Wednesday, September 26, 2012

Is Focus Turning Back To Spain?

Global markets are lower today with Asian selling off overnight and Europe lower this morning. 

The broad weakness in Europe comes amid continued protests in the streets of Madrid.  Spain's prime minister said the country would only seek a bailout if interest rates became too high for the economy.  The ECB has done its part to help keep a lit on yields, but comments like that are never well received in the bond market and Spanish yields rose 24 basis points overnight to hit 6.0% again.

To make matters worse, the Bank of Spain said that GDP will continue to contract in Q3.  Also, the province of Catalonia said it will hold an election to consider secession from Spain.  Ouch.  If Spain gets back in the crosshairs of global markets, one would expect Italy to get thrown in the mix and it would get harder for equities to continue their recent rally.

Asian markets were also lower overnight following the decline in the US yesterday.  Reports are that Japanese auto makers are cutting production in some Chinese factories amid the political turmoil.  China's Shanghai Comp fell below the 2000 level for the first time since early 2009.

In corp news, Jabil Circuit (JBL) became the latest company to issue downside guidance for the coming quarter.  It's stock is down roughly 10% on the news.

Investors are rotating back to defensive groups.  Although the markets are mostly lower today, the utilities are consumer staples sectors are bucking the weakness so far. 

The dollar index is higher again benefiting from weakness in the euro.  Commodities are lower across the board.  Oil prices have fallen back below $90 to $89.25.  Gold prices are pulling back to the $1746 level.  And copper prices are down as well. 

The 10-year yield is showing weakness and has dropped below its 50-day support to 1.63%.  The VIX is moving higher up more than 6% so far.  The VIX spiked higher yesterday and today's move has pushed it above its 50-day average.

Trading comment:   Signs of strains in the credit markets are on the rise today after months of easing angst in the indicators.  We knew that one day we would wake up and the issues that were with us earlier this summer would be back on the front burner.  The question is are those issue back now, or is this just a small flare up.  The S&P 500 has now pulled back roughly 3% from its recent highs to today's lows. If this is just a mild pullback one would expect the market to find support around these levels and bounce.  But if recent bullish sentiment has peaked, it could take a more prolonged and deeper correction to shake the confidence of the newly minted bulls-- as so often happens.

Tuesday, September 25, 2012

More Earnings Warnings Trickle In

Global markets were mixed overnight while US markets are higher this morning.

Asian markets were mixed overnight.  JPMorgan suggested that China has more room to cut rates while the China Securities Journal disputed the notion and said that the current monetary stance is appropriate.

European markets were mostly lower this morning after a weak Spanish T-bill auction.  The arguments over the ECB's bond buying program continues with the ECB and Germany's Bundesbank seeking legal advice to verify the ECB's new program.  Also, Angela Merkel reiterated her opposition to Eurobonds.

In the US, consumer confidence for September rose to 70.3 from 65.9 last month.  The July Case-Shiller home price index rose 1.2%.  I think a lot of consumer sentiment is tied to the housing market, and if prices continue to firm it should boost confidence.

In corporate news, we are starting to see more earnings warnings and guidance reductions creep up.  Semiconductor company Infineon (IFNNY) lowered guidance for the next two quarters citing demand.  Tesla Motors (TSLA) also lowered guidance.  But the one with probably the one with the biggest implications for the global economy is Catepillar (CAT).  CAT said recession remains possible but unlikely in the US, and while 2013 sales look locked in 2014-15 will be below earlier estimates. 

The dollar index is lower today, which is helping commodities.  Oil prices are higher to $92.71 and gold prices are up near $1775.  Silver and copper prices are higher also.

The 10-year yield is slightly higher to 1.72%.  And the VIX continues to hover around very low levels at 14.15.

Trading comment: Yesterday was another day where we saw early weakness in the market but dip buyers quickly came in and the market firmed by the end of the session.  Looking at the charts of the major indexes shows that since the big rally a couple weeks ago we have pretty much just consolidated in a sideways fashion.  This type of behavior is usually followed by more upside after the pause, as the market rebuilds its internal energy for another push higher.  There is some risk to chasing that next push higher as investor sentiment has become very bullish and the potential for a "fakeout breakout" is higher.

Monday, September 24, 2012

Monday Morning Musings

Who would have thought we would wake up today to find AAPL down more than $10 and weighing on the market due to lackluster iPhone sales.  I'm not sure how accurate the numbers are.  I don't think they include the orders from the website which haven't been shipped yet.  It's hard to believe there was weak demand when every store I heard about was sold out and didn't know when and how much more they were getting of the hot new phone.  I still think when the first full quarter of sales are reported we will see record unit sales.

Overnight, Asian markets were mixed to lower after continue conflict in the East China Sea.  Also, the People's Bank of China warned that the Chinese economy was still slowing with no end in sight.

In Europe, there is a lot of chatter surrounding the weekend meeting between Merkel and Hollande about how to implement the banking union.  Merkel would like to take a cautious approach while Holland prefers to move more aggressively.  Elsewhere, Der Spiegel  reported that the budget shortfall in Greece is nearly 20 billion euros, which would be double current estimates.

In the US, there is no economic data to speak of this morning.  And the corporate news is mostly being drowned out by chatter about the iPhone. 

The dollar index is higher today, which is weighing on commodities.  Oil prices are weaker near $91.80, while gold prices are also lower to $1767.  Copper and silver are lower also. 

The 10-year yield is lower again to 1.71% after peaking recently at 1.90%.  Yields are still on a path of higher highs and higher lows since bottoming in late July.

Trading comment: The market pulled back this morning but once again quickly bounced from its morning lows.  It is still early but it does appear that dip buyers once again took advantage of the early price drop to put more money to work.  Some of this could be window dressing related to this week's quarter end, while some of it could just be good old performance chasing.  Regardless, the market doesn't seem to want to give up much ground.  If this week plays out similar to many quarter end weeks, we can expect to see one big down day but that's about it.  The big question will be whether any weakness develops after quarter end and once we get into October? But so far we haven't seen many signs of it, expect for the fact that investor sentiment has been growing more and more complacent which is never a good sign.  More on that later.

KAM Advisors has long positions in AAPL

Friday, September 21, 2012

S&P Poised To Finish The Week About Flat

The S&P 500 finished last week's rally at the 1465 level.  I was one of many who expected a mild pullback this week on profit taking, but the action has been more sideways than anything.  Currently the SPX sits at 1464, and is poised to finish the week about flat.

Overnight Asian markets were mostly higher despite further comments about slowing growth in the region.  The IMF lowered its 2012 GDP growth target for S. Korea from 3.25% to 3.00%.  And Barclays wanted that China's Q3 GDP could come in below expectations.

European markets are mostly higher this morning.  A Financial Times article suggested Spain was close to revealing a rescue package that could come out next week.  Germany's finance minister projected slower growth in the back half of the year.  Last, Greece is said to be considering raising the retirement age for the country to 67.

In corporate news, Oracle (ORCL) shares are slightly higher after the company missed revenue expectations but matched earnings.  Michael Kors (KORS) is more than 5% higher after raising full year earnings guidance.  This flies in the face of other high end retailers who have lowered estimates recently, which says that either KORS is taking share of just executing extremely well.

The dollar index is lower today which is helping commodities.  Oil prices are higher to $93 after a few really weak days.  Gold prices are also higher near $1774.

The 10-year yield is steady at 1.77%.  And the VIX is also flat at the 14.0 level where it has been sitting basically all week.  It did have a couple of intraday bounces higher from these levels, but by the close usually settled back in at these low levels.

Trading comment: Markets can work off overbought conditions in a variety of ways.  Sometimes they have big correction, sometimes mild pullbacks, and sometimes they merely trade in a sideways fashion while resting.  The latter appears to be what has transpired this week in the markets.  From a technical standpoint, this is usually a bullish occurrence.  A market that sits near its highs and refuses to give up any ground after reaching overbought levels is often a strong market.  I would not be surprised to see this market make another push higher as we near quarter end.  We have also been talking about underinvested managers needing a pullback in the market to put more money to work, but Mr. Market does not seem to be in a giving mood and is causing them to play catch up and chase stocks.  Can you say performance anxiety?

KAM Advisors has long positions in KORS

Thursday, September 20, 2012

Profit Taking and Slowing Growth

Global markets are lower in early trading on the heels of some weaker economic data in both Asia and Europe.  Asian markets were lower overnight after China's HSBC manuf. PMI came in at 47.8 which still signals contraction.  China's stock index fell -2.1% to its lowest levels since Feb. 2009, not a very good sign.

In Europe, markets are also lower after manuf. PMI readings in several countries point to slower growth.  France had a disappointing reading (42.6) while the overall Eurozone PMI fell to 46.0 vs. expectations of 47.4.  Investors may cheer the stabilization in bond yields for peripheral Europe, but all of this belt tightening and austerity measures are only going to continue to slow growth without some pro growth measures.

In corporate news, Norfolk Southern (NSC) lowered their Q3 earnings outlook due to slumping demand and lower revenues from fuel costs.  This news is hitting transportation stocks.  NSC is one of the first high profile companies to warn about Q3 earnings, but as we get closer to the end of the quarter we could hear from more companies.

The dollar is higher vs. the euro today which is weighing on commodities.  Oil prices are weaker near $91.85 while gold prices are also down a bit to $1766.

The 10-year yield is easing back further to 1.75%.  And the VIX is getting a little bounce to 14.30, up 3%.

Trading comment: Global markes are pulling back on today's economic data which points to further slowing.  The markets have also risen a lot recently so some folks may just be taking some profits.  My sense is still that portfolio managers remain in dip buying mode, so if today's selling can't pick up any steam I would expect to see markets firm a bit late in the session.  The S&P 500 is holding that 1450 level that it tested this morning and bounced from.  The other change in character today is that money is flowing to defensive areas like consumer stables, telecom, tobacco stocks, etc. 

Wednesday, September 19, 2012

Japan Jumps On The QE Bandwagon

The markets are flattish in early trading after big gains in Asian overnight but fading enthusiasm as European trading got underway.

Asian markets rose overnight after the Bank of Japan became the latest central bank to announce more stimulus.  The BoJ increased its asset purchase program by 10 trillion Yen to 80 trillion.  Japan and Hong Kong rose by more than 1% while China rose only 0.4%.

Europe's markets are not higher this morning after an ex-ECB memeber commented that the bond purchasing program is not a silver bullet capable of fixing the underlying problems in the region.  For its part, the Bank of England decided to keep its asset purchase program unchanged.

In economic news in the US, existing home sales for August hit an annualized rate of 4.82 million units, which is up from the prior months rate of 4.47 million units.

The dollar is slightly lower and commodities are mixed.  Gold prices are a bit higher to $1773, but oil prices continue to take it on the chin and are now down to $92.30 from almost $100 at the start of the week.

The 10-year yield is pulling back a little more to 1.78%.  And the VIX is back near its August lows down -3.3% to 13.70.

Trading comment: The stairstep market continues.  The market has had a chance the last few days to pull back from last week's gains, but it hasn't given back much at all.  The market has basically traded sideways for the week so far as it works off its overbought condition.  It still feels like underinvested portfolio managers are looking to put money to work on any dips and this could last into quarter end.  Bullish sentiment continues to rise and this is a bit of a red flag.  But sentiment is a secondary indicator and it won't likely kick in until we first see a break in the price action and some selloffs that have volume behind them.

Tuesday, September 18, 2012

Is A German Slowdown Next?

Global markets are lower again this morning after some profit taking after last week's rally as well as further signs of economic slowing.

Asian markets were down across the board overnight.  Tensions are still running high in the East China Sea with Japan shutting factories amid worries about violent protests.  Additionally, Chinese housing data recently showed that 53 of 70 cities showed year-over-year declines.  That's a pretty big figure.  Also the Reserve Bank of Australia in its recent minutes noted a weakening of the Chinese economy.

In Europe, markets were also down across the board as the focus turns back to Spain and whether they will request a full bailout.  A recent ZEW pull suggests the German economy is expected to lose momentum over the next six months.  George Soros was out with comments over the weekend supporting the same notion.  Germany has been the lone pillar of economic strength in the southern eurozone, so if their economy weakens you can expect the recession in the region to deepen.

In the US, the NAHB Housing Index rose to a reading of 40 in September, above last month's views.

Separately, FedEx (FDX) is lower this morning after beating earnings but issuing disappointing full-year guidance for 2013.

The dollar index is higher today, but commodities are mixed.  Gold prices are higher to $1773, and silver and copper prices are higher also.  Oil prices remain a bit weak at $96.22 after a big negative reversal yesterday that left many scratching their head.

The 10-year yield is easing back more to 1.80%.  And the VIX is down -1.75% today despite the negative headlines and weak open.  The VIX is hovering near very low levels at 14.30.

Trading comment: Yesterday's pullback was extremely mild.  It started to pick up a little steam in the afternoon but then rallied back in the last hour to post little damage by the close.  Today is looking similar, though we still have a lot of time left in today's session.  If the market can't pull back much, dip buyers may grow impatient and look to put money to work sooner rather than later.  Recent leaders like AAPL and GOOG haven't given back any ground and remain near their highs.  Ditto AMZN, ALXN, BIIB, etc.  The NYSE registered nearly 500 new highs last week, so the list of potential market leaders has certainly broadened recently.  Now we just need to watch to see which ones can continue to add to those gains.

KAM Advisors has long positions in AAPL, ALXN, BIIB, GOOG

Monday, September 17, 2012

Monday Morning Musings

Global markets are a bit sluggish this morning after another strong week last week amid investor enthusiasm over the last round of quantitative easing by the Fed. 

Overnight, Asian markets were mostly lower led down by a -2.1% decline in China after some local Chinese governments reintroduced property price controls in an effort to weed out speculative buying and cool their property markets.  This has some investors questioning further easing measures by the PBOC.

The Reserve Bank of India left its overnight interest rate unchanged at 8.00% while cuttings its reserve ratio 25 basis points to 4.50%.

In economic news in the US, the Empire Manuf Index came in at a very weak -10.4.  This is actually the lowest level since April 2009.  This may be one of the reasons that the Fed was willing to enact further QE despite the stock market near 5-year highs-- the economy has hit another soft spot and continues to offer weak datapoints.

The dollar is off a little and commodities are mixed.  Gold prices are flat near $1772 while oil prices are higher to $99.30.

After a big spike higher on Friday to nearly 1.90%, the 10-year yield is pulling back to the 1.83% range.

And the volatility index (VIX) is bouncing from very low levels to 14.80 this morning, up 2%.

Trading comment: The markets appear a bit extended after last week's spike higher.  I wouldn't be surprised to see some mild pullback and consolidation at these levels.  But I also think it is premature to start betting on more than a mild pullback until we see a change in the price volume action of the indexes.  We have been in a stair-step higher mode, and until we see some rallies that fail to make new highs and some selloffs that come on volume and take out support levels I think those betting against this market will continue to be frustrated - which is pretty much Mr. Market's primary objective.

Friday, September 14, 2012

Stocks Run For The Roses

The Fed came through yesterday and gave the market what it wanted in the form of additional quantitative easing. Markets around the globe rallied in response to the FOMC decision to purchase additional agency mortgage backed securities at a rate of $40 billion per month.
Asian markets rallied strongly, with more than 2% gains in Hong Kong, Indonesia, S. Korea and Tawain. China lagged with a gain of only 0.6%. But not everyone was happy with the Fed's actions. The People's Bank of China suggested the Fed's action could spark global inflation. The Hong Kong Monetary Authority warned that the risk of a property bubble in their housing market is higher now. And the Bank of Japan was put on the defensive as the yen soared vs. the dollar sparking speculation the BoJ might have to intervene in the currency market.

Europe's markets are also higher despite continued debate over whether Spain will need to ask for a full bailout. There is also increasing unrest in the middle east with violent protests in Egypt, Yemen, and elsewhere.
In economic news, the Univ. of Mich. consumer sentiment index rose to 79.2 for September, near its high for the year and well above last months' reading of 74.3. Separately, retail sales for August rose 0.9% which was above expectations.

The dollar index is well lower today which is helping commodities.  Oil prices have risen to $99.70 and gold prices are up a bit to $1772 after a nice rise yesterday.  And the breakout in copper prices continues.  The copper etf (JJC) is up over 5% for the week.

The 10-year yield is also rallying.  I'm not sure if this has more to do with operation twist moving its focus to agency securities or simply an allocation move out of bonds and into stocks and commodities.  The 10-yr is currently at 1.87%, its highest level since May.

For its part, the VIX had a big plunge yesterday down to the 14 level where it has pretty much bottomed each time down there this year.  Today it is actually up 1.5% to 14.25 despite another up move in the stock market.

Trading comment: The markets staged a follow on breakout yesterday and pushed further into high ground for the year.  This is a tough juncture because the market has had a big move and does look a bit extended.  Investor sentiment is also growing more and more bullish, and we know that when the herd gets complacent the market is often ripe for a pullback.  But with the Fed in QE mode, the ECB adding liquidity, and portfolio managers chasing stocks to avoid underperforming their benchmarks it does seem that dips in the market will continue to be bought until the macro backdrop turns negative again.

Thursday, September 13, 2012

Fed Decides On More QE

Here is their press release:

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

The QE Conundrum

Global markets were mixed overnight as investors around the world await today's FOMC decision and whether or not the Fed will initiate more quantitative easing (QE) measures in the near-term.  Many strategists have said the anticipation of more QE is the reason that global markets have been rallying and if we don't get any there could be some disappointment.

I have been on record as saying I don't think the odds are as high as everyone says, considering the stock market is at new highs and the Fed might like to keep some powder dry for when we need it more.  We still have the economy slowing and the fiscal cliff ahead of us.  For the near-term, the ECB seems to have done some of the heavy lifting with its recent bond purchase programs.

The FOMC statement will be released at 12:30 ET with the economic projections released at 2:00 ET followed by Bernanke's press conference.

There hasn't been a lot of market moving news this morning. US producer prices rose more than expected by 1.7% in August vs. the 1.2% expected.

Overnight in Asia, several central banks held interest rates steady.  Indonesia held at 5.75%, New Zealand at 2.5%, Phillipines 3.75%, and S. Korea held at 3.00%.  Asian markets finished mixed.

In Europe, markets are also mixed to lower this morning.  German Finance Minister continues to try to pour cold water on recent ECB announcements.  He said that he does not believe the ESM can get a bank license.

The dollar is slightly lower today and commodities are mixed.  Oil prices are higher to $98.20 while gold prices are roughly flat near $1735.

The 10-year yield is a bit lower to 1.73% after a nice bounce higher yesterday.  And the VIX is also slightly lower to 15.68 still hovering below its 50-day overhead resistance.

Trading comment: The major indexes are holding up in new high territory.  The SPX is at new highs again, but the Nasdaq is a few points below its yearly highs.  More growth stocks continue to lead the market.  But with investor sentiment growing more bullish and this recent uptrend in the market getting long in the tooth, I would not be surprised to see some volatility and choppiness pick up in the near-future.  I feel like investors are getting lulled into a sense of complacency and Mr. Market usually doesn't like it when that happens.  But for now, let's see what the FOMC has to say about further QE now or in the near future.

Wednesday, September 12, 2012

German Court Upholds Euro Stability Mechanism (ESM)

Global markets are higher this morning on the heels of the German court upholding the constitutionality of the ESM bailout fund.  There are still some limitations to the fund, including capping Germany's liability at 190 billion euros, but it still looks good that the ESM will come to fruition.  Elsewhere in Europe rumors swirl that Spain is considering asking for aid from the ECB bond buying program, and that France is urging them to do so.

Asian markets rallied overnight ahead of the German court ruling after Chinese Premier Wen suggested there is room for more stimulus to spur consumption.  Japan led the gains, while China lagged again.

In the US, investors are eagerly anticipating tomorrow's FOMC meeting and whether Bernanke will announce new QE initiatives.  I have been saying I don't think it is likely and that they would prefer to save some bullets, but most strategists expect to hear something and say that is the primary reason that the markets have been rallying - in anticipation of further QE.  So if we don't get anything from the FOMC, the market could be vulnerable.

Also later today we will hear from Apple at their San Francisco event where they will unveil the new iPhone5.  We could also hear about a smaller iPad (7") as well as other software updates.  But the stock has run quite a bit heading into this event, and I could see it taking a breather now that the news is out.

Yesterday Facebook CEO Zuckerberg spoke at a tech conference.  He said a few positive things relative to the stock and their expectations for growth, but nothing earth shattering.  Nonetheless the stock is 5% higher today.  I think investors were just happy to see him in person and hear that he is engaged and taking the drop in the stock price seriously.

The dollar is lower today as the euro gets a bounce from the German court news.  Commodities are mixed with oil slightly higher to $97.30 and gold down just a touch to $1733.  Silver prices are also taking a breather.

The 10-year yield is lifting further to 1.74%.  And the VIX is down 3% back below the 16 level but not giving that much back from Monday's upside reversal.

Trading comment: The S&P is back to making slight new yearly highs today.  So far Monday's selloff looks like a 1-day wonder, but a lot could depend on the FOMC tomorrow.  Many think that if the Fed doesn't announce new QE moves that the stock market could be disappointed and have a correction.  This is certainly possible, but with the stock market making new highs I just don't think that the Fed feels the same pressure to do more QE as it has in past summers.  Financials are leading the early action, which is always a positive sign.  And more growth stocks are continuing to lead the market higher.

KAM Advisors has long positions in AAPL and FB

Tuesday, September 11, 2012

Moody's Warns Of Potential US Debt Downgrade

The market is higher this morning, likely bouncing back from yesterday's little drubbing.  But there hasn't been a lot in the way of market moving corporate news or economic data.

The dollar index is lower after Moody's warned that it could downgrade the US debt rating if Congress doesn't pass some measures that "lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term".  I just hope Congress heeds their warning.  We all know what a disaster it was last year when the debt ceiling expired with no action.

High end retail stocks like COH, RL, and TIF are lower today after Britain's Burberry cut its profit expectations.

Asian markets were mostly lower overnight. China's Commerce Minister reiterated his skepticism on meeting the 2012 target of 10% growth.

In Europe, attention is turning to the German court which is expected to rule on the constitutionality of the European Stability Mechanism on Wednesday.  German Finance Minister Wolfgang Schaeuble said that Germany remains opposed to Euro bonds and reiterated that shared liability or a printing press won't solve the crisis. 

Commodities are mostly higher.  Oil prices are up to $97 and gold prices are higher near $1738.  Silver prices are also up again, as are copper.

The 10-year yield is hovering around 1.69%.  And the VIX is slightly lower to 15.83 after a huge reversal yesterday.  In my opening post yesterday I noted that the VIX was lower and approaching August's lows, but it soon began to reverse higher and by the end of the day had rocketed 16% off of its lows.  We will see if there is any follow through to come, as the VIX remains below its 50-day average.

Trading comment: Yesterday's selloff was not accompanied by the rise in volume that would mark the sort of distribution that should worry investors.  As of now it appears to be a price dislocation.  As always, it is the follow through of the market that is meaningful.  If we don't see any further downside this week, traders will chalk the selloff up as a one-day wonder.  But we have some big announcements this week with the German ruling on the ESM Wednesday and the FOMC meeting Thursday.  So I think that we are likely to see some bigger moves in the market one way or another.  Tech really took it on the chin yesterday, led by AAPL which will announce the iPhone5 this week.  Some wonder whether it will be a buy the rumor-sell the news type of even.

KAM Advisors has long positions in AAPL and COH

Monday, September 10, 2012

Monday Morning Musings

The markets are slightly lower in early trading after a lackluster overnight session abroad.

Asian markets were mixed after a bevy of economic data was released in China.  Imports and exports both came in below expectations.  Industrial production was also lower than expected coming in at 8.9% yr/yr.  CPI was in line at 2.0% vs. a year ago.  The light data point to a continued slowdown  in economic growth, and lend themselves to the notion that the PBOC will keep its foot on the stimulus pedal.

Material stocks continue to lead after China's stimulus plans announced last week.  Tech stocks are lagging so far today after leading the action last week. 

European markets are fairly quiet, with financials continuining to rally after the ECB's announcement last week for Outright Monetary Transactions (OMT).  Italian Q2 GDP was revised lower to show a contraction of -2.6%.  France also lowered its forecast for GDP to 0.8% from prior expectations for 1.2%.  Spain's 10-year yield is hitting its lowest levels since April, near 5.64%.

There isn't a lot in the way of economic data or corporate news this morning in the U.S.  Investors are eagerly awaiting this Thursday's FOMC meeting, but I still think that the Fed will merely reiterate its recent statements and not announce any new QE initiatives at this point.  Oil and gas prices are up lately, and more QE at this point would likely just drive commodity prices higher.

The dollar is higher today, and commodities are flattish.  Oil prices are steady near $96.33 while gold prices are down a little to $1734.

The 10-year yield is up a little to 1.67%.  And the VIX is down -1.5% all the way down to 14.15 and getting close to its yearly lows seen in August.

Trading comments: The markets put in a very nice week last week.  Breadth in the market improved with over 300 new highs seen on the NYSE.  Moreover, more growth stocks are starting to lead the market vs. the defensive type of stocks we had seen leading previously.  It looks like dips will continue to be bought by portfolio managers until something comes along and really rattles the market and shakes the newly minted bulls' confidence.  We have seen bullish sentiment indicators rising lately.  If more of the indicators begin to hit extreme bullish levels, that could leave the market more vulnerable to a pullback.  But right now it still feels like folks are looking for spots to put money to work in stocks.

Friday, September 07, 2012

China Pumps Up The Stimulus

Markets are mixed in early trading after gains in overseas markets.  Markets soared yesterday after ECB President Draghi announced his new bond buying program, the Outright Monetary Transactions (OMT).  Asian markets soared overnight with Hong Kong up by 3.1% and Shanghai spiking 3.7%, its best single day in three years.

As speculated China announced some big stimulus plans yesterday and today.  Yesterday Beijing said that 18 cities in China would get subway systems.  Today the govt. laid out plans to build more than 1250 miles of road (more roads to nowhere).  Materials stocks shot higher on the news.  Copper prices are also spiking to 4-month highs (JJC) and stocks like FCX, JOY, and CLF are all rallying stongly today.

In economic news, the big bad payrolls report once again disappointed investors, but the damage in the market has been contained.  I said yesterday that the strong ADP report does not have a great history of predicting how strong the govt. payrolls report will come in.  Lo and behold today's jobs report showed just 96k jobs created in August vs. 130k consensus estimates.  On the plus side, the unemployment rate fell to 8.1% from 8.3%, but I presume that this is more from a continued decline in the labor force.

In corporate news, Intel (INTC) stock is lower after the company lowered revenue guidance due to weak demand.  On the flip side, retails stocks LULU and ULTA are both spiking higher today after reporting strong earnings and guidance.

In Europe, optimism is present today as peripheral bond yields continue to come down.  Spanish yields have fallen back to 5.64% and Italian yields are down to 5.08% on 10-year debt.

In the US, our 10-year yield is falling today on the weak jobs report, back down to 1.62%.

The VIX is also another 5.7% lower today back down to the 14.70 level.

Trading comment: The action in the market has been solid.  Yesterday's breakout held into the close with the market finishing right near its highs of the day.  Also, more growth stocks are starting to breakout and lead the market.  This is a change from the last couple of months when defensive stocks were leading the market.  If you look at utility stocks as an example you can see that the bloom has really come off the rose in that sector.  Today materials stocks are leading the rally by a wide margin.  And despite Intel, other tech stocks have been rallying nicely.  AAPL and GOOG are both at new highs.

KAM Advisors has long positions in AAPL, GOOG, ULTA

Thursday, September 06, 2012

Draghi Lives Up To His "Whatever It Takes" Comment

Markets are sharply higher in early trading on the heels of some good economic data combined with comments out of the ECB that support Mario Draghi's recent statement that he will do "whatever it takes" to save the euro.

The ECB will commit to buying unlimited amounts of sterilized bonds, acting strictly within its mandate and focusing on bonds with maturities of less than three years.  Countries will still need to first make a formal request for aid first.  But global markets are pleased with this commitment, and markets from Asian to Europe are rallying.

The ECB held its benchmark rate at 0.75%, the Bank of England stayed at 0.5%, but in a surprise move Sweden's central bank cut their key interest rate by 25 basis points to 1.25%.  Separately, the Eurozone Q2 GDP report showed a contraction of -0.2%.  It remains unclear what the eurozone will be able to do to spur growth in the region in the face of much belt tightening and austerity measures.

In the US, the August ISM services index rose to 53.7 from 52.6 last month.  Also, the ADP employment report showed that private payrolls rose by 201k in August, well above expectations for 143k.  In addition last months figures were revised higher from 163k to 173k.  This comes ahead of tomorrow's govt. payrolls report, but the ADP report has not always been a good forecaster of that report.  Current consensus estimates for tomorrow's figures are for 130,000 new jobs.

The euro was lower in early trading after the ECB announcement but has since moved back into positive territory vs. the dollar.  Commodities are higher with gold trading up to $1710 and oil prices higher near $97.15.  Silver prices are also higher as well as copper prices.

The 10-year yield is getting a nice boost to 1.68%.  And the VIX is getting crushed, down -9.5% almost back to the 16.0 level.  Recall that a month ago the VIX got down to 13.45.

Trading comment: The other day I commented that I could easily see the markets breaking out in the near term before any sort of pullback.  That prediction is coming to fruition today as the S&P 500 breaks out to a new high for the year.  At current levels, the SPX is also at a 4 1/2 year high and back to levels we haven't seen since May 2008.  I still think a lot of this price action in the market comes from a combination of the world being awash in liquidity and looking for a home to invest with interest rates near 0%.  Also, I think a lot of portfolio managers continue to underperform their benchmarks and so they are forced to put money to work and scramble to keep up as the market continues to move higher and not offer a good pullback to allow them a better entry point.

Wednesday, September 05, 2012

More Signs Of China Slowing

The markets are slightly higher in early trading despite across the board weakness in overseas markets.  The markets got a boost from a Bloomberg TV report that said the ECB is considering a bond purchase program that will be unlimited in size as long as bonds are sterilized.  But don't expect Germany to go along with this so easily.  Already Germany's Christian Democratic Party leader said that excessive ECB bond buying could prove inflationary.

Elsewhere in Europe, Germany's PMI Services index was in-line while France's came in light at 49.2 vs. 50.2 expected.  A number under 50 marks contraction. 

In Asian, markets were lower overnight after China's Services PMI fell to a 1-year low of 52.0.  China's Finance Minister indicated he is not optimistic about the current export situation.  Also, Australia's GDP came in light at 0.6% vs. 0.8% expected.  And Australia's services index fell to 42.4 from 46.5 previously.  So those are all signs that point to slowing global growth. 

In the US, productivity figures were revised higher for Q2 to 2.2% from 1.6% and unit labor costs were revised lower to 1.5% from 1.7%.  So those are datapoints that are moving in the right direction.

In corporate news, Facebook (FB) shares are higher after CEO Zuckerberg said he has no intention to sell any shares for at least 12 months.  Jeffries initiated the stock with a 'Buy' and a price target of $30.

The dollar is weaker today as the euro bounces, and commodities are mixed.  Oil prices are lower to $94.65 while gold prices are flattish near $1695.  Copper prices are higher today.

The 10-year yield is at 1.57% and can't stay above its 50-day average.  The VIX has been down as much as 5% and is currently lower by 3.5% to 17.35.

Trading comment: I will post a chart later that highlights the growing bullish sentiment among investors.  When sentiment usually reaches these bullish levels, it isn't long before another market correction surfaces.  I would not be surprised to see this type of action in the near future.  It could also be that since the market likes to keep the majority of investors off balance, we could see a breakout to new highs first that is short-lived and sets the market up for a correction from that point--  just to keep everyone on their toes.  But the NAAIM investor survey is back to very high levels, and the Citibank panic/euphoria model is back near excessive optimism levels.

KAM Advisors has long positions in FB

Tuesday, September 04, 2012

Tuesday Tidings

Sorry this post is a little later than normal today.  I had to fulfill my parental duties and take my kids to school for their first day of the new year.  Markets are down in morning trade following weakness in overseas markets.

Asian markets were lower overnight after the HSBC PMI data for China over the weekend slumped to a 3-year low of 47.6.  China's stock index was lower overnight and fell to a 3 1/2 year low.  In Australia, the Reserve Bank held rates steady at 3.50% and reiterated its outlook for slowing China growth to weigh on natural resource prices.

In Europe, markets were also lower after PMI readings in Germany, France, and Italy came in below preliminary readings.  Also, Moody's cut its outlook on the EU region to 'negative' from 'stable', which brings into question how long countries like German, UK, France, and Netherlands can maintain their AAA ratings. 

Spanish bond yields were actually lower by 21 basis points earlier as speculation swirls that the ECB may be comfortable buying sovereign debt with maturities up to 3 years.  Global markets are all anxiously awaiting ECB's rate decision and comments on Thursday.

In the US, the August ISM index came in below estimates at 49.6 vs. July's reading of 49.8.

In corporate news, Netflix (NFLX) stocks is lower after Amazon (AMZN) announced a new instant video agreement with EPIX as Amazon takes aim at Netflix's core business.

The dollar has strengthened since the open this morning, and commodities are mixed.  Oil prices are lower, below $95.50, while gold prices remain higher near the $1700 level.  Silver continues to trade well also.

The 10-year yield has fallen back below its 50-day support and is currently near 1.59%.  And the VIX is 6% higher currently to the 18.50 level. 

Trading comment: The markets are struggling this morning to hang on to recent support levels.  It is still early, but the action in the SPX looks like it wants to pullback more.  We'll have to see how the market closes today and how volume levels come in.  I also think that markets could merely chop around until we hear from the ECB and then we could see a bigger move.  So we haven't really changed our recent asset allocations.  We are still underweight equities overall and fairly conservative in our portfolios.

KAM Advisors has long positions in AMZN