- Second solid price session as relief/end of quarter rally pushes SP500, NASDAQ back into their former ranges.
- Case/Shiller has some seasonally adjusted positives.
- Consumer confidence, already at recession levels, heads lower.
- Some economic positives keeping this recovery limping along: retail sales gain, IPO’s highest since 2007
- Once again SP500 is back in its former range, and this time it looks to have a bit more momentum as NASDAQ strengthens as well.

MARKET SUMMARY

Relief rally puts in a second strong day, back in the range, and dare I say it, more ahead.

Stocks continued their relief rally on Tuesday, following up the Monday gains with a solid move across the board. 1%+ gains on all of the indices broke SP500 and NASDAQ back into their trading ranges. We have been here before, of course. It was just last week that SP500 rallied back up to its former trading range and was reversed sharply. The fact that it closed at this level on Tuesday is no guarantee that the move will continue. Low volume accompanied the move back up, and here we are again at the 1295-1300 level that some traders look at particularly sellers.

Even though we are on familiar ground and it has not been great news for stocks when the market has gotten to this point, there were still positives. The market was ready to rally even before the morning economic data came out. Some put a positive spin on it and others put a negative one, but either way they were not blockbuster results. Things were not as bad as they thought, so that is a positive.

Futures were up sharply premarket. The SPY and SP500 were up and continued higher through the rest of the day. There was a little dip, and that is very important. A dip late in the session threatened the move back into the range by SP500. It made it to 1296 on the high. It made it to 1296 on the high. It sold back off below the 1294-1295 level, but a late bounce took the index back into its range. We closed out positive, and it was a good session as the indices closed at their highs for the day. NASDAQ +1.5%; SP500, +1.3%; Dow, +1.2%; SP600, +1.5%; SOX, +1.3%.

Stocks were ready to rally before any of the economic news hit. That shows a good technical move in place. Recall that the market has been moving laterally for three weeks along the support level marked by the March low as well as the rising 200 day EMA. It has held there each time, testing down and bouncing back sharply. Now it has pieced together the best two-day move the market has had since May. Now the question is just how far this move can continue. I think it is a good, solid technical bounce. It found its traction after this double bottom at the 78% retracement of that prior move.

I am looking for a rally back up to the April or maybe the early-March peak. Possibly even the February peak that closed out at 1343 on SP500. Now it is a question of whether the market will reverse back down just as it did last week when it got to the 1295 level, or if it will continue higher and makes the push. I believe it will make the push higher and continue the relief bounce given that it has put in this lateral consolidation that has built a shelf to bounce off of.

THE NEWS

There was plenty of news to give a boost to the market or push it back. It started off positive with Redbook Retail Sales for the week coming out very nicely. They were stronger than expected, and that gave a boost to the retail sector. It is one of the leading sectors on the session. There are signs that the consumer is still alive. There are mixed signals around the country. Some areas look like they have good crowds and consumer spending, and others are a bit thin or maybe a lot thin. Overall, it looks like there is some consumption ongoing. It is not hurt by the fact that gasoline prices are down. Indeed, retail gasoline demand is way down even as prices fall. Of course they go hand-in-hand; prices fall as demand declines.

The Case/Shiller data came out premarket. That was considered a positive and a negative. Many thought it was a positive simply because the month-over-month levels did not fall. They actually rose for the first time in eight months, with the 20 city index rising 0.7%. The authors of the report said there were some positive factors, but a lot of this was seasonal adjustment because this is a period of buying. If you take away the adjustments, you have a -0.1% loss from March to April. It is not just such a great sign after all. However, it is the smallest decline since July of 2010. That was another important feature. The authors said that while things look better right now, they also looked better back in June and July of 2010. It looked like the market had bottomed and everyone was happy. That was just bottom number one. The market bounced with the kind of numbers we see right now, which they said were seasonal. Then it rolled back over again. This is what we are experiencing now.

The year-over-year numbers fell 3.96% and that was more than the 3.9% expected. March was revised to -3.77% from -3.6%. Even the revisions were to the downside. While there were some kernels of positive news inside of the report, most of it was likely due to seasonal adjustments. The decline of the year-over-year number was the largest drop since November of 2009. It was definitely a report with mixed data and mixed views in how it was received. Overall, I do not see a lot of positives here, but any increase is considered a positive when things have been down for so long.

Consumer Confidence for June came out, and it was much worse than expected. It was released a bit early and caused a small hiccup in the market, but then the rally resumed. It fell to 58.5 from the 60.8 that was expected. 61.7 was the prior. It was actually revised upside, so that is a good thing. It is good to see revisions heading upside; it means things are not as bad as originally anticipated. Still, we cracked back down below 60. We are already at recession levels coming into this number, and moving back into the 50′s underscores how poor Consumer Confidence is and that underscores that we are not really having a recovery in the economy. It is just an ongoing, long recession that has peaks and valleys. All of them are at lower levels than you would anticipate in any kind of recovery. Indeed, this is the slowest recovery in the United States outside of the Great Depression. It is clear that the administration has no clue what to do since it is resorting to releasing a few million barrels from the Strategic Petroleum Reserve as some way of spurring economic activity. It has obviously had a great impact as oil soared on the session Tuesday.

WEDNESDAY

Wednesday the economic data dies down a bit. We have Pending Home Sales, but it is not a very big number. It is expected to turn positive after being slaughtered back in April. I do not know if that will move much. Crude oil inventories played a role last week in raising crude prices modestly. They did not hold. There is always the Greek austerity vote. It is expected to pass, but they were right on the limit with respect to the number of yea votes for the package.

I believe the market is showing a very good relief bounce currently in progress. It finally got the traction it has needed after a three-week attempt to move higher. Each time it failed, but it also held at key support levels. Now we have all the indices moving up with 1%+ gains. Big price moves. That is what you get in relief rallies. The volume is not that big, and that is expected in a relief rally. It is summertime, so it will be slower.

The next big issue is whether SP500 will be able to continue its move above the 1295 level. We will find out very quickly. If it can hold it, you have the SP500 moving up to this early-April or the early-March peak. Maybe even February. That is a beautiful relief rally. You have the other indices moving in conjunction, and that will be very nice. It will give us the gains we were looking for in our upside positions on a relief bounce. That is exactly what we are planning on. The SOX has been lagging, and we have to keep an eye on it. It does not look healthy. It could be the anchor that holds the rest of the market back after this rally. We will continue to watch it as the relief rally continues that is, of course, if SP500 can continue the move higher after this break back into the former trading range.

There are still two days left in the month and the quarter. We still have two days that the market could rally to the upside as long as nothing upsets the apple cart, i.e., the Greece austerity package passes as anticipated and there is no new news such as some earnings warnings. Earnings season starts in less than two weeks, and we have had very few warnings. I hope they are not saving it until right at the end before they go into their quite periods to start dumping bad news on us. The fact that they have been very quiet leads me to believe there will be another quarter of earnings that are very much in line or better than expectations. That is good news. It helps the overall economic outlook, but you have to look at what companies are making the profits. Unfortunately there has been a group of big companies making most of the gains because they have had the most benefit from the policies put in place since the financial crisis started back in 2008.

For now we do not care much about that. We are just going to play the upside as the rally continues. We have two more days to the upside. We did not buy much on Tuesday, though we did pick up some positions. As seen in the leadership group, there are still stocks in position to continue higher. We could get a good entry on those, a little pullback to start tomorrow that scares some people because it does not look like SP500 will hold 1295. Once that pullback tests and starts back up, then we can step into some of these positions and still ride them up for a couple of days. Again, we will not make 100% gains on all of them, although we can book some of those on our older positions. We can get some very solid gain on a continued rally. That also means we will continue to use the rally to take profits on positions we already have as we were doing on Tuesday. We will also use it to cull out some of the plays that are lagging behind even when the rest of the stock market is moving well.

We will use it for some additional positions we can make some quick gain on. We use it to take some more gain as the market rallies further. When it looks as if the market is peaking out on this rally, we also use it to close out positions that may have moved up with the rally but are not showing the strength we need. Then we will look at some downside. That is the game plan. We have stuck with it, and it seems to be working. We are definitely going to stick with it as long as it works.