to 2.71%.

Trading comment: The stock market is at an important juncture as the S&P 500 trades higher today and is nearing its overhead 50-day average.  We said the other day we thought this overhead resistance could prove difficult for the market to pierce on its first attempt.  The SPX is currently trading at 1806 while the 50-day average sits near 1809.  So we shall see.  The Nasdaq is already above its respective 50-day average, while the Russell 2000 small-cap index is not yet close to testing its overhead resistance. 

Monday Morning Musings

Markets are mixed this morning in lackluster trading.  There are no economic reports to speak of and no real catalysts to move stocks thus far.  The S&P 500 is down modestly in early trading while the Nasdaq is higher.

AAPL shares continue to trade up despite Carl Icahn saying it might not be worth continuing to pursue the share buyback push.

Bond yields are pretty flat with the 10-year yield at 2.67%.

The volatility index is getting a little boost, up 2.5% to 15.65.  But this 15 level is pretty much a mid-level figure for the VIX and isn't indicating any expectations for a big pickup in volatility in the short-term.

Gold prices are higher again to $1275.  And oil prices have moved back to the $100 level, something we haven't seen in awhile.

Asian markets were mixed overnight, with some pressure coming from a rise in the Yen again.  The State Council in China reiterated its growth forecast remains 7.5% for 2014.

Europe's markets are slightly higher on the day.  Bank stocks have been pressured by ECB comments that weak banks need to fail the upcoming stress tests for the tests to be considered credible.  Elsewhere, Eurozone investor confidence rose to 13.3 from 11.9.

Trading comment: Last week we saw the markets bounce sharply from Monday's big selloff, as stocks reached deeply oversold levels.  We said that following such oversold conditions stocks almost always bounce, but that wouldn't necessarily mark the bottom for buying.  Each day of the bounce last week came on lighter volume that we would like to see.  Such weak volume bounces can be vulnerable, and this week we will have to see if the market can continue to build a base around these SPX 1780-1790 levels, or if it needs to probe further downside again.  Either way, we are still sitting tight as it likely remains to early to start committing cash in any serious way.

Is Bad News Good News Again?

Stocks are higher this morning despite a weaker than expected jobs report.  January nonfarm payrolls increased by only 113,000 vs. consensus expectations for 189,000 jobs.  That's a pretty big miss.  Folks must be looking past this report due to the severe weather in many parts of the country and drought in California.  But even the President's Chief Econ Advisor said weather didn't play that big of a roll in the numbers.

Maybe investors are hoping that weak economic numbers might mean a delay in the Fed's tapering efforts, but I think the Fed has pretty much locked in their course to end QE by year's end, unless we really see economic growth drop off significantly.

In corporate news, LinkedIn (LNKD) reported earnings last night but the results disappointed investors and the stock is lower today, but not as bad as TWTR yesterday.  On the upside, AAPL reported that it has bought back $14 billion in stock just in the last few days following the negative reaction to its earnings report.  Nice to see mgmt. stepping up to use some of that cash hoard.

China reopened last night after a week long Lunar New Year holiday.  The Shanghai Comp was up only 0.6%, but that wasn't bad given the weak economic news lately coming out of China.  Last night HSBC said China's services PMI slowed further to 50.7 from 50.9.

Europe's markets are up slightly today.  Germany's industrial production fell 0.6%.  Swiss retail sales rose 2.3%.

The 10-year yield is lower by 3 bps to 2.67%.  So at least the bond market seems to be interpreting the soft jobs report as one would expect.

The volatility index has come way down from 21 level it topped on Monday.  Today it is -10% lower all they way back to 15.40. 

Trading comment: The S&P 500 has bounced back to around the 1785 level.  But we stated that this would not surprise us, and that often markets bounce back after sharp selloffs and oversold conditions.  So we can't yet call this correction over just because we've seen a bounceback.  We still need to see if there is going to be any retest of the recent lows, or if the markets are going to build more of a base from which to move higher.  The 50-day average for the SPX is now rolling over and taking on a negative slope, something we haven't really seen in about a year.  So that downsloping 50-day could act as stiffer resistance now, and we likely wouldn't get too bullish until the SPX is back above its 50-day and using it as support rather than resistance.

KAM Advisors has long positions in AAPL

Stocks Bounce From Oversold Levels

Stocks are higher in early trade, adding to yesterday's positive reversal.  Stocks tested their recent lows yesterday morning, but once they held the market began to rebound and recouped most of its losses into the close.  Today looks to be an extension of that buying, and stocks are bouncing further after reaching deeply oversold levels.

In economic news, Q4 productivity came in higher than expected at 3.2%.  Additionally, unit labor costs fell more than expected by -1.6%.  This should help keep inflation fears at bay.

In corporate news, Twitter (TWTR) reported its first quarter as a public company and while it beat estimates active user growth looked to be a bit slow and this worried investors.  The stock initially traded higher but now is down by more than 20%. 

GMCR is up by more than 30% after beating earnings but also announcing a partnership with Coca-Cola (KO) who will purchase a 10% stake in the company. 

Asian markets were mixed overnight.  The Bank of Japan said the Japanese economy is on track to reach its 2.0% inflation target.

Europe is trading higher but is off its best levels after the ECB left its key interest rate unchanged at 0.25%.  Investors were hoping to hear the central bank talk about additional monetary easing policies, but Draghi did not mention anything.

Trading comment: The S&P 500 is trading back up to the 1770 level, which is the area of support it was trying to hold in late January.  If former support levels become new resistance levels, the market could have some difficulty punching through this ceiling, as least in the short-term.  Remember that market corrections rarely occur in a straight line.  Markets get oversold and bounce, but that doesn't necessarily mean the correction is over.  We said most corrections last 4-8 weeks in duration.  So this market likely has more work to do on the time side, and we will need to see if that SPX 1740 support level that held yesterday is tested again and holds again.  Meanwhile, most stocks are in correction mode also and we could see some new leadership coming out of this correction at some point.

Still Probing On The Downside

Stocks have opened lower again, but are currently bouncing from their lows of the day. 

There were a couple of economic reports today.  The ISM Services Index rose in January from 53.0 to 54.0.  This should be viewed as a positive.  Although investors have been crying 'the sky is falling' after getting weaker ISM Manufacturing report early this week, the services sector is a much bigger component of the economy. 

Also, the ADP Employment report showed the economy added 175,000 jobs in January, close to the consensus expectations.  But the ADP report doesn't always correlate perfectly with the govt payrolls report which is due out Friday morning.

Asian markets ended mixed, with Japan bouncing back 1.2% and China still closed.  Australia's AIG Services index rose to 49.3 from 46.1.  India's HSBC Services index rose to 48.3 from 46.7.

Europe's markets are little changed today.  Eurozone retail sales fell -1.6%.  Germany and Great Britain saw their services PMI indexes decline, while France, Italy and Spain each improved.

The 10-year yield is slightly higher to 2.66%, a good sign that it is trying to halt its recent slide.

The volatility index again moved above the 20.0 level this morning, but has since reversed from its highs and is currently just 1% higher near 19.35.

Trading comment: The stock market sold off pretty hard again this morning.  The SPX bottomed around 1739 on Monday an this morning tested those levels by touching 1738.  It has since bounced sharply and is back above 1750 as of this post.  We will have to see how things go by the close and if it can hold this bounce.  But so far the SPX is trying to build a base at the 1740 level, and given how oversold the markets are it would not be surprising to see a further bounce from these levels.  Of course, that doesn't mean we are in the clear.  Markets don't go down in a straight line.  But after a bounce the market often comes back down to test its previous lows.  It is on that test that we often see if the market can hold of if it will continue to probe lower levels.  One step at a time.

Stocks Bounce From Yesterday's Sharp Selloff

The stock market is getting a nice bounce in early trading, but we don't really like strong opens.  Up opens in the market often leave too much time in the day for sellers to emerge and knock it down again.  It's usually more bullish when a market opens weak and then builds strength late in the day to leave a positive reversal.

Overnight action can't really account for the bounce we are seeing in US stocks.  Asian markets declined overnight, with Japan swooning -4.2% and China still closed for Lunar New Year.  Japan's monetary base rose 51.9% vs. year ago.  And the Reserve Bank of Australia held its key rate steady at 2.50%.

In US economic news, December factory orders fell -1.5%, but this was better than forecasts.

Gold prices have been firm lately, but are sliding today to $1251.  Oil prices have also been firm and are trading higher near $97.35.

The 10-year yield slid quite a bit yesterday, but is bouncing today to 2.62%.  Quite a ways away from the folks who were calling for 4.0% in short order to start 2014.

And the volatility index spike higher yesterday to close above the 21 level.  That's about a 14-month high for the index and indicative of a quick spike in fear among investors.  Today the VIX is settling down and is 10% lower to 19.12 currently.

Trading comment:  While the stock market has experienced a quick correction to the tune of 5% give or take, that doesn't mean it is over already.  Normal corrections in the market come in both price and time.  For price, a 5% correction is healthy but given how long it has been since we have seen a 10% correction we think that this pullback likely has more in store.  Additionally, normal market corrections usually last for 4-8 weeks before they fully run their course.  So that means we could continue to see volatility for this whole month before seeing a firm bottom.  Right now its too early to predict how things will unfold, so we just play defense and hold higher cash balances and wait for a better buying opportunity.  Again, patience is the key at this juncture.

Monday Morning Musings

Markets are moving sharply lower this morning, mostly on the heels of a much weaker than expected ISM report.  Futures were looking flat to slightly higher this morning before this economic data was released.

The January ISM Manuf. index fell to 51.3 from 56.5 last month.  That's a big drop and the new orders component was particularly weak.  It's hard to tell if there was any effect from things like weather, the end of the govt shutdown last year, etc.  But for a stock market in correction, this was more news to sell on vs. buy.

Treasury yields are also moving lower on the news.  The 10-year yield is falling further to 2.61%.  That's the lowest level since last November. 

Volatility is also on the rise.  The volatility index spiked to the 20 level this morning, up over 8%.  The 20 level on the VIX was a level that was only touched twice in 2013.  So the fact that we have hit it this early in 2014 likely plays into our thesis that this year will likely see far more volatility than last year.

Asian markets were lower overnight.  China and Hong Kong were closed for the Lunar New Year.  But Japan was down another -2.0%.  China's official PMI reading slipped to 50.5 from 51.0.  This wasn't a surprise as it pretty much matches the HSBC data previously released.  The services PMI fell to 53.4 from 54.6, which marks an 11-month low. 

Europe's markets are also lower today.  The Eurozone PMI rose to 54.0 from  53.9.  France rose to 49.3 and is getting closer to moving back into the expansion zone.  Separately, Germany's Der Speigel is reporting that Germany's finance minister is working on a third aid package to Greece, to the tune of 10-20 billion euros.

Trading comment: While most people find this latest pullback unnerving, remember that the markets were highly overdue for such a pullback.  Markets basically stair-stepped straight up in 2013 with very few pullbacks.  And especially since the October low.  The incessant rise in stocks also caused investor sentiment to grow overly complacent, something we have been commenting on.  So this pullback is normal and should be expected within the confines of normal stock market action.  At some point investor sentiment will grow more bearish and that will actually help stocks bottom and form new bases from which to launch another rally.  But right now is the time to be patient.