Tuesday, October 16, 2012

Stocks Rally On More Positive Eurozone Developments

Our markets are nicely higher for a second day, mostly on improved sentiment out of Europe.  The news this morning is suggesting that Spain is considering taking a line of credit to prequalify for the ECB bond buying program.  There were also reports that Germany was open to the precautionary credit for Spain.  These comments seemed a bit out of line with Germany's recent stance, and the markets rallied on the news.  But Germany has since come out and said that their comments were misinterpreted.

Asian markets were also higher overnight, but mostly following on the heels of the rally in US markets.  China's market were unchanged, and have really done very little in recent weeks in terms of being able to bounce from multi-year lows.

In corporate news, the big news is that Citi CEO Vikram Pandit is leaving the company-- or that he was forced out by the board.  I don't think this is that shocking.  He was an odd choice to begin with, coming from managing a hedge fund.  But he did his best to steer the company through the abyss and a change of leadership to me seems appropriate at this time.

Earnings reports are starting to pick up.  But as I scan the stocks reporting today and look at the reactions in their stocks I am finding more stocks trading lower after reporting than higher.

Stocks trading higher on earnings: GS, UNH, DPZ, JNJ, STT, MAT

Stocks trading lower on earnings: WDFC, KO, PNC, RATE, FRX, GWW, DBD, BRO

The dollar is lower as the euro is rallying.  This is helping boost commodities.  Oil prices are higher to $92.  Gold prices are rallying near $1746.  Silver prices are also higher, while copper looks flat right now.

The 10-year yield is trading higher to 1.71%.  And the VIX is down another -4.5% back near the 14.50 level.  Recent trips down to the 14 level have proved to be about the lows for the volatility index, so we are getting close to those levels again.

Trading comment: Yesterday I commented that the S&P 500 was testing its 50-day average and it could be an important test.  The SPX bounced sharply off that support and today is adding to those gains.  I was also caution because the mid- and small-cap indexes had traded below their respective 50-days and I felt that warranted caution.  But today those junior indexes have recapture their 50-days and folks are in buying mode.  I guess the next several sessions will be a key battle.  Volume has been very low on these rallies, and the leadership hasnt' been traditional growth stocks.  But if the Nazz can regain its 50-day, I think the bulls could remain in charge.  The reverse scenario would be if these low volume rallies fail and all the indexes fall back below their 50-days.  That's what I'm watching for.

KAM Advisors has long positions in JNJ, UNH

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