A Tale Of Two Tales...

Contrary to what the net numbers suggest today was a mixed day. The Dow stayed in the positive throughout the day and managed to close up by 101.63 points (+ 1.21 %) . However, as late as 60 minutes before the close the Dow was barely positive...as such it was again the late day rally which bailed us out.

The perhaps bigger issue about today is that Small cap stocks as well as technology (Russel and Nasdaq) underperformed in a big way today. Both sectores managed to close in the green but there this was only after the late day rally (as has been in the case now for weeks) lifted both indices into the green.

Small cap and the Nasdaq were the sectors of the market which led stocks higher and their current weakness does suggest that some money is being taken out of the market. It is to early to tell but it certainly serves as a warning sign that the 9 week old rally has potentially run out of steam.

One of the catalysts for today's rather volatile session was the release of the ADP payroll report for April. The preliminary estimate had called for ore than 700 thsd first time unemployment claims but the actual number was much lower at 494 thsd.

The ADP report serves as an indicator for the official release of the Unemployment number by the Labor department this Friday. The ADP number has been off in a major way before but it certainly suggest that the actual number should be better than feared. I suppose we just wait and see.

The other issue moving the market today was the continued leakage of results regarding the stress test. Officially the results will be released after the close on Thursday but it seems like the main parts have already been leaked to the market.

Be it as it may...I still feel that there is a very good chance that once the results of the bank stress tests are released and the unemployment number is out of the way we might see something of a reversal in fortunes.

I have been neutral stocks for about a week now and intraday volatility seems to suggest to me that the market is ready to roll over to the downside.

I do not expect a monster decline but at the same time...considering that we are not almost 35 % above the march lows (basis S&P) it seems entirely possible that we can see a 10 % decline from here.

For tomorrow I am not expecting much. However, markets have a tendency to preempt important, scheduled announcements. Therefore...should the stock market weaken considerably toomorrow(and I think there is a chance for it to do so)...then the odds are increasing quite a bit that the recent upmove has run its course.

See you tomorrow

Steve Benger