Buyers take control short term

The market overcomes another day of early selling with the difference today of breaking higher in the end. The Russell 2000 index jumped 2% to lead the sectors, but it was lagging and had been testing the recent move higher by the other indexes. This move puts the growth back in play along with another leg higher for the broad markets. The jobs report tomorrow will be the next catalyst to the move. If the news is good higher we go.

Are we not expecting a big rally in the major indexes? According to the buyers the answer is yes! I am not going to argue with any of the thinking people are pontificating about the upside as the trend is engage and despite the treats to break lower the indexes have still not done so. The look of the charts are overextended, but arguing with the picture is the same as arguing with a stop sign… doesn’t change anything other than your blood pressure.

The rally cry today came from the European Central Bank¬†and the announced interest rate cuts.¬†How did¬†the world markets respond¬†to¬†the ECB? With a rally in stocks. The addition of charging banks to park money with them versus the banks receiving interest is the first in the world banking systems. The only thing he did not implement today was Quantitative Easing… see¬†the¬†US Federal Reserve for what that means. IEV was up 0.8% in response to the news.

Tomorrow is the jobs report and it will set the stage for trading in the US. The expectations are high as the general consensus remains that the economy is stronger than many believe. 210,000 new jobs are expected to have been added in May. As usual the devil will be in the details.

Stay tune tomorrow promises to make this all interesting.

Notes to Note:

  • Amazon gains more than 6% on the phone rumors. The clamoring is over the belief they can tap into their database of customers to be successful with the product. Only time will tell, but the upside broke through resistance and worth watching for further move higher.
  • Europe (IEV) moved to new high on the news from Draghi.
  • Treasury bonds fell early as rates rose… in the end they closed flat. TLT bounced off the 50 DMA and that is the level to what for now. A break below would bring the short side into play with¬†TBT. Watching to see how that unfolds.
  • Draghi threw everything except QE at the issues in Europe. Euro fell initially, but rallied back? Look for weakness in the currency and strength in stocks.
  • Gold stopped the downside move, but still not looking healthy enough to rally yet. Small bounce off the low and watching to see how it responds to the ECB giving away money. I still like the downside near term, if it doesn’t turn quickly back to the upside.
  • The Volatility or VIX index tried the last three days to push above the¬†12 level, but fails to make any serious move towards the worry side. I remain in the camp of let it play out… attempting to pick a bottom or top of anything is a dangerous proposition. If it starts to move back above 12 I will get interested, until then just watching.
  • IWM – small caps made the big jump on Thursday gaining 1.9% to lead the indexes. Back above the $113 level again and in position to clear $115 resistance? Growth back in play… at least for the day.
  • Financials break to new high as the sector continues to melt higher with a nice push on the upside today. Insurance held the 2% move from Wednesday and added a modest gain today.
  • Banks made solid move to follow through on the upside. This is still a positive for the broad markets as the financials need to be in the picture if the trend is going to accelerate. KRE was up 2% on the day as well.
  • Real Estate (IYR) broke higher on the day as well and a continuation of the existing uptrend. This remains one of the stronger performers this year.

Chart Notes:

The NASDAQ 100 index (QQQ) is back to the leadership roll that started this push to the upside on May 15th. Posting a solid gain of 0.8% today the ETF closed above the $91.34 level of resistance. The chart below does a better job than I can explain of the reversal on April 11th to the new high today.

qqq

The banks made solid move Monday despite the ISM manufacturing data and made a break through resistance on Tuesday to set the pace off the low and break the short term downtrend. Worth watching to see how the banks play out from here short term. The chart below shows the solid move and follow through on Thursday.

KBE

Treasury yields have been rising the last two days, but held during the trading day today. The chart below shows the reversal in TLT the last week as a result of the selling. Is this in response to the positive (better than expected) economic data of late? Or, is this about the ECB cutting rates while the US market is looking raising rates? Worth our attention as money looks to be exiting the bonds. This may be fast money chasing the next big thing. $111.20 exit point for TLT if the yields start to rise.

TLT

Plenty of moves on the upside Thursday and the markets are poised to solidify the next leg higher for the buyers. We have to exercise patience on both the buy and sell side of this market. The upside is in play, but the worry is rising as the market gets more overextended.