Back In The Saddle

I am back from my visit of taking my kids to see their grandparents in Cleveland. It sure does seem that the market always falls out of bed when I am away from my desk. Of course, these days you can access your systems from anywhere, but it's just not the same thing.

That said, last week I left off by saying that the markets rally looked tepid, and I wanted to remain cautious. That stance certainly seems warranted in hindsight. And the data this morning is doing little to inspire bullishness at the moment.

In economic news, durable goods for July were much weaker than expected at +0.3%, when a rise of +3.0% was expected. Participants are also ignoring that last month's data was revised higher. There was also another weak housing report, with new home sales for July falling -12.4%, weaker than expected.

There was also news that Ireland's sovereign debt rating was reduced by S&P to AA- from AA. This has the credit default swaps for Western Europe trading higher, but interestingly the reaction in the Irish stock market has been totally muted, implying that this move was already anticipated.

The dollar is moving higher, as the flight to safety trades looks back on. Gold is also higher, near $1237, and Treasuries are higher also. The latter is pushing bond yields down to 2.47%, the lowest levels since March 2009.

Asian markets were lower overnight; and the volatility index (VIX) is 3.3% higher so far, rising to 28.37 after bouncing above its 50-day average yesterday.

Trading comment: The market is once again extremely oversold, and likely due for a bounce. But again, until some of this technical resistance is broken, I think most bounces will be short-term in nature. The S&P 500 is currently trying to hold the 1040 level, where it found some support in May and June.

Prior to my mini-vacation, I had been saying that the action in the market warranted caution. I still feel that way, but obviously the market has already moved lower and we need to be flexible. As such, I will be looking to sell some of our hedges that we had put in place, and add to stocks that have come back down to attractive levels.