Editor’s Note: While Sam Collins is on vacation, we’ve asked Nick Atkeson and Andrew Houghton, editors of Big Money Options, to provide you with a comprehensive market outlook and a trade of interest until Sam returns June 1.
The market held above the S&P 500 (SPX) 880 support line Tuesday morning during the initial sell-off on the weaker Case-Schiller home price index report (which was down 18.7% versus an expected 18.3% drop) and before the May consumer confidence number of 54.9 (up from 40.8 in April) was released.
The rise in consumer confidence from February’s 25.3 to yesterday’s 54.9 is the largest three month gain on record. The market is continuing to demonstrate strong resiliency.
Additionally, the Baltic Dry Index has risen 17 straight sessions. It was up about 6% today after a 10% run last week.
The Richmond Fed manufacturing survey was the first regional survey to climb back into positive territory. The headline composite rose to four in May from negative nine in April and a low of negative 55 in December. Consensus expectation was for negative six.
Maybe most importantly, the Treasury auctioned off $40 billion of two-year maturities in the strongest auction we have seen since February 2007 when the two-year was yielding 4.75%. This was an upside surprise and should alleviate fears of a lack of demand for U.S. paper.
The Treasury will be a busy seller for the next week and a half — $35 billion in five-year notes on Wednesday and $26 billion in seven-year notes on Thursday. Next week, it will auction three-year, 10-year and 30-year bonds.
At the end of the day, the S&P 500 (SPX) closed Tuesday at 910.33, up 0.2.56%. The Dow (DJI) was up 196.17 points, or 2.37%. The Nasdaq (NASD) closed up 3.45%. Small capitalization/early cyclical stocks out-performed with the Russell 2000 (IWM) up 4.77% on the day.
The CBOE Volatility Index (VIX) closed at 30.65. This measure may be in the process of establishing a new trading range around the 30 level.
>
What the Markets Are Saying
Tuesday’s equity market wasn’t saying anything. It was being told to move higher by powerful upside surprise data points. A better Treasury auction and the explosive rise in consumer confidence told our equity market the evidence is mounting that we are pulling out of recession.
Right now, the shorts may be being saying cover. The longs may be saying increase long exposure, and Tuesday’s market today went along for the ride.
For a change, the market did not dramatically change direction in the last half hour of the trading day. With the market up all day and closing near its highs, the market may be ratifying a bullish consensus.
Today’s Trading Landscape
Earnings Before Market Open: American Eagle, AutoZone, Brown Shoe, Cracker Barrel, Charming Shoppes, Chico’s FAS, China Sunergy, Dollar Tree, Flowers Foods, IXYS Corp, China Nepstar, Polo Ralph Lauren, RBC Bearings, Staples, Synovis Life Technologies, Tongjitang Chinese Medicines and Zale.
Earnings After Market Close: AFC Enterprises, Blue Coat, Coldwater Creek, Diamond Foods, DSW Inc., HEICO, Jo-Ann Stores, Magma Design, Netezza, Palm Harbor Homes, Sigma Designs and TiVo.
On the economic front, we will see MBA Mortgage Applications (for the week ending May 22), Q1 U.S. House Price Purchase Index and the March U.S. House Price Index, for which the consensus is 0.2%.
Get Sam Collins’ Daily Trader’s Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!
In addition to getting instant access to his Daily Market Outlook, you’ll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!
Click here today to sign up today for Sam’s FREE Daily Trader’s Alert!
Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
