The Market That Bends But Doesn't Break

No sooner had I posted my thoughts yesterday about the recent trading range, saying that I thought it would be resolved to the upside, than the market rolled over and nearly tested the downside barrier of the SPX 925-950 range.

But after reaching roughly the 928 level, the market staged another late-day rally, and finished down only a few points on the day. Talk about another frustrating day for the bears. I am pretty sure there were plenty of short-sellers pressing their bets as it looked like the market was embarking on a correction, only to have to cover those bets late in the day and this morning.

This morning's economic news wasn't bad. May retail sales increased +0.5%, avoiding a third straight monthly decline. Also, jobless claims for the week declined to 601,000 from last week's revised 625,000. This figure is still very high, but it looks like it is slowly moving in the right direction.

The IEA revised its 2009 global demand forecast for oil to a slightly improved outlook, which has oil trading higher (near $72) and the energy stocks up as well. Utilities are also strong, while retailers are lagging so far.

Asian markets were higher overall, despite declines in Japan and China. Japanese GDP declined -3.8% in Q1, and exports in China plunged by a record -26.4% yr/yr in May. That's a big drop in exports, for an economy that is supposed to be resurging.

The dollar is lower on the day; the 10-year yield is flat near 3.93%, and today there is another bond auction (30-yr bonds) which has been moving the bond market each time lately; the VIX is down another -2.85% to 27.65.

Trading comment: Yesterday I took profits in our AMZN and CME positions, both of which have had big moves higher. I still like both stocks longer-term, and would look to re-enter these positions at lower levels.

I am looking at a couple of ETFs to increase our long exposure before quarter-end. The financial etf (XLF) is nearing a breakout above its 200-day, which makes it an attractive candidate. And the oil services etf (IEZ) remains attractive as oil continues to push higher. I would also like to add to our Brazil etf (EWZ), but don't want to chase it.

long EWZ