- A double showing of strength as indices continue the rebound when an even stronger move. All for show to end the month?
- So much for light volume moves this week, at least for Monday.
- SP500 clears the February peak on the close, albeit by a whisker.
- Germany promises to lead a Greek bailout, again.
- Case/Shiller Index shows the housing double dip is here.
- Chicago PMI is the latest manufacturing report to stumble significantly.
- Consumer Confidence tumbles, hanging on just over 60.
- Dollar selloff continues, looking fairly serious as oil rebound now looks fairly serious.
- Bonds post a new rally high on more weak economic data.
- Stocks continue to build strength, refusing to let the rally fizzle out, at least for the end of the month.
- Watch the action at the top of the trading range, meaning watch SP500 because it is already there.

MARKET SUMMARY

Rebound rally continues, trying to morph into something stronger.

So much for light volume this week, at least for Monday, as stocks gapped higher out of the gates, following strong pre-market futures upside.  The opening gap pushed SP500 up to 1344, the February peak.  That is where the move stalled and stocks faded through lunch, holding gains, but looking as if it could be a disappointing gap and fade after that solid upside move to end last week.

Buyers stepped back in at lunch, however, and the indices climbed back up, aided by a last half hour spurt that pushed SP500 to close just above its February peak.  Volume was solid on NASDAQ, and was up on NYSE to just above average.  As noted, not the light trade expected on a short post-Memorial Day holiday week.

Question is, was it just the last day of May, the first down month for the market in the last six, spurring a lot of tape painting so funds could show their investors that they were in the ‘right’ stocks, at least on the last day of the month?  Or is it ‘real’ buying for the long term on the belief that the economy resumes a stronger expansion rate and thus continuing the growth in corporate profits? 

The internal data was solid and the price gains were nice.  NASDAQ +1.4%, SP500 +1.1%, DJ30 +1%, SP600 +1.5%, SOX +1.5%.  As noted, SP500 closed above its February peak.  NASDAQ could not match that feat, but SP600 looks very solid as it continues its strong rebound.  Leadership was bouncing as well with AAPL coming back to life and many well-positioned stocks in many sectors jumping higher as well. 

Here we go again, right?  After all SP500 broke out in early May, tested and started back up over the February high again, failed at that but set up an ABCD pattern, tried a move out of that but failed, landing right in the middle of its prior trading range.  Bounced last week in an almost perfunctory rebound move that seemed to run out of gas (and volume), but now is breaking higher once more.  Maybe hope does spring eternal after all . . .

WEDNESDAY

Perhaps Tuesday was end of the month tape painting.  After all stocks rose crisply even in the face of more bad economic data.  Given the indices were down for the first month in six, moving into the ‘right’ stocks investors want to see ahead of the end of the month is nothing unusual.

If that was the case will buyers again show up Wednesday given it is the first of the month?  They could but they did not do that to start May.  Of course stocks rallied at the end of April; this time they sold off into the numbers.  A better setup this time to keep stocks moving higher to start the last month of Q2.

It could also be that the indices are simply rallying back up toward the top of their trading ranges and will have to deal with that resistance once more.  It is tough once you give up a breakout and fall back into a range as that only seems to solidify the top of the range. 

There are many good stocks continuing to move off of support tests and they are helping lead the market upside, some from the same sectors all along e.g. retail, others more defensive and more latecomers such as healthcare and consumer staples.  The strength of this entire rally, however, has been the ability for leaders to emerge from different areas and sectors and they continue to do that.

With leadership still stepping up the market’s upside bias remains, but the action the past three months have challenged the upside theme as the market overall finds it hard to make headway even after a pretty solid 8 week consolidation yielded a breakout.  The market is winded and seeking new leadership.  Leadership continues to show up, but as is evident by the index performance, not as strong as before.

With this set of circumstances there are still upside plays to make but at the same time watch how the indices react at the top of the range.  After all SP500 is there right now and thus it behooves you to continue watching for a possible reversal (again!) as a possibility even as the leaders break to the upside.  The one thing the market has shown, at least of late, is the inability to hold a breakout over the February peak.  Longer term, however, sellers have shown the inability to hold the market down.  The weaker economic data is weighing on the market and at some point, if it continues to weaken, it will sink the advance.  That is part of what the past three months are about, but just looking at SP500 you can see the tenacity of the upside with another higher low and a renewed break higher to the top of the range and key resistance.