There's a good chance stocks could hold onto some of their positive tone Wednesday, and maybe even into Thursday, as traders search the rubble for bargains.
"It just feels like short term that it's a little bit sold out, unless you get some very negative news that hits. We'll probably be ok, if the employment report is ok" going into the weekend, said Robert Harrington, head of block trading at UBS. The June employment report is released Thursday at 8:30 a.m. and the market is closed Friday for the fourth of July holiday.
Several other traders I spoke to Tuesday said they too expected to see buying this week with the start of the third quarter, but they stressed that it could be very short lived. Of course, oil could also be a factor for stocks.
Data Wednesday includes ADP's private sector jobs report at 8:15 a.m. That report is a kind of preview of what might show up in the government jobs report Thursday. Factory orders for May are reported at 10 a.m.
Investors will also be watching for headlines from two important speeches from Europe. First, European Central Bank President Jean-Claude Trichet speaks, the day ahead of the ECB's Thursday rate decision. Then, U.S. Treasury Secretary Hank Paulson speaks in London where he is giving a keynote speech on the economy and markets at the Royal Society of Art.
Traders say Trichet's early morning speech in France is the one they are watching though. His speech is expected to focus on financial market regulation.
"For the most part, people will be looking for an indication of what he will say Thursday," said currency trader David Leaver of Trichet. "We do expect him to walk the fence here. We don't want him to send the market into any sort of panic or throw out a red alert in terms of a second hike in September."
The ECB is widely expected to raise rates by a quarter point Thursday. Trichet will speak that day ahead of the U.S. stock market open. "If he's extra hawkish, and if those payroll numbers are bad, triple digits, you're going to have a big move lower in the dollar," said Leaver, senior trader at Forex.com. Regardless of the outcome, he says, the currency market could be volatile.
Leaver says the only thing that could change the course of the dollar is rate hikes in the U.S., and that's not likely soon. "What the dollar is going to need on an intermediate basis is going to be a concerted intervention effort," he said. He said it is unlikely there will be any action out of the upcoming G-8 meeting next week.
The dollar Tuesday fell 0.25 percent against the euro, to a level of $1.5783 per euros.
Oil set another record Tuesday but backed off highs made early in the day. Oil finished at $140.97, up $0.97 per barrel, a new NYMEX record. During the session, crude hit an intraday high of $143.33 per barrel. Oil has been boiling higher on concerns about tensions between Israel and Iran over Iran's nuclear program.
NBC News chief foreign correspondent Richard Engel reported on "Power Lunch" that Iranian Foreign Minister Manuchehr Motaki told him that an Israeli attack on Iran is unlikely. Motaki also backed away from threats that Iran would block oil shipments in the Strait of Hormuz if Iran were attacked. Engle reported that Motaki said that while Iran would respond to any military strike, it also understands the need to protect the flow of its natural resources through the Strait.
This report was shortly after NBC News Pentagon correspondent Jim Miklaszewski reported on "The Call" that the U.S. does not believe that any attack by Israel is imminent.
In Wednesday's session, traders will be watching oil inventory data, to be released at 10:35 a.m.
With the third quarter just one day old, financial stocks are the winners so far. The S&P financial sector was up 1 percent, as some of the credit fears lifted. Lehman was up 5.8 percent after its big decline Monday. The worst performers were the S&P telecom sector, off 1.2 percent and the materials sector, off 1 percent.
"I don't think we're out of the woods yet, but people might start looking at some valuations and say even if it's not good news for the next three to six months, these valuations are may be a good place to get some exposure," Harrington said. He said the earnings period could be the next thing to determine direction. If earnings are better than expected, that could be a positive, but the market still has to get by the write downs in some of the bank earnings.
On Tuesday, the market gained some traction after surprising strength in the ISM manufacturing report. But it was after the better-than-expected GM sales report, however, that stocks were able to hold onto gains.
The Dow finished 32 points higher at 11,382, its second positive day. The Nasdaq was up 11.99 at 2304.97, and the S&P was up 4.91 points.
"I think it's going to be a choppy bounce going into the holiday weekend," said Scott Redler of T3live.com. "The S&Ps have room up to 1305, which isn't a lot. We closed at 1285 and the Dow has room to retest the January and March bottom in the 11,600 area, which was breached last week."
Redler said he used the strategy of getting long the market Tuesday morning in a trade he thinks works until the weekend. He says he currently is looking at very short term trading ranges.
"These one to three day risk reward strategies and key inflection areas have been the only thing that works from the long side, at least until the composure of the market changes. We actually had longer term horizons when the market bottomed last time," he said.
"This is a short-term move on an oversold bounce going into the holiday. Then it will be time to reevaluate the dynamics of the market again," said Redler.
Stocks in the News
UBS shares were weaker in the after hours. Just before the close, the Justice Department said a federal judge issued an order allowing the IRS to request information from UBS about U.S. clients who may be using Swiss bank accounts to avoid federal tax.
Starbucks shares moved higher after it said it plans to close hundreds of more stores than expected and lay off 12,000 full and part time workers.
General Motors and Ford both drove higher in Monday trading. Just before the release of its sales report, GM was trading at its low of the day ($10.71). About an hour later, GM's stock hits its high of the day ($13.26). That swing was the stock’s biggest intraday percent move since the day after Black Monday (10/20/87), when the stock moved up nearly 28% from its low to high within that day. (thanks to our NYSE producer Robert Hum for this fun fact)
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