As investors and traders alike have continued to doubt the veracity of this bull market, one of the major factors that people have recently cited is that rising interest rates are bad for the stock market. If the rate rise were to get extraordinarily out of hand, they’d be completely correct. Completely making up numbers- if, say, a 10-year mortgage suddenly was given to homebuyers at a 14% rate rather than the 4% to 4 ½% range it has been, it’d very arguably cripple the housing market as it’d price out many more people. However, in the immediate-term, what many investors don’t realize is that (no matter the circumstance of the rise), rising rates are bullish as it implies that the economy may finally have stabilized and is hopefully primed for growth at this point. Basically, one has to understand that one should utilize what the interest rate would be ex inflation. If I received 2% in a savings account, but inflation was 7%, I’m behind the 8-ball. Thus, if corporations feel that they can borrow money relatively cheaply due to a stronger economy, it creates a greater demand for money which creates a stronger economy. Real interests have been low because although the government has been a net borrower in the last 2-3 years, businesses and consumers have actually been net savers (overwhelming the government’s borrowing) as they have done things like pay off credit cards at a faster pace than the government has borrowed money. With real interest rates significantly below historical norms, they arguably have quite a bit to go. Thus, rising rates should be appreciated in the immediate-run rather than vilified as all else equal, we’re in a window whereby the perception is that the economy is expanding. For day traders, the fate of bond yields will likely be one of the keys to stock market performance in 2011 (much less intra-day many days should bond moves become exacerbated). It’s one of those concepts whereby the rising bond yields are a good thing signaling a belief in a strong economy…but too much of a good thing can become a bad thing.
Markets in Asia were down a bit overnight on the China interest rate news with Tokyo down 0.2% and Hong Kong down 1.2%. In Europe, prices are modestly lower across the board from 0.2% in Frankfurt to 0.4% in London. Oil is up almost 1%, gold is flat, and the dollar is lightly mixed. Bonds are very slightly weaker but the 10-year yield closed at its high level in 10 months yesterday. Stock futures are modestly weaker. Crude Inventories are due out at 10:30AM. Trading today will likely remain relatively quiet with prices on both sides of unchanged. There’s no real factor to keep the rally going or to shove stocks down. Fed Chair Bernanke testifies on the economy at 10AM so that could be a market mover. The focus as has been so often the case recently will be on the earnings plays, small cap biotechs and momentum plays, and relative strength plays (particularly early on if the market upblips).
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
MCP- closed near a high
AMZN- closed near a high
AAPL- closed near a high
VVTV- closed near a high
ZLCS- closed near a high
IDCC- closed near a high on continued momentum from the weekend’s “Barron’s” mention
LULU- closed near a high after a positive mention on “Mad Money” last night
VECO- closed near a high after posting earnings
XIDE- closed near a high after posting earnings
SNCR- closed near a high after posting earnings
TTHI- closed near a high after posting earnings
KND, RHB- closed near their highs after KND agreed to buy out RHB
DIS- decent earnings
PBI- decent earnings
BGC- good earnings
CERN- decent earnings
ATML- decent earnings
ASYS- decent earnings
BWLD- decent earnings
TTWO- decent earnings
PRCP- decent earnings
WWWW- decent earnings
ANDE- decent earnings
CBL- decent earnings
AGU- decent earnings
KO- decent earnings
RVI- to be acquired for .435 shares of DSW
DSW- raised earnings outlook and announced acquisition of RVI
MMM-share buyback
UQM- closed near a high after announcing it’d supply electric drive motors for Audi A1 e-tron Test-fleet build
FDO- closed near a high after an RBC upgrade
BIDU- brokerage upgrade
JOE- exploring strategic alternatives
Bad-The following stocks have bad news and/or a weak technical pattern
EPD- closed near a low amid a Texas factory fire
POT- closed near a low
WFC- CFO Atkins retired effective immediately
ILMN- poor earnings
MOTR- terrible earnings
GIL- poor earnings
TCK- poor earnings
NTGR- poor earnings
MDMD- bad earnings
SWIR- terrible earnings
USNA- terrible earnings
PTP- poor earnings
HIBB- warned on earnings guidance
IR- bad earnings
CSC- bad earnings
Earnings:
WED FEB 9 BEFORE
AGU ANR CSC
ENER ICE IR
JNY KO NOC
RL SIAL WYN
XRAY
WED FEB 9 AFTER
AAP AKAM ALL
AMKR ATVI CGA
CLB CSCO EQIX
FLIR HIW KIM
MET NUAN PL
PRU RE SWI
TEX TMK TQNT
WFMI WSH
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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