To say that lately the stock market has been overly sensitive to news is an understatement. Tuesday, a barrage of bad news turned stocks lower, and yesterday it was the lack of bad news and a few favorable announcements that drew buyers back to stocks.

Both days resulted in triple-digit moves for the Dow Industrials, but in different directions, as high volatility with lower-than-normal volume continued to plague long-term investors and favor traders.

Following a mediocre start yesterday, news that pending home sales for April made a 6% increase was the trigger for buyers to rush into the market. And the lack of any news, good or bad, from the Gulf of Mexico helped stabilize the beaten down energy complex. BP plc (NYSE: BP) rose 3.1%, Exxon Mobil Corporation (NYSE: XOM) was up 2.57%, and Chevron Corporation (NYSE: CVX) gained 2.55%. The Oil Service HOLDRS Trust (NYSE: OIH) rose 6.15%, its best gain of the year.

Financial stocks began yesterday’s buying spree, and they were up 3%, second only to the energy group, which gained 4.3%. American Express Company (NYSE: AXP) led the Dow Industrials with a gain of 4.36%, JPMorgan Chase & Co. (NYSE: JPM) rose 3.27%, and Bank of America Corporation (NYSE: BAC) was up 3.05%.

The U.S. dollar fell versus the euro, which closed at $1.2240 on news that eurozone banks had placed a record E316.4 billion ($387.1 billion) in the European Central Bank’s ultra-safe overnight deposit facility.

At the close, the Dow Jones Industrial Average (DJI) was up 226 points to 10,250, the S&P 500 (SPX) rose 28 points to 1,098, and the Nasdaq (NASD) gained 59 points to 2,281.

The NYSE traded 1.4 billion shares with advancers ahead of decliners by almost 5-to-1, and on the Nasdaq, advancers were ahead by over 4-to-1 on volume of 656 million shares.

Crude oil for July delivery fell $1.39 to $72.58 a barrel in a volatile session that ended with traders unconvinced of a turnaround in global demand, despite encouraging economic data. The Energy Select Sector SPDR (NYSE: XLE) rose $2.19, closing at $52.72.

August gold fell $4.30 to $1,222.60 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 4.01 points to 177.03.

What the Markets Are Saying

Yesterday’s rally appeared to impress the bulls. So much so that the evening pundits were proclaiming that the bear had been defeated as a result of stocks turning away from the flash cash low of S&P 500 1,040 with a series of reversals.

Well, that may impress some of the calves, but us old fellas have seen enough bear attacks and bear traps to be suspicious of eight volatile days of trading that so far have failed to make a single penetration through the resistance of the 200-day moving average, now at 1,107.12, that was broken on May 20.

The power of a trend line that has five supporting points from which there have been three genuine upside reversals can’t be denied. But neither should we conclude that the market is definitely headed higher, since there can only be a limited number of buyers at any support point. Most technicians consider three attempts at a support line to be the most that bulls should depend on before the support collapses, and this one has five.

Michael Ashbaugh said points of the following in his daily Technical Indicator:

• In early May, the S&P topped just under its 50-day moving average, leading to a 21-to-1 downdraft.
• On the ensuing recovery attempt, the S&P topped just under the January peak, leading to an 8-to-1 downdraft.
• And following this most recent test — the failure at the 200-day moving average — the S&P staged a 12-to-1 downdraft on Tuesday (May 25).

“So very simply, this is not bullish price action.”

The market has been very sensitive to news, both good and bad, which is an indication that stocks are in weak hands and/or controlled by day traders.

Since the next major news announcement is this Friday’s jobs report, I’d wait to evaluate its impact on the market. Let me say it again: “its impact on the market.” In other words, I’m less focused on the report itself than I am on the market’s response to it. If the report is good, then the market should rally. However, if the report is good and the market falls, then Mr. Market is telling us that the next major move will favor the bears since there is nothing worse at a key support line than a bearish response to a bullish report.

Today’s Trading Landscape

Earnings to be reported before the opening include: America’s Car-Mart, Charming Shoppes, Joy Global, Suntech Power and UTI Worldwide.

Earnings to be reported after the close include: China Finance Online, Comtech Telecommunications, Cooper Companies, Dyncorp International, Martek Biosciences, Quiksilver, SAIC and Ulta Salon.

Economic reports due: chain store sales, Monster Employment Index, ADP employment report, jobless claims (the consensus expects 450,000), productivity and costs (the consensus expects 3.4% for non-farm productivity and -1.3% for unit labor costs), factory orders (the consensus expects 1.8%), ISM non-Manufacturing index (the consensus expects 55.9), EIA natural gas report, EIA petroleum status report, Fed balance sheet and money supply.

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