Midday Action: October 6
October 6, 2009
It's a "G-day" for bulls on a light trifecta of rates, merger news and retail reports. As of 11:00 ET the SP-500 (SPY) is up 1.60% on stronger conviction the worst is over.
"Aussie!! Aussie!! Aussie?" From the Land of Oz policymakers made the bold decision to raise the country's key cash rate by 25bps to 3.25%. The decision is based on the belief the worst of the economic crisis is behind and after much quantitative easing, it's time to begin unwinding those same stimulus efforts.
Thus far the move by the Reserve Bank of Australia has been greeted with a bid in world financial markets. Trader sentiment appears to be giving a sympathetic nod to the obviously more optimistic outlook put forth by the rate shift and at odds with Monday's latest diatribe from Dr. Gloom a.k.a, economist Nouriel Roubini.
One caveat with regards to Tuesday's rate cheers, the action could represent a fine line with investors if other nation's follow too quickly in their footsteps. Ultimately, Wall & Main may be forced to decide which is more important for stocks and the economy; lower rates under the pretext of a weak recovery or a stronger rebound that's worthy of necessitating higher rates. And of course, that's if our public servants get things right this time around.
In other market "moooving" news, another preview the worst may be behind us, but that we're not totally out of the woods just yet comes from Mr. Market's, umm Goldman's chain stores sales data. This morning weekly sales saw an increase of 0.30% and registered an increase of 1.00% from the year ago period. On the other hand, the ICSC is expecting a 2% drop in sales for September.
Elsewhere, Merger Monday headlines have extended themselves into Tuesday with Emerson (EMR) snapping up Avocent (AVCT) for a 22% premium bid worth $1.20B. In a release, the company stated the deal will allow it to increase its infrastructure data management capabilities. For their part, investors appear to like the logic, as shares of EMR are up 1.75% to 39.35.
Separately, on again, off again IBD 100 component and China-based motor manufacturer Harbin (HRBN) has some growth traders strapping in as shares motor past a handle buy point of 17.40 within a near three month cup-shaped base. HRBN is up 13.50% near 18.80 after a favorable reaction by investors to news the company is acquiring competitor Xi'an Simo Motor.
In other sometimes intertwined market action, the commodity complex (GSG, MOO, OIH, SLX, XLB) is finding a second day of reinvigorated green shoots efforts from bulls. With investors focusing on better days ahead and aided by a linked weaker Greenback (UUP) that's "Under Attack" per CNBC; Black Gold (USO) is one major beneficiary of the shift in sentiment.
Intraday and despite the EIA expecting a 1.7% year-over-year drop in demand for the fourth quarter, shares of USO are up 1.80% at 36.85. Separately, Comex Gold (GLD) is glittering in as well. Shares of GLD are up 2.30% at 102.20 with the underlying contract above 1000 and striking its highest levels in decades.
Finally, the SP-500 has now retraced 62% of its corrective march in very fast order. At the same time and with the VIX crashing down into its 10 and 50-Day MA's, this strategist sees current levels as ideal for bulls to schnitzel a little or adjust any optimistic deltas from the past two sessions. And for those doom and gloom types, the action also represents a much lower risk spot for acting grizzly than where we were two days ago.
Chris Tyler
Senior Staff Writer & Options Strategist
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The information offered here is based upon Christopher Tyler's observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
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