SUMMARY:
- Market gets relief on key issues, breaks through resistance on strong trade.
- Core CPI flat, sparking discussions of disinflation.
- More data shows the Fed needs to be very careful in its rate hiking.
- NASDAQ makes higher high as small caps lead, large caps provide follow through.
- Three up days, SP500 at April high. May need some rest.
Inflation and oil abate, give market breathing room to continue the rally.
The core CPI was flat and even suggested the rather modest inflationary pressures were already fading, and oil inventories ballooned again, sending oil close to 47 on the close. Those are the two big issues confronting the market this year, the ones that have kept it snake bit and trending lower. The 19% drop in oil prices the past three weeks and the taming of the inflation bug gave the market the extra gas it needed to really drive home the rally that can trace its roots back to the late April high volume volatility. Just when the price/volume action started to sour a bit and some hedge fund and credit issues arose, the main market obstacles softened and the market got its catalyst to continue the rally.
NASDAQ cleared the April high and SP500 is challenging that level now after blowing through the early May high with ease. NASDAQ has assumed some leadership status despite declarations it was dead. It was; the market is one of the few places where the dead can rise. There is nothing like strong volume to resuscitate stocks, and strong volume accompanied the move, providing the conviction it needed as well as another follow through session. Breadth was tremendous at 3.5:1 on NYSE as the small caps led the charge higher with a 2.1% gain. As noted Tuesday, the break through resistance brought in more buyers as first the shorts had to cover and then the longer term players picked up the torch. Indeed, that is what this session showed: after the initial rally and modest follow through, last week's weakness was met with renewed buying even at a higher level. That is what we call passing the torch from the shorts that are covering to the investors that are buying to make money on the upside.
It was not a sea change with the Fed or oil; oil is still over $47/bbl and the Fed is certainly going to continue raising interest rates, but as noted before, the market moves before troubling issues are clearly resolved. This move is already well underway, starting when things were dicey. Unlike you heard on the financial stations Wednesday, the past three days were not the move. They were the next step in the progression after the foundation had been laid, though it was hardly clear the move would continue. Of course, after three upside sessions with the last leaving SP500 just below the April high, it is about time for a breather just as everyone gets all breathless with excitement. |
