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Just when it appeared that the stock market was poised to temporarily correct the market managed to climb out of the consolidation pattern and forge a fresh round of news highs. Clearly the market was emboldened by private jobs estimates and clearly the market has the capacity to discount the upcoming release of stress test results. We would expect at least some negative reaction to the release today but the Treasury Secretary has already tried to cushion the results with the suggestion that none of the banks are on the verge of insolvency. In fact, the markets early in the week seemed to be focused on just two big banks needing significant capital and now the whisper view is that at least three big banks will need capital. Apparently some bulls are of a mind that the government doesn’t want the banks to give the money back and therefore, the stress tests will show that most can not give the money back. Certainly seeing a very long list of capital shortages would dent sentiment temporarily but the market seems to have the resolve to get beyond this issue. With Fed member Yellen overnight suggesting that the odds of a severe bout of deflation were remote and the Treasury Secretary suggesting that no more stimulus was needed now, even US officials are beginning to foster the green shoots of recovery theme. The bias is up but certain sectors of the market are becoming overbought technically.
S&P 500: While the S&P seems to be showing the most distinct overnight rise on the charts, the S&P adjusted for the gains made since the last COT report was released might be bordering on a 100,000 contract net spec long positioning. However, the S&P can certainly continue to rally and become even more net spec long as the record spec long was a lofty 110,336 contracts from March of 2001. We can’t argue against more gains directly ahead, but with the stress test results potentially being followed by monthly payroll data on Friday, the bull camp is certainly pricing in a significant amount of “discounting”. In other words, the market is tamping down a lot of potentially discouraging fundamental news and in the process, classic technical signals are beginning to register an overbought status.
DOW: With another clearly defined new high for the move overnight in the June Mini Dow and the highest level seen since January 9th, the bull camp seems to retain control over the market. With the climb back above 8,500 that could project the Mini Dow back to 9,000 over the coming month. But in the near term we suspect that the market will have to build a consolidation pattern with several tests and rejections of the sub 8,500 level. We see an upside extension today but with the Dow this week already posting over 420 points of gains, the market is trending toward an overbought status. Initial support is pegged at 8,425 and then again down at 8,382 but we doubt that lower support will be tested without a really serious reaction to the stress test results today.
NASDAQ: In our opinion the Nasdaq appears to have lost a bit of upside momentum when compared to other sectors of the market. Perhaps the potential for more anti trust wrangling in the software industry has tempered the macro economic optimism being seen in the broad market. With Cisco beating some estimates in a recent release the trade should continue to be up beat toward the tech sector in general and that should provide the Nasdaq with some fairly solid support on the charts. However, because of the rate of gains posted this week, the June Nasdaq doesn’t seem to have close-in support on the charts until the 1406 level.
TODAY’S MARKET IDEAS: The bias is up but profit taking after another run up today might be wise.
