The market is rallying nicely in early trading, on no real bullish news other than some slight improvement in the Japan nuclear situation. But the escalating military action in Libya, the rise in oil prices, and a disappointing housing report don't really support the renewed buying enthusiasm.
A better explanation is that bearish sentiment last week simply grew too high, and today's rally is a continuation of the unwind of some of that bearish sentiment. For example, the CBOE put/call ratio averaged a very high 1.06 for all of last week. And the AAII survey showed bears outnumbered bulls by 14%. Those are some of the most bearish sentiment readings we have seen since last August, which we know preceded a strong uptrend.
In corporate news, the big merger announcement over the weekend is that AT&T is buying Deutsche Telecom (T-Mobile) for $39 billion. The deal should bring some scrutiny from regulators, so we will have to see if AT&T is forced to make any concessions.
The dollar is nearly unchanged, while most commodities are higher. Oil prices are back to $102.20, and gold is also higher today to $1433.
Asian markets were mixed overnight, with Japan closed for a holiday, Hong Kong up 1.7%, and China lower by 0.1% after raising its reserve requirement ratio another 50 basis points. China continues to tighten monetary policy, and many are worried that the country will experience a hard landing as a result of their property bubble.
The 10-year yield is higher to 3.35%; and the VIX is -14% lower back down to a more reasonable level at 20.89.
Trading comment: Despite the strong rally this morning, the S&P 500 needs to close above its overhead 50-day average, which currently sits around 1303. Lots of leading stocks also continue to build their bases that began during this correction.
So even if we may have seen the lows for this correction (just a possibility), it looks like the market and leading stocks still need to put in a little more time rebuilding their bases before they are ready to launch new uptrends. But I'm still glad I dipped my toe in the water last week while stocks were down to add some exposure at attractive levels.
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