The biggest complaint about yesterday’s rally was that there wasn’t a clear catalyst. I beg to differ. The catalyst was “stability”. To start with, investors sold into the close on Tuesday. It was the first day back from a three day vacation and the rally attempt failed. The more the rally lost traction, the more the bears jumped on the sell-side. After weeks of waking up to bad global news and very negative market action overseas, investors became complacent that the intraday game was to sell the midday rally and buy the next day’s weak open. It became a no-brainer. The buyers came in first thing in the morning, even though there was little new bad news. We could look at the surprise resignation of Japanese Prime Minister Hatoyoma as yet another unwanted political disruption. This led to talk that the Japanese Finance Minister may be replaced, something the market would probably like to see. However, political change could put Japanese sovereign debt on negative credit watch. That possibility had pressured the Nikkei by 1.13%. European markets were weak, following in our footsteps from the day prior. This was the “vicious circle” we’ve been in with foreign markets. However, there really wasn’t the negative news to account for European market weakness, or should I say no new negative news.
We continue to use the Euro as a proxy for how all the problems in Europe are being viewed, just as a quick reference to summing up all of the individual issues. To that end, the Euro traded in a fairly narrow range, oscillating above and below the 1.22 line. The market would certainly like to see the Euro rally and get above its string of sequentially lower-highs. The last high was at 1.2453. The 21-day Fibonacci moving average is at 1.2427. This is initial resistance. The very short-term intra-day support was slightly violated in overseas trading by dipping to 1.2111. Yesterday, every attempt by the Euro to get close to the prior day’s low was met with buying. What we got may not have been a big reversal in the Euro, but a sense of stability, that we may have finally put in a short-term low. Despite the weakness in the FTSE, DAX, and CAC40, the major European indices are holding above recent lows and were showing some signs of stabilizing. Crude didn’t have a great day. After plummeting under $65 a couple of weeks ago, crude built a base with support around $71. Last week’s spurt over $75 resulted in a pullback to $71.64 on Tuesday and $71.68 yesterday. Failing to fall into support, crude closed nearly unchanged on the day, but stable on its short-term support.
You can see the theme we’re trying to build here. There is a lot of economic news out this week. Yesterday’s Pending Home Sales data for April showed a better than expected monthly increase of 6.0%, topping expectations for a 5.0% increase. One should take into consideration that this gain was on top of an upward revision to March to up 7.1% versus up 5.3%. The year over year gain is now 24.6%, much better than the 20.2% anticipated. The bears were out in force pushing the fact that these are contract signings, which needed to be done by the end of April in order to get the tax credit. This is true. However, the interest is exceeding expectations and, even though some of the “shadow inventory” is working its way onto the market, the program is succeeding at helping absorb this inventory supply. The fear is that home sales will die as soon as the program ends. Without a doubt they will slow dramatically. However, consider the expectations following the end of the “cash for clunkers” government incentive. Auto sales slowed for a bit, but then picked back up and have been exceeding expectation so far this year. Total Vehicle Sales for May rose to a seasonally adjusted, annual rate of 11.64 million units, well above the 11.20 million anticipated. In May of 2009, sales were at an annual pace of 9.87 million. If, and it’s a big “IF”, home sales are steady to slightly better after the expiration of the program, the market should be quite pleased. Remember, big-ticket item purchases like cars require financing. The increase in sales, from both a consumer and financial point of view, was a positive. The S & P Financial SPDR moved a little further up off of support at 13.84, gaining 3.13% to 14.82.
So, Europe and Asia are still having their problems, the BP oil crisis hit another snag, Israel refused to have its actions reviewed by any outside government panels, and the worry over jobs remains high on the list of major concerns. Nothing really changed between Tuesday and Wednesday, yet the market posted an across-the-board 2% to 3% rally. Tuesday’s decline came very close to filling that opening gap at 1068 with a low of 1069.89, “close enough for government work”, as my father used to say. It’s definitely close enough for BP. The resistance is last week’s high, which is close to the S & P’s 200-day moving average, currently at 1105.64. All we did yesterday was to move across this very narrow range that is the attempt at a base. Volatility remains. Volume was decent. Breadth continues to swing wildly. Yesterday, all the measures were to the upside. All we needed was for the global issues to move to the back burner and allow investors to focus on what has been positive domestic economic data. Expectations are bullish about Friday’s report on May jobs, census stimulated though they might be. ADP will give its outlook on private sector jobs this morning. What the market told us yesterday was that the leadership is ready to move back to the forefront, if just given the opportunity to focus on domestic issues instead of international problems.
The biggest complaint about yesterday’s rally was that there wasn’t a clear catalyst. I beg to differ. The catalyst was “stability”. To start with, investors sold into the close on Tuesday. It was the first day back from a three day vacation and the rally attempt failed. The more the rally lost traction, the more the bears jumped on the sell-side. After weeks of waking up to bad global news and very negative market action overseas, investors became complacent that the intraday game was to sell the midday rally and buy the next day’s weak open. It became a no-brainer. The buyers came in first thing in the morning, even though there was little new bad news. We could look at the surprise resignation of Japanese Prime Minister Hatoyoma as yet another unwanted political disruption. This led to talk that the Japanese Finance Minister may be replaced, something the market would probably like to see. However, political change could put Japanese sovereign debt on negative credit watch. That possibility had pressured the Nikkei by 1.13%. European markets were weak, following in our footsteps from the day prior. This was the “vicious circle” we’ve been in with foreign markets. However, there really wasn’t the negative news to account for European market weakness, or should I say no new negative news.
We continue to use the Euro as a proxy for how all the problems in Europe are being viewed, just as a quick reference to summing up all of the individual issues. To that end, the Euro traded in a fairly narrow range, oscillating above and below the 1.22 line. The market would certainly like to see the Euro rally and get above its string of sequentially lower-highs. The last high was at 1.2453. The 21-day Fibonacci moving average is at 1.2427. This is initial resistance. The very short-term intra-day support was slightly violated in overseas trading by dipping to 1.2111. Yesterday, every attempt by the Euro to get close to the prior day’s low was met with buying. What we got may not have been a big reversal in the Euro, but a sense of stability, that we may have finally put in a short-term low. Despite the weakness in the FTSE, DAX, and CAC40, the major European indices are holding above recent lows and were showing some signs of stabilizing. Crude didn’t have a great day. After plummeting under $65 a couple of weeks ago, crude built a base with support around $71. Last week’s spurt over $75 resulted in a pullback to $71.64 on Tuesday and $71.68 yesterday. Failing to fall into support, crude closed nearly unchanged on the day, but stable on its short-term support.
You can see the theme we’re trying to build here. There is a lot of economic news out this week. Yesterday’s Pending Home Sales data for April showed a better than expected monthly increase of 6.0%, topping expectations for a 5.0% increase. One should take into consideration that this gain was on top of an upward revision to March to up 7.1% versus up 5.3%. The year over year gain is now 24.6%, much better than the 20.2% anticipated. The bears were out in force pushing the fact that these are contract signings, which needed to be done by the end of April in order to get the tax credit. This is true. However, the interest is exceeding expectations and, even though some of the “shadow inventory” is working its way onto the market, the program is succeeding at helping absorb this inventory supply. The fear is that home sales will die as soon as the program ends. Without a doubt they will slow dramatically. However, consider the expectations following the end of the “cash for clunkers” government incentive. Auto sales slowed for a bit, but then picked back up and have been exceeding expectation so far this year. Total Vehicle Sales for May rose to a seasonally adjusted, annual rate of 11.64 million units, well above the 11.20 million anticipated. In May of 2009, sales were at an annual pace of 9.87 million. If, and it’s a big “IF”, home sales are steady to slightly better after the expiration of the program, the market should be quite pleased. Remember, big-ticket item purchases like cars require financing. The increase in sales, from both a consumer and financial point of view, was a positive. The S & P Financial SPDR moved a little further up off of support at 13.84, gaining 3.13% to 14.82.
So, Europe and Asia are still having their problems, the BP oil crisis hit another snag, Israel refused to have its actions reviewed by any outside government panels, and the worry over jobs remains high on the list of major concerns. Nothing really changed between Tuesday and Wednesday, yet the market posted an across-the-board 2% to 3% rally. Tuesday’s decline came very close to filling that opening gap at 1068 with a low of 1069.89, “close enough for government work”, as my father used to say. It’s definitely close enough for BP. The resistance is last week’s high, which is close to the S & P’s 200-day moving average, currently at 1105.64. All we did yesterday was to move across this very narrow range that is the attempt at a base. Volatility remains. Volume was decent. Breadth continues to swing wildly. Yesterday, all the measures were to the upside. All we needed was for the global issues to move to the back burner and allow investors to focus on what has been positive domestic economic data. Expectations are bullish about Friday’s report on May jobs, census stimulated though they might be. ADP will give its outlook on private sector jobs this morning. What the market told us yesterday was that the leadership is ready to move back to the forefront, if just given the opportunity to focus on domestic issues instead of international problems.