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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