Wednesday, October 30, 2013

Stocks Overdue For A Rest

The market was briefly higher in early trading but has since moves slightly into negative territory.  After a long rally like we have seen it is well within reason to expect some pullback and consolidation in the major indexes.

In economic news, the ADP Employment report showed the private sector added 130,000 jobs in October, a bit above expectations. 

Later today we will get the latest FOMC statement.  While there was a lot of chatter about a potential 'taper' at the September meeting, there is far less speculation today and most expect that the statement will contain little changes from last month.

The 10-year yield is down slightly ahead of the FOMC meeting, falling back below the 2.50% level to 2.48% currently.

Stocks rising on earnings: BIDU, BWLD, GM, GILD, TASR, DBD, AMT

Stocks falling on earnings: LNKD, YELP, TTWO, CRUS, CMCSA, SODA, BWA, HES, ADP

Asian markets were higher across the board overnight.  China rallied despite another spike in the overnight SHIBOR rate market.  The PBOC did inject more liquidity into the market yesterday, which helped medium-term rates but not overnight rates.

Europe's markets are also higher.  Spain registered its first quarterly growth in GDP in 9 quarters as GDP expanded 0.1%.  Not much, but it's a start.  Germany's unemployment rate held steady at 6.9%.  And Italy raised its 2014 growth expectations to 1.1% from 1.0%. 

Commodities are mixed.  Metals are higher with gold up to $1353 and silver and copper higher also.  Oil prices are weaker near $97.33.

Trading comment: The market seems overdue for a pullback and some consolidation.  We are watching those stocks that recently reported strong earnings and had positive reactions and looking for opportunities where those stocks pullback with the broader market and offer opportunities for investors to add to them.  Interest rates pressures seem to be off the front burner for now, today's FOMC meeting notwithstanding.  That means stocks will likely continue to be the favored asset class for the near-term.

KAM Advisors has long positions in SODA

Tuesday, October 29, 2013

All Stocks, All The Time

The stock market is up this morning for the 12th time in the last 14 sessions.  Forget that the stock market is overbought, and forget that lots of stocks look extended in price and could be vulnerable to pullback.  Money continues to flow into equities and the closer we get to year-end the more we could see performance anxiety kick in and portfolio managers scramble to play catch-up.

In economic news, the Case-Shiller Home Price Index rose 12.8% in August, and that comes on top of a 12.3% gain the prior month.  Pretty strong.  Consumer confidence cooled to 71.2 in September from 80.2 the prior month.  And September retail sales increased +0.4% ex-autos, up from last month's reading of +0.1%.

Earnings reports continue to flow in.  The big report last night was AAPL, which beat estimates but gave slightly conservative guidance.  The stock was higher at the open but has since moved into negative territory by $3 to $526.

Stocks rising on earnings: AAPL, SNP, ECL, DIN, VLO, WM, ACT, PBI, PFE

Stocks falling on earnings: DDD, AGN, GT, VRTX, PCAR, FDP, AGCO, CMI, CVLT, VSH, MWV

Asian markets ended mostly higher, but Japan and China lagged.  The PBOC in China said money market liquidity remains adequate.  But the two-week SHIBOR rate rose again to 6.45%.  India hiked its repo rate 25 bps to 7.75% to curtail inflation but cut another lending rate to bring down the cost of short-term funding for banks.

Europe's markets are higher today.  Spain's retail sales rose 2.2% vs. expectations for a decline.  And Troika officials are en route to Greece to demand new measures in exchange for another tranche of aid.

Commodities are mostly lower.  Oil prices are weaker to $98.30 and gold prices are down a bit near $1350.

The 10-year yield is up slightly to 2.52%.  And the volatility index is steady at 13.37.

Trading comment: We have talked about the market being overbought recently and saying while a pullback would be nice, we might just see sideways consolidation.  But so far the market has continued to add to its gains and make new highs despite being technically overbought.  That makes it tough to chase stocks which have risen a lot recently.  We continue to try to exercise patience and look for individual situations where there are fresh breakouts or pullbacks to logical support areas.

KAM Advisors has long positions in AAPL, DDD

Monday, October 28, 2013

Monday Morning Musings

Stocks are mixed to lower this morning.  There have been a few economic reports and a handful of earnings reports but nothing moved the market too much.

In economic news, pending home sales fell -5.6% in September after declining -1.6% the previous month.  September industrial production rose better than expected +0.6%.

Earnings reports continue to roll in but not as many as last week.  The big report tonight will be AAPL, although this quarter won't be a full quarter of new iPhone sales and won't include any of the new iPads.

Asian markets finished generally higher.  Overnight SHIBOR rates continue to climb in China, with the 2-week rate up 53 basis points to 6.40%.  Elsewhere, S. Korea's consumer confidence improved to 106 from 102.

Europe's markets are mostly lower.  Trading is light in Britain due to very heavy storms there. 

The dollar is higher today but not weighing on commodities.  Oil prices are up a bit to $98.40 and gold prices are also higher today near $1355.

The 10-year yield is holding at 2.50%, a level it has been trying to hold for 4 days.

The VIX is bouncing from low levels, up 4% today to 13.60.

Trading comment: We said last week that the market had gotten very overbought, but that the most bullish action we might see would be for the market to merely consolidate sideways vs. succumbing to a larger selloff.  So far that seems to be the course of things.  The SPX continues to trade right at its highs.  Lots of stocks still look extended, so we don't want to chase things here.  But the strength of the market should be noted and 'buy the dips' remains a viable strategy.

Thursday, October 24, 2013

Hoping For A Pullback

Markets fell yesterday on mixed volume.  Trading on the Nasdaq was slightly higher, showing mild distribution.  This morning markets are bouncing and hovering right near recent highs.  It would make sense that stocks have become overbought and need a little rest period.  But trading for most of this year hasn't made "sense", at least in the traditional way.

Earnings reports continue to roll in fast and furious.  Looking at the reactions in stocks today reveals more of a mixed bag and no real trend.

Stocks rising on earnings: MMM, F, PHM, ESI, MDSO, RCL, ABB, ALK, NOW

Stocks falling on earnings: AKAM, CS, FFIV, ORLY, UA, BEN, AVT, RYN, LSTR, MJN, TROW, ZMH, TQNT

In econ news, initial jobless claims rose for the week to 350k, but the BLS said that Calif. is still working through backlogs from September.

Asian markets ended mixed.  China declined despite the HSBC PMI reading climbing to 50.9 from 50.2.  The liquidity crunch continued in China with overnight SHIBOR rates rising again.  The overnight rate rose to 4.09%. 

Europe's markets are mostly higher today.  Eurozone manuf. PMI ticked up to 51.3 from 51.1.  And the services PMI fell to 50.9 from 52.2.  French manuf PMI slipped to 49.4, marking its 20th consecutive contraction.

Commodities are mixed again.  Gold prices are higher to $1344 while oil prices are lower near $96.15.  A gas expert was on CNBC this morning predicting lower prices at the pump, which should boost consumer confidence into the holiday season.

The 10-year yield is sitting right at the 2.50% level.  Goldman Sachs said they think the Fed likely won't start tapering until March 2014.  As such, the upward pressure on bond yields seems to have subsided for the time being.

Trading comment: No changes to recent comments on our strategy.  We don't want to chase stocks higher that have had big run recently.  Our favorite strategy is to buy stocks that just reported strong quarters but the stocks have pulled back.  Or least favorite strategy is to bottom pick stocks that have show big declines on the heels of disappointing earnings.  Those stocks are likely to remain laggards until they can put up some better quarters.

Wednesday, October 23, 2013

Is This The Start Of A Correction?

Markets are lower across the board this morning.  The weakness started overseas and has carried over into US trading.  Of course, the market is up a lot recently and investor sentiment has grown more bullish.  This has us wondering if today's pullback is the start of a new correction for the market?

Asian markets were lower overnight after reports suggested the PBOC in China may tighten policy amid rising inflation pressures.  Adding to the weakness were reports that Chinese banks tripled their debt write-offs during the first half of the year.  Overnight SHIBOR rates in China spiked higher, with the one-month rate climbing to 4.81%.

Europe's markets are also lower today.  Spain declined -1.7% after the Bank of Spain said the country's economy expanded 0.1% in Q3, ending a long period of contraction.  Elsewhere, the Bank of England voted unanimously to maintain interest rates at 0.50% and keep in place its asset purchase program.

Stocks rising on earnings: AEP, BA, LLY, NOC, NSC, DPS, LL

Stocks falling on earnings: BRCM, CAT, WLP, EAT, GSK, TUP, GD

Commodities are lower even as the dollar is fairly steady today.  Oil prices are falling further to the $96.50 level.  Falling oil prices could give a boost to the consumer if the declines flow through to the pump prices.  Gold is also lower today near $1333.

The 10-year yield continues to slide, falling below the 2.50% level to 2.47%.  Yields haven't been at these levels since late July.

After reaching very low levels last week, the volatility index (VIX) has bounced.  Today it is up 4% to the 14.0 level, which is still a pretty low level.  It will likely get back to the 15 level in the near-term.

Trading comment: In recent days we have seen reports about money market balances declining to very low levels, margin debt levels rising, and investor sentiment growing more bullish.  All of these are signs that complacency has entered the market equation, and most often that leaves the market vulnerable to a correction.  Calling for any correction this year has been an act of futility, but at the very least we want to give the market some room to consolidate recent gains and not chase stocks that have moved markedly higher already.

Tuesday, October 22, 2013

Jobs Growth Tepid At Best

Markets were higher in early trading, but have since started to pullback such that the S&P 500 remains higher while the Nasdaq has reversed into negative territory.

The September jobs report that was delayed last month was released this morning.  It showed that nonfarm payrolls increased by only 148,000 in September, below estimates for 183k jobs.  Private payrolls were similarly weak at 126k vs. 183k estimates.  Surprisingly, once again the unemployment rate declined to 7.2% from 7.3%, likely due to continued labor force shrinkage.

While tepid jobs growth is not the sign of a strong economy, stock investors took it to mean that the Fed would be less likely to taper any time soon and would likely keep their foot on the monetary gas pedal - which is normally good for stocks.

The bond market inferred a similar message.  The yield on the 10-year T-note dropped 8 basis points to 2.53%.  That marks a 3-month low in bond yields.  And interest rate sensitive investments such as utilities, preferreds, etc are rallying today.

Meanwhile, earnings reports continue to roll in fast and furious. 

Stocks rising on earnings: DAL, NFLX, VMW, LMT, TRV, WHR, ITW, NVS, KMB, NUS, AAMC, R, FCX

Stocks falling on earnings: COH, TXN, UTX, CIT, EMC, IDXX, HOG, PNR, STT

Folks will also be watching a press conference from AAPL today where it is expected to release its new iPads.

Asian markets were mixed overnight.  China fell despite home prices climbing +9.1% year/year and gaining in 69 out of 70 cities.

European markets are trading near their highs of the day.  Germany upped its growth forecast slightly for 2014 from 1.6% to 1.7% GDP growth, while holding 2013 steady at 0.5%.

The volatility index is up 4% so far to 13.75.

Trading comment: The market continues to exhibit strength as it extends its gains into new high territory.  This is why we wanted to start dipping our toes in the water and putting some cash to work during the debt ceiling debacle.  Because when the market starts rallying it usually moves quickly.  We continue to like stocks that are leading the market and nearing new breakouts.  We don't want to try to pick laggards hoping they will catch up.  With the Fed likely on hold, a big headwind for stocks has been removed from the market - at least until the next debt ceiling negotiations surface again.

KAM Advisors has long positions in AAPL

Monday, October 21, 2013

Monday Morning Musings

Markets in the U.S. are mixed after a nice run last week.  The S&P 500 has actually been higher in 6 of the last 7 trading sessions.

In economic news, existing home sales hit a rate of 5.29 million units.  This was down from last month's revised figures of 5.39 million units.

Earnings season continues to be busy this week.  One of the big reports we will be watching is AAPL, which reportedly is seeing good sales of its new 5s phones but disappointing 5c sales.

Stocks rising on earnings: SAP, BCC, VFC, PHG, HAS, CE

Stocks falling on earnings: NVR, HAL, MCD, MAN, GCI

Asian markets were mostly higher overnight, led by a 1.6% gain in China.  China's Premier reiterated that its growth targets will be met.  Japan also rallied after the Bank of Japan said the central bank would continue its monetary easing until its inflation target of 2.0% was met.  The BofJ raised its economic assessment in all 9 regions.

Europe's markets are mixed today.  Italy's appeals court banned PDL leader Silvio Berlusconi from public office for 2 years.  Great Britain's house price index rose 2.8% last month.

Commodities are mixed today.  Gold prices are a bit higher to $1317.  Silver and copper prices are also higher.  But oil prices are weaker and testing the $100 level for the first time in awhile.

The 10-year yield is a tad higher to 2.61%, a level it has been testing for almost a month now.

The volatility index (VIX) came down hard last week and sliced through the 15 level we often talk about.  Today it is 4% higher, but still only at the 13.6 level.  Over the last year when the VIX is below the 15 level it has provided a good backdrop for the market to rise.

Trading comment: Markets continue to respond positively to most of the news coming out.  There have been a few disappointing earnings reports.  Those are stocks that we don't want to add to, despite their pullbacks.  We want to stick with the leaders which only seem to extend their leads when the market is in rally mode.  GOOG was huge last week.  Let's see if AAPL can garner a positive reaction from investors as well.

Wednesday, October 16, 2013

Optimism Moving Back Into The Equation

Stocks are sharply higher today amid optimism that a vote on the debt ceiling is going to pass in Congress ahead of the midnight deadline tonight.  Just yesterday the market closed at its lows amid pessimism that a bill would be ready.  So there is a bit of investor schizophrenia going on right now.

The latest reports indicate the House will bring up the Senate plan for a vote on the House floor with enough votes to pass.  Whether or not this actually occurs today remains to be seen.  The vote should come in the next hour or so.

Yesterday, ratings company Fitch announced it was placing the US 'AAA' debt rating on negative watch due to "political brinksmanship" over raising the debt ceiling.  So even if a deal gets done today, some damage has already been done and the concerns about our reputation and ability to function ahead of deadlines will not likely be questioned.

Earnings season kicked into full swing last night, and many companies have reported including a handful of large financial companies.  So far, the number of stock rising on earnings is dwarfing the number of stocks falling after reporting.

Stocks rising on earnings:  BAC, INTC, MAT, PEP, YHOO, BLK, GWW, PJC, ABT, NTRS, USB, CMA, KEY, PNC, AAP

Stocks falling on earnings:   STJ, SWK, ASML, LLTC

The dollar is higher today which is likely weighing on gold prices ($1269), but oil and copper prices are higher.

The 10-year yield is getting a small boost to 2.73%. 

And the volatility index has been crushed today.  Yesterday it closed some 16% higher and looked like it might hit 20 again.  But today it is down -17% so far and all the way back to the 15.50 level.  So the market is making a pretty big bet that a deal gets done today.

Trading comment: We are not sure why the market is so convinced the votes will pass today.  There has been so much back and forth it seems far from a done deal.  But maybe the warning from Fitch yesterday as well as the comments from many leaders that it is silly to use the debt ceiling as a weapon will lead to cooler heads and more compromise.  The S&P 500 is not far from making a new high, and the small and midcap indexes are already at new highs.  So there is plenty of optimism in the air.  This also begs the question, if markets are already up this much in advance, will they continue to rally if a deal does get done?

Tuesday, October 15, 2013

Are Markets Too Complacent?

The markets were down in early trading and the selling was slowly picking up until members of Congress appeared on TV and the markets bounced.  We didn't hear anything definitive mentioned, but markets don't seem too worried about nothing getting done past the debt ceiling deadline on October 17th.  This causes us to wonder if investors are being too complacent?

The Senate said they have been making progress on a bill while the House said that it is going to take up its own bill.  On the surface this would seem to delay things more.  But at this point who really knows.

In economic news, the Empire Manuf. index for October declined to 1.5 vs. last months reading of 6.3.  The Fed's Fisher said economic data will likely be lumpy for the next couple months.  Also, he said that he would not support any taper at the October meeting due to the govt shutdown.

Despite the no taper news, the yield on the 10-year T-note is higher today to 2.72% after the bond market was closed yesterday.

The volatility index is fractionally higher to 16.30 currently.

In earnings news, SCHW, JBHT, JNJ, OMC, C, and KO are trading higher after reporting earnings.
DPZ, FRC, and TDC are all trading lower after their announcements.

Asian markets were mixed overnight.  The Bank of Australia said it was pleased with the way recent rate cuts are working.  And Nomura said the PBOC might look to tighten monetary policy in China in November.

Europe's markets are mostly higher today. 

The stronger dollar today is weighing on commodities.  Oil prices are weaker to $102 while gold prices are also down a bit near $1270.

Trading comment: Hard to commit cash ahead of the dysfunction that is going on in Washington.  While we are in the business of forecasting markets at least to the extent that we can attempt to assign some probabilities to things, it is extremely hard to game the debt ceiling negotiations.  We would like to think that everyone in Washington understands the severity of any sort of default.  But the notion of compromise seems a bit lacking these days, so we again have to go down to the wire and hold our breath that cooler heads prevail.  While we are always looking for attractive individual situations that arise in the market, we are not making any large scale bets ahead of the debt ceiling.

Monday, October 14, 2013

Monday Morning Musings

Markets are lower this morning as Friday's optimism fades.  The President rejected the debt ceiling proposals made by Senate Republicans on Friday.  Lawmakers currently remain divided on making a deal to reopen the govt.  And the debt ceiling limit hits Thursday, so hopefully we won't go down to the wire (or past it).

We can't tell what the bond market's reaction is as it is closed for Columbus Day.  But there does seem to be a bit of a flight to safety into gold.  Gold prices are higher near $1283.

Asian markets were mixed overnight with Hong Kong and Japan's markets closed for holidays.  China gained 0.4% despite some disappointing data in the form of exports which fell -0.3% for the first time in 3 months and inflation that rose more than expected.  Separately, Singapore GDP rose 5.1% yr/yr.

Europe's markets are also mixed.  Eurozone industrial production rose 1.0%.

Oil prices are a bit weaker today to $101.35.

As for the VIX, it is moving higher as traders worry over increased volatility as the debt ceiling deadline looms.  The VIX had been moving lower last Thurs. and Fri., but today it is 12% higher back above 17.50.

Trading comment: While we find it hard to believe that Congress would actually go off the debt ceiling cliff, anything is possible.  Our base case scenario still assumes a last minute deal will be reached, even it if is just kicking the can down the road.  As such, we remain better buyers on weakness.  That said, we are getting into the heart of earnings season where potholes remain.  So we want to stick with names that recently reported strong quarters, are exhibiting good relative strength, and have a history of steady earnings growth and not missing estimates.

Friday, October 11, 2013

Stocks Adding To Yesterday's Rally

Stocks enjoyed an outsized rally yesterday, snapping back from multi day losses on hopes of a deal getting done in Washington.  A deal to extend the debt ceiling by 6 weeks is nothing to jump up and down about, but stocks had gotten oversold and were due for a snapback.  This morning stocks are adding to yesterday's gains, but it's still early so we will have to see how the day unfolds.

In earnings news, JPMorgan and Wells Fargo released earnings.  JPM topped estimates while WFC's results were mixed.  WFC stocks is slightly lower currently while JPM is up a touch.

In economic news, the prelim Univ of Mich sentiment report for October decreased to 72.5 from 77.5 last month.

Investors continue to watch headlines out of Washington.  Initial reports indicated the President rejected a GOP proposal to extend the debt ceiling for six weeks.  But now reports indicate that talks are still ongoing and nothing definitive has been decided.  Stocks continue to rise and seem to be pricing in a favorable outcome.

Asian markets were sharply higher overnight on the heels of the rally in the US yesterday.  A PBOC governor confirmed China's growth will remain above 7.5%.  China rallied +1.7% last night. 

Europe's markets are mostly higher today, but Italy is not participating as there continues to be drama within their govt., this time with Mario Monti threatening to withdraw his party.

Gold prices are significantly weak today, falling down to the $1268 level.  We recently sold the last of our gold etf (GLD) that we have traded around for years after it broke back below its 50-day support.  Goldman predicts gold will fall to $1050 next year.  While we aren't quite that bearish, we no longer think gold will be a performance driver for portfolios.

The 10-year yield is fading back to 2.66%.  And the VIX is down another -5.5% to 15.55.  That's a big drop from the 21 level in just 2 days.  We have watched this 15 level all year as the level that brings out more bullishness should the VIX dip below it again.

Trading comment: The last 2 days action has been quite positive, despite the fact that any agreement for a 6-week debt ceiling extension merely puts us right back in this uncertain position around the time of Thanksgiving.  But for now investors feel better and the S&P 500 is back at the 1700 level.  We still want to see how earnings season shapes up the next few weeks.  But stocks that report strong earnings should be the best candidates to lead the market into year end.

Thursday, October 10, 2013

Band-Aids From Washington

Stocks are rallying sharply amid optimism that some headway is being made in Washington.  Reports indicate House Republicans floated the idea of a short-term debt increase in exchange for a promise to work on broader spending reform.  But it sounds like this would just be a 6-week increase, and then we would be right back where we are today.  Better than a default, but certainly not the most bullish outcome in that it is just a short-term band aid.

There hasn't been much other news that is moving markets.  CTXS lowered guidance last night and the stock is getting hit hard.  But some of the big banks start to report tomorrow and that will likely have more of an effect on investor sentiment.

Asian markets were mixed overnight.  China fell -0.9% despite reassurances from China's Premier that GDP will stay above its 7.5% target for the first three quarters of the year.  Elsewhere, the Bank of Korea held interest rates steady at 2.50%.

Europe's markets are higher this morning, likely on optimism out of Washington.  Spain and Italy are leading the upside action.

The dollar is a bit higher also, but commodities are mixed.  Oil prices are higher near $102.75 but gold prices are lower and testing the $1300 level again.

The 10-year yield is getting a bounce above the 2.71% level.  And the volatility index which briefly hit 21 yesterday is down over 10% this morning to 17.50.

Trading comment: It seems unlikely that such a short-term solution to the debt ceiling will lead to a durable rally in the stock market.  Unless real progress is made soon it wouldn't be surprising to see some of this optimism fade again.  So we don't want to chase stocks today but would rather be patient and use further dips to accumulate positions.  We also want to see how earnings season starts to shape up as it kicks into higher gear next week.

Tuesday, October 08, 2013

Still Waiting On Washington

Markets opened today in fairly lackluster fashion and have only weakened since the first hour of trading.  Volume was also light yesterday as investors don't want to make any big bets ahead of what's to come out of Washington.  Frustrating.

There is also very little newsflow.  Economic reports have been delayed due to the govt shutdown, and corporate reports are light ahead of earnings season which is set to kick off this week.  Two big banks, JPMorgan and Wells Fargo report on Friday.

Asia's markets opened weaker but closed on an up note.  China gained +1.1% on its first day of trading after being closed for a week for Golden Week.  China's HSBC services PMI ticked down to 52.4 from 52.8.  Australia's business confidence climbed to 12 from 4.

Europe's markets are mostly lower.  Germany's trade surplus widened.  Spain's industrial production fell 2.0%.  And the FT said EU regulators are looking at penalizing banks that are still overly reliant on the ECB's LTRO facility.

Oil prices are higher today near $103.80.  And gold prices are up again to $1327.

The 10-year yield is barely higher today at levels near 2.63%. 

As for the volatility index, it started out lower but has since moved higher on the day to 19.80.  Yesterday it spiked 16% higher.  These are very high levels for the VIX.  We have only seen 2 closes all year above these levels.  So traders are nervous here, but ultimately we think this plays out similar to 2011 where the spike in fear turns out to be a good buying opportunity.

Trading comment: Fear is building as the market continues to slide.  But the declines have been orderly and not of the panic variety.  Volume also ran lighter yesterday so we avoided another distribution day.  We continue to look for spots to add to equity exposure as we think we will ultimately move past this point where the markets are held hostage by Washington and we see another push higher in stocks into year end. 

Monday, October 07, 2013

Monday Morning Musings

It's always cloudy in Washington.  The govt. shutdown enters its 7th day and sentiment weighed on global markets.  Also, economic reports have again been delayed.

Hopes for progress on the debt ceiling debate faded after House Speaker Boehner said there were not enough votes in the House to pass a clean bill and that the US is on a path to default as long as the President refuses to negotiate.

Asian markets moved lower, with China still closed for the holiday until tomorrow.  Tokyo Electric fell after a power failure disrupted efforts to cool reactors at Fukushima.  What a mess that is.

Europe's markets are also lower today.  Eurozone investor confidence fell to 6.1, well below expectations for 10.6.  Greece introduced a draft budget for 2014 which calls for 0.6% projected growth.  Doubtful.

The dollar is flat today and commodities are mixed.  Oil prices are lower near $102.25.  Gold prices are higher to $1323 as are silver prices, but copper prices are lower.

The 10-year yield is falling a bit to 2.61%.  The 10-year yield has been finding support near this 2.60% level for the better part of a week.

The volatility index is spiking again, rising some 9% and almost toughing the 19 level this morning.  That marks the highest levels we've seen on the VIX since late June.

Trading comment: The S&P 500 continues to struggle near its 50-day average support levels.  The SPX broke down near 1675 early this morning before bouncing back above its 50-day which currently sits near 1679.  We continue to think its a decent strategy to add to stocks into weakness, even as we realize the market could dip more on a continued impasse in Washington.  Also, earnings season kicks off this week so we want to be careful about making big individual stock bets ahead of earnings reports.

Friday, October 04, 2013

No Payrolls Report Today

Stocks are bouncing a little bit in early trading.  Today should have included the release of the monthly jobs report, but due to the govt shutdown the September payrolls report has been delayed.

Outside of that there isn't much in the way of corporate or economic data.  Potbelly's (PBPB) went public today and is up huge.  I used to love these sandwiches when I lived in Chicago, and hope they expand to the west coast soon.  Also, Twitter filed for its IPO, but we haven't seen any other details about the offering yet.

Asian markets were mixed overnight.  China remained closed for the Golden Week.  The Bank of Japan met and maintained its policy stance.  One governor commented that a prolonged shutdown or debt ceiling impasse in the US could have a severe impact on global markets.

Europe's markets are higher, led by a continued bounce in Italy.  The head of the European Stability Mechanism said he expects Greece to require a third bailout package.

Commodities are mixed.  Gold prices are lower near $1310 while copper prices are higher.  Oil prices are also higher to $103.85.

The 10-year yield is up today near 2.64%.  We are still looking for rates to normalize further into year-end and get closer to that 3.0% level again, maybe as taper talks for December renew.

The volatility index is lower today near the 17.2 level, but this is still a bit elevated relative to the recent trading range for the VIX over the last several months.

Trading comment: The S&P 500 is struggling with holding its 50-day support.  There is also a lot of headline noise right now from Washington.  Further impasses with regards to the debt ceiling will likely knock stocks lower, but one positive headline about an agreement could be met with a big relief rally.  So we continue to pick away at weakness and add to equity exposure as we think the markets will still be higher into year-end.

Wednesday, October 02, 2013

Job Growth Still Tepid

Markets are lower this morning, giving back much of yesterday's gains.  The big piece of economic data was the ADP Employment Report which showed the private sector added 166,000 jobs in September.  This was below estimates for 180k jobs, and doesn't seem strong enough to renew talks about an imminent taper from the Fed.

The govt appears no closer to ending the shutdown as it enters its 2nd day.  Now talks are starting to heat up surrounding the debt ceiling, and if a stalemate grows there it is more likely to have negative spillover effects on the market.

Asian markets were mixed overnight.  China was closed and Japan fell -2.2% after the govt. decided to rise the sales tax but did not offer any cuts to the corporate tax.

European markets are lower today also.  But Italy is bouncing after things seem to be less bad for the collapse of the govt there.

The 10-year yield is fading again, falling below the 2.60% level.  Bond yields had a big rise from May to September, so it could just be that they are in a consolidation period right now.

The dollar is lower today and that is helping boost commodities.  Gold prices are bouncing sharply back above the $1300 level to $1320.  But a look at the gold etf shows that it is still trading below its 50-day moving average.  Oil prices are also higher today near $103.20.

The volatility index is spiking today also, up 6.5% currently to 16.55.  When the VIX has been above the 15 level this year it has marked a period of heightened volatility for stocks.

Trading comment: The S&P 500 bounced from its 50-day support yesterday, but today it is back down testing those levels (SPX 1680).  If it holds then we should see more of a bounce, but if support is broken we could see the S&P go back down and test the 1640 level that it hit last month.  Some of this is likely to depend on how the negotiations go over the debt ceiling talks.  It is very frustrating that Congressmen use this as a leverage tool.  We are the only developed country that even has an official debt ceiling, and considering it gets moved up every time does it really make sense to have it at all?

Tuesday, October 01, 2013

Stocks Shrug Off Govt. Shutdown

So our dysfunctional congress couldn't avert the govt shutdown in the end.  Not a big surprise given how things have gone in recent years.  Hopefully they won't act in the same manner when the debt ceiling deadline arrives in October.

Of course, the big worry for investors was how the markets would react.  If today's open is an indication, the market isn't too worried about this event.  Stocks are nicely higher in early trading and have been adding to their gains so far. 

Stocks also got a boost from some solid economic data.  The September ISM Index rose to 56.2 from 55.7.  This marks the highest level from this manuf. index since April 2011.  We aren't likely to get more economic data for the rest of the week as the govt shutdown will effect the releases.  If the shutdown goes all week, Friday's monthly jobs report will be delayed.

Asian markets were mostly higher, while China and Hong Kong were closed for holiday.  China's manuf. PMI ticked higher to 51.1 from 51.0.  Japan's unemployment rate increased to 4.1% from 3.8%.  And the Reserve Bank of Australia held its key interest rate steady at 2.50%. 

Europe's markets are mixed today.  Eurozone manuf. PMI slipped to 56.7 from 57.1.  Germany's unemployment rate rose to 6.9% from 6.8%.  Also, in Italy reports indicate up to 20 PDL Senators have looked into forming their own party to avert a collapse of the govt.

The dollar is flat today, but most commodities are lower.  Gold prices are getting hit hard and falling all the way down to $1288.  Oil prices are also weak again near $101.33.

The 10-year yield is higher to 2.63%, but still a ways off from the 3.0% level that just a few weeks ago folks thought was a done deal.  We recently added to our short Treasury positions to hedge against the prospect of rising rates.

As for the volatility index, after spiking last Friday it continues to fall back down.  Today it is down -5% back to 15.75.

Trading comment: We sent out a note saying that govt shutdowns have historically not had much of an impact on the stock market.  They are often short-term events that resolve themselves quickly, and if we did get a market pullback it would be a buying opportunity.  We used the weakness late last week and yesterday to add to stocks, and today we are seeing a nice bounce so far.  The S&P 500 found support yesterday at its 50-day average near 1680, and so far today has bounced to 1693.