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Daily State of the Markets To listen to an Audio Version of the report, click on the Play button below:
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Publishing Note: We will not publish a morning report on Thursday June 25th.
Good morning. After the bulls were turned away from the 950 area on the S&P, a pullback to the low end of the range certainly made sense. As the market bumped into resistance for something like nine straight days, the pressure grew for the bulls to break on through to the other side. And once our heroes in horns failed to “get ‘er done,” the whoosh to the downside wasn’t exactly surprising from a technical standpoint.
However, now that the Dow and S&P are flirting with the low end of the trading range that began in early May, the shoe appears to be on the other foot as the bears are undoubtedly beginning to feel some pressure to keep moving the ball down the field.
To be sure, the 880 zone on the S&P as well as the 8220 area on the Dow are clear lines of defense for the bull camp. And we might go so far as to say that this line in the sand is more important to the bulls than breaking above the 950 area. In our humble opinion, a break below would likely usher in additional selling from the technical crowd while holding the line would embolden the bulls for another attempt at the top end of the range. Thus, it will suffice to say that the battle for the line just below will be well worth watching.
Tuesday’s market action lacked an overriding theme as the indices appeared to meander around waiting for the results of today’s Fed meeting. There was some news – most of it negative – but traders largely ignored the housing data, the talk of appraisers undervaluing homes, word that some banks can’t meet their TARP dividend payments, and the delay of Boeing’s new airplane, and instead decided to focus on the Fed.
While there is no expectation for a change in interest rates or current policy, there is a great deal of debate surrounding the Fed’s so-called exit strategy. Traders in the bond pits are concerned about when the Fed will end the extraordinary liquidity programs put in place to battle the credit crisis and actually begin to raise rates. Although such talk would appear to be premature, there are growing concerns about future inflation and how the Fed will deal with this potentially unintended consequence.
So, with the lines drawn and the two teams about to take the field, it will be very interesting to see what comes out of the woodwork to give one of the combatants the edge.
Turning to this morning, orders for Durable Goods in May increased by +1.8%, which was well above the expectations for a drop of -0.9%. When you strip out transportation, orders also gained ground by +1.1% versus the consensus of -0.5% and last month’s revised reading of +0.4%. And as you might expect, stock futures have moved up in response to this report.
Running through the rest of the pre-game indicators, the major overseas markets are higher across the board. Crude futures are moving down with the latest quote showing oil trading lower by $0.39 to $68.85. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.67%, while the yield on the 3-month T-Bill is trading at 0.17%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a higher open. The Dow futures are currently ahead by about 70 points; the S&P’s are up about 8 points, while the NASDAQ looks to be about 10 points above fair value at the moment.
Remember to smile at least once before lunch and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
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