Bond yields started to spike yesterday, which took a little steam out of the stock market rally. But today markets are sharply lower on what looks like continued fear about rising rates. Bond yields rose in Asian markets as well as Europe as well. And trading in closed end bond funds yesterday really showed the skittishness among investors.
Interest rate sensitive sectors are down the most. Trading in some of the REITs is showing extreme volatility, while utilities are the weakest sector so far. I think this is likely an overreaction, and when the dust settles yield-hungry investors and those with cash still on the sidelines will look to come in and buy beaten down REITs and utes.
Asian markets were mixed overnight. The Bank of Thailand became the latest central bank to lower interest rates, cutting their key rate 25 basis points to 2.50%. The IMF lowered its forecast for Chinese GDP growth to 7.75% from 8.00% in 2013 and cut the 2014 outlook to 7.75% from 8.20%.
European markets are also lower today, as sovereign bond yields are on the rise. Germany's unemployment rate held steady at 6.9%.
The dollar is lower this morning but commodities are mixed. Gold prices are higher near $1388 while oil prices are lower to $94.63. Copper prices are lower as well.
The 10-year yield is higher to 2.14%. It last touched these levels in early April, but next major resistance doesn't come into play until around the 2.40% level.
The volatility index is nearly 8% higher this morning, above the 15 level we have been watching to 15.65 currently. A couple of closes above the 15 level would increase the chances of a further pullback in the stock market, while a reversal back below the 15 level would likely embolden the bulls to do more buying.
Trading comment: The S&P 500 has erased yesterday's gains but is still above the lows from last week. The SPX touched 1635 last week, so that is a short-term level worth watching. A break below those levels would be a rare lower low on the weekly chart, at least in recent months. We are still looking for one last spurt higher by the market closer to the SPX 1700 level before quarter end, though the short-term timing is always difficult. If that rally materializes, and if it brings out more bullish sentiment that would certainly increase the odds for a summer correction. I think most strategists are only looking for a mild pullback, but as the herd is often wrong we would not be surprised to see something that rattles investors confidence a bit more. But let's not put the cart before the horse.
29 Mayıs 2013 Çarşamba
28 Mayıs 2013 Salı
Bullish Sentiment On The Rise
After a 3-day pause in the markets, stocks are back in rally mode this morning. This isn't all that surprising given that this has been the pattern all year. We used the weakness Thursday and Friday morning to do some buying for this reason.
In economic news, consumer confidence for May rose to 76.2, well above expectations and above the prior month's reading of 68.1. Also, the Case-Shiller Home Price index rose 10.9% on top of the prior months 9.3% increase.
Asian markets were higher across the board overnight. And European markets are also higher today. An ECB board member said the possibility of further easing remains on the table despite the recent rate cut.
The dollar is higher today and commodities are mixed. Oil is higher near $95.50 while gold prices are lower around $1377.
Bond yields are moving higher today with the 10-year yield spiking to 2.11%. These levels mark the highest yields in over a year, since April 2012.
Trading comment: Bullish sentiment has been slow to rise, but is now getting to levels that raise a yellow flag for this market. We could certainly still see investor sentiment grow more bullish in the near-term, but if that were to happen it would likely increase the odds of a more meaningful correction this summer.
Here are some of the indicators nearing extreme levels: The Investor's Intelligence survey is showing the spread between bulls and bears at +36% (55% bulls, 19% bears). That is a 2-year high for this indicator. The AAII individual investor survey spread is at +27%, which is the second highest reading this year and also near an 18-month high. And last week the Market Vane survey showed bulls hit 70%. That is the highest reading this entire bull market! You have to go all the way back to 2007 to find another reading in the 70s. So investor sentiment is no longer skeptical, and is now getting more complacent.
In the short-term, the CBOE put/call ratio topped 1.0 in each of the last 3 trading days. So it's not surprising to see the market rally off that short bout of pessimism. I think bullish sentiment can continue to build for awhile, possibly thru June into quarter. But I continue to think it raises the odds for a summer correction. Stay tuned--
In economic news, consumer confidence for May rose to 76.2, well above expectations and above the prior month's reading of 68.1. Also, the Case-Shiller Home Price index rose 10.9% on top of the prior months 9.3% increase.
Asian markets were higher across the board overnight. And European markets are also higher today. An ECB board member said the possibility of further easing remains on the table despite the recent rate cut.
The dollar is higher today and commodities are mixed. Oil is higher near $95.50 while gold prices are lower around $1377.
Bond yields are moving higher today with the 10-year yield spiking to 2.11%. These levels mark the highest yields in over a year, since April 2012.
Trading comment: Bullish sentiment has been slow to rise, but is now getting to levels that raise a yellow flag for this market. We could certainly still see investor sentiment grow more bullish in the near-term, but if that were to happen it would likely increase the odds of a more meaningful correction this summer.
Here are some of the indicators nearing extreme levels: The Investor's Intelligence survey is showing the spread between bulls and bears at +36% (55% bulls, 19% bears). That is a 2-year high for this indicator. The AAII individual investor survey spread is at +27%, which is the second highest reading this year and also near an 18-month high. And last week the Market Vane survey showed bulls hit 70%. That is the highest reading this entire bull market! You have to go all the way back to 2007 to find another reading in the 70s. So investor sentiment is no longer skeptical, and is now getting more complacent.
In the short-term, the CBOE put/call ratio topped 1.0 in each of the last 3 trading days. So it's not surprising to see the market rally off that short bout of pessimism. I think bullish sentiment can continue to build for awhile, possibly thru June into quarter. But I continue to think it raises the odds for a summer correction. Stay tuned--
27 Mayıs 2013 Pazartesi
STOCK BUBBLE: WAIT FOR IT TO POP
I'm going to start off today and show you what Fed policy has given us over the last decade and a half. What the Fed has accomplished has been one bubble after another.
We are obviously in the final euphoric parabolic phase of a third stock market bubble. When viewed with the benefit of the 200 day moving average as a mean regression line, it's glaringly obvious just how dangerous this market has become. As history has shown, anytime the market stretches too far above the mean the forces of gravity eventually collapse price back to and often considerably below the mean.
Yet despite thousands of years of evidence that parabolas are never sustainable, investors invariably get suckered into buying into these moves and get caught when they inevitably crash.
This I can say with 100% certainty, this parabolic move in stocks is going to crash, just like every other parabolic move in history.
The smart investor will wait patiently on the sidelines and once the crash occurs the low risk trade will be to go long as the Fed will attempt to reflate the market. This is a virtually guaranteed strategy to make money, although very few people will have the patience to wait for the trade to develop.
The vast majority of traders will ignore the extremely risky environment, because his emotions make him think that he is getting left behind. He will buy into the parabola assuming that it will continue indefinitely (Does this sound familiar to the tech bubble and real estate bubble?).
History however has shown that this is never the case, and buying any asset this stretched above the 200 day moving average always turns out to be a gamble as to whether or not you can exit ahead of the crash. If you miss time the exit, and most people do, you end up paying a heavy price for following the herd into a trade that you logically know is too risky.
Once the stock market parabola collapses then the Fed's endless money machine will generate another bubble in another asset class.
I strongly believe the next bubble will be in the precious metals market.
We are obviously in the final euphoric parabolic phase of a third stock market bubble. When viewed with the benefit of the 200 day moving average as a mean regression line, it's glaringly obvious just how dangerous this market has become. As history has shown, anytime the market stretches too far above the mean the forces of gravity eventually collapse price back to and often considerably below the mean.
Yet despite thousands of years of evidence that parabolas are never sustainable, investors invariably get suckered into buying into these moves and get caught when they inevitably crash.
This I can say with 100% certainty, this parabolic move in stocks is going to crash, just like every other parabolic move in history.
The smart investor will wait patiently on the sidelines and once the crash occurs the low risk trade will be to go long as the Fed will attempt to reflate the market. This is a virtually guaranteed strategy to make money, although very few people will have the patience to wait for the trade to develop.
The vast majority of traders will ignore the extremely risky environment, because his emotions make him think that he is getting left behind. He will buy into the parabola assuming that it will continue indefinitely (Does this sound familiar to the tech bubble and real estate bubble?).
History however has shown that this is never the case, and buying any asset this stretched above the 200 day moving average always turns out to be a gamble as to whether or not you can exit ahead of the crash. If you miss time the exit, and most people do, you end up paying a heavy price for following the herd into a trade that you logically know is too risky.
Once the stock market parabola collapses then the Fed's endless money machine will generate another bubble in another asset class.
I strongly believe the next bubble will be in the precious metals market.
We interrupt usual blogging to inform you of a presentation I'm giving, for those of you in the area:
"Living Without Money"
7:00 to 9:00PM
Friday, May 31st
at Unitarian Universalist Society: East
153 Vernon Street West,
Manchester, Connecticut
Thanks to my friend Kay for initiating setting this up. I'm staying with Kay, Gordon, and their little girl Mazzie right now.
Then I'm heading west to the Rainbow Gathering in Montana, for the launch of the moneyless tribe, inshallah.
"Living Without Money"
7:00 to 9:00PM
Friday, May 31st
at Unitarian Universalist Society: East
153 Vernon Street West,
Manchester, Connecticut
| Phone | (860) 646-5151 |
| uuse153@sbcglobal.net | |
| Website | http://uuse.org |
Thanks to my friend Kay for initiating setting this up. I'm staying with Kay, Gordon, and their little girl Mazzie right now.
Then I'm heading west to the Rainbow Gathering in Montana, for the launch of the moneyless tribe, inshallah.
24 Mayıs 2013 Cuma
A Rare 3-Day Losing Streak?
The market is currently lower for a 3rd day in a row. Normally that wouldn't be very surprising, but this year has been anything but normal. Over the last 5 months of trading, there has only been one 3-day losing streak in the S&P 500. Today could be the second occurrence, although its still early in the day.
The above doesn't hold too much significance, imo. Rather it is just an interesting market anecdote. The market had simply become too extended, trading at levels more than 6% above the 50-day average, which is rare. So a pullback was in the cards and well overdue. That said, we don't expect this pullback to be more than just a garden variety pause that relieves the overbought condition. We expect underinvested portfolios managers to buy the dip going into quarter end. If we are due for a larger correction, we would look to the summer timeframe to get more worried.
In economic news, April durable goods rose 3.3% after a -5.9% decline in March. Ex-transportation, durable goods still rose 1.3%.
Asian markets were mixed overnight. The BoJ governor said that they don't have a specific target for stocks or currency rates. But reports out overnight suggest the BoJ was again providing liquidity to the Japanese bond market.
Europe is also trading mixed to lower today. The second estimate of Germany's Q1 GDP held at 0.1%. Not very good for the country that is supposed to be the glue of the Eurozone.
Commodities are lower again. Gold prices are down near $1386, and silver and copper are lower as well. Oil prices are weaker to $93.50 and ag prices are lower.
The 10-year yield is slightly below the 2.00% level. And the volatility index is 4% higher today at 14.65 but still below the 15 level that we have been watching.
Trading comment: We are using this 3-day dip to continue to add to equities. We trimmed more of our fixed income ETFs and have added to stocks such as ARCP, EOG, and URI this week. Should the market continue lower next week we would look to do more of the same. Our forecast is that the market will pause and consolidate here but will stage another advance into the quarter end timeframe.
KAM Advisors has long positions in ARCP, EOG, and URI
The above doesn't hold too much significance, imo. Rather it is just an interesting market anecdote. The market had simply become too extended, trading at levels more than 6% above the 50-day average, which is rare. So a pullback was in the cards and well overdue. That said, we don't expect this pullback to be more than just a garden variety pause that relieves the overbought condition. We expect underinvested portfolios managers to buy the dip going into quarter end. If we are due for a larger correction, we would look to the summer timeframe to get more worried.
In economic news, April durable goods rose 3.3% after a -5.9% decline in March. Ex-transportation, durable goods still rose 1.3%.
Asian markets were mixed overnight. The BoJ governor said that they don't have a specific target for stocks or currency rates. But reports out overnight suggest the BoJ was again providing liquidity to the Japanese bond market.
Europe is also trading mixed to lower today. The second estimate of Germany's Q1 GDP held at 0.1%. Not very good for the country that is supposed to be the glue of the Eurozone.
Commodities are lower again. Gold prices are down near $1386, and silver and copper are lower as well. Oil prices are weaker to $93.50 and ag prices are lower.
The 10-year yield is slightly below the 2.00% level. And the volatility index is 4% higher today at 14.65 but still below the 15 level that we have been watching.
Trading comment: We are using this 3-day dip to continue to add to equities. We trimmed more of our fixed income ETFs and have added to stocks such as ARCP, EOG, and URI this week. Should the market continue lower next week we would look to do more of the same. Our forecast is that the market will pause and consolidate here but will stage another advance into the quarter end timeframe.
KAM Advisors has long positions in ARCP, EOG, and URI
23 Mayıs 2013 Perşembe
Is The Japanese Rally Over?
Markets are lower this morning on some panic selling overseas which weighed on stocks here in the US for a second day. This overshadowed some positive economic data with jobless claims lower than expected and new homes sales for April coming in well above expectations.
Last night Japan saw a huge 7.3% plunge in the Nikkei. The selling started after trading in the Japanese Govt bonds had to be halted. The strengthening yen exacerbated the pressure and the Nikkei saw a drop of 1500 points from high to low. It also probably didn't help that China's HSBC manufacturing index fell back into contraction (49.6) for the first time in seven months. The Bank of Japan finally moved in and injected 2 trillion yen to calm markets.
Of course, Japan's stock market has enjoyed a huge rally since the BoJ announced its massive quantitative easing program there. At some point you expect some profit taking, but this large decline shows what happens when stocks get extended and everyone tries to hit the sell button at the same time.
Europe had some positive data in the form of higher than expected PMI manufacturing readings, but overall he region is still in contraction. Spain auctioned off 3-year and 5-year debt at higher yields than its previous sale.
The dollar is surprisingly lower today and commodities are mixed. Gold is higher near $1385 as is silver. Copper prices are lower and oil prices are also weaker to $92.65.
The 10-year yield is above the 2.00% level after a big upside reversal yesterday following the Fed minutes.
The volatility index hit the 15 level this morning for the first time in a month. If it closes above 15, I would expect more selling. But below that level is likely more of the same.
Trading comment: We already did some trading this morning, taking advantage of the dip for a second day. So far this year, the S&P 500 has only had one 3-day losing streak. That means the odds favor buying day 2 of the weakness, if only for a bounce. That streak could be broken tomorrow, but we are taking advantage of a few stocks that have pulled back to attractive levels. Some of the REITs had very sharp 2-day pullbacks also.
Last night Japan saw a huge 7.3% plunge in the Nikkei. The selling started after trading in the Japanese Govt bonds had to be halted. The strengthening yen exacerbated the pressure and the Nikkei saw a drop of 1500 points from high to low. It also probably didn't help that China's HSBC manufacturing index fell back into contraction (49.6) for the first time in seven months. The Bank of Japan finally moved in and injected 2 trillion yen to calm markets.
Of course, Japan's stock market has enjoyed a huge rally since the BoJ announced its massive quantitative easing program there. At some point you expect some profit taking, but this large decline shows what happens when stocks get extended and everyone tries to hit the sell button at the same time.
Europe had some positive data in the form of higher than expected PMI manufacturing readings, but overall he region is still in contraction. Spain auctioned off 3-year and 5-year debt at higher yields than its previous sale.
The dollar is surprisingly lower today and commodities are mixed. Gold is higher near $1385 as is silver. Copper prices are lower and oil prices are also weaker to $92.65.
The 10-year yield is above the 2.00% level after a big upside reversal yesterday following the Fed minutes.
The volatility index hit the 15 level this morning for the first time in a month. If it closes above 15, I would expect more selling. But below that level is likely more of the same.
Trading comment: We already did some trading this morning, taking advantage of the dip for a second day. So far this year, the S&P 500 has only had one 3-day losing streak. That means the odds favor buying day 2 of the weakness, if only for a bounce. That streak could be broken tomorrow, but we are taking advantage of a few stocks that have pulled back to attractive levels. Some of the REITs had very sharp 2-day pullbacks also.
22 Mayıs 2013 Çarşamba
Market Cheers Bernanke Comments
Many investors were concerned about today's testimony before Congress by Fed Chairman Bernanke. Most figured his comments about how soon the Fed would end its quantitative easing program would unnerve the market and stocks could be vulnerable to a selloff.
But in this market, any news is good news. Bernanke reiterated that the decision to slow purchases would be dependent on incoming economic data. He said that he believes the Fed could also allow current assets on its balance sheet to run off (or mature) without having to engage in outright sales. This might be less disruptive to markets. Although the market is fading as I write this post, the Dow was up more than 100 points after Bernanke's comments were televised.
There has also been quite a bit of volatility in the bond markets. The 10-year yield started off the day around the 1.90% level, but recently spiked back above the 2.00% level. So it should be interesting to see where the stock and bond markets settle out by the close. Stocks are certainly short-term overbought, but have been this way for roughly a week now.
In other economic news, April existing home sales hit a rate of 4.97 million units which is up from last month's rate of 4.94 million units. Homebuilders are rallying on the data.
Asian markets were mostly lower overnight. But Japan rose again after the latest Bank of Japan meeting where the central bank noted that the "economy has begun to pick up".
Europe's markets are mixed today. The Bank of England saw a vote on maintaining its asset purchase program split with 3 members in favor and 3 members opposed to it.
The dollar is higher this morning, and commodities are mixed. But trading is volatile and prices are moving around quickly. Gold was near $1400 earlier but has given back $25. And oil prices are back below $95.
Trading comment: I know it has been a losing game to look for a market pause, but the recent action has caused the indexes to become highly extended vs. their 50-day and 200-day moving averages. The SPX hit the 1675 level today, and I do think we should see some consolidation in the averages before another run to the 1700 level. In the meantime we continue to find individual situations where stocks have pulled back to offer attractive entry points.
But in this market, any news is good news. Bernanke reiterated that the decision to slow purchases would be dependent on incoming economic data. He said that he believes the Fed could also allow current assets on its balance sheet to run off (or mature) without having to engage in outright sales. This might be less disruptive to markets. Although the market is fading as I write this post, the Dow was up more than 100 points after Bernanke's comments were televised.
There has also been quite a bit of volatility in the bond markets. The 10-year yield started off the day around the 1.90% level, but recently spiked back above the 2.00% level. So it should be interesting to see where the stock and bond markets settle out by the close. Stocks are certainly short-term overbought, but have been this way for roughly a week now.
In other economic news, April existing home sales hit a rate of 4.97 million units which is up from last month's rate of 4.94 million units. Homebuilders are rallying on the data.
Asian markets were mostly lower overnight. But Japan rose again after the latest Bank of Japan meeting where the central bank noted that the "economy has begun to pick up".
Europe's markets are mixed today. The Bank of England saw a vote on maintaining its asset purchase program split with 3 members in favor and 3 members opposed to it.
The dollar is higher this morning, and commodities are mixed. But trading is volatile and prices are moving around quickly. Gold was near $1400 earlier but has given back $25. And oil prices are back below $95.
Trading comment: I know it has been a losing game to look for a market pause, but the recent action has caused the indexes to become highly extended vs. their 50-day and 200-day moving averages. The SPX hit the 1675 level today, and I do think we should see some consolidation in the averages before another run to the 1700 level. In the meantime we continue to find individual situations where stocks have pulled back to offer attractive entry points.
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