Wednesday, June 24, 2009

Losing Steam Or Gathering Steam?

For at least 3 months now we have had positive bias to trading on Fed interest rate announcement days. That tendency, combined with a slightly oversold market, jump-started the buyers out of the gate this morning. Breadth was very positive, and quite a few broken-momentum stocks saw some good size bounces.

However after the initial move higher we stayed in a very tight trading range in front of the announcement. The Fed news contained nothing at all surprising, and after a very little whipsaw it produced a rather mild sell-the-news reaction.

Overall, at the end of the day it looked like nothing much more than just a technical bounce. The S&P 500 managed to hold right above key technical levels just over 900, but it wasn't a very energetic finish to what started off looking like a very strong day.

The biggest positive for the bulls at this point is the possibility of some more window-dressing action as the quarter winds down. That combined with the close over the 900 level may keep the bears on the sidelines for a bit longer. However, this is not the same market that recovered so well quickly and easily back in April and May. We have had more distribution, and the shorts are much more likely to be looking for opportunities on further strength.

Going into more detail, and after starting the day strong, the stock market sold off sharply midday following the FOMC's latest policy statement. The major averages climbed higher towards the end of the session, but the Dow still ended modestly lower and the S&P 500 only managed a slight gain... The Nasdaq was a leader for most of the day following ORCL's better-than-expected fourth quarter results and upside first quarter earnings per share guidance after the close last night. Other large-cap tech stocks also fared well, including AAPL, INTC and CSCO....After a couple slow days in terms of noteworthy, material news items, there were a few market-moving events today, including the FOMC's Policy Statement release. The major averages were putting in solid gains prior to the release, but the market moved decidedly lower afterwards. While the statement said that the pace of economic contraction is slowing, it also stated that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period of time. The Fed left the fed funds rate unchanged at 0.00% to 0.25%, as expected... While growth remains the Fed's policy concern, the wording of the June directive can be characterized as balanced since it provides the Fed the leeway to move as it sees fit based on incoming economic data and changes in the financial markets... The FOMC also stated that its Treasury purchase program size remains unchanged. That pressured Treasuries and took the benchmark 10-year Note from positive ground to negative ground and pushed its yield up more than 10 basis points to 3.69%... There was also some key economic data out today. Durable goods orders for May showed a surprise 1.8% increase and durable goods less transportation increased a better-than-expected 1.1%. New orders for durable goods increased 1.8% in May and were up 1.1%, excluding transportation. That was good news from the standpoint that each number easily topped the consensus estimates, which called for a 0.9% decline in total orders and a 0.5% decline, excluding transportation. Shipments, though, were still weak as they declined -2.1% to $169.9 billion... Shortly thereafter, May new home sales data were released, which showed an annualized rate of 342,000 units, below the 360,000 unit consensus. Given the revisions to the prior month, new home sales were down 0.6% month-over-month versus an expected increase of 2.3%. Stocks initially sold off following the new homes data, but quickly rebounded and resumed their strength... In terms of leading sectors, material stocks (+0.8%) were strong today despite considerable weakness from MON, which reported third quarter results that topped consensus expectations. However, the company typically carries high expectations, and it only reaffirmed its guidance, which may have been viewed as a disappointment to participants... Energy stocks finished flat as oil and gas refiners (-3.5%) undercut the sector. Drillers (+1.1%) were strong, though... Looking ahead to tomorrow morning, there are a couple more economic releases that will garner some attention. At 8:30 AM ET, initial claims are scheduled to be released with current expectations at 600,000, and the final first quarter GDP number will be released, expected to remain at -5.7%.

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