Markets Jump… or NOT!

We started the day with an espresso coffee shot from the economic reports.

  1. 201,000 jobs added in the private sector according to the ADP jobs report… that was the most in four months. Expectations for 200,000 jobs from the “official” report from the government… biting my nails waiting.
  2. The trade-deficit fell 19% in April to 40.9 billion dollars. That will reflect less drag on GDP and make the growth numbers look better potentially for the Q2.
  3. ISM services for May fell to 55.7% well off the 57% expected. The indexes rallied on the news? Yes, bad news keeps the Fed at bay on interest rate hikes. At least that is the rationale. Weakness in the services sector is coming from the consumer… airline, big box, specialty retailers and consumer in general is slowing spending as seen in the saving rate bump in the Monday reports for May.
  4. Speculation… this will give the Fed reason enough to start hiking rates. 10-year treasury bonds have jumped 27 basis point to 2.36% three days, and is now above the high from two weeks ago at 2.28%. This resumes the uptrend in yields and downtrend in prices… short treasury bonds is working again (TBT). Market is pricing in higher rates even if the Fed chooses not to act near term.
  5. ECB left interest rates unchanged and Europe (IEV) gained 1% on the day. That pushed the euro higher and the dollar lower… All is well in paradise… for now.
  6. Greece offered a solution, ECB offered a solution and it is still a stalemate as the two sides cannot see eye-to-eye. If no resolution near term the speculation and volatility will return. GREK is attempting to break above the $12.75 mark and clear the current trading range as well as breaking the downtrend. Tough trade to take, but the setup along with a possible deal offers an interesting opportunity.

Then there was the random noise we discussed yesterday that remains in play as well.

  1. Crude oil supplies rose 1.8 million barrels as reported by the American Petroleum Institute. Oil declined 2.6% on the news and investors are watching the comments in the OPEC meeting on Friday as well. As I stated in the updates this morning… I am not a believer in the rise in demand pushing prices higher. Traders are loving the swings in the price of crude, but it is a headache at best to the rest of the investment community.
  2. Euro is rising again as the confidence displayed in the ECB’s comments following their leaving interest rates unchanged. Strong euro for now… still uncertain about the timing of the move.
  3. Coffee (JO) rising off the lows following comments on supply. There is plenty of work to do for this commodity to turn the corner, but may offer a trading opportunity if the commodity follows through.
  4. Transports (IYT) continue their bounce off the lows and could recapture the $154 previous support level. Autos offered the best bounce, but railroads, shipping, and trucking have all offered a small upside contribution. Still tracking as this will give some insight to the strength of the economy going forward.
  5. Energy continues to test lower as the price of crude is believed to have peaked near term. The supply data this morning shows the pressure supply is putting on the price. Each week the undercurrent has been for supply to start dropping as the US cuts production and the number of producing rigs declines. As long as Saudi Arabia, Russia, Iran and the balance of the OPEC  countries want to maintain market share production isn’t reducing. Not a sector for the weak at heart.
  6. Russell 2000 index was the leader today as it pushed back above the 1260 level of resistance and heading towards the previous highs of 1275. The trading range remains in place and the move back towards the upper end of the range may offer another opportunity to own the sector going forward… assuming validation of the move.

Bottom line we are still looking for the trend to develop a definitive direction. The upside movement is helping move back to the top end of the trading range, but it lacks conviction, clarity and volume. For that reason we continue to watch, listen and practice patience. The trends continue to hold a upside bias and we will continue to take it one day at a time for now.