Day Traders Diary


The S&P 500 ended this week with a bang, roaring to a new all-time high on the back of stronger-than-expected economic data, influential leadership, and an ongoing appreciation for the Fed's monetary policy support.

The bullish bias was evident in premarket action as the S&P futures pointed to a higher start without the benefit of any definitive news catalyst. Stocks indeed benefited from a blast of buying interest at the opening bell on this options expiration day that enabled the S&P 500 to reclaim all of yesterday's losses and then some in the first 30 minutes of trading.

Although things settled down, the market's bullish underpinnings were solidified by the stronger-than-expected University of Michigan Consumer Sentiment report for May and the Leading Indicators report for April. The former checked in at 83.7 versus 76.4 in the prior month and the consensus estimate of 78.5. In turn, the Index of Leading Indicators showed a 0.6% increase versus a 0.2% decline in March and the consensus estimate of 0.3%.

Today's economic news helped mitigate the disappointment of Thursday's generally underwhelming news for initial claims, housing starts, and the Philadelphia Fed Index.

After establishing its highs in the first 30 minutes, the S&P 500 traded sideways until about 2:00 p.m. ET, holding close to the 1658 level. There was never any concerted effort by sellers during that time. The market, however, broke out of its sideways stupor over the last two hours in a broad-based buying effort that was led by the cyclical sectors.

The breakout followed news that Minneapolis Fed President Kocherlakota said in a speech today that the FOMC has not lowered real interest rates sufficiently. Mr. Kocherlakota is not a voting FOMC member this year, and just as we were reluctant to assign credit for yesterday's afternoon selloff to the regurgitated views of San Francisco Fed President Williams (also a non voter) about the Fed possibly tapering its asset purchases soon, we are reluctant to suggest the afternoon rally was caused by Mr. Kocherlakota's dovish view. It didn't hurt matters, yet the breakout didn't occur until roughly 20 minutes after his remarks hit the wires.

Our sense of things is that the afternoon move was more of the same with short sellers capitulating in the face of the stock market's resilience to selling interest and bullish participants being emboldened further by the continued leadership of the sectors one would expect to see leading in a cyclical upturn: financials (+1.4%), energy (+1.6), industrials (+1.4%), materials (+1.2%), and technology (+1.2%).

There was little fixation on the disappointing earnings reports from Dell (DELL 13.40, -0.03), J.C. Penney (JCP 18.01, -0.78), Autodesk (ADSK 37.11, -2.67), and Nordstrom (JWN 60.67, -0.46) as the broader trend of capitalizing on the Fed's liquidity support continued to drown out any disappointing developments.

The upside bias in the stock market once again took the wind out of the Treasury market's sails (10-yr note -20/32 at 1.95%) and weighed further on other so-called safety trades like gold (1356.60, -30.30).

With today's gain, the S&P increased 2.0% for the week; and it is now up 4.3% for the month, clearly decoupling itself from the "sell in May and go away" couplet.

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