S&P 500 Tests Its 200-day Moving Average

The market is slightly higher in early trading, following a nice 3-day rally. I think its obvious that the reason the market is higher this morning is that the cast of Jersey Shore was at the NYSE to ring the opening bell. I also heard that it was the first time the NYSE sold out of guest passes. Too funny.

In all seriousness, there was another round of solid earnings reports last night and this morning, and a better than expected housing report. The CaseShiller Home Price Index for May rose to 146.4, with the 20-city composite up +4.6%. Despite the positive report, homebuilding stocks (XHB) are lagging this morning.

The financial index is leading the way so far today, after banks including UBS, Deutsche Bank (DB), and Regions Financial (RF) all reported strong earnings and saw their stocks gap higher. There was also some positive news in the form of the Basel Committee saying it may ease capital and liquidity requirements.

Utilities are the next strongest group this morning (+0.81%), while energy is lagging (-0.70%).

The dollar is up a bit this morning, while gold prices are lower ($1172), and oil prices are down to $78.50. Asian markets were mixed overnight; the 10-year yield is up to 3.03%; and the volatility index (VIX) is also higher to 23.20 following its multi-day slide.

Trading comment: The S&P 500 has rallied right up to its overhead 200-day moving average. This is a key, longer-term moving average, and will likely offer resistance on this test. I say that because the market is also overbought just as its reaching this zone. A positive resolution would be similar to what we saw a couple of weeks ago when the SPX tested its 50-day average, pulled back for a bit, and then rallied again and successfully closed above it.

I've highlighted the level of the 200-day in pink below. It stands right around the 1115 level. This level is also notable because it is right where the SPX closed on 12/31/09. So it brings the market back to even on the year, and could mark a level where some participants are just happy to be back to even, and looking to sell.

So a pullback would be good here, as it would give the market chance to catch its breath. I am focusing on those stocks that reported the strongest earnings and broke out to new highs. They are likely the best candidates to add to on pullbacks, as they should continue to lead the market if the major indexes remain strong.