Markets opened flat this morning, but that was met with aggressive selling, as weakness in materials names and homebuilders is weighing on the indexes. TOL, a homebuilder, reported worse-than-expected earnings this morning, and their numbers are dragging down others within its peer group. Weakness continues in metals and mining names, as gold is 1.6% lower on the day and silver off by over 2.5%. Recent weakness in metals, coupled with the FOMC minutes that were just released, could be a sign that the “Neverending QE” environment could be coming to an end sooner than we may think.
Currently, the Nasdaq is the relative laggard, down by about 0.8% on the day, with the Russell 2000 off by 0.7% and the S&P 500 about 0.6% lower. While the indexes are a good gauge for overall market strength or weakness, there are many names under the surface that are extremely weak, and that weakness isn’t reflected by absolute index moves of less than 1%. Despite a swift move lower this morning, bonds are only modestly higher, up by about 0.2%. Volatility is spiking, however, as the VIX is up by nearly 8% at current levels.
CHART OF THE DAY
Verizon Communications (VZ) – After a rocky start to 2013, VZ has settled in and clawed back into positive territory for the year. The shares are breaking out of their base today, and look to move higher from here.
Given what has happened since the beginning of the year, you would have to think that many of the safety players in VZ jumped ship as the market was soaring to new highs. Given that VZ pays a 4.6% dividend, the safety of that yield was preferred over high-beta names as market fears loomed at the end of 2012. Given the recent slowing market momentum, now could be a good time to jump back into VZ. I like an entry here with initial targets near the October highs around 47, and a stretch target of 50. A break and close below 44 would be a sign to exit the position.
WHAT I’M EXPECTING
Some meandering between 1500 and 1550. It remains tough to do much of anything here, other than buying support on names in sectors that have been working, and selling strength in them. At this juncture, I’d much prefer to react to price than make grandiose predictions on where we’re headed going forward. Until 1500 breaks definitively, however, bias must remain to the upside.