Stocks Slightly Lower Following Yesterday's Strong Rally

Yesterday's rally was pretty strong. Lots of leading stocks either broke out to new highs, or are now close to doing so. Volume was higher than the preceding day, so if you follow IBD's rules, yesterday would be considered a follow-thru day from the recent start of a new rally.

Recent follow through's haven't proven sustainable in the face of waves of bad news from Euorpe to BP, etc. Time will tell if this one holds up and leads to a nice summer rally.

The multi-day bounce in the euro looks to end today and debt spreads in Spain are widening ahead of their meeting with the IMF later this week. Rumors are that they may seek financial aid. That is pushing the dollar higher today. Oil is flatting near $76.95, and gold is down slightly at $1232.

The Producer Price Index for May fell -0.3%, showing no signs of inflation anywhere in sight. The housing reports were especially weak, and are likely weighing on the market. Housing starts for May dropped -10% for the month, and building permits fell -5.9%. Both results were below consensus expectations.

In corporate news, both Fedex (FDX) and Nokia (NOK) reported earnings and gave cautious guidance. Both stocks opened lower today.

In Asia, China and Hong Kong markets were closed, but Japan rose +1.8%; the 10-year yield is lower to 3.26%; and the VIX is up slightly to 26.25, but still well below the 30 level after a nice 4-day drop.

Trading comment: The S&P got above its 200-day average yesterday, and is sitting right on that support currently (1109). So this will be an interesting level to see if it holds.

Many of the leading stocks (AAPL, FFIV, VMW, DECK, NFLX, etc) continue to act well and make new highs. These are the names I would stick with, as only select growth names continue to work well, while many other sectors and stocks struggle. The financials really can't gain any traction, especially with financial regulation looming.

Last, two stocks that had been lagging, but look like they might have turned the corner are GMCR and PCLN. Priceline has a little too much exposure to Europe for my tastes, but that doesn't mean it couldn't rally a bit more.

long AAPL, FFIV, GMCR, VMW, GLD