The markets are really strong out of the gate this morning. Of course readers know I prefer a market that starts out weak and ends strong, so we will have to see if this rally holds up into the finish. Sometimes when markets are too strong too early it gives bears ample time to try to knock the market lower.
The new home sales report was very strong this morning at 417,000 units. That’s the highest rate we’ve seen since the fall of 2008. Homebuilding stocks are rallying on this data.
We also had a bevy of earnings reports last night and this morning, and it looks like we are seeing more positive reactions to earnings than negative right now. To wit:
Stocks rising on earnings: NFLX, VECO, TXN, COH, LMT, TRV, WAT, PNR, DD
Stocks falling on earnings: UTX, R, PCAR, CIT
Asian markets were down across the board overnight, led lower by China after some disappointing economic data. China’s HSBC Manuf. PMI fell to 50.5 from 51.6 last month and the weak export component suggests slowing demand for Chinese goods.
In Europe markets are higher despite some weak PMI reports. Frand and Germany both reported weaker manuf PMI readings while the overall Eurozone PMI slipped to 46.5 from 46.8. All of the PMI readings this morning were below 50 which suggests further contraction in the manuf. sector. Also, the president of the ECB said that the policy of austerity “has reached its limits”.
The dollar index is higher today and helping to push commodities lower. Oil prices are down a touch to $88.35. Gold prices are lower near $1410. Copper prices are also lower, as are most ag prices.
The 10-year yield is roughly flat near 1.70%. And the VIX reversed lower yesterday and is moving lower again today down to the 13.70 area. Another close below the 15 level would be a welcome sign to the bulls.
Trading comment: We mentioned recently when the S&P 500 was testing its 50-day average that with so many investors looking for any pullback to get more invested that it would not be all that surprising to see dip buyers step in fairly quickly. That seems to be the case so far as the SPX has bounced from that test of the 1540 level and is currently topping 1575. The one red flag is that these rallies have come on lighter volume, which would cause us to question the conviction behind the buying. But you can’t ignore the price action. The recent highs in the market were SPX 1597. But I would expect to see a little more backing and filling action before the market is ready to breakout to new highs again.