Bounce! U.S. stocks follow Asian and European markets upward
We’re getting an over-sold, bargain-hunter’s bounce in stocks this morning
Asian and European markets kept yesterday’s end of the day recovery in New York stocks going overnight and that then fed back into stock prices in New York at the open today, May 26.
If you’re an investor looking for signs that this is more than a bounce, it’s tempting to see good news on the U.S. economy in this morning’s release on durable goods orders for April. Economists had been hoping for a 1.5% increase in orders after a flat March. Instead they got 2.9% growth. That’s an extremely positive number.
Well, it is if you’re Boeing (BA). It’s not nearly as clear how good the number is for the U.S. economy in general.
For the month, the numbers show a 228% increase in orders for nondefense aircraft. That largely represents a big surge in orders at Boeing that contributed 3.9 percentage points to April’s 2.9% growth rate. In other words, without the surge in aircraft orders, a notoriously lumpy number with huge swings from month to month depending on the timing of big orders, the headline 2.9% increase in durable goods orders would have actually shown a decline.
The not-so-good news on the U.S. economy continues if you look at orders of nondefense, non-aircraft capital goods, the stuff that businesses buy when their planning to expand production. In April those orders fell by 2.4%.
I point to these less-than-promising numbers this morning not to send you screaming off a ledge, but to remind you that the U.S. economic recovery remains fragile but on track (if you look at all the recent economic data.) And to keep you from getting too giddy over today’s stock market action.
This remains a very risky market and a very uncertain global economy. Tread carefully.
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Amen Jim!
I bought some stuff yesterday on the big drop, figuring we might get a bounce up.
Today’s rebound is softenning quickly – if S&P 1040 is violated, which IMHO it will be soon, look for S&P 980 then 940. OTH, I sold my S&P shorts at yesterday morning’s “mini” drop locking in a gain; am still short US banking sector and Euro, though. If we break 1040 at the close, I’ll reinstate my MWN and QID positions.
Thanks, Jim!
rolfer1,
I would avoid the U.S. banking sector for shorting purposes. With the low interest rates, they’ve seen a lot of mortgage refinancing activity. I expect they will have a good quarter.
I also expect the “financial reform” bill to be more of a boon than a detriment to the banking sector. The big banks, who are usually covered in financial sector shorts, will end up more moated from small bank competition.
On a side note, if we break 1040 before close today, expect tomorrow to be VERY ugly for the markets (or beautiful if you’re a bear).
the upward momentum is weakening (11:49EST)
Not much interest in the German Bund this morning. Looks like big trouble ahead for the Euro. Look out below!
rolfer1,
In addition, Banks look to get a boost this quarter also because of the volatility. More volatility equals more volume which equals more trading commissions.
I read a bit differently…. But none the less I think good time to get some stops out.
Part of me sees this as institutional investors trying to hammer stocks down to get back in at a reasonable point
EdMcGon, from your perspective I take that you recommend closing all position on FAZ and would you start opening some position on FAS?
KFed,
Whoa! I just don’t see the financial sector taking as big a hit as the rest of the market in a crash. It will still get hit. And it will probably bounce back better.
If you see the market crash, then you will probably want to go bargain hunting in the financial sector, especially among the larger banks.
Thanks for the input EdMcGon. I too think that the financials are over sold and probably is a reaction to the increase in 3 months Libor rate (European financial crisis).
Jim,
Do you recommend any stocks to short or short exchange traded funds for those without margin accounts? The S&P has already fallen below the 200d EMA and if we don’t get back above it soon, its going to be very bad.
9:32 pm 5/26…so much for the bounce, futures don’t look so good either. I am 90% cash and sleeping oh so well! This market is just too dangerous. I do not plan on doing any buying until things settle down with the global mess, or we hit 9200 on the DJIA. To the poster dabling with the 3X ETF’s…you are committing financial suicide!! Take it from me. I know. They will crush the hell out of you in the event we should take a sharp drop, and NOT bounce back. This market could go either way at this point and never look back.
Domino, I’m with you on the heavy cash percentage. The fall below the 200 MA is a very bad sign for the market–just look at history. We’re looking at an up day tomorrow but the shorts will take over as the S&P approaches 1100. Regarding the financial stocks comments above, banks are still heavily exposed to real estate. Check the stats, don’t read the headlines–defaults are getting worse. Recourse loans are practically worthless if your guarantor is bankrupt.
Domino412,
I’m in 3X short ETF’s. If the market crashes, I should do quite well. Under normal circumstances, I do try to avoid them. But this is a short term bear play.
t2much,
I agree with you, however the government has already shown it’s willing to bailout these banks if they get in trouble. Also, most of the principal on the riskiest mortgages is carried on the government books (i.e. Fannie, Freddie, FHA, etc.). For the most part, banks only service them.
Ed, glad for input, which I will ignore – up over 30% on my bank shorts so far and there is much more room to run (down).
marr.bo – I too have been burned with my 3x short ETF holdings – i.e., during the “flash crash” when my stop-losses turned into limit orders. Now I no longer place S-Ls on these holdings.