Friday, May 29, 2009

A Suspicious Last-Minute Buying Frenzy

The indices meandered for most of the day before a frenzied flurry of buying kicked in and took us out near the highs. Usually you don't see that sort of thing in the final minutes of the last day of the month, but we have had so much crazy trading in the final hour for so long now that you can't be surprised anymore.

I believe much of the last-minute spike is related to the preliminary rebalancing of the Russell indices, but I don't have any details on that. Whatever the cause was, it certainly took us out on a high note.

Even with the strong finish, the indices covered up some even stronger action under the surface. Breadth was better than 2 to 1 positive, and it was oil- and commodity-related stocks that led the charge. There was buying all day and it even felt a bit complacent, it was so steady.

The strong finish today was still not enough to take out the overhead resistance at 925 on the S&P 500. We are still in a trading range, although we are now close to testing the upper range.

While the indices haven't do much for several weeks now, there has been very good trading, as we have strong sector rotation. It is one of these times when it is much better to focus on individual stocks and sectors than on the major indices.

The advantage continues to lie with the bulls, but with end-of-the-month games over and summer slowdown coming up, it should be choppy. The good news is that there should continue to be opportunities for adept stock-pickers.

Going into more detail, the S and P 500 spent nearly the entire session gyrating within a nine point range amid light trading volume, but managed to close at session highs following a late flurry of buying and a spike in trading volume... In what was May's final trading session, more than 1.8 billion shares traded hands on the NYSE, the most in more than one month... Financial stocks were integral to the late move. After being a source of weakness for most of the session, financial stocks rallied from a loss in excess of 1% to finish with a 1.7% gain in the final hour... While financial stocks made a strong finish, materials stocks spent the entire session trading with enviable gains. The sector closed 3.0% higher, propped up by diversified metals and mining companies (+4.2%), steel stocks (+3.3%), and gold stocks (+3.2%)... Gold stocks were helped along by a run up in gold prices. Gold contracts settled pit trading with the yellow metal priced at $979.00 per ounce, up 1.8% for the session and more than 20% from their 2009 lows. Gold prices are now less than 3% below their 2009 highs... Meanwhile, crude oil prices rallied 1.7% to finish at a fresh six-month high of $66.21 per barrel... A 1.5% drop in the Dollar Index helped underpin a broad ascent by commodities. As such, the CRB Commodity Index finished 1.3% higher. Commodities finished May with a gain of more than 14%, outperforming the S&P 500, which logged a monthly gain of 5.2%. Still, the S&P 500 has finished the last three months with gains... General Motors has had an awful month, however. The stock has lost more than half its value since the start of May as the company comes face to face with the government's restructuring deadline. With the threat of bankruptcy looming, shares of GM are at record lows... In other corporate news, JCG posted upside first quarter earnings and guided second quarter earnings above the consensus forecast, winning it favor among investors. The stock logged one of its best single-session performances by surging more than 25%... Dell was less fortunate, though. The company faltered after posting better-than-expected earnings... In economic news, preliminary first quarter GDP showed 5.7% drop for the first quarter, which was a slight improvement from the 6.1% decline that had been reported in the advance GDP reading. Participants showed little reaction to the data since most of it was already known... Treasuries logged a solid session as they continue to recover from Wednesday's beating. The 10-year Note climbed more than one full point to push its yield back below 3.5%.

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