Tuesday, May 22, 2012

Stocks Look To Add To Big One-Day Rally

The market is higher in early trading after posting its best one-day gains in two months yesterday.  Volume was nothing to write home about yesterday, but the price action was very strong and now we need to see if stocks can build on those gains.

A handful of retail companies have reported earnings this morning and the reactions in the underlying stocks is mostly positive.  Some of the stocks rising on earnings include: RL, BBY, DSW, WSM, URBN.  The big retail disappointment today is EXPR, which missed estimates and reduced guidance which is killing the stock.

In economic news, existing home sales were in-line for April at 4.62 million rate.  The homebuilders etf (XHB) is higher on the news.  But the leading sector so far this morning is financials (XLF) with JPMorgan bouncing back nearly 6% currently. 

Asian markets were higher overnight, closing before analysts at Fitch lowered Japan's debt rating.  Europe is also higher this morning, but the euro is not benefiting from the improved tone.  Bond yields in Europe are lower as well.

The dollar is higher vs. the euro, weighing on commodities.  Oil prices are weaker at $92.25 and gold prices are also a little lower near $1586.

The 10-year yield is getting a little bounce to 1.80%.  And the VIX is down another -7.5% today to 20.35.  It has now taken out last week's lows. My guess is it will find some support near the 20 level and bounce.

Trading comment: The price action so far this morning is impressive, especially with all of the naysayers saying yesterday's rally was just a one-day wonder.  IBD growth-style investors will be looking for a confirmation day to follow yesterday's rally.  This would come in the form of a 1% - 1.5% up day accompanied by rising volume in the next several days.  But the 50-day average on the S&P 500 has rolled over, and as such should offer stiffer resistance if and when the index gets up there to test it.  The SPX would have to rally to around 1375 to meet up with the downsloping key average.  Financials are up more than 2% as I finish this post, which is encouraging.


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