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Monday Morning Musings

 December 03, 2012 12:44 PM

Back in the saddle after being out of the office at the end of last week.  The markets finished the week on a slightly positive note in that the gains from earlier in the week held.  Now we have the tests of the overhead 50-day averages to deal with.

This morning the markets were higher in the first hour of trading, but have faded a bit after the first test of their 50-day averages.  There also hasn't been a lot in the way of market moving news.

Some of the wind behind the gains faded after the November ISM data came in worse than expected at 49.5, which is also well below October's reading of 51.7 and points to contraction in the manufacturing index.

Lots of other countries released their PMI manufacturing data as well.  China said its PMI rose to 50.6, which is a 7-month high for that reading.  The HSBC private PMI figure came in at 50.5, so these two gauges are now closer to each other.  Despite the data, China's stock market fell -1.0%.

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In Europe, France's PMI was 44.5 and Spain was 45.3.  Both readings are still in the zone that markets contraction.  Spain's PM said it will be difficult to hit their projected debt target of 6.3% of GDP, and they would seek aid if needed.  Meanwhile, Moody's downgraded the ratings for both the ESM and the EFSF and maintained a negative outlook due to the credit deterioration of the program's large contributors-- namely France.

Commodities are mostly higher as the dollar trades lower today. Oil prices are higher to $89.62 and gold prices are up a bit to $1718. 

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The 10-year yield is higher to 1.63%.  And the VIX is up +3% near 16.35, right at its 50-day average.

Trading comment: Last week I talked about the SPX trading right in the middle of its 50-day and 200-day averages.  Last Wednesday the SPX tested its lower 200-day support and successfully bounced off of it.  That put the senior index in position to rally to its overhead 50-day, which it has already bounced from this morning.  Usually the first test of a key overhead resistance level is not successful.  More often we see some sideways consolidation first.  As such, I would expect to see the market chop around a little in the near-term before any successful break above its 50-day average.  A successful break above said 50-day would likely also embolden the bulls and hedgies to put more money to work on the long side of the market.

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