Stocks Pull Back After Yesterday's Rally

The market is a bit lower in early trading after a couple of soft economic reports and some earnings misses as well.

Most earnings reports have come in strong this reporting season, but today Proctor & Gamble (PG) and Dow Chemical (DOW) both came up short of expectations, and their stocks are lower as a result.

In economic news, factory orders for June were also below expectations at -1.2% (vs. -0.5% consensus). And pending home sales for June decreased -2.6%, but that was actually better than forecasts.

This morning's pullback likely also has some profit taking going on as well. If this news was out yesterday, it probably wouldn't have halted the rally. But today the tone is softer, and so these types of news hitting the wires get used as an excuse to do some selling.

Asian markets were mixed overnight, with Japan rallying but China falling after reports that there could be further increases to bank reserve requirements in China. I have to admit, there are a lot of cross currents coming out of China, making the bull/bear debate between a soft landing and further tightening very difficult to handicap.

The dollar is lower again, extending its recent slide (which is getting long in the tooth). This is helping boost commodities, with oil prices higher to $81.50 and gold still hovering around $1187.

After a brief one-day bounce, the 10-year yield is back down to testing the 2.90% level. The volatility index is also at low levels, up slightly today to 22.33.

Trading comment: Yesterday's action was very strong, and market breadth was positive. The major indexes are now back into positive territory for the year. Looking at the oscillator chart below, the market is now back into overbought territory, so I would not be surprised to see some backing and filling in the near term.

The S&P 500 is now above its 200-day moving average, which currently sits near 1114. Ideally, this 1114 level will now act as support, and after the market works off its current overbought condition, we will see more upside ahead. Ideally being the key word.