Commodities Lead Indices Higher
The market recovered modestly yesterday, on extremely low volume. The increase was assisted by commodity stocks, the most notable of which were oil stocks. But technology and small caps made strong showings as well.
The low volume has perhaps a somewhat easy explanation. The megabank Citi (NYSE: C) split its shares yesterday. The previous tax payer owned entity traded below $5 for the past two years, but as a result of yesterday’s split it trades back at $45.
In a split, or a reverse split, you do not lose or make any more money. The amount of shares outstanding decreases, as well as the amount of shares you own. But that decrease results in a proportional increase to the price of the underlying stock.
Since Citi is one the most held stocks by fund managers, it’s low price over the past few years resulted in billions of shares to be exchanged each day. Now that Citi is back above $40 its daily volume will shrink dramatically.
But yesterday’s small volume session cannot be entirely chalked up to the once stalwart bank. The light volume could indicate a general lack of interest from buyers. And if that is the case, commodities are in for another round of declines.
Commodities were hammered last week, and oil declined 10% in one session to bring it back under $100. But most commodities rallied hard yesterday and appear poised to continue that rally into today. If investors were truly interested in those commodities, they would have bought in bulk, and volume would have been higher yesterday. Unless volume can increase soon, it becomes more likely that the rally in commodities is a pause within an unfinished down trend.
Bill Gross is at it again. The bond guru has increased his bearish positions on U.S. Treasuries.
The last time Bill Gross, of Pimco, went short bonds I took the opposite trade. And I went long TLT, with the premise that bonds looked ready to rally and the market appeared poised to consolidate. Additionally, I am generally skeptical when big managers come public with controversial trades.
But this time around I am not going to fight the bond legend. While I think last week’s break through above $95 was impressive, the TLT is at a strong area of resistance. The upside price target is $101, but the downside is $87 - if indeed we are at a short term peak. Since Bill Gross added to his already large bearish position it builds a case that other managers may follow suit, which of course would have a deadly impact on bonds.
This week the SPX should have strong support at 1332 and 1301. A break below 1301, especially early this week, is reason to be bearish. Conversely, a move above 1355 is reason to be extra bullish. I, of course, favor the bulls, but buyers have had unbelievable difficultly taking out 1350 resistance. I will look to add more long positions this week, but as always let’s keep tight stops.
Watch List
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