Wednesday, May 21, 2014

S&P 500 Holds Above 50-day Average

The market once again bent yesterday but did not break.  The S&P 500 Index came down and tested its 50-day average support but was able to close above it.  The Dow also closed below its 50-day average, although this morning it is trying to reverse that.  And the Nasdaq and mid-cap indexes are still below their respective 50-days also. 

We always prefer rallies that start off the day weak and build into the close.  So this morning rally, while nice, often leaves too much time for sellers to emerge and knock the market lower into the close.

At 2pm EST we will get the latest FOMC minutes.  So that could color the action into the close if there are any comments that grab traders' attention.

Retailers continue to see mixed results.  TIF beat earnings and the stock is nicely higher while PETM lowered guidance for the year and the stock is well lower.

Asian markets were mixed overnight.  The Bank of Japan said their economy continues to recover 'moderately'.  And Moody's lowered its outlook for Chinese property developers to 'Negative' due to the slowdown in home sales.

Europe's markets are also mixed.  The Bank of England members believe an interest rate hike is in order sooner rather than later.

Oil prices are higher again to $103.40.  Gas prices at the pump have been high also, which we will likely start hearing more about ahead of the summer driving season.  And gold is weaker to $1290. We have been noting gold's inability to get back above the psychological $1300 level, and see no reason to hold gold right now.

Trading comment: If you look at the average stock, or the junior indexes, you can see that most stocks have been in corrections since early March.  But with some of the big-cap stocks holding up the S&P 500 has basically been treading water around the 1880 level for nearly 12 weeks.  Usually a long period of consolidation like that will resolve itself to the upside once we finally see a breakout.  We don't want to rule out this possibility, but its also possible that the selling moves into those large-cap dividend names and they too eventually experience corrections.  So in the meantime we are proceeding with caution and not making any big bets.

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