Monday Morning Musings

The markets are continuing to bounce from their oversold levels last week. This morning, stocks are up sharply on news of a bailout package for Greece. The Dow was up 100 points at the open, although it is fading a bit at the moment. We will have to see if month-end buying keeps a bid under stocks into the close.

The big news is obviously the prospect for a German-led bailout package for Greece. Details are thin right now, but the rumors are that it would avoid a total restructuring of Greek debt with more details coming out by the end of June.

Asian markets were up sharply overnight, led by a 2.2% rally in Hong Kong. China snapped an 8-day losing streak with a 1.4% bounce. Even India rose, despite GDP in the country slowing from 8.3% to 7.8%.

In economic news, the Case-Shiller home price index showed prices fell 3.6% in March to a new multi-year low. Consensus expectations were for a 3.4% drop.

Commodities are rallying, aided by the dollar being pushed lower due to the rally in the euro. Oil prices have topped $102.50, and gold prices are slightly higher to $1537.

The 10-year yield is flat near 3.05%, after a prolonged slide since topping out at 3.6% back on April 8th. At 3.05%, the bond market really seems far more preoccupied with a potential slowdown than worry about the end of QE2 and what that might mean for buying demand for Treasuries.

Trading comment: Last week, we said the markets were oversold and we were buying for a trade. Today is day 4 of the oversold rally, and we are taking some chips off the table. We could easily see new beginning of month money come in tomorrow as well, which we would probably trim a little more into. At current levels, the market is still likely to be down a couple of percent for the month of May. June is likely to continue to be choppy, with lots of questions about what the environment will look like post-QE2 (June 30th).

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Stocks Beginning To Bounce From Oversold Levels

The markets are higher this morning, after falling for the last 3 days. Energy and materials stocks are the strongest so far, while defensive utilities and consumer staples are lagging.

The dollar is up modestly, but that isn't hurting commodities yet. Oil has risen back above the $100 level, and gold prices are higher near $1526. Silver prices are also moving up.

In economic news, durable goods orders fell more than expected in April, declining 3.6%. Though some of this decline is simply due to the robust 4.4% increase in the previous month.

In corporate news, Ralph Lauren (RL) is down -8% after missing earnings estimates. The retail sector is also lower on the day so far.

Asian markets were mostly lower overnight, and I continue to read troubling reports about China.

The 10-year yield is flat at 3.12%; and the VIX is down another 3% to 17.25.

Trading comment: I want to express my condolences to the family and colleagues of Mark Haines. Although I never met Mark Haines, CNBC has been on in the background of my office for the last 15 years. So I listened to Mark reporting on the markets every morning, and I can't count the number of interviews I've watched him give. He had a strong presence, was always no-nonsense and straight-forward, and wasn't afraid to challenge his guests. I have seen a lot of CNBC personalities come and go over the years, but he will be missed more than most.

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Goldman Upgrades Outlook For Oil Prices

The market is up slightly in early trading, but the action is mixed. Energy is getting the biggest bounce following yesterday's selling, as commodity prices rebound.

The dollar is lower today, which is helping boost commodities. Oil prices are up near $99.50, bolstered by a bullish call from Goldman Sachs, who sees Brent Crude prices hitting $120 this year and higher next year. Gold prices are also higher, trading above $1525.

The IPO hype is back in effect today, with Russia's Yandex (YNDX) coming public. Anytime you label something "the Russian Google", you are bound to attract some hype.

Asian markets were slightly higher overnight, a nice reprieve to the recent selling pressure. Europe's markets are also higher this morning.

The 10-year yield is higher to 3.15%; and the VIX is down -4% this morning to 17.53 after a big spike yesterday that took it as high as 20 at the open before fading as the day wore on.

Trading comment: As long as the major indexes are trading below their 50-day moving averages, a more defensive posture is warranted. That strategy has kept me out of a lot of trouble in my career. That doesn't mean you can't pick at your favorite names, with an eye towards lowering your basis, but I don't like to get aggressive until the indexes are back above their key moving averages. Short-term, I am looking for some buying into month-end, but that is just for a trade.

long GOOG

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Monday Morning Musings

The market is lower again this morning after weakness in overseas markets has been the primary driving factor behind the selling.

There were no economic reports here in the U.S., as investors took their cues from Asia and Europe. Asian markets were lower across the board overnight, led by a 2.9% drop in China. Europe is also lower this morning after Italy had its debt rating downgraded by S&P over the weekend, and Fitch downgraded Greece again.

This has also led to selling in the euro, and a bounce in the dollar. We are actually seeing the old "flight to safety" trade back on, with buying in the dollar, U.S. Treasuries, and gold.

Gold is up to $1511, but that is about the only commodity trading higher today. Oil prices have fallen back to $96.65, and the CRB Index overall is down roughly 1.3%.

Consumer staples stocks are down less than the market so far, but all sectors are in the red. Some food stocks are bucking the weakness, like Panera (PNRA), Chipolte (CMG), and Cheesecake Factory (CAKE).

Last week's IPO darling, LinkedIn (LNKD) is nearly 10% lower today, trading back near $84, which is slightly above the price at which it began trading on the first day it came public.

The 10-year yield is lower to 3.10%; and the volatility index (VIX) is up 6% right now to 18.55.

Trading comment: Bearish sentiment is on the rise. The CBOE put/call ratio averaged more than 1.0 for all of last week; the bull-bear spread in the AAII survey fell to -15%, the lowest level since last August; and the market is getting oversold again after 3 straight down weeks. The rub is that the S&P 500 is only 4% below its high, and we know that a 10% correction could easily occur this summer. My thoughts are just that any correction won't come in a straight line, and I think the bears may be overreaching at the moment. As such, I would wait for another bounce before doing any more selling, a strategy that worked well last week.

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More Problems In Euroland

The market was set to open relatively flat, but the news that Fitch downgraded Greece again led to some concerted selling in the market. Fitch lowered its rating on Greece to B+ from BB+. This also caused spreads to widen on other Euro bonds, and has put pressure on the euro as well.

It's funny that our market seems so tied to the euro, but lately any day that the euro is down, our markets are down also.

With the dollar higher, most commodities are under pressure as well. Gold is bucking the weakness, and trading above $1500 today. But oil prices are down again near $97, and soft commodities (cotton, cocoa, coffee, etc) are are lower on the day.

In corporate news, retailers are weak after Gap and Aeropostale (ARO) both lowered guidance and their stocks are getting hit.

Asian markets were mixed overnight; the 10-year yield is flattish near 3.16%; and the VIX is +8% higher today to 16.75.

Trading comment: Today's weakness is an example of how I said I though we would see renewed selling pressure after an oversold bounce. I continue to think the market will be choppy in the months ahead, with a possible slight downside bias. As such, the only real way to make headway in that environment is to trade around your positions to take advantage of the volatility. Opportunistic trading means adding to your positions on material weakness, and selling into any sizable rallies.

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LinkedIn, LinkedIn, LinkedIn!

Does anybody care about all the stuff going on in the market today, or is it all about the LinkedIn (LNKD) IPO? CNBC has a special orange box at the top left of their screen monitoring each tick in the price of the stock today.

I was shocked when I awoke this morning to see the IPO trading up to $80, up 75% from its IPO price of $45. But instead of taking a step back, and contemplating if the company is really worth 30x sales right now, investors have continued to pile in, and as of this writing, the stock has topped the $100 mark, up more than 120% from its IPO price. Congrats to all the LNKD employees today.

Now back to our regularly scheduled program. The Philly Fed index was very weak today, coming in at 3.9 for May from 18.5 in April. Talk about a falloff.

Existing home sales were also below expectations, as the housing sector is literally bumping along on life support.

The market had started off the day on high note, but has since pulled back into negative territory. Asian markets were mixed overnight, but Europe was higher this morning.

The dollar is roughly flat, but commodities are pulling back. Oil prices are down to $99, and gold is trading lower near $1486. But agricultural commodities are higher as unfavorable weather and flooding continues to delay planting in the U.S.

The 10-year yield is higher to 3.19%; and the VIX is roughly flat near 16.25.

Trading comment: The market had a nice bounce yesterday from its 50-day support, but volume was rather low. That signals there wasn't much conviction behind the buying. I continue to look for an oversold bounce in the market, of which today is the third day, and then for some continued downside probing.

The put/call ratio hit 1.15 on Tuesday, which is a bit of an extreme. So the selling pressure might have abated for the time being. Also, the AAII survey showed more bears than bulls today. So sentiment is getting in the right place to help the market put in a trading bottom, but I don't think we are there just yet. Be patient.

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Market Bounces From 50-Day Averages

Yesterday I commented that the major averages had come down to test support at their 50-day averages. So far, that support has held and the indexes are bouncing from those levels. The question is will the bounce last, or is it just an oversold rally?

There were some solid earnings reports that are boosting related stocks today, including the likes of DELL, ADI, and Abercrombie (ANF). One report that looked good but is not helping the stock is Deere (DE).

The big bank stocks are lower on renewed chatter about more stress tests.

The dollar is higher today, but that is not hurting a bounce in commodities. Oil prices are up to $99.67, and gold prices have bounced to $1496.

Asian markets were higher overnight, and Europe is higher this morning. The Bank of England decided to keep its interest rate unchanged at 0.5% and leave its asset purchase plan at 200 billion pounds.

The 10-year yield is up a touch to 3.14%; and the VIX is down -4% to 16.83.

Trading comment: I would expect the market to bounce from oversold levels, which also coincided with the indexes hitting their 50-day averages. We will have to wait to see how volume levels come in, and how leading stocks act. But for now, my guess is it will just be a bounce and then we will have to deal with some more selling afterwards. So I want to be patient here, and maybe even raise a little cash into this bounce with an eye towards putting it back to work at lower levels.

long DE

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Markets Struggle To Hold 50-day Averages

The market is under pressure again in early trading, led by a bounce in the dollar and continued weakness in commodities.

The major indexes are now struggling to hold above their respective 50-day moving averages. The S&P 500 needs to close above 1325, while the Nasdaq needs to hold 2771.

In economic news, both housing starts and building permits came in weaker than expected. The housing market continues to bump along a long bottom without making much progress.

In corporate news, HPQ reported solid earnings but issued downside guidance for next quarter which really hit the stock hard. Wal-Mart also reported solid earnings and gave in-line guidance, but it's stock is slightly lower so far as well.

In early trading, materials and industrials stocks are leading on the downside, while defensive consumer staples and utilities are bucking the weakness and showing small gains.

Asian markets were mixed overnight, while Europe is mostly weaker this morning. A bounce in the dollar is weighing on commodities, with oil prices down to $96.50 and gold prices lower to $1482.

The 10-year yield is sliding further to 3.11%. It's funny that with QE2 ending, the fear was that bond yields would rise but the exact opposite is occurring.

The volatility index is up 1.5% to 18.51.

Trading comment: Volume accelerated during yesterday's selloff, making for another distribution day. The market is in a correction now, so it's prudent to space out your buys a little wider, and hold a higher cash cushion to take advantage of further dips. Emerging markets look broken, with the BRIC countries lagging most other parts of the world in relative performance. In the US, leading growth stocks continue to break down, signaling a more cautious stance is warranted. Ideally, this will just be another brief correction like many of the others, but you never know when something deeper is in the cards, so just be careful.

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Monday Morning Musings

The market is slightly week this morning, while newsflow is relatively light to start the week. The big news over the weekend was the head of the IMF getting arrested in NY ahead of a eurozone ministers meeting today. While I would have expected that to weigh on the euro, the euro is higher today against the dollar.

Commodities are flattish, with oil prices slightly lower to $98.85 and gold prices also down a bit near $1494.

Among the sector funds, financials are strongest out of the gate so far while tech is mostly lagging.

Asian markets were lower overnight; the 10-year yield is steady near 3.18%; and the VIX is flat at 17.09.

Trading comment: The S&P 500 is still hovering in that 1335-1340 range that I have watching for support following the late April breakout and subsequent pullback. I expect the market to remain choppy around these levels, but so far the downside has been contained.

Among leadership, if you look at the defensive sectors like consumer staples (XLP) and healthcare (XLV), you can see that they have just experienced a period of significant outperformance. I would expect this bout of relative outperformance to give way to some sector rotation, but it remains to be seen which group with be the beneficiary of said rotation. It could be energy and materials once again, it could be tech, and there is an outside chance that financials catch a bid - but mostly just because sentiment is so negative for the group. Stay tuned.

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Stocks Close Out The Week On A Down Note

My apologies for no posts yesterday and this morning. It was not for lack of effort, but the Blogger site that I use was down.

Stocks finished the week on a down note, with the S&P 500 declining 0.2% for the week.

The volatility in commodities continued this week as well. Oil prices closed at 99.50 for the week, and gold prices were lower at $1493.

Concerns in Europe finally led to a breakdown in the euro, which plunged this week to close at $140.52. (It figures the euro waited to fall until after I made my final payment for my golf trip with my dad to Ireland)

The 10-year yield continues to hover at low levels, currently 3.18%. And the volatility index jumped 6% today to finish at 17.07.

Trading comment: The SPX remains above its 50-day average, and within that 1335-1340 area where I was looking for the recent breakout to find some support. So on the bullish side, those are good indications.

On the bearish side, the action hasn't been very strong. Rallies have come on lighter volume, and the number of new highs has contracted. Also, many leading stocks remain under pressure. AAPL closed below its 50-day this week. And the emerging markets etf (EEM) sold off sharply today, closing below its respective 50-day for the third straight day.

As such, I want to keep some powder dry and see if we get more of a pullback. It's very likely we could bounce first, just to keep investors on their toes, but it still looks like volatility is heating up a bit as we near the summer doldrums.

Have a good weekend, and rest up.

long AAPL

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Stocks Pause After Three Day Run

The market is lower in early trading after putting together a nice three day run. The rub on the recent rally is that volume has been very light. You really want to see the opposite. You want to see markets rally on strong volume and pullback on lighter volume.

There isn't much in the way of market moving economic data this morning, so most of this is just profit taking.

The dollar is up a bit this morning, which could be weighing on commodities. Oil prices have pulled back below $101, and gold prices are also down, near $1506. Silver prices are down sharply as well.

Macy's (M) reported very strong earnings and raised guidance, and its stock is sharply higher today. I think the general public thinks retailers are hurting since consumers are strapped for cash, but many retailers have reported better-than-expected earnings. Although we can't count Disney (DIS) among them, as they reported disappointing earnings and the stock is lower.

Asian markets were mixed overnight, with China reporting another increase in inflation. The 10-year yield is higher to 3.21%; and the VIX is up 2% to 16.33.

Trading comment: Energy and material stocks are seeing the most selling pressure this morning, as are the related commodities (oil, gas, etc). These stocks have been volatile lately, and I think their recent leadership in the market is likely to pause for awhile while other sectors take the lead. I think tech still looks good, and the one sector that could be a wildcard is financials, since sentiment is so bearish there and no one is looking for anything good from financials right now.

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Will Microsoft Make Money From Skype?

The market is higher again in early trading, after Europe breathes a sigh of relief with respect to Greece. Greece completed a successful debt offering, issuing 1.625 billion euros of 26-week bills that drew an average yield of 4.88%.

This helped push European markets higher this morning, which likely aided sentiment here when our markets opened. Asian markets were mixed overnight.

Also in the news is a deal by Microsoft (MSFT) to buy Skype for $8.5 billion in cash. Considering eBay couldn't make any real money with Skype, I highly doubt MSFT will do any better. I love using Skype on my iPad, but I don't think it will move the needle for MSFT. And with a price tag of $8.5 billion, it looks like they significantly overpaid for this asset. Silver Lake Partners bought the company from eBay a few years back for closer to $3.5 billion.

Among the sectors, utilities and financials are leading the action, which is an odd pair. Healthcare is lagging the action so far.

The dollar is flat; gold prices are higher to $1515; and oil prices are up slightly to $103. The CME raised margin requirements in oil futures to help curb speculation. When they did this to silver, it killed the momentum in that commodity. I doubt it will have the same effect on oil, but it might help a bit at the margin (no pun intended).

The 10-year yield is fractionally higher at 3.16%, but has basically been on a one-month slide lower. The volatility index (VIX) is -5% lower today to 16.25.

Trading comment: Color me surprised by the strength in the market this morning. Of course, its still early, so it needs to hold. But overall things look good here. Stocks that sold off after earnings are bouncing back, and energy stocks that were hit last week are rebounding nicely as well. AAPL has been coiling in a consolidating fashion for nearly three weeks now, which makes me think an upside breakout could be in the works.

long AAPL

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Monday Morning Musings

The market is a touch lower in early trading, after mixed action overnight in Asia but much weaker action this morning in Europe.

Spain fell 1.9% and Greece was down 1.4% after S&P downgraded Greece's debt again amid concerns the country would need more bailout funds.

This also has led to a slide in the euro relative to the dollar. But the bounce in the dollar isn't keeping commodities from bouncing also. Oil prices are up near $99.50, after falling more than 14% last week. Silver prices are up 5% after plummeting 27% last week. And gold is also getting a little bounce to $1505. The action in commodities was so vicious last week that I think at best they are going to be in multi-month trading ranges from here.

There is not a lot of action in the way of corporate earnings this morning. Energy and materials stocks are leading the action so far, while financials are lagging.

The 10-year is still weak near 3.14%; and the VIX is down 2% today to 18.0.

Trading comment: So far the S&P 500 has successfully tested that 1335-1340 support levels. The market is also getting back to oversold levels, but has a little more work to do. I don't get the sense the market is ready to rally yet in any meaningful way, but I still want to be a buyer on weakness as I feel the downside is limited as well.

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