Daily State of the Markets  Friday Morning – June 26, 2009 To listen to an Audio Version of the report, click on the Play button below:

Good morning. The bulls came roaring back yesterday. Some of the reasons offered for the rebound was the positive technical action, a well-bid treasury auction, lower mortgage rates, an upbeat preannouncement in tech, renewed enthusiasm for the retail sector, a surprisingly good report from a homebuilder, and the Fed’s first step in removing numerous emergency lending programs designed to avert an all-out financial meltdown last winter.

However, there may have been a little more than meets the eye at work yesterday. For the most part, traders have been focused on the economic data with all eyes currently searching for signs of an actual uptick in the economy. So, when the weekly jobless claims actually came in above the consensus (which in this case is a bad thing), one might have expected to see some selling ensue. Especially when you consider that the report showed approximately 100,000 people rolled into the new extended unemployment benefits program that was part of the President’s stimulus package.

While stocks did open a smidge to the downside, the indices were green-lighted after the first 10 minutes and finished the day with gains of +2% or more. The advance, which occurred on an increase in volume and solid breadth seemed to put a damper on the bears enthusiasm for a break down below the important lines in the sand at 880 on the S&P, 8225 on the Dow, and 1750 on the NASDAQ.

Although there was a fairly long list of positive inputs that we hinted to at the outset of the report, none of the above seemed worthy of the rather spirited rebound. Sure there may have been some technical buying as it became clear that the S&P was going to hold the line and move back above its 10 day moving average. And there was some chatter that the Dow was on the verge of something called a “golden cross.” But in reality, this, along with the news on the retailers, tech, homebuilders etc., wouldn’t usually do the trick.

However, a quick peek at the calendar did explain an awful lot about yesterday’s sudden pop higher. You see, yesterday was the last day that managers could buy stocks and have them show up on the books at the end of the quarter due to the “T+3” settlement rules. So, if you are a believer in the idea of end-of-quarter window dressing, then you probably don’t need to look much farther to find a reason for a big rally that seemed to occur out of the blue.

They say that it is the action seen during countertrend moves that says the most about the health of the overall trend. Thus, it is worthy of note that the June pullback hasn’t been exactly terrifying. And then the action on the NASDAQ has actually been quite encouraging. So, if the bulls can find a way to maintain possession here, there might be some hope for some fun in the summer sun.

Turning to this morning, the report on personal income and spending came in a bit better than expected overall. Personal Incomes increased by +1.4% in May, which was well above the consensus for a reading of +0.3%. Spending was in line with expectations with a gain of +0.3% and the PCE Deflator – a measure of inflation – was spot on with an increase of +0.1%. However, when you dig into the numbers, the increase in incomes may be a bit misleading as the entire gain was driven by government transfer payments. If you exclude this category, incomes actually fell by -0.1%.

Running through the rest of the pre-game indicators, the major overseas markets are mostly higher. Crude futures are moving up with the latest quote showing oil trading higher by $0.30 to $70.53. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.53%, while the yield on the 3-month T-Bill is trading at 0.16%. And finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to a flat-to-lower open. The Dow futures are currently off by about 13 points; the S&P’s are down about 1 point, while the NASDAQ looks to be about 4 points below fair value at the moment.

Enjoy your Friday, have a pleasant weekend, and until next time, “may the bulls be with you!”

David D. Moenning
Founder TopStockPortfolios.com

 

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