EmailStocks soared on Monday with 2.0% gains the norm for the major averages. The Dow was the exception as it gained "only" 1.7%.
Given the extent of recent losses, it was reasonable to expect some type of rebound effort. However, we weren't expecting yesterday's rebound effort to look like yesterday's rebound effort.
We suspect a number of market participants felt the same way and were forced to cover short positions, which augmented the gains.
The market went out at its highs for the session. In the process, the S&P 500 broke through a notable technical resistance level at its 200-day simple moving average (1382.18).
Now the question is, will there be follow through?
Buyers are showing some reserve at the moment. The S&P futures are trading just below fair value, putting the cash market on course for a somewhat flattish start.
Dow component Hewlett-Packard (HPQ) will draw some blame for the early indication. Although the company topped the S&P Capital IQ consensus estimate for the October quarter by a penny, it issued an earnings warning for its fiscal first quarter. Additionally, Hewlett-Packard said it recorded an $8.8 bln non-cash impairment charge in the fourth quarter due in large part to the discovery of accounting improprieties at Autonomy Corp. that occurred prior to HP's acquisition.
Shares of HPQ are trading nearly 10% lower in premarket action.
Separately, Best Buy (BBY) missed by nine cents and lowered its FY13 free cash flow guidance, continuing a string of disappointing earnings news. Shares of BBY are down 3.5% in premarket trading.
Another drag this morning is the news that Moody's lowered France's AAA rating to Aa1 while maintaining a negative outlook. Judging by the fact that France's CAC-40 is down just 0.2% and that its benchmark bond is up just 4 bps to 2.00%, one has a basis to conclude the Moody's downgrade didn't come as a shock to the market.
In any event, the aforementioned downgrade is a reminder that the eurozone debt crisis has cut to the core of the eurozone.
Peripheral matters, however, appear to be holding sway. The euro is up 0.3% against the dollar as reports suggest finance ministers have agreed in principle to another aid tranche for Greece. The timing of when Greece would actually receive the aid, though, and the path of its debt reduction plan are still uncertain.
European equity markets are mixed at this juncture.
In today's lone piece of economic news, housing starts were reported to have increased 3.6% in October to a seasonally adjusted annual rate of 894,000. That was above the Briefing.com consensus estimate of 840,000 and marked the highest level of starts since July 2008. Multi-family starts led the increase, as single-family starts dipped 0.2% to 594,000.
Building permits fell 2.7% to a seasonally adjusted annual rate of 866,000. Permits for single-family construction, however, increased 2.2% to 562,000.
Overall, the Housing Starts report offered another encouraging signal that residential construction is providing a positive contribution to economic activity. The number of homes currently under construction, which factors into current quarter GDP, increased 1.8% to 517,000.
The starts data helped ease some of the selling interest in the futures market. So far, though, there is no clear answer to the question of whether there will be follow-through buying interest today.
