Tuesday, March 18, 2014

Do Investors Trust Putin?

Markets are in rally mode for a second day.  There were a couple of economic reports this morning, but none that would account for the bullish mood among investors.  Futures did get a boost this morning after Putin made comments that Russia does not want to see a breakup of Ukraine.

There are reports in the news that the Russian forces continue to make aggressive moves.  And we haven't seen the full extent of the sanctions that the International community wants.  I guess the question for investors at this juncture is, do you really trust Putin?

In economic news, housing starts for February fell -0.2% to 907,000.  They had been above a million for the last two months.  And inflation remained low with the CPI rising only 0.1% in February.

Asian markets were higher overnight.  China's housing prices rose 8.7%, although that was a bit below expectations.

Europe also is sporting modest gains.  Eurozone ZEW economic sentiment declined to 61.5 from 68.5.  And the German Constitutional Court confirmed the legality of the European Stability Mechanism.

Commodities are mixed with oil prices bouncing to $99 while gold prices are sliding today to $1356.

Bond yields are down a tad with the 10-year yield trading at 2.68%.

And the volatility index continues to fall, down -7% today back below the 15 level we like to watch and down to 14.50 currently.  Traders don't see an immediate uptick in volatility again following last week's market decline.  Usually the VIX below 15 has coincided with further rallies in stocks.

Trading comment: One knock on yesterday's rally was that it came on much lower volume.  Bulls like to see rallies come on higher volume to signal conviction behind the buying.  But lots of rallies in the last couple years have come on lighter volume, so we can't ignore the price action.  Although the indexes are not yet back at new highs, we will be watching leading stocks to see if they can lead the market and breakout to new highs in the near future.  This is usually a good indicator of the market's health.


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