Yesterday, stocks rebounded on the Federal Open Market Committee’s favorable review of the U.S. economy and its decision to keep interest rates at current levels.
But the session was a volatile one that started with a rush to buy financials and some broad-based bargain hunting. But just before noon, S&P announced another debt quality rate cut in Europe, and the market tumbled, erasing all of the earlier gains. This time it was Spain’s debt rating, which was cut to AA from AA+.
The financial stocks were immediately hit, both in Europe and the United States. But a later recovery of some of the losses resulted from statements that Germany and the EU were ready to come to an agreement with Greece. However, the Wall Street Journal reported that the rescue plan could cost more than 100 billion euros.
Just before the Fed’s announcement, the market appeared exhausted with virtually all of the indices trading unchanged on the day. But the positive economic review in which the Fed stressed the need to keep rates near zero for an “extended period,” along with a statement that the labor market is beginning to improve versus just “stabilizing” in March, turned the market positive.
The financial stocks rallied following the third defeat of a bill to overhaul regulation of the sector. It was rumored that “two key Senators neared a deal to drop a $50-billion fund designed to pay for the liquidation of failed firms.”(Wall Street Journal)
Financial stocks on the Dow Jones Industrial Average (DJI) that led the rally were JPMorgan Chase (JPM), up 2.48%, Travelers Co. (TRV), up 1.17%, and Bank of America (BAC), up 1.77%.
At the close, the Dow gained 53 points to 11,045, the S&P 500 (SPX) rose 8 points to 1,191, and the Nasdaq (NASD) was slightly higher at 2,472.
The NYSE crossed 1.4 billion shares with advancers leading decliners by 11-to-8. The Nasdaq traded 788 million shares with advances ahead by 7-to-6.
June crude oil rose 24 cents to $82.68 a barrel, and the Energy Select Sector SPDR (XLE) rose 61 cents, closing at $60.59.
June gold rose to $1,171.80 an ounce, up $9.60, and the PHLX Gold/Silver Sector Index (XAU) gained $4.71 points, closing at 176.6.
What the Markets Are Saying
Yesterday’s reaction rally will no doubt encourage the bulls since Tuesday’s low failed to close under the S&P 500 low of April 8, at 1,175. But yesterday’s rally — with breadth on the NYSE of just 11-to-8 on a contraction in volume from Tuesday — is hardly cause for celebration.
And consider this fact highlighted by technician Michael Ashbaugh, “Tuesday’s underlying conviction — the market breadth — registered bearish extremes. Specifically, down volume surpassed up volume by 17-to-1 on the NYSE and by 9-to-1 on the Nasdaq. So right off the top, market bulls should be concerned.”
He also points out that the NYSE has staged two 13-to-1 sell-offs within an eight-session time frame, and the two sell-offs produced the strongest volume since Feb. 5.
But the most obvious negative is this: The S&P 500, as well as the other indices, closed under their respective 20-day moving averages on Tuesday. And yesterday, the S&P 500 failed to gain a hold above the 20-day despite the rally.
Our internal indicators, chiefly the slow stochastic, Moving Average Convergence/Divergence (MACD) and momentum, have issued short-term sell signals. And the relative strength is still falling after reaching extreme overbought levels in mid-April.
Conclusion: Until proven otherwise, the stock market has triggered a series of near-term sell signals. However the intermediate- and long-term trends are still up, so any extreme weakness should be used as a buying opportunity.
Please see yesterday’s support zones for further guidance. But the intermediate trend would be sorely tested by a pullback to major support at S&P 1,150.
Today’s Trading Landscape
Earnings to be reported before the opening include: ACI Worldwide, Aetna, Akeena Solar, Alexandria Re, American Electric, Arcelor Mittal, Art Technology, Asbury Automotive, AstraZeneca, Avnet, Ball Corp., Becton Dickinson, Belden, Bemis, Benchmark Electonics, Borg Warner, Brinks, Bristol-Myers, Brunswick, Brush Engineered Materials, Build-A-Bear Workshop, Bunge, Burger King, Cameron, Carbo Ceramics, Cardinal Health, CDI Corp., Celgene, Ceva, Chart Industries, CME Group, CNX Gas, Colgate-Palmolive, Colonial Properties, CONMED, ConocoPhillips, CONSOL Energy, Dentsply, Digital Realty Trust, Dominion, Eastman Kodak, EMCOR Group, Emergency Medical Services, Entergy, EV3, Exxon Mobil, First American, Forrester Research, Fortune Brands, Franklin Electric, Genesee & Wyoming, GrafTech Intenational, Harman, Harsco, Harte-Hanks, Healthspring, Helmerich & Payne, Hercules Offshore, Holly Energy Partners, Huron Consulting, IMAX, Interpublic, Intenational Paper, Iron Mountain, KBR, Kellogg, Kennametal, K-Sea Transportation, LaBarge, Lancaster Colony, Linn Energy, LKQ Corp., Lubrizol, Mack-Cali Realty, Mead Johnson Nutrition, Mine Safety, Motorola, Mylan Labs, Natus Medical, Network Engines, NII Holdings, Noble Energy, Novamed, NuStar Energy, Occidental Petroleum, OfficeMax, Olympic Steel, Oshkosh Truck, Palomar Medical, Patni Computer Systems, Patterson-UTI, Penna. R.E.I.T., Perrigo, Potash, Pozen, Pride Intenational, Procter & Gamble, Radware, Revlon, Reynolds American, Rockwood Holdings, Safeway, Saia, Sally Beauty, Shire Plc, Silgan Holdings, Smith Intenational, Sourcefire, Spirit Aerosystems, Starwood Hotels, State Auto Financial, StellarOne, Strayer Education, Teledyne Technology, Tenneco, Timberland, Time Warner Cable, Timken, Ultralife, United Therapeutics, Valassis, Viacom, Waste Management, West Pharmaceutical Services, Weyerhaeuser, World Acceptance, Xcel Energy and Zoll Medical.
Earnings to be reported during trading hours include: Overstock.com.
Earnings to be reported after the close include: Abaxis, Acme Packet, Actel, Agnico-Eagle Mines, America Movil SA, Anaren Microwave, Applied Micro, Ariba, Asset Acceptance Capital, AthenaHealth, Bally Technologies, BioMarin Pharmaceutical, Buenaventura SA, Callaway Golf, Callidus Software, Cardtronics, Chiquita Brands, City National, Coherent, Coinstar, Commscope, Curtiss-Wright, CyberSource, Deltek, DepoMed, Digital River, Dolby Labs, Dresser-Rand, Dun & Bradstreet, Dynamic Materials, Electronics for Imaging, Expedia, FalconStor Software, Fiserv, Gen-Probe, Genworth Financial, GFI Group, Guidance Software, Hartford Financial, Human Genome, Ingram Micro, Intermec, InterMune, Ixia, Jarden, Keynote Systems, KLA-Tencor, Maxim Integrated, Maxwell Technologies, McAfee, MedAssets, MEMC Electronic Materials, Merit Medical, MetLife, Mettler-Toledo, Micros System, Minerals Technologies, Mohawk, Monolithic Power, Monster Worldwide, NetLogic, NetScout Systems, On Assignment, Open Text, PDL BioPharmaceuticals, QLogic, Questcor Pharmaceuticals, Quidel, Regal Entertainment, Republic Services, ResMed, Rubicon Tech, Rudolph Technology, ShoreTel, Sierra Wireless, Silicon Motion, Simpson Manufacturing, Skyworks, Stamps.com, Sunoco, SureWest Communications, SW Energy, SYMYX Technologies, TeleCommunication Systems, Tesoro, Thoratec, Trimble Navigation, United Stationers, Universal American Corp., ValueClick, Varian Semiconductor, Volcom and Washington REIT.
Economic reports due: jobless claims (the consensus expects 447,000), EIA natural gas report, Fed balance sheet and money supply.
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