..It (eco'data) does matter!...

It’s not to so hard to understand where today’s ‘all day 2.5% rally' stemmed from…yep!..all day, as in a rally with a good open and a good close,  not one the gives up gains late into the close as Tuesday and last Friday.

We headed into the week bolding.…“This week is the important data.. a few ISM's May data starting Tuesday), China PMI`s, auto sales, retail updates, NFP#!.  Weakness will likely mean a step back in all respects for the market.”… Yesterday…after a miserable close…  "..but US ISM was “bullish”  for production in months ahead and was firing on all cylinders in May.   This ISM # should have eased slowing growth concerns for more than a few hours!.   Maybe it will (it should if #'s like this) once the comatose investor switches focus from all the shenanigans encountered in May.     Well, maybe today the comatose investor stared to wake up on the heels of the neglected strong ISM reading.   Follow through on eco’ data started with an upbeat pending home sales # and the afternoon,  SAAR auto #’s came in much stronger than anticipated as well.    The importance of this weeks data is it shows what was happening while the European shenanigans were going on in May, so far,  it shows US economy didn’t blink an eye to all the turmoil and possible effects across the pond.

So, a few down #‘s and a couple more to go this week starting with retail tomorrow.   In our view,  a weak retail and a very strong NFP# is the expectation now and may not be as important as what we already got this week.   It should be enough at this point to rally further into Friday post NFP#).  How far we get by post NFP# will depend how far we can push coming now to the critical 200ma (~1105) as the market does a re-test of a previous rally from 1040.  (Note..a catalyst not getting much noise today is very important and that is from an overseas overhang on markets.  Spanish regional banks were able to reach a deal on merger terms after talks for a few weeks and won’t have gov’t seizures as had already occurred earlier).  So, if Europe happy and U.S stay happy, together we can push through all the technical resistance up to and over 1120 eventually.

Positives are this was move was broad sector based and the close was pretty, not ‘ugly’ as Tues/last Fri,. broke thru 2 ’R’ levels at 1083  & 1095 and thus, we’re bullish thinking SPX, >1120 to 1150 in the making for this leg.    A good aspect to the broad rally is the majority of our listed high beta stocks didn’t get out of hand today.   The gains were subtle given the 2.5% broad jump and give an oppy’ to get some popular beta names tomorrow or set ups ie. DGIT, a stock we added to our list that is similar biz to VCI here………(or even better on pullbacks if given)  that are not extended due to one day’s action. 

...and the number is...????

Most of  DJIM discussion this week centred around home front/Economic data.  It‘s slowly making it‘s way back to the markets talking heads.   This is good because we are finally taking a break from Eurozone and switching some focus.   Well, we don't know how long this is going to last because once the NFP report comes out tomorrow, folks may just concentrate back onto the Euro worries now that the market has rallied from SPX1040 to 1105/200ma.   Many have not grasped that we've actually rallied since the 25th/1040.   Those in the rally play may want to sell over 1100,  but those sidelined may begin to feel some anxiety of this move going further.   Stay tuned...

However,  it's important to give some thoughts on the recent Econ. data.    People have been pointing out the fact that although the Economy is recovering, growth has slowed recently.   The fact China is down >20% is evidence of the ’growth’ investor has been slipping away this year.   Also, fear of Euro May problems derailing activity in US has been on the mind.  This weeks macro #`s show it hasn’t derailed things in May.   The eco` downshift may not be as great as feared due to Eurozone.  Unfortunately, a fresh twist in our waters now... the ramifications of the BP spill will begin to put June #'s into question sooner than later by the market.!    We feel all these fears are very natural because sooner or later this is what had to happen for the markets not get out of hand.    Basically we need to level off the growth curve for a bit before we can tick higher.    The biggest obstacle to the recovery remains the unemployment rate.   It seems no matter how many jobs we create, it just won't be enough to replace those millions of jobs that were lost during last couple of years.    It'll be a long way before the unemployment rate comes down to a reasonable level.    By then, the Economy will be at full steam and we bet many of the plays-sec`s we like will be trading at a much higher valuation.    This is always the case in an upward Economic cycle.

As far as market goes,  SPX stopped dead at 200 MA today.  Volume was relatively light and people are most likely waiting for the NFP report tomorrow to give them a reason to make their next move.  Today’s somewhat green to flat action gives the market some room to manoeuvre, if we broke out over 200ma today,  we’d probably have a better chance for a sell on the news(NFP#), no matter what the # would be.  As we all know,  selling on any NFP# is always a possibility and will be on this census skewed report as well.  Watch private sector jobs, whisper highs a tad over 200k.

Excluding the commodity linked stocks (Again, China housing clamp cooling property mkt big time), many plays behaved really well, especially in softie tech.  We had M&A activity (SNWL) once again in the group and DJIM listed softies, CRM VMW  and another VRSN  added hitting NCH`s. (will update Shadowlist this weekend).  Others like DGIT, DLB  also put in nice days.  

In all honesty, if we can close out the week in a relative quiet fashion, it'd be a nice confidence boost for the sidelined investors to slowly buy into the market again.    Right now, the most important issue for this market is to ease the volatility and stop the late day sell offs.   It stopped today and yesterday,  let this continue today and we`ll be happy heading into the weekend.

QE2 noise..

Last 24 hrs, all the talk has centered around the importance of tomorrow’s FOMC and the subject of QE2 and yes, the camps are quite spilt as to what the FED should or needs to do.   It even gets more spilt as to effect of opening door to QE2 would have on the market direction.   Last week, we noted this story, http://online.wsj.com/article/SB10001424052748704271804575405113846708620.html and that it may affect market negatively, which id did to start the trading day.   Since the story ran the market was supposedly focused on NFP#,  but we said the market might be looking ahead to FOMC instead by last Thursday.   The market has moved nowhere indicating eyes/ money were on FOMC.    Well, now we’re almost here and everyone is treating this as critical as NFP#.   Guess what?.. By end of day,  this FOMC will most likely pass as a whisper to the market as did NFP#.   The story above and the potential incremental steps by FOMC have lost steamed, most notably because of the NFP#, even though not indicating recovery strength was also not bad enough for FOMC policy change.   Those wanting FED to take imminent steps will likely be disappointed, but it’s doubtful it’s enough reason to sell off the market, we think QE2 steps would likely do more damage.     Hope here and expectation is FED stays  ‘very accommodative’ long term as Bernanke signalled recently.    We will get a ‘downgrade’ on economy, but that is priced in.

As far as trade today, besides the GEOY/DGI  early morning alert…summer dullness’ really set in today with volumes way below average.  Once we get through FOMC, heads will turn to CSCO  earnings and more importantly CEO’s comments to see how things are looking forward.  CSCO is important because it’s the first real JULY end report, not June end.  Overall for Nasdaq/tech,  the concern here is still the SMH as noted to start the month..."and Semi’s down >4% this week, signs of technology softening demand is showing up globally (possible correction in technology coming).  Since, SMH has done nothing the change this view.  Sooner or later, the market may not like more talk of demand softening coming.