Thursday, March 31, 2011

Market Pauses Ahead of Tomorrow's Jobs Report

The market is roughly flat in early trading, after another nice day of gains yesterday. There is not a lot in the way of market moving news this morning. And tomorrow we will get the big monthly jobs report, which is expected to show employment gains of roughly 200k. In economic news, the Chicago PMI came in at 70.6, which is stronger than expected. In corporate news, Mosaic (MOS) posted an upside surprise, and the ag group is all rallying. Agrium (AGU) is currently trading back above its 50-day average. Berkshire Hathaway (BRK.B) suffered a bit of a setback today with the resignation of David Sokol, who many had thought might be a successor to Warren Buffet. Commodities are rallying again, with oil prices back to $105.70, and gold prices up near $1438. Asian markets were higher overnight; the 10-year yield is flattish near 3.45%; and the VIX is up a tad to 17.76. Trading comment: If the S&P 500 finishes near these levels, it will be up about 5% for the first quarter of this year. That would market the best Q1 performance since 1998. Not bad. More stocks were added to the list of breakouts yesterday, as the market seems to be regaining its footing. I would continue to buy the dips, as I think the market will work its way back to new highs before the summer. We will have to see if the 'sell in May, and go away' axiom is in play this year. long AGU

Tuesday, March 29, 2011

Quick Look: Stocks Steady On Light Volume

Stocks are higher again in early trading, but we saw this happen yesterday morning only to fade later in the day. Volume on the NYSE yesterday was the lightest of the year. The Consumer Confidence index for March came in at 63.4, below expectations for 65.0. Asian markets were lower overnight, and Europe is lower this morning after S&P downgraded both Greece and Portugal's debt ratings. Oil prices are higher to $104.40, while gold is flat around $1419. The 10-year yield is higher to 3.45%; and the VIX is down 3.5% to 18.75. Techs stocks are leading so far today, while financials are lagging. Yesterday we some some more breakouts to new highs, include MercadoLibre (MELI) and Lululemon (LULU). Trading comment: Yesterday's light volume hints at a lack of real conviction behind the buying, the list of leading growth stocks breaking out is slowly growing. I would still focus on the relative strength leaders, as they continue to outpace the overall market and should continue to do so. Lots of energy stocks are also showing favorable price action, as they take advantage of high commodity prices to grow earnings. I don't think now is the time to bottom fish or try to play catch-up with the laggards. long LULU, MELI

Monday, March 28, 2011

Monday Morning Musings: Where's The Volume?

The market is slightly higher in early trading, amid relatively light newsflow. In economic news, pending home sales rose +2.1% vs. expectations of 0.3%, but the housing news lately has been pretty weak overall. Markets in Asia overnight were mostly lower, with Japan still dealing with radiation levels. European markets are mixed this morning. The dollar is down a little, but most commodities are lower also. Gold prices have pulled back to $1418, and oil prices are down also near $104.50. The 10-year yield is higher to 3.45%; and the VIX is up 2% to 18.33. Trading comment: All of the major indexes have recaptured their overhead 50-day moving averages. That is a good techincal sign, but the volume last week was lackluster at best. After selling off on higher volume over the last few weeks, the bulls are looking for confirmation that this market has found its footing by showing conviction (high volume) buying. A few leading growth stocks have broken out to new highs, but volume there too has been somewhat suspect. I don't want to throw too much cold water on the potential for a new leg higher, I'm just pointing out that volume was lacking last week. But the price action is promising, and maybe volume will begin to pick up. This week brings quarter-end on Thursday, so we could see some window dressing activity on the part of portfolio managers.

Friday, March 25, 2011

Stock Action Becoming More Constructive

The market is higher again in early trading. The latest estimate for Q4 GDP came in above estimates at 3.1%, a solid showing.

Asian markets were higher across the board overnight, despite concerns about radiation leaks in Japan. And Europe was higher this morning even though S&P downgraded Portugal's debt rating to BBB.

The dollar is in positive territory, which could be limiting oil and gold. Oil prices are flat near $105.60, while gold prices are down a tad to $1436.

In corporate news, Oracle (ORCL) reported solid results and guidance, and its stock gapped higher. Ditto for Accenture (ACN). But RIMM is getting hit for 10% after giving mixed guidance.

The 10-year yield is flat at 3.40%; and the VIX is down another 4% to 17.22.

Trading comment: The S&P 500 and Nasdaq are now both back above their respective 50-day averages. This makes it likely the correction has run its course. Yesterday's rally was solid, even though it didn't come on heavy enough volume to qualify as a true follow through day. But plenty of stocks were on fire, with some names like LVS and MELI up more than 7% on higher volume but no news.

There are plenty of stocks breaking out, and you know that's where I look for leadership. Here is a partial list for readers to check out:

Have a good weekend.


Thursday, March 24, 2011

S&P Testing Overhead 50-day Resistance

Yesterday's action in the market was quite bullish. The market opened lower and sold off modestly, but then the selling began to dry up and the market started to climb. By the end of the session, the market had recouped all its losses and closed in positive territory.

The positive sentiment continues this morning, despite some negative headlines, and the SPX is currently trying to break above its overhead 50-day average at 1304. This would be a bullish technical sign.

The market is ignoring a weak durable goods report this morning, which showed orders for February fell 0.9% when a gain was expected. Coupled with yesterday's housing numbers, February is looking like it was a weak month, but hopefully will mark a low point.

Commodities are continuing to move higher, with gold prices up to $1446, and silver prices up for a 5th straight day to new highs. Oil prices are also higher again, above $106. Yesterday, Leon Cooperman said that he thinks the consumer and the economy should be okay unless oil tops $125, at which point high oil prices could become problematic.

Asian markets were mixed overnight, with no real new news. Europe is higher this morning, despite a raft of negative news there. Moody's downgraded about 30 banks in Spain, while the Portugese PM resigned after failing to pass austerity measures there.

The 10-year yield is higher at 3.38%; and the VIX is falling -5.2% back down to 18.15, signaling traders expect a decline in market volatility.

Trading comment: If the S&P holds up today, and closes above its 50-day, it would be the first sign that this correction is nearing an end. The next step is to find those stocks that have held up the best during the correction. These are the stocks with the highest relative strength currently, and should provide leadership in the next leg higher.

I think the baton has been passed from many of the cloud and networking stocks, with lots of energy and materials stocks moving to the forefront. I started putting money to work yesterday, and will do more so today. Good luck.

Wednesday, March 23, 2011

New Home Sales For Feb. Very Weak

The market is lower in early trading, pulling back for a second day after running into overhead resistance on Friday.

The new home sales report for February was very weak at a rate of 250,000, which is close to a record low. The housing market has been very slow to bounce back, and I think it likely won't see anything sustainable until we get through more of these foreclosures that were halted recently and put on hold.

In corporate news, Jabil Circuit (JBL) reported strong results and its stock is higher, while CREE cuts its guidance and is down sharply.

Asian markets were mostly lower overnight, with Japan still struggling to restore power at the damaged nuclear facilities.

Oil and gold are rallying again, with oil prices above $105.50 and gold prices back to $1441. Silver also hit new 30-year highs this morning.

The 10-year yield is lower at 3.28%; and the VIX is 2.2% higher to 20.66.

Trading comment: The S&P is moving lower after being rebuffed at its overhead 50-day average on Monday. This is the normal course of corrections, which is why I said to exercise patience. Hopefully we will see the sentiment indicators rise in bearishness again, as that would set up another good buying opportunity. Many former growth leaders, including cloud stocks and networking stocks, look to have lost their leadership position in the market. So when this correction runs its course, it might be time to look for some new names to lead the next leg of this market. Stay tuned.

Tuesday, March 22, 2011

Consolidating Yesterday's Gains

There isn't much new in the way of market moving news this morning. The market is only slightly lower in early trading, after yesterday's outsized gains. Sentiment is still improving due to the absence of headlines suggesting any deterioration in the Libya and Japan situations.

I haven't seen any economic reports moving the market. In corporate news, Walgreen's (WAG) reported a slightly disappointing quarter and its stock is lower.

Asian markets were higher overnight, led by a 4.4% surge in Japan. The dollar is up a bit today, which is weighing on most commodities, but oil and gold are both higher. Oil prices are back up to $103.50, and gold prices are just below $1430.

The 10-year yield is higher to 3.33%; and the VIX is down another 2% back to 20.20.

Trading comment: I spent $60 to fill my tank last night, and I don't even want to know how much my wife is spending to fill the SUV she drives. This type of sticker shock will start to affect the psyche of the average consumer, and doesn't bode well for consumer spending, especially if it lasts until we get into the summer driving season. So that's something to watch.

But in the near-term, the S&P 500 hit resistance at its overhead 50-day average (near 1300). Healthy action would be for the market to consolidate here for a little bit, and then make a successful stab through that overhead resistance. In the absence of further bad news, I could see this happening. Bearish sentiment got a little heated, and we also have quarter-end approaching where portfolio managers will look to put money to work and do some window dressing, and hedge funds will cover shorts that are under pressure.

Monday, March 21, 2011

Stocks Rally On Improved Sentiment

The market is rallying nicely in early trading, on no real bullish news other than some slight improvement in the Japan nuclear situation. But the escalating military action in Libya, the rise in oil prices, and a disappointing housing report don't really support the renewed buying enthusiasm.

A better explanation is that bearish sentiment last week simply grew too high, and today's rally is a continuation of the unwind of some of that bearish sentiment. For example, the CBOE put/call ratio averaged a very high 1.06 for all of last week. And the AAII survey showed bears outnumbered bulls by 14%. Those are some of the most bearish sentiment readings we have seen since last August, which we know preceded a strong uptrend.

In corporate news, the big merger announcement over the weekend is that AT&T is buying Deutsche Telecom (T-Mobile) for $39 billion. The deal should bring some scrutiny from regulators, so we will have to see if AT&T is forced to make any concessions.

The dollar is nearly unchanged, while most commodities are higher. Oil prices are back to $102.20, and gold is also higher today to $1433.

Asian markets were mixed overnight, with Japan closed for a holiday, Hong Kong up 1.7%, and China lower by 0.1% after raising its reserve requirement ratio another 50 basis points. China continues to tighten monetary policy, and many are worried that the country will experience a hard landing as a result of their property bubble.

The 10-year yield is higher to 3.35%; and the VIX is -14% lower back down to a more reasonable level at 20.89.

Trading comment: Despite the strong rally this morning, the S&P 500 needs to close above its overhead 50-day average, which currently sits around 1303. Lots of leading stocks also continue to build their bases that began during this correction.

So even if we may have seen the lows for this correction (just a possibility), it looks like the market and leading stocks still need to put in a little more time rebuilding their bases before they are ready to launch new uptrends. But I'm still glad I dipped my toe in the water last week while stocks were down to add some exposure at attractive levels.

Friday, March 18, 2011

Libya Backs Down After UN Decision

The market is nicely higher in early trading, following yesterday's solid gains. But today is both Friday and also options expiration day, so anything could happen by the close today.

Oil was higher after the UN decision to implement a no-fly zone over Libya, but Libya has since backed down and issued an immediate ceasefire. This has calmed oil prices, which are back near $101.

Most other commodities are higher, including gold which traded back to $1420. Overnight, the G7 countries intervened to stall the Yen's ascent vs. the greenback, so the Yen is lower today, but the dollar is slightly weak as well.

In Japan, the above news items have overshadowed the nuclear situation for the moment. Japan's stock market rallied another 2.7% overnight. But other Asian markets were lower after China raised its reserve requirement ratio another 50 basis points.

In corporate news, Nike (NKE) is getting hit after an earnings miss, which is weighing on the retail index. Cisco (CSCO) is higher after announcing its first ever dividend. About time, since the company is sitting on $40 billion of cash. Financials are leading the market after banks started to announce higher dividends and stock repurchases.

The 10-year yield is higher to 3.27%; and the VIX is down another 10% near 23.80.

Trading comment: Networking stocks are materially underperforming the last 2 days, which could be a bit of a warning sign considering they have been market leaders. Despite the bounce the last 2 days, the SPX is still trading below its overhead 50-day average. So my best guess is that this is the oversold bounce I was looking for earlier in the week. But we are likely to get another pullback in the market in the next couple weeks, and that should present a better buying opportunity than today. Be patient.

Thursday, March 17, 2011

Stocks Bounce From Oversold Levels

The market is nicely higher in early trading, as news of the effort to cool the nuclear plans in Japan intensifies. There were photos of military helicopters dropping water on the reactors, although it appeared much of it was dispersed by the wind. The temporary power lines are said to be closer to completion as well.

The Yen continues to rally, at the expense of the dollar. The weak dollar is helping boost most commodities. Gold is one of the few that is lower today, falling back to $1393. And oil prices have rallied back to the $100 level.

In economic news, the Philly Fed index surged to a 25-year high of 43.4. We have stated that the manufacturing sector has been a surprising area of strength, and this report certainly supports that notion.

In corporate news, Fedex (FDX) reported earnings and offered a strong forecast. That news is helping boost its shares more than 5%, and improving sentiment in the transportation sector.

Despite the efforts in Japan, radiation concerns weighed on sentiment overnight and led to losses in Asian markets. But Europe was higher this morning.

The 10-year yield is higher to 3.27%; and the volatility index (VIX) is down -12% after yesterday's huge spike, back to a still lofty 25.91.

Trading comment: I have commented on how oversold the market is, but you never know how far back the rubber band will be pulled. Today we are getting a snapback, with the markets rallying strong in the early hours. Hopefully the strength will hold up into the close, and be accompanied by some volume.

Corrections don't end overnight, so today probably is not the day to do your buying. Most likely, the market will rally up to some resistance levels, such as the now overhead 50-day moving average of the S&P 500 around 1300, and then come back down again. That is often the pattern that creates a more solid trading bottom. So that's the playbook we're working from.

Wednesday, March 16, 2011

More On Japan

I think the news about Japan and a potential meltdown has been a bit misleading. From a colleague of mine, here is an excerpt from an email written by a distinguished nuclear physicist from the University of Michigan regarding the crisis in Japan:

"I'm not expert on this particular engineered system (not a nuclear engineer); but rather a nuclear physicist. That said, I see no reason to expect that, even if attempts to cool these cores completely failed and there was a worst case so-called meltdown of the entire core, the ultimate container vessel would not completely contain the entire mass and it's radiation indefinitely.

The radiation releases to date are quite well understood as simply radiation entrained in steam that undergoes controlled releases as it is generated in cooling the rods with water. The rods are indeed cooling and the steam releases are apparently decreasing. Meanwhile spent rods in the pools are not in danger of some full meltdown, but need to be covered in water to dissipate heat and suppress radiation.

These are of course serious matters; but no one should be telling the public that a 'meltdown' would release large amounts of radiation or contaminate large areas as long as there is no evidence that the ultimate container has ever been damaged. I have seen no such claims."

Japan Situation Weighing On Markets

Japan's market got a big bounceback last night, rallying +5.7% after its big 2-day plunge. Other markets in Asian were up overnight as well.

But in Europe, Moody's downgrade of Portugal's debt weighed on those markets. In addition, ongoing social and political unrest in the Middle East and the continued concerns about the nuclear facilities in Japan have further hurt sentiment.

Our markets opened down slightly, and have since added to the declines after some weak economic reports. Housing starts for February plunged more than expected, and the PPI inflation figures rose more than expected.

The flight to safety trade is back on today, with Treasuries rallying, the dollar a bit higher, and gold prices up as well. The rally in bonds has pushed the 10-year yield down to 3.22%. Gold prices are higher back to the $1400 level, and oil prices are also higher today near $99.50.

Trading comment: Yesterday's bounce back from the morning lows was encouraging. The market is getting further into oversold territory, and should be getting closer to a bounce. I put some of our cash to work yesterday in big-cap stocks that have pulled back with the market. The S&P 500 has now tested the 1260 level twice and held, so we could get some short-covering if the market is able to mount more of a turnaround. Bearish sentiment is also on the rise, with the put/call ratio above 1.0 yesterday and opening at a whopping 1.99 today. That's a lot of puts being bought, and could mark a short-term extreme in bearish sentiment.

Tuesday, March 15, 2011

Headline Risk From Japan Grips Global Markets

The markets are lower in early trading, but for now the lows of the session occurred right at the market open.

Fears about radiation leaks in Japan, in the wake of the earthquake and tsunami, led to sharp losses in the Nikkei, which plummeted -10.6% overnight. The fears led to a global selloff in stocks, and out markets gapped down at the open with the S&P 500 nearly touching 1260.

But stocks have firmed a bit since the open, and the major indexes are currently all down less than 2%. That is probably far less severe than many investors expected following Japan's losses. With the market heavily oversold, bargain hunters could be stepping in to take advantage of some of the declines.

The only areas that are up so far today is the US dollar and Treasuries. Commodities are lower, with oil down below $100 to $97.30, and gold prices also down near $1394. The yield on the 10-year not has fallen back to 3.27%.

The volatility index (VIX), also known as the Fear Gauge, spiked +20% at the open to 25.50, but has since fallen back to 23.85 (+13%).

The big headline risk right now concerns the radiation leaks in Japan, and if the winds start to blow any contamination into more populated areas. Japan is working furiously to cool the affected reactors, but has not made the decision to simply bury the plants, a la Chernobyl.

Trading comment: I have been saying that I wanted to be patient during this correction. I think today's dislocation in stocks is an opportunity to start doing some buying. There are a lot of stocks that recently reported great earnings, with strong fundamentals, that are being sold off due to headline fears. Right now I want to stick with the higher quality stocks, preferably with yield. I think we have more time to let the growth stocks consolidate and build new bases.

Monday, March 14, 2011

Monday Morning Musings

The market is lower in early trading, in the wake of the frightening news from Japan's massive earthquake on Friday. There is not much else in the way of market moving news this morning.

Asian markets were mixed overnight, which is somewhat surprising given the large decline in Japan. Japan's Nikkei swooned -6.1%, its worst session in more than two years. But China was flat, and Hong Kong up a bit.

In the aftermath, the Bank of Japan announced plans to inject 15 trillion yen (or $180 billion) into the Japanese banking system to promote liquidity.

Broad weakness in commodities has the CRB Index down for a fifth straight session. Oil prices are struggling to hang on to the $100 level, although gold prices are firm at $1428. But many soft commodities are lower.

The 10-year yield is lower to 3.33%; and the volatility index (VIX) is +12% higher to 22.50.

Trading comment: The SPX is taking out last weeks lows, which is a bearish technical sign. And new lows on the Nasdaq have outnumbered new highs. But the market is also very oversold, more oversold by some measures than it has been since August 2010. This week is also expiration week, so my guess is we will see continued volatility. I would not be surprised to see some bounces this week, but lately these bounces have come on lighter volume while selloffs have been on higher volume. So if you're a trader, and want to play for a bounce, buying here makes some sense. But for longer-term investors, I would still be exercising patience.

Friday, March 11, 2011

Back In The Saddle

The market is slightly weak in early trading, although there has not been a whole lot in the way of market moving news.

The big news this morning was that massive earthquake in Japan, which caused numerous tsunami warnings. This led to selling in Asian markets, which closed across the board with losses. Europe was also lower this morning.

Energy stocks are bouncing back, despite oil falling below $100 this morning (currently $100.50). The focus of today was supposed to be the "Day of Rage" in Saudi Arabia, but so far it has fallen out of the headlines.

The dollar is lower this morning, which is helping gold prices stay firm at $1413. The 10-year yield is flattish around 3.40%; and the VIX is down nearly 5% to 21.0 after yesterday's big spike higher.

Trading comment: Last week I said that despite the market mulling around that it was still early in this correction in terms of time, as opposed to price. Most bull market corrections fall in the 3-6 week range, and this most recent one is in its third week. So that means we probably still need to be patient in letting things run their course. This week, negative sentiment picked up in the options indicators, which is a good sign from a contrarian perspective.

In terms of price, the S&P 500 has pulled back only -3.8% so far from its recent highs. That is not a big pullback. A normal correction is often in the 5-10% range. So we should also not freak out if the market pulls back further in the near future. A 5% correction would take the SPX down near 1275, which looks like it could be the next area of support anyway. But SPX 1250 could also be a possibility. And a pullback to those levels would do nothing to derail the current bull market.

I don't know exactly how it will play out, which is why we monitor the price/volume action daily. If we got a big, high volume rally, with some follow through action, that would mark an early end to the correction. But a more likely scenario, is that we will get some light volume rallies that look like they are signaling an end to the correction, but they will be followed by more selling after the bounce.

For investors, the keys to corrections are to raise extra cash in the portfolio, adhere to stop-losses on all your new buys, and take partial profits on issues where you have gains. But keep the focus on the big picture, and don't let any one day derail your investment plans.

Good luck.

Thursday, March 10, 2011

Scheduling Conflict

I must thoroughly apologize. The post I setup to inform readers that I would be out for a few days at client meetings apparently never posted. Again, my apologies.

The market has obviously continued its volatile ways. I just got back in town, and will update the site with my take in the morning.

Have a good night,

Friday, March 04, 2011

Higher Oil, Jobs Report Spur Selling In Stocks

The market is lower in early trading after oil prices are on the rise again, and an in-line jobs report prompts selling.

The nonfarm payrolls report for February increased 192,000, slightly better than the 185,000 forecast. But a strong number was already anticipated as evidenced by yesterday's strong buying surge. The unemployment rate fell to 8.9%, more than expected.

The dollar is weak again, which is boosting commodities. Oil prices hit a 2-year high earlier this morning, and are back above $103 currently. Gold prices are also higher to $1429 today.

Overnight action in Asia was strong. The 10-year yield is lower at 3.51%; and the VIX is up 2% right at 19.0 currently.

Other than the big jobs report, there is not a ton of market moving news to report. That means that oil will likely be the focus of traders today, and as long as it remains high, stocks could be under pressure.

Trading comment: Yesterday's action showed surprising strength, and several market leading stocks broke out to new highs. The news out of the Mideast is mixed, and oil is moving higher. This remains a wildcard for the market, at the margin, and bears monitoring. If oil moves higher, it would seem a fairly formidable headwind for the market. But if things settle down, the market could easily regain its footing. Guess we need to stay on our toes.

Thursday, March 03, 2011

Services Index Hits Highest Level Since 2005

The market is off to the races this morning, aided by some strong economic reports. I think people are looking for a big number in tomorrow's jobs report. Let's hope they're not disappointed.

The futures were already higher this morning after gains in both Asian and Europe. Asian markets were mostly higher, but China was not. China's non-manufacturing PMI Index fell in February to its lowest reading in two years.

In Europe, the ECB left its target rate at 1.0%, and Trichet hinted that prices are rising and a hike could be in the cards in the future. This spurred a rally in the euro, at the expense of the dollar.

In the U.S., weekly jobless claims fell again, to 368,000. This marks the third week under 400k. Also, the ISM Services Index rose to 59.7 in February, its highest reading since 2005. I have been talking about how strong the manufacturing sector is, but this strength in the services sector bodes well for the economy.

Oil prices are lower today, thought still above $100, after Libya has entered peace talks. Gold prices are also lower to $1420.

The 10-year yield is rallying to 3.55%; and the VIX is plunging 9% to 18.85.

Trading comment: The market is clearly showing its resilience again this morning, especially considering oil is still above $100 and things have not really calmed down in the Middle East. Also, while the market is up a lot this morning, the most important thing is how it closes. So we need to see these early gains stick. If that happens, it certainly would alter my thinking about how much more downside is in store for the market.

Lots of market leaders have held up well, and some are even breaking out to new highs again (see PNRA, ALXN, APKT, RVBD, CIEN, HMSY, etc). Color me surprised. But that's why they call it trading, and not (as Charlie Sheen would say) "winning".

Wednesday, March 02, 2011

A Change Of Character For The Market

The market is getting a bounce in early trading, although oil is up again so it remains to be seen if today's early strength will hold.

Oil is higher again amid continued fighting in Libya as well as turmoil in North Africa. Saudi Arabia's stock market fell 4% after suffering a 7% drop in the prior session. Oil is currently up another $1.50 to $101. The longer oil stays high, the more it will begin to effect the economy and transportation sectors.

In economic news, the ADP Employment report came in much better than expected as private payrolls grew by 217,000, and January numbers saw upward revisions. This could bode well for a strong payrolls report on Friday, although sometimes the big monthly jobs report does not follow ADP's numbers.

Asian markets were down overnight; the dollar is also lower today, which is boosting gold prices to $1435, and cotton futures were limit up again; the 10-year yield is higher to 4.36%; and the VIX is down 4% back to 20.10 after a big spike higher yesterday to 21.0.

Trading comment: Lately we've seen the market firm in early trading, but selloff as the day wears on with the market closing at or near its lows. If this continues, it would mark a change of character for the market from the last several months. During that time span, the market was often weak early, but would then rally and close near its highs for the day. Closing at its highs is a hallmark of bulls markets, while late-day selloffs are more common during corrections.

Yesterday's selloff was met with higher volume on the Nasdaq, making for a 5th distribution day in recent weeks. This also increases the likelihood that the market has more work to do on the downside before this correction runs it course. Be patient.

Tuesday, March 01, 2011

Mideast Tensions Remain At The Forefront

The market is lower in early trading, despite the futures being higher this morning before the market opened. Chairman Bernanke is testifying before Congress right now, but there is little new information in his remarks.

Of more interest is the continued geopolitical tensions in the Middle East, particularly Saudi Arabia today. Reports are that Saudi has sent tanks into neighboring Bahrain. Of all the countries where news can cause a spike in oil, Saudi Arabia is probably the most sensitive. Currently, oil prices are $1.35 higher to $98.40. Gold prices are higher today also, near $1422.

In economic news, the ISM Manufacturing Index came in at 61.4 for February. Not only is that better than expected, it marks the highest reading since 2004. So for the folks who see few positives on the horizon, the manufacturing sector has come roaring back during this recovery.

The dollar is firm today, and commodities are mixed; the 10-year yield is higher to 3.45%; and the VIX is 2% higher to 18.75.

Trading comment: It is normal for the markets to bounce after becoming oversold and nearing support levels. But this latest pullback is only a little over one week old, and I think it has more work to do in terms of both time and price. That is, most corrections during bull markets take approx. 3-6 weeks to fully run their course. And so far, the SPX has only pulled back -3.7% from peak to trough. Given the spike in oil and the real concerns in the Mideast, I would think a normal correction in the 5-10% range might be expected. So I want to continue to manage my risk, adhere to stop-losses, and look for opportunities to add to stocks that just reported strong earnings but are pulling back with the overall market.