Is It All Priced In??

The markets are up for a rare second day in a row.  I would have expected to see some weakness yesterday but the market closed fairly firm and today is has taken out recent highs at SPX 1335.  It is possible that some of the upside skew yesterday and today is being affected by today's options expiration.

Another possible thesis is that maybe all of the scary potential news this weekend has for the most part been priced in?  Markets are good at telegraphing things that are already well known.  We have been talking about the Greek elections for weeks.  As a result, portfolio managers have had plenty of time to reduce exposure, hedge positions, buy protection, etc.  Even central banks are in the headlines saying they stand ready to add liquidity if needed. 

It sort of reminds me of the Y2K scare, which turned out to be a dud.  Of course, the fact that the market is up for the last 2 days ahead of the weekend does raise the odds for disappointing action on Monday.  But I am growing more skeptical of the potential for a huge selloff regardless of the outcomes of the elections.  That said, I do expect the sovereign debt issues to remain on the front burner as the focus of attention has yet to turn to Italy, but its coming.

There isn't much in the way of corporate news this morning, but there was some economic data.  The Empire Manufacturing survey showed a big decline to 2.3 in June from 17.1 last month.  That's a pretty big plunge.  And the Univ. of Mich. consumer sentiment survey declined to 74.1 for June from 79.3 the prior month. 

In this perverse environment, markets aren't selling off as much as they normally would to downbeat economic data because investors feel that weaker data will give the Fed cover and support for additional quantitative easing. 

Asian markets were higher overnight, and Europe is higher this morning.  The dollar is lower which is helping commodities.  Gold prices are higher near $1630.  Oil prices are up to $84.20.  And silver and copper prices are higher also.

The 10-year yield is lower to 1.56% as investors buy Treasuries for safety.  And despite the early strength in the indexes, the VIX is 2.6% higher still.  Some of this could be related to options expiration, as traders roll their positions out to future months.

Trading comment: As the S&P 500 breaks above that 1335 level that has acted as resistance since mid-May, I wonder if I have been too conservative of late.  But I also see the downward sloping 50-day moving average closing in fast on the SPX and I would expect it to offer stiff resistance.  I know bearish sentiment has been building recently and I acknowledged that a move higher could be in the cards to keep investors on their toes.  But I still don't get the sense that the market is poised for a sustainable run here.  There are not enough growth stocks breaking to new highs, and it would be rare for the market to keep pushing higher while led by defensive stocks like consumer staples and utilities.