SUMMARY:
- End of month brings back buying, and yes, on higher volume.
- Michigan sentiment lower while regional manufacturing remains strong.
- PCE remains low, Employment Cost Index low suggest lower inflation to some.
- Personal spending and income remain solid thanks to rising prices.
- Yield curve flattens further as talk of just one more rate cut spreads.
- SP500 holds recent lows for small double bottom & oil closes below $50/bbl, sending shorts running to cove, but not enough to turn the character yet.
- FOMC meeting is focus this weeks as stocks try to provide a follow through.
Several factors lead to rally to close week.
Another day, another higher volume session that reversed the prior action. The last four sessions of the week flip-flopped in price and volume, each session posting higher volume. As noted earlier in the week, this action is more common at the end of a selling round than the middle. Once more stocks showed signs of recovering, but they were just signs; the downtrends remain in place and stocks will have to show next week they are interested in a serious rally with a strong follow through session.
Stocks showed the Dr. Jekyll and Hyde routine again with futures running higher pre-market. Economic data was looking better with consumer income and spending higher than anticipated, MSFT providing a surprisingly upbeat view of 2005 and 2006, and other earnings looking decent. As usual, however, the stronger open led to selling. Sellers used the early bounce to sell into. The move was fueled by Michigan sentiment coming lower than expected and oil prices that started higher. Chicago manufacturing was solid, but it was overlooked in the early going. Stocks looked weak again, giving back all of the early gain and turning negative mid-morning.
NASDAQ undercut the recent lows at 1904 and 1900, and techs were looking grim. Then several events merged and stocks turned. SP500 tested the recent lows and held them as well as the August 2003/August 2004 trendline. Oil started to reverse its gains, and it picked up speed as the afternoon wore on. Indeed, after a test of the initial bounce off the session lows, oil started to rally drop. The market started to rise again. When oil closed below $50/bbl stocks really started to rally higher as shorts were covering. They kept the pace into the close, finishing at session highs.
Along with oil falling below $50/bbl the market received a boost from a rumor or notion bandied about that the Fed was going to raise one more time and then stop. The idea of a Fed that is quickly responsive to economic data has sex appeal, but it is more based in hope than in substance. With a market grasping at straws to hold on and with oil falling, however, it was some more sauce to add to the rally.
It also did not hurt that it was the last trading session of the month and there was some related portfolio shuffling. That helped boost volume once more and breadth was decent as SP500 put in a small double bottom on the recent lows. Will this be the bottom? Not likely given the short duration of the pattern, but it could well set the stage for the bounce that sets up the test that sets the bottom. Clear enough? In any event, the market closed lower for the week even with the upside volume session to end the week. The downtrends remain in place. The action was a good way to end the week, and it once more sets up the potential for a follow through in the week to come. As has been the case all week, the upside is good to see, but the market will still have to show a strong move in the second half of next week by more than just one index to put together a more sustained move higher. |
