The Standard & Poor’s 500 finally broke through the 1108 barrier that had stymied stocks for the last few days. The June intra-day high was at 1105 and the index’s 200-day moving average was at 1108 so today’s close at 1115 is definitely a positive sign.
In another year I’d say today’s advance marks the beginning of the summer rally, that traditionally favorable period for stocks that, in many years, begins near the end of June and stretches into July.
What worries me though is that this year the rally faces massive resistance just a few dozen points ahead.
It wouldn’t be surprising to see the S&P 500, once it had broken above the 200-day moving average, move to the 50-day moving average.
But that mark isn’t very far above the market’s June 15 close at 1143. That’s about 2.5% above the June 15 close.
And it wouldn’t be surprising to see the S&P 500, once it had broken above the June intraday high, climb to the January high.
But that mark is at 1150. That’s just 3.1% from the June 15 close.
Of course, stocks could climb to those levels and keep going. But that will depend on some major dose of good news. Something that demonstrates that the euro debt crisis is, if not over, at least less of a threat. Or something that demonstrates that Chinese banking officials, who have spent the last couple of days warning everybody who will listen about the state of the balance sheets at China’s banks, aren’t so worried anymore. Or something that says that we don’t need to fret about a slowdown in U.S. economic growth or the stubbornly high rate of unemployment.
Absent good news like that, I think this is most likely a weak echo of the bounce that we were expecting earlier to take the S&P 500 up to 1220. And it’s based on a recovery in the price of the euro that is itself just a bounce. (If you want to trade this rally, trade it quickly. The summer rally doesn’t last long in most years.)
Any kind of a rally isn’t anything to scorn, but I’m not getting too excited here. Especially because in most years the period after the summer rally is the worst of the year for stocks. And it often lasts, not just a few weeks in summer, but for all or most of August September, and October.
What about commercial real estate? No one seems to be talking about it anymore.
Ed,
You don’t have to stand in the way…other “stuff” will do it for you! Have a good day, my friend.
Stocks are mirroring the EURO in lock-step fashion. We have seen the EURO bounce over the last few days, so goes the markets. This morning, the Euro down overnight, so goes the futures. It is literally tick-for-tick. From what I can gather, analysts and prognosticators are all calling for the Euro to decline further, so what does that say for the markets? You’re not going to see any sustained rally, until the Euro stabilizes at what some are saying 1.10 to as low as 1:1. This timeframe being late 2010, early 2011. Sure, well bounce up and down, but I am with Jim Cramer; I think you’ll see DJIA at 8500 before the dust settles, Id say probably late October, then flat till December, then a huge rally through Feb, taking us to 13K. Well thats my 2 cents…that’s about all I got left !
Fedex was actually intriguing. They exceeded estimates slightly, but their outlook numbers disappointed.
Core PPI was a touch higher than I expected. That basically puts off any economic interpretations until I can see the CPI tomorrow.
Frankly, I didn’t see any market moving numbers this morning, although futures are down. But don’t let me stand in the way of a perfectly good bear market…
That fed ex news bothers me the most.
icky day!
I said several times on this blog that US real estate is artificially high. As soon as government prop ups gone, it will sink again.
Another sure thing is the high unemployment.
Maybe you can add a 3rd sure thing. GM, C, AIG, Fannie, Freddy, BP are toasts.
While Jim is talking about “Return of Son of Bounce II”, how about another sequel: “Revenge of the Real Estate Collapse”:
http://www.thestreet.com/story/10783826/1/the-second-housing-crisis-is-here.html
Just when you thought it was safe to go into the housing market…
The statistics I’m watching most on Wednesday will be the PPI and Core PPI. If both of them turn negative, then deflation might be closer than I think. Right now, the expectations are for PPI to be -0.5% and for Core PPI to be +0.1%.
Among the earnings, I am most intrigued by Fedex (FDX), which will be reporting before the markets open. That will be signal on the whole shipping sector, and the entire economy by correlation. If we are seeing any kind of economic growth, Fedex should exceed earnings estimates of $1.31 per share.
Sold, sold sold! And bought a father’s day gift. Thank you, Jim. Thank you, everybody.
southof8; note that BP America is a subsidiary of BP PLC. If the US gets too pushy, at some point BP may say fine, BP America can go bankrupt, we are taking our ball and playing elsewhere. It would hurt, as BP has 25% of their world assets in the US, but it is not a show-stopper. The US should be careful not to push too hard for revenge. There are 10’s of thousands of Americans working for BP.
Technical levels are fine. But what about fundamentals ? Few days back we have seen market correcting on worries of European debt crisis. Suddenly now market is rallying. Does the market belive everything fine in Europe ??
This is not “most” years and neither was 2009.
Barrons had an interesting post yesterday on an analyst’s note on RIG, which stated in simple terms why many of us think it remains a compelling buy:
Transocean has a stock-market value of $14 billion, debt of $11.4 billion and cash of $2 billion. Its debt has investment-grade ratings of Baa2 from Moody’s and BBB+ from Standard & Poor’s. Both credit-rating agencies say they may cut the debt ratings on Transocean, but it’s worth noting that Transocean debt already trades at junk-grade yields.
“While it’s not possible to rule out potential liability associated with the oil spill, Transocean’s contract with BP provides broad indemnification, leaving BP responsible for the costs of the cleanup and economic damages in the absence of gross negligence or willful misconduct,” the Imperial analysts write.
Transocean is highly profitable and it expected to earn about $2.5 billion this year and the market value of its rig fleet is considered to be about three times its net debt, Imperial writes.
I’ve been agnostic on BP, but no more. I doubt the company survives in its current form or with anything approaching its current assets and reserves. The spill rate has gone from an estimated 5000 barrels a day to 20,000 to 40,000 and now to 60,000. It’s clear BP has no clue what the spill rate is, it’s making it up as it goes based on what’s best for it and its shareholders (which is proper), and the government won’t be giving it the benefit of the doubt- not with all the collateral damage that seems to grow exponentially by the day. In legal terms, BP is liable only for damage it proximately causes, and it is debatable whether it proximately caused a restaurant in Alabama to go belly up because tourism fell off because tourists were afraid there might maybe be oil on the beach.
But again, the government won’t be giving BP the benefit of the doubt, and it’s probably not limited by the strictures of proximate causation.
Based on what I saw on TV this morning, the other big integrateds are happy to toss BP under the bus and pretend something like this could never, ever happen to them.
So my bet is BP will be the sacrificial lamb, and its American assets will be tapped not just to clean the spill and pay the fines, but to fund an economic development effort along the gulf coast, in order to rebuild its economy once it’s clear, if it’s not already, that the old economy based on the sea is dead in the water.
Anybody offended by that? Can’t say I am.
way too much crumby news lurking about.
this is Son of Bounce II, the legend of Curly’s gold
What is an investor to do? In just the last week, great picks like AIXG, ASML, STD, and SI have appreciated in price at obscene rates.
I’d love to get into some emerging markets ETF’s and/or Stocks too but they’ve gotten kind of expensive over the last week.
Contrabull:
You read my mind, as I logged in to post the exact same question. COH has gone up 10% since last Tuesday, and I am thinking of selling it tomorrow to take profits. Thoughts anyone?
Nice post Jim, what are your thoughts on COH? are you still standing by your target of $48 by October 2010? or is it time to book profits if we get more bounce this week?
Jim,
I don’t think we’re over “When it rains, it pours.” There are multiple fronts where clouds loom. Here in Florida, we have a saying: “Wanna watch the weather change? give it 10 minutes.” Lately, there’s been an abundance of bad weather to spice ou the VIX.
Today the markets built on technicals. They dismissed a number of bad news items.
My advice…don’t go anywhere without an umbrella.
Well, housing data tomorrow; jobless claims Thursday and then quadruple witching options expiration to take in consideration. Volatility throughout the week in my opinion.
Jubak, what news do you see upcoming that you think will stop this rally and turn it back downwards?