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The Dow Futures Report

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US Equities trade to 2009 highs

Tue, May 5 2009, 05:50 GMT
by Paul Brittain

Alaron

US EQUITIES TRADE TO 2009 HIGHS, S&P 500 CLOSES ABOVE 900, AS MARKETS TAKE HEAT FROM POSITIVE OUTLOOK FOR HOUSING, BANK CAPITAL CONCERNS SIDELINED.

US EQUITIES staged broad based leaps across nearly all market sectors as a better than expected read on US pending home sales and construction spending offered additional hope that the US recession may be finding a bottom. All of the major market indices closed at levels which put them in positive territory for 2009, with the S&P 500 closing above the psychologically significant 900 level for the first time since December of 2009.

Stocks came into the US open with somewhat of a positive feel after reports of better than expected results from China’s PMI (Purchasing Managers Index) and European sentiment increased after Fiat announced it was in negotiations to purchase General Motors European car and Truck divisions. The sense of recovery was kicked into overdrive after US reports on construction spending and pending home sales came in far better than expected. The construction spending figures were of particular significance as expectations were for a decline and the increase mirrors China’s efforts for recovery.

The market rally was broad based, with financial, energy, and technology stocks taking the lead once again. The tech sector received an early boost after Sprint Nextel reported better than expected earnings. Energy and material stocks posted strong gains after crude oil prices rose to their highest levels in nearly six months on speculation that the economic recovery may lead to increased demand for crude worldwide. A fall in the value of the low yielding US Dollar also supported commodity price gains and the appeal of underlying stocks.

Financial stocks gained on speculation that the likely increases to capital reserves call for by the US government’s stress tests will be manageable.
Expectations are that the release of the data will show that the financial institutions that fail to make the grade will be able to make of the shortfalls through private capital offering and not by requesting additional funds from the Federal Government. Bank of America and Citigroup were among the sectors strongest gainers. The sustainability of these gains in the near term may be in question as the markets will be contending with the lagging sentiment of employment later in the week. The focus to this last piece of the economic pie should offer some sobering element to equity traders, particularly as the realization hits the marketplace that a number of higher paying positions have been essentially lost forever.

Technically, June Dow futures broke through and closed through significant resistance at 8260. The strength of this move remains significant as the break could set the market up for a longer term move back toward the 8880 level. Daily and 60 minute RSI indicators do offer signs that the market is reaching overbought territory. Support for a recovery downward move has setup at 8080, with 7975 setting in as a key support based on a 50% Fibonacci retracement figure.

Published on  Tue, May 5 2009, 05:56 GMT