Tuesday, July 24, 2012

China PMI Trying To Rebound

The markets are lower again in early trading following a Moody's downgrade in Europe and rising bond yields in Italy and Spain again.

Overnight, Asian markets rebounded from early losses after China's HSBC Manuf. PMI reading rose to 49.5 from 48.2 previously.  Although it is a welcome rebound, the sub-50 reading still points to continued contraction in the Chinese manufacturing sector.

In Europe, last night Moody's placed the AAA ratings of Germany, Luxembourg, and the Netherlands on 'negative watch'.  Italian and Spanish yields are on the rise again, nearing 6.41% and 7.47% respectively.  Despite the above, European stock markets are holding up fairly well.

The dollar is higher again, but commodities are mixed.  Oil prices are higher near $88.60, and gold prices are steady near $1577.  Silver and copper prices are lower. 

In earnings news, there were a lot of reports last night and this morning and the results are mixed.

Stocks rising on earnings: UA, BIDU, PCAR, LMT, DPZ, SPG, JAH, EMC, MO, SAP

Stocks falling on earnings: UPS, DV, VMW, SIAL, ITW, BTU, T, LXK

The 10-year yield is languishing near 1.42%.  And the VIX is 4% higher to 19.42 after hitting the 20 level yesterday before turning lower.

Trading comment: The mid- and small-cap indexes are trading below their 50-day averages, the Nasdaq and Dow are right at their 50-day supports, and the SPX isn't too far away.  So those are the lines in the sand that could point out when the bulls pull in their horns and get more defensive.  Earnings reports so far haven't been to bad, but they haven't provided a big upside spark either.  AAPL reports today, and even if the company beats as they usually do I doubt the quarter was strong enough to excite the whole market.  I continue to expect choppy trading following the roughly 6-week rally the market just enjoyed.

KAM Advisors has long positions in AAPL, EMC, MO

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