The broad market indexes made a move back to last Tuesday’s closing levels. Is the downside risk out of the market? Is it now “risk on”? The tone of the market on Monday was as if the worries over all that is wrong or could go wrong were gone. The key will be how this unfolds going forward. The risk of the fiscal budget getting done is still a wild card for the markets. Based on the response from the White House late on Monday, I am not convinced that the markets are free to run higher. However, this morning the headlines report Obama offering a counter offer… Maybe they are getting closer to a deal. Watch and expect volatility, the debate over the fiscal issues are not over yet.
Banks were one of the big winners on Monday gaining better than 2% on the day. Some of the large banks like Citigroup and Bank of America gained nearly 4%. KBE, SPDR Bank ETF moved above resistance at the $23.65 level on the close. The upgrade on the sector from Meredith Whitney for 2013 was seen as a positive on the day as well. Dick Bove is high on the sector and has been for the last nine months. He stated in an interview on Monday that the fourth quarter estimates are expected to be near the highest ever for the sector. The fundamental data is leading the prices as the negative sentiment in the sector has kept a lid on stock prices. Bottom line for the sector is the money supply from the Fed works in their favor. We have added banks to the watch list and look for more upside going forward in the both large banks as well as the regional banks. This is a positive for the broad market indexes.
Apple touched $501 in early trading on Monday, but closed over $518. Is this the bottom near term for the stock? All the downgrades and negative talk is getting repetitive and could signal a short term low. I mention this not to buy the stock, but to watch QQQ and XLK due to the weighting that AAPL has in the indexes. If it stabilizes or even bounces off the lows it could signal a short term opportunity in the technology sector. Put them on your watch list to see how they play out moving forward.
Gasoline prices continue to drop at the pump. A look at UGA, United States Gasoline ETF shows the struggle in the price since hitting the high in October. With the national average at $3.25 it has hit the lowest price of the year… Happy Holidays! Some are calling for the price to dip below the $3 level for the first time since 2010. This is not good for the energy sector where stocks have continued to struggle over the last four months. The refiners remain the highlight of the sector with Tesoro and Western Refining both jumping more than 10% over the last couple of weeks. It remains a sector worth digging through to find the winners.
Bond yields rose again on Monday with the thirty year bond hitting 2.93% and the ten year is at 1.76%. A move above 3% level on the thirty year bond would make it interesting short term for bond prices. The negative outlook for bonds relative to being overpriced could invite short sellers into the market quickly. With ETFs in place this could accelerate the downside risk in the Treasury bonds. We have established our downside play as a trade, but it may turn into more if this continues to unfold in the current trend.
The predictions are rolling off the presses for 2013 and what sectors or stocks will be the winners. At this point I was just hoping it will be a winning year for stocks overall. The headwinds relative to economic growth are still a primary concern with plenty of negative projections on GDP and earnings growth for corporate America. Thus the allocations for 2013 are going to be a challenge for investors as they attempt to gain clarity relative to growth domestically and internationally. For now we will continue to follow the trends as they develop and look for the leadership.
There are still plenty of issues to be aware of and not the least of which resides in Washington DC. Stay focused and be disciplined in managing your risk.