Is Merkel Softening Her Stance?

The markets are higher again in early trading on little new news.  Asian markets were mixed to higher overnight.  The Res. Bank of Australia held its key rate steady at 3.50% and also said that while growth in China has moderated it does not appear to be slowing further.

European markets are higher this morning despite a terrible GDP number out of Italy (-2.5%).  Spain and Italy are up the most, and Spanish bond yields have eased back to 6.71%.

There are also comments out of Germany this morning that Merkel may be softening her hard stance on the ECB's bond buying program.  This would be a surprise.  And its not just Merkel, but the Bundestag that has reiterated its stiff opposition to shared liabilities at each and every turn of this saga.  So we will have to watch for more commentary that either confirms or refutes these rumors.

Stocks rising on earnings: CHK, FOSL, BSFT, TDG

Stocks falling on earnings: CVS, FE, TAP, CHD

The dollar is lower vs. the euro today.  Gold prices are flattish near $1615 and oil prices are higher to $93.25.  Silver and copper prices are higher as well. 

The 10-year yield is getting another boost to a 1-month high at 1.63%.  And the VIX is down again to 15.75, which is pretty near recent lows from which it has bounced.

Trading comment: The market continues to stairstep higher.  Volume has been on the lighter side due to the fact that we are in the thick of summer trading.  But don't rule out the prospect of performance anxiety setting in and pressuring portfolio managers to chase the market higher.  I have seen reports that more active managers are trailing their benchmarks this year than ever.  That's not a good feeling for portfolio managers and could result in near-term dips being bought fairly quickly as they look to keep up.

KAM Advisors has long positions in FE

Monday Morning Musings

The markets are higher in early trading, after Friday's enthusiasm carried over into Asian markets.  Asian markets rose overnight and also got a boost after the PBOC in China suggested that it would ease monetary policy in the back half of the year and vowed to help bolster the economy.

In Europe, regulators in Greece over the last week cited progress on its efforts.  European markets are higher this morning.

In earnings news, CTSH matched estimates and slightly raised full-year guidance.  Expectations had been pretty low for the company and as a result the stock popped over 12% at the open.

In other corporate news, the founder of Best Buy (BBY) submitted a proposal to buy the company for $24-26.  But its unclear if he will be able to get all the financing and actually go through with the private buyout.

Among the sector ETFs, financials are leading the early action followed by materials.  Utilities are lagging the most, followed by healthcare stocks.

The 10-year yield is slightly lower near 1.55% following Friday's spike higher.  As for the VIX, it had gotten so low on Friday that even this morning's rally can't push it lower, as the VIX is up +3.7% this morning to 16.22.

Trading comment: Don't fight the tape is an old Wall St mantra.  This market has certainly been choppy, but it has also been putting in a series of higher lows and higher highs since its June bottom.  Today the S&P 500 nearly touched the 1400 level, which would be the highest level since early May.  The one knock on this market is that it has been led more be defensive issues like utilities, staples, and healthcare as opposed to the traditional growth stocks likes tech and consumer discretionary.  But if we start to see more classic growth stocks breaking out it could be a sign that this rally has legs.  Many market participants are also leery of chasing a market at this point in the year, since seasonal patterns often lead to a correction in the Aug.-Oct. timeframe.

KAM Advisors has long positions in CTSH

3 WEEKS TO GO

3 weeks, that's how long the bulls have left before stocks roll over and begin the next intermediate degree decline. That being said the next 2-3 weeks we should see some very healthy gains in virtually all asset classes. Why is that you ask? Because the dollar has begun moving down into an intermediate degree correction.

As of Friday the dollar was on the 11th day of its current daily cycle. The normal duration of a daily cycle is 18 to 28 days, with the average being about 23 or 24 days. That would suggest that the dollar should bottom somewhere around August 21st or 22nd. As you can see in the chart below whenever the dollar moves down into an intermediate degree trough it generates strong gains in asset prices.

What follows once the dollar bottoms and the next intermediate degree rally begins is not going to be pretty. Stocks are going to start to struggle and ultimately move down hard in September and probably October if the Fed doesn't unleash QE3 at the September FOMC meeting.  

By the end of August, and certainly by the time we get into September the markets are going to call central bankers bluff, and it is going to take more than words and the threat of quantitative easing to keep asset prices propped up.

I have covered the rest of the forecast in depth in the weekend report available to premium subscribers.

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Markets Jump On Delayed Reaction To ECB

The markets are up strongly this morning on the heels of big gains in Europe this morning.  While the headlines will only focus on the jobs report that came out this morning, our futures were already up strongly before that report was released.  Europe was rallying on a delayed reaction to the ECB meeting, coming to the conclusion that they have successfully kicked the can down the road again.  Spain and Italy's markets are up nearly 5% today.

In Asia, markets were mixed overnight.  China was one of the few gainers as hope bubbles that Beijing will announce further support for their financial markets.  Recently there were rumors that the govt. was urging companies to buy back their own stock.  Can you imagine if that happened here?

In economic news, our jobs report was much better than expected, which helped boost stocks.  Nonfarm payrolls for July came in at 163,000 vs. expectations for 100k.  And private payrolls rose 172,000 vs. 105k consensus.  The unemployment rate ticked up a bit to 8.3%.

Also, the ISM Services index rose to 52.6 in July from 52.1 last month.  So at least we are getting some economic reports that don't point to further slowing in the economy.  We still know growth is slowing, but at least its not across the board and in a straight line. 

Among the sector ETFs, financials (XLF) are leading the early action, while utilities (XLU) are lagging.  Energy stocks are also rallying after a big spike in oil to $90.75.

The boost in the euro is helping most commodities.  Gold is back above $1600, and silver and copper are higher also.

There were also a ton of companies that reported earnings last night and this morning, with many stocks rising after reporting. 

Stocks rising on earnings: MELI, KFT, PG, LNKD, NILE, IT, SIRO, TM, NYX, PSA, EOG, AWK, FEIC

Stocks falling on earnings: HNT, WCG, PKT, MCP, SWN

The 10-year yield is getting a rare boost on the strong economic data, bouncing to 1.57%.  It is barely breaking above its 50-day overhead resistance, which would be the first such penetration above that key moving average since early April.

As for the VIX, it is down -7% back down to 16.30.  The 16 level has acted as good support the last few times with the VIX bouncing from these levels.

Trading comment: I don't think most investors were positioned for such a strong jobs report.  The S&P 500 just broke above its July highs at 1391, which leaves the door open to 1400 near-term.  The SPX has been holding in this channel of higher lows and higher highs since its recent bottom in early June.  I still have concerns about the macro backdrop, as we know that sentiment towards Europe can change on a dime.  But I don't want to ignore the price action, which is very positive.  We are not looking to increase our equity allocations much at this point, but we also don't want to be too aggressive in adding to our ETF hedges unless we get another technical breakdown in the indexes.  So far now we are just sitting tight.

KAM Advisors has long positions in MELI, PG, PSA, AWK

Comment Cleaner

Just as I expected the stock market is back knocking on the door to new highs. My expectation was for the Fed to do nothing. The ECB I really had no idea. But I was looking for a couple of days of mild selling following the Fed statement and then a resumption of the intermediate trend.


I said last week when the bears started calling for a new bear market that it was too early in the daily cycle for stocks to top.


Mark another victory for cycles :)

ECB Offers No New Solutions, Reiterates Commitment

The markets are mixed in early trading, and it has been a wild ride already.  In case you weren't watching the pre-markets let me tell you what happened.  I woke up at 5:30 to watch the ECB announcement.  Immediately after the ECB press release the Dow futures spike +100 points.  But as more comments came out and Draghi began to speak, they quickly reversed and pretty soon were in negative territory.  When I got to the office and the market opened, the Dow was down a pretty quick 100 points.  That's a 200 point reversal from the pre-market highs.

And an equally big reversal happened in Europe.  Europe's markets were higher ahead of the ECB announcement, but quickly moved to losses when investors didn't hear any big new policy announcements from the ECB.  Spain has moved to a -2.7% loss on the day and Italy is down -3.0% as those markets head into the close.

So what was the big disappointment? First off, remember we have been saying that the market has been rallying on hopes of some new monetary easing from both the Fed and the ECB and that it was likely we could see a 'buy the rumor - sell the news' type reaction after the central bank announcements.  Yesterday the Fed gave little new information and mostly reiterated its recent stance that has already been communicated to investors.

This morning the ECB mostly followed suit.  The ECB kept interest rates unchanged at 0.75% and didn't offer any really new policy measures.  He reiterated that countries need to go to the EFSF for assistance before the ECB can step in to help, but that once countries have done that the ECB could buy sovereign bonds directly in the market.  He said they will look at non-conventional measures, but also didn't give any encouragement about the ESM getting a banking license anytime soon.  He also said that the euro is "irreversible", so that talk about a breakup is misguided.  (But that is what we would expect him to say)

The euro is also lower following the ECB news and the dollar index is higher.  That is pressuring most commodities.  Oil prices are under $88 and gold prices have broken back below $1600.  Silver and copper prices are also lower.

Stocks rising on earnings: K, OMX, FSLR, GMCR, YELP, TWC

Stocks falling on earnings: ANF, UPL, PH

The 10-year yield is lower to 1.47%, failing to hold above the 1.50% level.  And despite the early losses, the VIX is lower again to 18.15 (-4.2%).

Trading comment: The markets are down for a 4th straight day so far, but there are signs of encouragement.  Lots of growth stocks on my screen are green, and the Nasdaq has pulled into positive territory as of this post.  Tomorrow is the big monthly jobs report, which always has elevated volatility surrounding it.  I'm not expecting a strong jobs number, but I don't think most people are.  The ADP report was stronger than expected this week, but it isn't always the best leading indicator.  In a nutshell, while I could see a short-term oversold bounce at any time, I think the lack of new initiatives by the Fed and the ECB will likely take the steam out of the sail of the markets that have been rallying in anticipation of hope.  So I want to remain conservatively positioned for now.

Manufacturing Surveys Show Slowing Economies

The markets are slightly higher this morning on a better than expected ADP report and ahead of the FOMC announcement later.  The ADP employment report showed the private sector added 163,000 jobs in July, which is well above the 125k consensus expectations.

As for the July ISM Manufacturing index, it came in at 49.8 which is little changed from last month's 49.7 reading.  This is the second month in a row of a sub-50 reading which is the line of demarcation between expansion and contraction.

Speaking of manufacturing readings, the PMI figures in Europe are mostly lower as well.  The eurozone's PMI is at 44.0, the UK fell to 45.4, Germany was lowered to 43.0, and France was revised down to 43.4.  So growth remains slow in Europe as these PMI readings point to further contraction.

Asian markets were mixed overnight.  China's official PMI reading was in-line at 50.1 in July, but the HSBC private estimate came in at 49.3, up from 48.2 in June.  This and the expectation that China will provide more stimulus to their economy helped Shanghai rally overnight.

Stocks rising on earnings: ALL, SIMG, PZZA, CMCSA, GRMN, AGN, SSYS, CTRX

Stocks falling on earnings: MA, ENR, HOG, ICE

The 10-year yield is bouncing back above the 1.50% level.  And the VIX is slightly lower to 18.67.

The dollar index is roughly flat, and commodities are mixed.  Oil prices are higher to $88.85 while gold prices are lower near $1601.  Silver and copper prices are lower also.

Trading comment: I doubt that the Fed announces any new QE measures today.  I think it is more likely that they repeat the mantra that they stand ready to act.  And if the data continues to weaken, then maybe they take action in September.  But I would prefer to see them keep some powder dry for if the economy really hits the wall around 'fiscal cliff' time.  The bigger market moving news could be the ECB meeting this week.  They need to announce some new measures or risk another spike in peripheral bond yields in Spain and Italy.

KAM Advisors has long positions in CTRX