Who Says September Is The Worst Month For Stocks?

The markets finished slightly lower on the day, despite being up sharply in early trading. Stocks got off to a strong start after the opening bell this morning, when the final revision to Q2 GDP showed that the economy grew 1.7%, from an earlier estimate of 1.6%, due to stronger than expected consumption.

Also, weekly jobless claims came in below expectations, and the Chicago PMI survey rose to 60.4, much better than the 56.0 expected. The various PMI reports have been somewhat weak lately, so this strong reading emboldened buyers.

There was no real news that accounted for the selloff, but within the first half hour of trading, stock prices peaked and the market began to selloff. Nonetheless, the S&P 500 finished the month of September with a gain of roughly +8.8%. The final figures aren't in, but I have heard that this was the best month of September since 1939 - quite a showing.

It's funny, because many market spectators were worried about September, as it has a history of being the weakest month of the year for stocks. But with a big down August this year, we had been saying that all of the negative stories were already well know and thus likely discounted in stock prices. Stocks ramped higher on the first day of the month, and pretty much added to those gains each week thereafter.

The dollar was flat today, although it has been weak this past month. That helped gold prices rally in September, finishing the month at $1308.

The 10-year yield rose slightly to 2.51%; the volatility index crept +2% higher to 23.70, right at its overhead 50-day average.

Trading comment: Given the sharp runup over the last month, most are expecting some sort of pullback over the next week. But given that it seems many portfolio managers are underinvested and in dip buying mode, it will be interesting to see at what levels buyers step up to the plate.

I'm still keying off of SPX 1131 as initial support, and then 1115. The 50-day average is currently at 1104.

Stocks Continue To Consolidate Recent Gains

The market continues to hold up admirably. Many investors, yours truly included, thought that the market might pullback more after its recent runup, but so far it has simply been consolidating around these levels without giving back too much.

Stocks are slightly lower in early trading, but not by too much. There were no economic reports to speak of, and a few corporate news items that were mostly positive (HPQ raised guidance, BA was awarded a contract, FDO reported strong earnings).

Among the sector ETFs, only energy (+0.29%) is higher, while financials (-0.90%) are the weakest so far. The financials have not participated as much in the recent rally, and their underperformance bears watching.

Asian markets were higher almost across the board overnight after a solid Tankan Survey, which measures corporate sentiment in the region.

The dollar is slightly weaker, while gold is back at new highs near $1308 and oil prices are down a bit to $75.80.

The 10-year yield is barely higher to 2.47%; and the VIX is +3% today to 23.27, but still hovering below its 50-day average.

Trading comment: Yesterday morning's dip in the S&P 500 again brought it down to that SPX 1131 level that I have been saying could act as initial support. That is the second time this level has held recently, and the market once again quickly bounced higher.

In the macro world, credit default swap (CDS) prices on European sovereign debt continue to move higher, indicating rising concern with Portugal, Spain, Ireland, etc. But so far it has not unnerved stock investors. I'm not sure it will, but I wanted to let you know what's on my radar. It will also be interesting to see what happens in the sentiment indicators this week given the recent rally in the market. Stay tuned for that.

Chart of the Day: Bond Yields Hit New Lows

Today's chart shows the continual move lower in bond yields. A couple of months ago I highlighted the bounce back to the overhead 50-day average (blue line), and the failure to break above that resistance level.

The 10-year yield has since come back down to test its August lows, near 2.47%. Today, bond yields fell further and the 10-year yield ended at new lows for the year - 2.45%.

Part of this is likely due to the accommodative stance on the part of the Fed, who said they are likely to continue to purchase bonds in the open market to help keep interest rates low. Bond traders are well aware of this, so they have little incentive to sell their bonds at current levels, since a big buyer waits in the wings.

Many pundits keep talking about inflation being right around the corner, but this picture sure doesn't lend itself to the notion of imminent inflation. I am not in the deflation camp either, but I think a more likely scenario at least for the near-term is for the markets to continue in this disinflationary environment.

Higher bond yields? Check back in 2011...

long TBT

Consumer Confidence Sinks Despite Recent Stock Rally

The market was flattish near the open, after a benign housing report, but then took a quick dip lower after the Consumer Confidence report came out. I guess the recent rally in the stock market didn't sway participants in this survey, as consumer confidence for September came in at 48.5 vs. expectations for 53.0. It was also the lowest reading since February.

That led to some selling in stocks, but as of this post, the market seems to be coming back. Surprising how this market sure doesn't stay down for long lately. AAPL was down $15 at the open on rumors the COO might leave to HPQ (no way this is true), but it has already climbed all the way back to down less than $2.

Walgreens (WAG) stock is up sharply after the company reported better-than-expected earnings.

Among the sector ETFs, consumer staples (XLP) have been bucking the weakness so far (+0.29%), while materials (XLB) are the biggest laggard (-0.66%).

Asian markets were lower overnight. The dollar is also lower, despite renewed worries over sovereign debt in Europe (namely Spain and Ireland). Gold hit new highs near $1306 earlier, but has since reversed those early gains. Oil is also lower near $75.82.

The 10-year yield is back down to 2.47%. This is the level that market the lows at the end of August, so a close below this level would be new lows for the year.

The volatility index (VIX) is up +3.55% to 23.35 currently, knocking on the door of its overhead 50-day moving average.

Trading comment: I talked about that S&P 1131 level as initial support. Today it was tested again, as the SPX briefly dipped to 1132 on this morning's selloff. You have to be on your toes to take advantage of these pullbacks, as we are quickly back at 1140. It is possible that portfolio managers looking to put cash to work ahead of quarter end are moving quickly to buy the dips. If so, does that mean we could see a bigger pullback after quarter-end?

Monday Morning Musings

The market is pulling back just slightly in early trading, after posting huge gains on Friday which capped the fourth consecutive up week for the market. Many participants were worried about the market as we headed into September, but as of now we are on pace for one of the best months of September on record. Go figure.

There are no major economic releases today, and no real corporate news to speak of. There was some M&A over the weekend, with Unilever buying Alberto-Culver (ACV), and Southwest Air (LUV) buying AirTran (AAI).

Asian markets were higher across the board overnight. The dollar is a bit higher this morning, but oil is also up near $77 and gold is also higher near $1298.

Among the sector ETFs, tech and energy are leading the way and bucking the early weakness; while healthcare is leading on the downside, but not by much.

The 10-year yield is lower again to 2.54%; and the VIX is up +4.05% to 22.59.

Trading comment: Stocks only staged a brief pullback last week, when the S&P 500 dipped to 1122 Thursday morning. You had to be on your toes, but if you bought that pullback you likely are happy as the growth stocks I've been writing about bounced sharply.

Many of the leading stocks are extended after their rallies, so it is time to watch for the ones that consolidate and offer better entry points. Chasing stocks is never a good strategy. Much better to exercise patience, as opportunities are easier made up than losses.

Early Look: Stocks Surge Out Of The Gate

Stocks are surging out of the gate. Maybe the market is getting psyched for the new Wall Street movie out tonight, Money Never Sleeps. I know I am.

The durable goods report (ex-transportation) was much stronger than expected, and a new home sales report showed that the supply of homes available is at a multi-decade low.

Also, strong earnings reports from Nike (NKE) and Lennar (LEN) helped boost things. And big hedge fund manager David Tepper made some very bullish comments on stocks.

The dollar is lower again, helping boost commodities. Oil has rallied above $76, while gold has hit new all-time highs above $1300.

Asian markets were mixed overnight. Japan was lower, but China was closed; the 10-year yield is bouncing to 2.60%; and the volatility index (VIX) is -8% lower to 21.91.

Trading comment: Yesterday I mentioned the S&P getting down to initial support levels, where I only did a little buying. But today the SPX is getting a big bounce from those levels, and testing its highs from earlier this week (1148). This will be the fourth straight positive week for the market, which has mostly capped the length of rallies over the last year or so. Plus, the market is still overbought, so maybe we will see more pullbacks next week to do some buying.

Weak Economic Data Out of Europe Weighs On Stocks Early

The market opened lower after weak economic data out of Europe had their markets down before the open. There were disappointing PMI readings out of Germany and a contraction in Ireland's GDP.

Also, jobless claims in the U.S. were a bit higher than expected (465,000), so our markets opened under a fair amount of selling pressure.

After the open, there were two economic reports that came in above expectations, and helped the market bounce. Existing home sales for August rose 7.6%, above expectations. And leading economic indicators were also higher than expected.

The market quickly bottomed this morning, and as of this post, the Nazz is back in positive territory, and the S&P is down only -0.2%.

Among the sector ETFs, all are lower with the exception of tech (+0.40%) which is bucking the weakness.

Asian markets were mostly closed overnight; the 10-year yield is lower again to 2.51%; and the VIX is +2.2% higher so far to 23.01.

Trading comment: The S&P 500 has pulled back to its recent breakout level at 1131, which is the area where I said I would start to put the first tranche of money to work. As such, I will likely to a little buying today, and then take a step back. My second target zone to put more cash to work would be the 200-day average near SPX 1117.

Chart of the Day: Bond Yields Break Down Again

The market is roughly flat in early trading. Yesterday, the Fed released its latest statement that indicated that they will remain extremely accomodative with monetary policy. It looks like they have no intention of raising rates anytime soon, and stand ready to inject more easing if necessary.

In the chart below, you can see that earlier this month it looked like bond yields were poised to break above their multi-month downtrend line (see pink line below). But yesterday's reaction to the FOMC had bond investors rethinking their position, and the rush to buy more bonds pushed yields back down near the 2.50% level.

At some point, the bond market will worry about all of this monetary stimulus and its potential effect on inflation. I also think that our fiscal budget concerns could lead to higher rates in the coming years. But for now, betting on an imminent rise in bond yields has been a losing bet, so one needs to remain patient.


long TBT

Morning Look

The market is down slightly in early trading. Housing prices for July showed a -0.5% month-over-month drop, even though most participants probably knew this since we are already in September.

Adobe (ADBE) issued mixed guidance last night on its earnings call, which is whacking the stock today. And despite raising its dividend 23%, shares of MSFT are also -2.5% lower. Apple (AAPL) and RIMM are bucking the overall weakness so far.

The dollar is lower following yesterday's Fed meeting, while the euro is surging again. The weak dollar is helping commodities, with oil higher to $75.75 and gold up again near $1294.

Asia was mixed overnight, and China's market is closed for the rest of the week. The 10-year yield is lower to 2.54%; and the VIX is up slightly to 22.70.

Options players came out of the gate very bullish this morning, with the ISEE call/put ratio elevated at 239. This does not bode that well for today's action, but it's still early.

Trading comment: Nothing new since yesterday. Still waiting for a bit more of a pullback before putting money to work. My first target zone is for the S&P to pull back to 1131 or so, the level from which is recently broke out.

long AAPL, RIMM

Successful Debt Offerings In Europe Ease Fears

The market is basically flat in early trading, despite a strong housing report here in the U.S. Housing starts for August climbed +10.5%, which was much better than expected.

The euro is also bouncing this morning after successful debt offerings in Ireland, Greece, and Spain eased fears there. The bounce in the euro is coming at the expense of the dollar, which is down a bit. Commodities are also down slightly, with oil down to $75.91 and gold off a bit to $1277.

The big news event today is the Fed's meeting and the policy statement that will be released at 2:15pm EST. I don't expect any change in their directive or language. They will probably acknowledge the slowdown in the economy, and say that policy will remain attentive to that. Either way, with the market still overbought, we could see some selling once the news is out.

Among the ETFs, financials and industrials are leading the sluggish action so far, while consumer staples and basic materials are lagging.

Trading comment: Yesterday's action was pretty impressive. We now have new support levels for the S&P 500. The first area of support on a pullback should now be the 1131 level that the market broke through yesterday. After that, the 200-day should come in as support, which is currently near 1116.

Most of the leading stocks are now a bit extended after a multi-week sprint higher. I haven't trimmed any of our positions, as I still think these stocks will be strong into year-end. But the market has been up for three straight weeks, so I still think that some pullback is in order, even as I have been early in calling for it to start last week.

Apple (AAPL) broke out to a new high yesterday, which is one of our biggest positions. I think the iPad is going to do monster numbers this holiday season, and AAPL stock is still cheap on a valuation basis. My 6-12 month target remains $350.

long AAPL

Monday Morning Musings

Despite the market advancing for the third straight week, despite the market being short-term overbought, and despite options expiration on Friday, stocks are higher again in early trading. The strength in surprising, but it seems in the absence of any bad news investors are looking to put more money to work.

There was some more M&A activity over the weekend, with IBM buying Netezza (NZ), and Safran buying L-1 Identity Solutions (ID).

The euro is getting a boost today, at the expense of the dollar, after Moody's said that the Aaa rating of the UK will withstand economic challenges. Boy, if the UK's rating is intact, it sure seems we don't need to worry about the U.S.

The lower dollar is helping boost commodities, with oil higher to $74.25, gold up again near $1275, and silver hitting a 30-month high.

Among the sector ETFs, energy (+1.17%) is strongest so far, followed by industrials (+1.10%); utilities (+0.58%) are lagging, but all of the sectors are higher so far. Among industry's homebuilders (+1.86%) are strongest after Lennar (LEN) reported better-than-expected earnings, and steel stocks (+0.04%) are lagging after a Goldman downgrade.

Asian markets were mostly flat overnight; the 10-year yield is flattish near 2.74%; and the VIX is down near 21.78.

Trading comment: I thought after the market got overbought that we would trade sideways to down while we worked off the overbought condition. So far that hasn't really been the case, as the market has essentially continued to creep higher. In the chart below, you can see the June and August highs near SPX 1131 (pink line), and the fact that today we are peaking our heads above that resistance.

I still think that we are overdue for some sort of pullback, so even thought I have not trimmed many of our positions, I am still waiting for a pullback before putting new money to work. I think if the S&P were to pull back into the low 1120s, that would be the place I would like to make my first round of buy/adds. I mentioned last week that with the market over the SPX 1115 level, we could see performance anxiety set in, and I think that is exactly what we have been seeing.

Gold Breaks Out To New Highs

The market is a little lower in early trading, which is not surprising given the recent gains. Economic data was mixed this morning, with jobless claims a little better than expected but the Philly Fed Index below expectations.

FedEx (FDX) also weighted on the pre-market after posting an earnings miss and issuing mixed guidance for next quarter and 2011.

Among the sector ETFs, nearly all are lower so far, except for materials (XLB) which are bucking the trend after Eastman Chemical (EMN) raised its earnings outlook. Energy (-0.62%) is the biggest laggard so far, but its still early.

The euro is bouncing, at the expense of the dollar, after two successful bond auctions in Spain. Hopefully this will help push down some of the CDS prices on W. Europe which have been on the rise lately (namely Portugal).

Asian markets were lower overnight, led by China which fell -1.9%. Commodities are mixed, with oil lower to $75 but gold breaking out to new highs above $1272. Gold hasn't gotten as much fanfare as it did last year, but I think the stories will heat up now that it is back to new highs. One big gold company yesterday said that it plans to remove all of its price hedges by next year. Moves like this, along with continued buying by central banks, should continue to support the yellow metal.

The 10-year yield is higher to 2.76%; and the volatility index (VIX) is up to 22.72.

Trading comment: Despite being overbought, the market continued to push higher yesterday. Bullish sentiment is on the rise, with the bulls in the AAII poll rising sharply this week. Those ingredients make it more likely that we will experience a pullback shortly. This week is also options expiration week, which could be exerting some influence on stocks. I remain of the opinion that I want to look for opportunities to put cash to work on pullbacks, but I want to remain patient until we actually get one.

long VXX

Bank of Japan Intervenes To Knock Down Yen

The market opened lower in early trading, but has once again rebounded and is roughly flat as of this post. There hasn't been much news this morning. One economic report was the Empire Manufacturing Index which came in below estimates at 4.1 for September.

The big news was Japan's government intervening in the currency markets to weaken the Yen, which has been hovering at 15-year highs. Being an export driven economy, a strong Yen hurts their economy as it makes Japanese products more expensive on the global market.

Currency interventions don't always work. Today it is having its desired effect, knocking the Yen -3% lower on the day, which is a big one-day move. But it remains to be seen if it will work longer term. On average, it is usually easier to move a currency lower, as the govt. can print more money, etc, but it is harder to prop up and support a falling currency when the rest of the globe is selling.

The action in Asia overnight was mixed, with Japan spiking +2.3% on the lower yen, while China got hit for -1.3%. European markets were generally weaker this morning.

The dollar is higher today on the weak yen. Commodities are down a bit, with gold off slightly to 1269 and oil down $1.40 to $75.40.

Among the sector ETFs, tech (+0.40%) is leading the way, followed by healthcare (+0.36%); energy (-0.68%) is the biggest laggard so far.

Trading comment: I have been saying how the market was back into overbought territory. The graph below shows what I am talking about, as you can see how high the oscillator has moved. So far, the market hasn't given up much ground, but in my experience it's better to hold off on new buys until the market has worked off this overbought condition, one way or another.

As we head into the back half of September, we are also getting into preannouncement season. Earnings estimates have held up pretty well all summer, but there is always the possibility of some big companies preannouncing that they had a weaker than expected quarter, which would weigh on the market.

Today's Economic Data Should Boost GDP

The market is slightly lower in early trading, but some profit taking should not be surprising in light of the current overbought condition in the market and the fact that we have been up in 8 of the last 9 sessions.

In economic news, inventories rose in July +1.0% (vs. +0.7% consensus), which will provide a boost to Q3 GDP figures. Also, advance retail sales grew more than expected (+0.4%, +0.6% ex-autos), which also should add to GDP calculations. For those who have predicted a negative GDP number for Q3, I think today's data could have them rethinking that position.

Also, the IBD/TIPP Economic Optimism survey rose to 45.3 in September from 43.6 last month.

The dollar is lower again today, and that is helping gold break out to new highs. The yellow metal has broken above the $1260 level, reaching $1267 in early trading. Oil is flat near $77.

Most of the sector ETFs are lower in early trading, except for tech (+0.37%) which is bucking the downtrend. Financials (-0.94%) are down the most, followed by utilities (-0.41%).

Asian markets were lower overnight, as Japan still struggles with the yen at 15-year highs. The 10-year yield is lower to 2.68%, and the VIX is up 1% to 21.42.

Trading comment: The S&P 500 was able to close nicely above its 200-day at 1115, and is now back into positive territory for the year. This morning, the early selling brought the SPX back down to test that 1115 level, but so far that retest looks successful as the index has bounced off of that support and is back near 1120 (I know, it's still early).

The market is still overbought, and needs some consolidation. Also, this week is options expiration week, so there is always the possibility of a big down day. But it feels like each time the bears try to knock the market lower, if they can't get it down below near-term support levels, we could see more short-covering. I don't want to chase a market that has been up 8 of 9 days, but I do want to be a buyer on dips.

long VXX

Monday Morning Musings

The market is sharply higher in early trading, following on the heels of strong action abroad overnight and this morning. The news out of the Basel III conference was met with a big sigh of relief, and banks felt it did not contain any unpleasant surprises that would have required them to raise additional capital. That is helping financials lead the action so far this morning.

Asian markets rose overnight, and European bourses were higher this morning. The European Commission also raised its GDP forecast for the eurozone to 1.7% from 0.9%.

There were also a few M&A announcements this morning, including HPQ buying ArcSight (ARST) for a hefty premium, Hertz (HTZ) offering $50 for Dollar Thrifty (DTG), and 3M (MMM) offering to buy Cogent (COGT).

The dollar is lower, as euro and other currencies rally today. Commodities are mixed, with oil higher near $77.50 and gold prices lower at $1242.

The 10-year yield is lower to 2.78%, and the VIX is also lower to 21.19.

Among the sector ETFs, financials (+2.30%) are leading, followed by materials (+1.86%). Utilities (+0.44%) are lagging.

Trading comment: You can see in the chart below that this morning's rally has pushed the S&P 500 up through its 200-day moving average. This is an important resistance area to get through. Additionally, it was also the level where the SPX began the year, so as of now we are back into positive return territory for the year. This is the area above which I believe performance anxiety starts kicking in, given that we hold these levels.

If you look at the stochastics at the bottom of the chart, you can see how overbought the market is. The oscillators are painting the same picture. So I don't want to chase stocks here, as I think some consolidation lies ahead. The most bullish way to consolidate these gains would be for the market to just trade sideways and work off this overbought condition. A more bearish outcome would be for the market to have some sharp 1-2 day selloffs.

Many of the leading stocks (FFIV, CMG, VMW, CRM, NFLX, ISLN, PCLN, etc) continue to make new highs, but they look extended on the charts. Hopefully the will pull back or consolidate also, as that would offer better buying opportunities vs. chasing them at these levels.

long FFIV, VMW, VXX

Stocks Strong Again In Early Trading

I hope all those who were celebrating had a happy new year. Today, the market is once again higher in early trading. If today's gains hold, it would be the 7th up day out of the last 8, not a bad streak. But the market is once again overbought, so I don't want to chase things here.

News flow is again pretty slow today, and I expect trading volume to be low as well. Last night, Texas Instruments (TXN) narrowed its Q3 guidance outlook, and the stock is down slightly today. I thought it might weigh on the tech sector more today, but overall tech is trading firm.

Asian markets were higher overnight, after Japan's Q2 GDP rose +1.5%, and they also announced an $11 billion stimulus plan. European markets were lower this morning, after banks continue to trade heavy. Deutsche Bank (DB) fell sharply yesterday amid rumors that the bank plans to raise capital ahead of the new Basel III requirements coming out.

The dollar is firm this morning, and commodities are mixed. Oil is higher to $75.82, and gold is off slightly at $1246.

The 10-year yield is rising to a 1-month high at 2.81%; and the VIX is another -3.1% lower to 22.09.

Among the sector ETFs, energy (+1.01%) is strongest followed by industrials (+0.90%); utilities are lagging (-0.51%).

Trading comment: Market leading stocks have continued to act well and experience more breakouts to new highs. The S&P 500 has also crossed above that long downtrend line that has been intact since the April highs. The market is overbought once again, so I expect some consolidation and pullbacks in the next week or so.

But as the S&P gets back to 1115, which marks the flatline for the year, performance anxiety could begin to creep up as managers will not want to be left behind as we enter Q4. And hedgies who may not have added much value this year in terms of showing positive returns will likely be looking to squeeze in as much performance as they can before year-end.

Did Yesterday's High Put/Call Ratio Set Up Today's Rally?

The market is nicely higher in early trading, nearly reversing yesterday's light volume selloff. There is still little in the way of corporate news this morning, but there are a few economic reports later today.

Asian markets were lower overnight, but Europe is higher this morning. Sentiment in Europe improved after Portugal had a successful debt offering. This is also helping the euro bounce relative to the dollar.

Commodities are mostly higher (lumber is limit up), with oil up to $74.50 and gold higher at $1260. Gold is very near to breaking out to new highs on the year.

The 10-year yield is higher to 2.65%, ahead of one of today's key reports, which is the Treasury's $21 billion auction of 10-year Notes. Also, the Fed will release its Beige Book at 2:00pm EST, which always stirs the market.

Among sector ETFs, financials (+1.34%) are leading, followed by materials (+1.17%); utilities (+0.16%) and consumer staples (+0.40%) are lagging.

And the volatility index (VIX) is down -2.6% to 23.18 after yesterday's big spike higher.

Trading comment: The S&P 500 is right back at the key psychological level of 1100. Yesterday, the put/call ratio rocketed higher to close at 1.33, which is a very high level. I'm not sure what caused the rush to buy puts, maybe it was the concerns emanating from Europe. Regardless, I think the bears' overreached yesterday, and today looks like some of those puts are being sold (or stocks are being bought to offset exposures).

Leading stocks continue to act well, and more stocks are breaking out. As long as the overall market doesn't rollover again, I expect this type of action to continue. Volume will likely slow as the day rolls on, as those who are celebrating Rosh Hashana will likely head out early and then take tomorrow off.

With Little News, Focus Returns To Europe

After a big rally on Friday, the markets are in selling mode this morning. There is actually little in the way of market moving news here, but chatter about the weakness among European banks is making the rounds again and causing some selling.

It is also weighing on the euro, and boosting the dollar. The weak dollar is also hurting commodities today, except for gold, which has traded north of $1250. It looks like the old flight-to-safety trade is on today, with the only real assets moving higher being gold, Treasuries, and the dollar.

Asian markets bounced back strong on Monday, but were mixed overnight. The 10-year yield is pulling back from its big spike higher Friday as well, back down to 2.65% today. And the volatility index (VIX) is spiking +11% to 23.70 after hitting new 52-week lows on Friday.

Among the sector ETFs, all are lower so far, led by financials (-1.6%) then energy (-1.4%); consumer staples (-0.06%) and utilities (-0.05%) are down the least.

There has been some chatter about a new round of tax cuts or proposals from President Obama, but details are not clear yet. The talk is about new capital expenditure tax incentives. Those would help, but I would prefer to see the tax cuts focused on small business.

Trading comment: After last week's big rally, the market is no longer oversold. The S&P 500 is also right in the middle of an area above its 50-day moving average, but below its overhead 200-day (still at 1115). I would call this area a no-man's land of sort. Additionally, if you draw a trendline from the April highs through the August peaks, the SPX is currently right at that downtrend line, so some technical selling is normal.

But sentiment is still overly bearish, imo, and as such I think that after a pullback the market will likely rally again. The SPX 1115 area marks the flatline on the year, and if the index gets back above that level, we could begin to see some stock chasing by portfolio managers as performance anxiety sets in the closer we get to the end of the year. Sept. 30th is qtr end, and no managers want to be trailing their benchmarks going into Q4.

Weekly Recap

Here is the Weekly Wrap from Briefing.com:

Stocks surged after strength overseas and better-than-expected economic data helped the major indices overcome losses from early in the week. The week ended on a positive note following a better-than-expected U.S. employment report.

The S&P 500 rallied 5.3% as all ten sectors posted a gain. Financials (5.7%), consumer discretionary (5.0%) and materials (4.2%) led the way. Defensive sectors underperformed on a relative basis, with utilities gaining 1.6%.

Overseas strength and better-than-expected economic data acted as the main drivers behind the buying interest.

The much anticipated August employment report marked the most important event of the week. With many economists predicting a poor number, the market received an upside surprise following news that August nonfarm payrolls fell 54,000, much better than the Briefing.com consensus of that called for a decline of 120,000. The September reading was revised to a decline of 54,000, an improvement over the original decline of 131,000.

Private nonfarm payrolls rose 67,000, which was better than the 44,000 consensus. Private payrolls have increased each month since January. The unemployment rate rose to 9.6% from 9.5%, as expected.

The labor market is continuing to struggle, though recent employment reports suggest there is a very low probability of a double-dip recession.

In other economic data, the August Consumer Confidence reading encouraged some buying interest in stocks after confidence climbed to 53.5 from 51.0 (Briefing.com consensus 51.0).The market reacted positively to news that the August ISM Index rose to 56.3 from 55.5, well ahead of the Briefing.com consensus that called for a decline to 52.9. Later in the week the ISM Services report came in below estimates, but the market managed to shrug off the negative news.

The housing market got a glimmer of positive news after the July pending home sales index increased 5.2% m/m, which was well above the Briefing.com consensus that called for an unchanged reading.

Although we are in the slow period for earnings reports, there was plenty of corporate action on the M&A front. Intel (INTC) announced plans to acquire the wireless unit of Infineon Technologies for $1.4 bln in cash. Sanofi-Aventis (SNY) offered $18.5 bln in cash to acquire Genzyme (GENZ). Genzyme rejected the offer.3M (MMM) is acquiring Cogent (COGT) for $430 mln, or $10.50 for per share. Separately, 3M is going to pay $230 million to acquire Israel-based Attenti Holdings.

In other corporate news, Monsanto (MON) came under pressure after the company issued a downside FY2010 EPS forecast of between $2.40 and $2.45 compared to the $2.49 consensus. Shares of Monsanto fell 1.4% for the week.

Meanwhile, retailers benefited from better-than-expected August same store reports from the likes of Abercrombie (ANF), Costco (COST) and Macy's (M), among others.As stocks rallied, Treasury yields spiked higher. The 10-year note yield rebounded to end the week at 2.70%, a 28 basis point rebound from its intraweek low of 2.45%.

Commodities prices gained, with the CRB Index up 2.1%.

Quote of the Day

"People say that what we're all seeking is a meaning for life. I don't think that's what we're really seeking. I think that what we're seeking is an experience of being alive."
— Joseph Campbell: writer and lecturer on mythology

Jobs Report Stronger Than Expected

The market is rallying again in early trading after a much better jobs report than the consensus was looking for. Nonfarm payrolls for August fell 54,000 but that was far less than the 120,000 that was expected. Moreover, private payrolls rose 67,000, which was considerably stronger than the 44,000 expected gain.

With many participants leaning bearish heading into this report, the market rallied strong on the better than expected news. Then came the ISM Services Index report for August, which was a bit light at 51.5 vs. 53.0 consensus. That took a little steam out of the rally, but we are still up nicely as of this post.

Other service sector reports coming out around the globe include the eurozone PMI Service Index, which came in at 55.9, and China's PMI Service Index for August which rose to 57.6.

Asian markets were higher overnight, and Europe is higher this morning; the dollar is lower while the euro is higher; oil prices are lower to $73.75 and gold is down near $1240; the 10-year yield is rising further, reaching 2.71%; and the volatility index (VIX) is down -2.9% to 22.50.

Trading comment: The S&P 500 rallied above the 1100 level briefly, but after the ISM survey it dipped back below that level. As we are ahead of a holiday weekend, I expect volume to taper off as the day wears on as people head out early for Labor Day weekend. I have nothing special planned, in case you were wondering.

This week's rally is a textbook case of bearish sentiment become too pervasive, and setting up the market to rally on any hint of good news. I still think there are a lot of funds leaning bearish out there, and if the market continues to rally, performance anxiety will quickly set in. Many of the leading stocks I talk about have rallied to new breakout highs, and look attractive on any pullback. Good luck.

Solid Retail Sales, Pending Home Sales Boost Stocks

After yesterday's outsized rally, the market is higher in early trading following some solid reports. In economic news, pending home sales rose +5.2% in July vs. expectations for no change. So that is a pretty solid report.

Also, same-store sales for the nation's retailers came in for the most part better than expected, and that is pushing the retail index (XRT) up +2.25% so far today, leading most ETFs. The homebuilding etf (XHB) is up +2.63% on the above-mentioned report.

Tomorrow is the monthly payrolls report, and expectations are for 120,000 jobs to be shed. This report always makes for volatile trading, especially ahead of the holiday weekend.

In Europe, eurozone GDP rose +1.0% in Q2, and the 2010 GDP outlook has been raised to 1.4% - 1.8%. The ECB also held rates steady at 1.00%.

Asian markets were also higher overnight, following the strong action on Wall St. yesterday.

The 10-year yield is rising further to 2.63%; oil is down a bit to $73.50, while gold is higher at $1248; and the VIX is -2.6% lower to 23.27%.

Trading comment: As the chart below shows, the S&P 500 rocketed off that 1040 support level right up to its 50-day average yesterday. This morning, the SPX has moved just above that 50-day line, and hopefully that moving average will act as support on any pullback.

The next looming areas of resistance will be the 1100 level, as well as the overhead 200-day moving average at 1115, which coincidentally is the same level at which we began the year. But as I wrote recently, focus on the stocks that are breaking out and leading the market. New highs expanded nicely yesterday, and that is a good sign.

Market Soars On Strong PMI Data

Busy morning for me so far, so I'll have to keep this post brief. The market was already set to open higher after upbeat data out of Europe and Asia had those markets trading higher.

The ADP Employment report was disappointing, as it showed 10,000 private payrolls were shed last month. But that report was overshadowed by the August PMI Manufacturing report that came in much better than expected at 56.3 vs. 52.9 consensus. Moreover, while most have been talking about a slowdown in the economy, August's reading was also up nicely from July's level of 55.5.

The 10-year yield is nicely higher to 2.60%, and the volatility index (VIX) is down -5.9% to 24.51.

Trading comment: I mentioned earlier this week that after Friday's strong rally attempt, investors would be looking for a follow-thru confirmation day sometime this week, where the indexes would rally again on strong volume. Although the last 2 days were weak, they did not undercut Friday's lows (at SPX 1040), which meant that rally attempt was still intact.

Today it looks like we are seeing that confirmation day. The major indexes are up sharply this morning, with the SPX +2.75% and the Nazz +3.15% currently. This is a welcome development in the face of all the negativity we have seen lately. To wit, today's Investor's Intelligence sentiment survey showed the biggest spread of bulls minus bears (29% bulls, 38% bears) since March 2009. It's hard to believe that investors are as negative today as they were in the depths of the bear market.