Finally the stock market managed an upside day. One problem with it is that it felt like the End of something rather than the start of a big up move. Volume was subdued at best and prices kind of whimpered into the close. After trading up better than 150 during the late afternoon, a slow selloff preceded the close with the Dow closing up 104. That’s not the kind of ending the bulls wanted to see.
This rally still ranks right in there with just a little bounce off the lows, corrective in nature with Wednesday showing a very blowoff type close possibly to finish the corrective move. The rally on Wednesday gave mixed performances for the major indexes that we follow. The Dow managed to look relatively stronger than the broader indexes, which is not a bullish sign. The Dow has moved back above the magic 11,000 number. With many market watchers only paying attention to the Dow, the general feeling about the market could be very complacent, as has been the case for a while now.
We remain focused on the FOMC next week. Maybe we shouldn’t hang so much on that meeting due to all of the “tough” talk out of the Fed the past few weeks. By all accounts they should raise rates another (massive) 25 bps and say that continued vigilance on inflation is important. The only problem with that is the obvious change of heart the Fed could have given the various indicators coming out over the next few days in front of the meeting, such as Thursday’s LEI (leading economic indicators) and Friday’s durable goods. Then next week we have the two housing sales figures, new and “used” which Should show some weakness. What’s the Fed supposed to do?
If the Fed ever does give the notion that they are done raising rates, a pretty good rally could come out of it but we don’t know if that’s going to happen next week. As we get closer, we’ll see how the market is trading to get some idea of what we should be doing.
As far as the LEI coming out on Thursday, the expectations are for a drop of 0.5% which seems reasonable due to the market dropping in May.
Be careful out there.
Dow Industrials: 11,079.46 +104.62