SUMMARY:
- Despite the volatility, another good session as the market consolidates.
- With solid export data Q1 GDP will be revised back up toward 4%.
- Tax dollars continue to roll in higher than expected, indicating no real current slowdown.
- Bonds rally again, further flattening the yield curve and making one wonder about inflation.
- Nice recovery setting up another break higher.
- Things get interesting with retail sales Thursday but the market still calls the shots.
Stocks reverse from selling, continue consolidation action.
Stocks were on the run again early Wednesday, unable to convert the positives from the vastly improved trade gap into an early session gain. The selling that plagued stocks Tuesday continued with early NASDAQ volume running slightly higher. Looked as if the negatives were again going to control the session. There was more of the same regarding stagflation and hedge fund implosions, a holdover from Tuesday's sluggish action. On top of that there was a terror scare in DC as a small plane strayed into restricted airspace and prompted a 'red' terror alert upgrade for a few minutes. Moreover, gasoline inventories rose less than expected (200K barrels versus 350K expected), and that helped fuel the general concerns about the overall economic health.
Ultimately those negatives were offset by many positives. Some decent earnings, some good guidance (UPS), stronger exports (and a narrower trade gap), a stronger dollar and another actual surplus in the monthly budget showed the economy is hardly ready to roll over. Indeed, as quickly as doubts are raised the next round of data offsets them. There was a slow patch but that appears to have dissipated. The remaining concern has to be the flat yield curve and the Fed tightening into that curve and still high oil prices.
Even with those two major problems, the market fought off the selling and rebounded to close near session highs. Volume was up on NASDAQ, a bit lower on NYSE, but a good recovery from some distribution on Tuesday. Would have liked advancing volume on both indices, but mixed was a good response to the selling. Overall the volume remained low on a rebound, so it was not a clear signal of another reversal ready to start the next move. It was, however, a solid recovery from selling to close positive, with a modicum of better volume on NASDAQ (NASDAQ volume is rising each session again as in late April). That keeps the lateral consolidation ongoing as the indices form a lateral handle that shakes out the last sellers. Indeed, the reach way down on the intraday low and recovery is classic evidence of a shakeout in progress: lateral move, lower overall volume, intraday dips and recoveries, continuing strength in leaders, continuing pessimism creating that wall of worry. Good action that is continuing to set up the next break higher. |
