Stocks Back In Rally Mode

The market sold off yesterday morning, but by the end of trading it rallied back to close with just a small loss on the day.  Investors hoping for a bigger pullback continue to be frustrated with the stair-step action of the market, and today we are back in rally mode with the S&P 500 breaking above the highs of its recent trading range.

In economic news, the US trade deficit shrank in December, but the brief strikes at the ports of LA and Long Beach likely contributed to the lower numbers.

In earnings news there are lots of stocks moving, especially for a Friday.  I continue to find more stocks showing positive reactions than negative ones.

Stocks rising on earnings:  LNKD, FLT, ATVI, ATHN, AOL, SIRO, AGNC

Stocks falling on earnings:  NUAN, MCO, CSTR

Asian markets were mostly higher overnight.  China also posted better than expected trade data, with it's trade surplus rising to $29.15 billion on a 25% jump in exports.  That should please those looking for improving economic strength in China.  For its part, the Reserve Bank of Australia lowered its GDP projections for 2013 to 2.50% (from 2.75%).

European markets are mostly higher as they rebound from recent weakness.  Germany's trade surplus came in ahead of estimates, and France's trade deficit was smaller than expected.

The dollar is higher again today, and commodities are mixed.  Oil prices are a bit higher near $96.45 while gold prices are flat around $1670.  Silver and copper prices are higher. 

The 10-year yield is bouncing today to 1.98% and still consolidating below the 2.0% level where we continue to look for a breakout.

The VIX is down -4% today back below the 13 level to 12.90.

Trading comment: Sentiment continues to grow more bullish to the point where complacency is now a red flag for the market.  Extreme bullish sentiment is not the best timing indicator, as bullish sentiment can persist for weeks before the market tops.  But is has served as a good warning indicator in the past.  At these junctures when sentiment is overly bullish, the best course is usually to raise a little cash and be patient.  There is often a larger pullback at some point and that will offer a better buying opportunity than chasing extended stocks in a rising market.

KAM Advisors has long positions in AGNC