After a three day break from the string of losses on Wall Street, calmer heads prevailed. In Europe, the economic fears eased a bit. Spain sold 6 billion Euros of 10-year government bonds with a bid to cover just over 2.1. There were also comments by the French Economy Minister, Christine Lagarde, saying that European banks would pass the “stress test”, although many analysts are upset over the fact that the details of how some of these measures are weighed will not be released. Down under, the Reserve Bank of Australia left its key interest rates unchanged. After making positive comments about the global growth picture, Basic Material stocks rallied. In Asia, the Bank of Japan reportedly told Reuters that distortions between their Tibor rate and market rates might result in the bank cutting the Tibor rate to help ease credit conditions. Our market started the holiday shortened week on solid footing. That proved to be helpful, as we braced for one of the few economic reports due out this week.
The ISM Non-manufacturing Composite Index for June slipped to 53.8 from 55.4. A reading of 54.9 was expected, but like the other recent economic reports, the consensus was expected to be too high. June has proved to be showing more of a slowdown than many anticipated back when the estimates were collected. Therefore, Wall Street was bracing for far worse news. It was quite evident in the way the market reacted to the below-expectations release on services. Stocks rallied, but so did bonds. The Dollar also came under more pressure, which was also positive for stocks, helping add to the gains in crude and basic materials. The index remained above 50, which indicates growth. The same was seen with New Orders, slipping to 54.4 from 57.1. The one component that did slip under 50, but just barely, was the Employment Index, dipping to 49.7 from 50.4.
The Semiconductor Industry Association reported that global chip sales rose 4.5% in May. May sales were up 48% from a year ago. It’s comparisons like this that will be made when Technology companies report earnings this month. This was the best news for Tech stocks in quite a while, giving this group a nice lift in the early going. The Philly Semi Index, SOX, finished the day down just 0.45 or .1%. Most of the weakness was in the small caps, as Microsoft MSFT (+2.4%), Intel INTC (+1.5%), IBM Corp. IBM (+1.3%), Cisco Systems CSCO (+1.0%), and Hewlett-Packard HPQ (+0.8%) were among the Dow leaders from the Tech sector.
In what would otherwise have been a fairly quiet session, it was the first day back from a holiday weekend. Stocks had sold off ahead of the vacation, fearful of more bad news emerging from overseas. It seemed as though the session started with pent-up demand, especially as the Volatility Index, VIX, broke below its 21-day and 10-week moving averages at 30. The index slipped under 28 as the Dow powered ahead by 170 points. The weakness in the Dollar favored the large cap multinationals, a component in the market which had been under extreme pressure. The Dow was clearly doing better than the other indices, as the index edged above its May/June lows. That support is now resistance. For the S & P, that level was at 1040. If you noticed, the high of the day was 1040. The same is true of the NASDAQ, which had broken down from 2139 and rallied back up to 2136. Essentially, the rally did little more than pop back up to the former support. As we moved back down from that resistance, traders looked at the bounce as little more than a technical blip. Where the VIX suggested something more from the rally, the Russell 2000 suggested something less. The old leadership wasn’t jumping back into the game. That was disconcerting, although not all that surprising. We lack a catalyst. “Less bad” is not the same as seeing some better data.
To ignite a fire under the bulls, we will need to see several key earnings reports and hear the company forecast for the third quarter. This is where expectations match up with conservative reality. We’re sitting literally days away from finding out how much of an impact Europe’s slowdown, foreign exchange rates, housing, and joblessness have hurt earnings. It looks as though the bulls are being patient, willing to wait and see. So what if they have to pay up a couple percentage points, if they know the forecast is for better than expected earnings in Q3 and Q4. Therefore, yesterday was a consolidation day with a mixed to positive bias. We still lack any good news, although I would contend that the bad news isn’t nearly as bad as many are making it out to be. Technically, we broke support, which became resistance. The rally only challenged that resistance before backing off. This pretty much makes S & P 1040 a line in the sand. The more investors respect a market level, the more important that level becomes. Since the rally off of the March 2009 low was a “stair-step” advance, there are many levels of support on the way down. Traders proved themselves bearish, fighting off the advance to 1040. We’ll see if earnings can provide the catalyst to get the shorts to cover, but we’ve got time. This week is all about consolidation, and we started that yesterday.
After a three day break from the string of losses on Wall Street, calmer heads prevailed. In Europe, the economic fears eased a bit. Spain sold 6 billion Euros of 10-year government bonds with a bid to cover just over 2.1. There were also comments by the French Economy Minister, Christine Lagarde, saying that European banks would pass the “stress test”, although many analysts are upset over the fact that the details of how some of these measures are weighed will not be released. Down under, the Reserve Bank of Australia left its key interest rates unchanged. After making positive comments about the global growth picture, Basic Material stocks rallied. In Asia, the Bank of Japan reportedly told Reuters that distortions between their Tibor rate and market rates might result in the bank cutting the Tibor rate to help ease credit conditions. Our market started the holiday shortened week on solid footing. That proved to be helpful, as we braced for one of the few economic reports due out this week.
The ISM Non-manufacturing Composite Index for June slipped to 53.8 from 55.4. A reading of 54.9 was expected, but like the other recent economic reports, the consensus was expected to be too high. June has proved to be showing more of a slowdown than many anticipated back when the estimates were collected. Therefore, Wall Street was bracing for far worse news. It was quite evident in the way the market reacted to the below-expectations release on services. Stocks rallied, but so did bonds. The Dollar also came under more pressure, which was also positive for stocks, helping add to the gains in crude and basic materials. The index remained above 50, which indicates growth. The same was seen with New Orders, slipping to 54.4 from 57.1. The one component that did slip under 50, but just barely, was the Employment Index, dipping to 49.7 from 50.4.
The Semiconductor Industry Association reported that global chip sales rose 4.5% in May. May sales were up 48% from a year ago. It’s comparisons like this that will be made when Technology companies report earnings this month. This was the best news for Tech stocks in quite a while, giving this group a nice lift in the early going. The Philly Semi Index, SOX, finished the day down just 0.45 or .1%. Most of the weakness was in the small caps, as Microsoft MSFT (+2.4%), Intel INTC (+1.5%), IBM Corp. IBM (+1.3%), Cisco Systems CSCO (+1.0%), and Hewlett-Packard HPQ (+0.8%) were among the Dow leaders from the Tech sector.
In what would otherwise have been a fairly quiet session, it was the first day back from a holiday weekend. Stocks had sold off ahead of the vacation, fearful of more bad news emerging from overseas. It seemed as though the session started with pent-up demand, especially as the Volatility Index, VIX, broke below its 21-day and 10-week moving averages at 30. The index slipped under 28 as the Dow powered ahead by 170 points. The weakness in the Dollar favored the large cap multinationals, a component in the market which had been under extreme pressure. The Dow was clearly doing better than the other indices, as the index edged above its May/June lows. That support is now resistance. For the S & P, that level was at 1040. If you noticed, the high of the day was 1040. The same is true of the NASDAQ, which had broken down from 2139 and rallied back up to 2136. Essentially, the rally did little more than pop back up to the former support. As we moved back down from that resistance, traders looked at the bounce as little more than a technical blip. Where the VIX suggested something more from the rally, the Russell 2000 suggested something less. The old leadership wasn’t jumping back into the game. That was disconcerting, although not all that surprising. We lack a catalyst. “Less bad” is not the same as seeing some better data.
To ignite a fire under the bulls, we will need to see several key earnings reports and hear the company forecast for the third quarter. This is where expectations match up with conservative reality. We’re sitting literally days away from finding out how much of an impact Europe’s slowdown, foreign exchange rates, housing, and joblessness have hurt earnings. It looks as though the bulls are being patient, willing to wait and see. So what if they have to pay up a couple percentage points, if they know the forecast is for better than expected earnings in Q3 and Q4. Therefore, yesterday was a consolidation day with a mixed to positive bias. We still lack any good news, although I would contend that the bad news isn’t nearly as bad as many are making it out to be. Technically, we broke support, which became resistance. The rally only challenged that resistance before backing off. This pretty much makes S & P 1040 a line in the sand. The more investors respect a market level, the more important that level becomes. Since the rally off of the March 2009 low was a “stair-step” advance, there are many levels of support on the way down. Traders proved themselves bearish, fighting off the advance to 1040. We’ll see if earnings can provide the catalyst to get the shorts to cover, but we’ve got time. This week is all about consolidation, and we started that yesterday.