Desperately Wanting

This market is in desperate need of SOMETHING.  ANYTHING.  Once again, equity markets found themselves meandering around the unchanged line as investors continued to find little economic or corporate news to trade on.  For the day, the S&P 500 finished up 3.97 (0.35%) to 1,125 and below the critical 1,131 level.  While the index did manage to hold above its 200-day moving average, the chart gap that I've been mentioning for the past few days continues to go unfilled and is indicative of a market that is still ahead of itself.  Perhaps tomorrow's PPI report and Philadelphia Fed numbers will prove to be market moving, but if the last few months has shown us anything, it's that both euphoria and despair are fleeting. 

From an inter-market stand point, today's minuscule equity rally is all the more unimpressive given the scale of the sell off in Treasuries. On the day, Treasury yields rose across the curve and particularly on the longer end.  The widely followed 10-year note saw its yield rise 4.17 basis points to 2.7207% while the 30-year bond backed up a whopping 7.6 basis points to 3.874%.  With increases of this magnitude, I would have expected to have seen more strength in the equity markets as investors shed fixed income securities in favor of more risk-oriented assets.  Obviously this did not materialize.  While it's hard to read too much into such price action, I think it's safe to say that the fixed income market is beginning to show much of the indecision that has plagued equity investors for months.  With the U.S. Dollar's recent decline stoking concerns about rising inflation and weak domestic economic data raising the possibility of a deflationary environment, bond investors are at a real cross roads and looking for any indication of ultimate direction.  Having added some Treasury exposure to my personal portfolio yesterday, it's clear that I'm still in the camp concerned about stagnating economic growth.  Nothing depressionary, mind you, but simply cautious.

The dollar rebounded a bit today after yesterday's drubbing, but saw prices slowly decline throughout the session.  This is not the kind of intraday action that suggests that traders are beginning to change their minds on the currency's ultimate direction.  However, this bounce did keep the near term trend line intact, which is critical if a rally is to be sustained in the near term.

Gold reflected this lackluster dollar buying as it saw prices pull back ever so slightly.  Despite testing its previous all-time high during the day, the yellow metal did manage to close above this level, which is highly supportive of a continued move higher.  I still remain skeptical of the nature of this move higher given the price action leading up to it and the over bought indications from momentum indicators like the RSI, but gold is prone to moving in a manner all its own.  As such, I wouldn't be surprised to see bullion prices jump or fall 3% tomorrow.  It's just that volatile a market.  As Ive said before, I like gold in this environment as a defensive play, but I simply haven't been able to pull the trigger on buying shares given the near constant rise over the past month and a half.  Pure momentum traders would tell you that this is the wrong way to approach such a trade, but given the volatile nature of gold over the years, buying on weakness makes a lot more sense in my opinion.  If nothing else, it helps shrink the potential loss associated with ownership.

A relatively short note tonight as there simply wasn't all that much of real consequence today.  As I mentioned, above, I continue to remain cautious about economic performance in the coming months and have seen nothing to change my position as yet.  I will concede that there have been brighter economic data data points of late, in particular retail sales.  But, collectively, the view is still quite challenging.  I continue to monitor the Japanese Yen for a possible short trade, but the bulls remain largely in control of that market for now, despite the recent back up.  Other than that, there's not a lot catching my eye.  The Volatility Index (VIX), which tracks the implied volatility of S&P 500 index options, continues to march towards the 20 level, which could mean that a long straddle (buy an at the money call and put) could be a winning trade in the coming weeks.  But as is the case with most of these esoteric-type of trades, you've got to be sure to monitor them closely and remain quite nimble.  There are ETNs that attempt to track the VIX, but I find their tracking error too large to warrant investment.  Again, this leads me back to boring old cash and Treasuries for now.  I'm ready to do something more, but until the markets show any signs of conviction it's the best place to be in my opinion.  Patience, bloody patience.  Until tomorrow.....