Market Was Good, But Not Great
Tuesday’s stock market session was easy to like. In short, the fact that the indices advanced smartly across the board without any “high-profile directional drivers,” the strong breadth numbers (2400 advancing issues vs. just 614 declines), and an increase in volume from the prior session all add up to what traders like to call “good action.”
However, before you reach for the champagne, the noisemakers, and the party hats, I’d like to add that although the action was good, it wasn’t great. Yes, it was indeed positive that China’s trade surplus provided an upside surprise. Yes, it is hard to argue against a big M&A deal (Microsoft’s purchase of Skype for the not-so tidy sum of $8.5 billion) being anything but a positive input. And yes, the fact that Greece’s auction of 6-month T-Bills (at a rate of over 4.8%) certainly helped counter the idea that the sky is falling in Europe. Oh, and yes, the dollar finishing with a red number and near the low of the day didn’t hurt either.
Now toss in a 76-point gain for the Dow (and even bigger percentage moves in the broader indices) and again, it is easy to call it a good day. But unfortunately for those wearing the rose-colored Revo’s the bottom line is stocks didn’t break out. And because of this, Tuesday simply can’t be considered a great day.
The bulls will certainly argue that this good day, which seemed to appear out of the blue, is a very good thing and definitely bodes well for the future. And while those across the aisle dressed in fur could be heard muttering aloud about the overhead resistance after the close yesterday, there didn’t seem to be much vigor behind the complaint.
From a macro perspective, traders also may have been exhaling a bit on Tuesday in response to the situation in Europe. The key here is that the markets have been concerned that the mess in Greece might wind up producing an actual default of sovereign debt. And no matter how you try to spin it, a default by any country would mean a resumption of the “who’s next” game. But with the EU talking openly about providing additional assistance over the next two years (Greece is said to need ?28 billion in 2012 and another ?32 billion in 2013), the thinking on Tuesday was that there may not be any additional big surprises out of the PIGI’S.
If you are a reader of tea leaves and/or spend your day watching the tape action in the market, you are likely to agree that this market “feels” like it wants to go higher. But, until and unless the bulls can find a way to bust through the 12,800 level on the Dow, the 1363 level on the S&P 500, the 2875 level on the NASDAQ, the 1015 level on the Midcaps, and the 860 level on the Russell 2000, we’re stuck calling the market “good, but not great.”
Turning to this morning… An abundance of economic data out of China has traders squabbling over what the Chinese Central Bank will do next. Germany says there will be a discussion of what to do about Greece next week. And the foreign markets were mixed overnight. The combination has the U.S. futures trading slightly below fair value at the moment.
On the Economic front… The U.S. Trade Deficit rose in March to $ 48.18 billion, which was worse than the consensus estimate for a deficit of $46.9 billion. The February reading was revised lower to $45.44 billion from $45.76 billion.
David Moenning
Editor: The Daily Decision
