Bank Stress Tests, Jobs Report Both Come In Less Than Feared

The market is higher in early trading, after the release of the bank stress tests last night offered results that were more benign than initially feared. The government said that 10 of the 19 banks will require additional capital, estimated at $75 billion. Wells Fargo (WFC) already raised $13.7 billion in an overnight share offering. The bank index is again leading the upside action so far.

Another eagerly anticipated report was the nonfarm payrolls report this morning, which showed the economy shed 539,000 jobs. This is a big figure, but it is below expectations for -600,000 jobs. The unemployment rate rose to 8.9%. Again, unemployment is a lagging indicator, and always continues to rise after the stock market as well as the economy have already bottomed. So don't try to use it as a leading indicator.

Asian markets were higher overnight, after results from our stress tests were released; the dollar is weaker so far, while oil is higher again near $58. Gold is roughly flat; the 10-year yield is lower to 3.27%, after a big spike higher yesterday; and the VIX is -2.4% to 32.63 so far.

Trading comment: For the second day (so far), the SPX has rallied up to the 925 level only to turn lower. So it looks like 925 is shaping up as near-term resistance. We saw this earlier with the 875 level, but now that the SPX has broken above that former resistance, I would look to 875 as an area of support.

Yesterday I added to out biotech etf (XBI) positions. Biotech stocks have not kept pace with the recent rally, but I think they could play catch-up as the broader market pauses to catch its breath. Also, the positive news in the HMO space has me thinking about adding a basket of those stocks. One way to play it would be via the etf, IHP.

long XBI