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Tuesday's Test: Can Bulls Hold Their Gains?

Another flood of earnings news will help guide Tuesday's market, after stocks held steady Monday.

Photo: Oliver Quillia for CNBC.com

Monday's market meandered, finishing slightly higher after trading lower most of the day. The Dow was up 15 at 9108, while the S&P 500 finished up 2 at 982.

Traders were impressed by the market's resilience but also expect to see more attempts to sell off this week. At the same time, they said an 11 percent gain in new home sales, reported Monday morning, should have been enough to trigger bigger gains than materialized.

"You had a great housing number, and the market really couldn't get going," said Todd Leone of Cowen. "We've had a great move up. A lot of people still don't believe, which means we could go higher."

"It's another big week of earnings, and we'll see if we can keep it going," said Leone.

Financials were up 1.5 percent and were the market leaders. They were followed by industrials, up 0.7 percent , and materials, up 0.4 percent. The VIX, the CBOE's volatility index, moved up more than 5 percent, a sign that some investors are a little more uneasy about the market's gains.

BPreports ahead of the bell Tuesday, as do Valero, U.S. Steel, Teva Pharmaceuticals, McGraw-Hill, Viacom and Coach. Dreamworks, Norfolk Southern, Massey Energy, and McKesson report after the bell. (See more below stock ticker box.)

Symbol
Price
 
Change
%Change
COH
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DWA
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MCK
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MHFI
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NSC
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TEVA
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VIAB
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VLO
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X
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General Electric , which reported earnings previously, holds an investor webcast for its capital unit at 8:30 a.m. (GE owns CNBC.)

Tuesday's data includes the S&P/Case Shiller home price index at 9 a.m. Consumer confidence and the Richmond Fed survey are reported at 10 a.m.

In Washington, the Commodities Futures Trading Commission holds the first of three hearings at 9 a.m. on energy futures trading and the use of position limits in the energy market. Exchange officials from the CME Group are expected to testify.

The Senate Judiciary Committee, meanwhile, votes on the nomination of Sonia Sotomayer to the Supreme Court.

Recovery Trade

The reflation trade dominated once more Monday as stocks moved higher globally, commodities gained and the dollar sold off. The dollar was at a 7-week low against the euro at $1.4237.

Treasurys, meanwhile, saw selling on the prospect of a record $235 billion in issuance this week, even as a 20-year TIPS auction went smoothly Monday afternoon. The 10-year's yield was lifted above the important 3.75 percent mark temporarily, and finished at about 3.711 percent.

"I think the market is under pressure until we get the 5s and 7s out of the way," said Rick Klingman of BNP.

Late in the session, Philadelphia Fed President Charles Plosser said he thought the Fed may have to raise rates in the not too distant future and possibly before unemployment peaks. The market shrugged off those comments.

"People think (Fed Chairman Ben) Bernanke's not going to tighten in the next nine months. He just told us in the last week that he's not tightening anytime soon. That's why I think the 2s do well and the others are a little more challenging," said Klingman.

The Treasury auctions $42 billion in 2-year notes Tuesday at 1 p.m. Another $39 billion in 5-year notes are at auction Wednesday, and $28 billion in 7-years will be auctioned Thursday. More than $100 billion in short-term bills were also up for auction Monday and Tuesday.

"The dollar is probably still under some near term weakness," said Marc Chandler, senior currency strategist at Brown Brothers Harriman.

Chandler said several data points this week will give an early peak at what the economy might be doing in the third quarter.

"We're going to get some data that points to a positive Q3, including Richmond Fed and Milwaukee PMI," said Chandler, who expects third quarter GDP to be positive but second quarter to be -1.5 percent.

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Interestingly, Chinese officials met in Washington with Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton, as the dollar traded near its lows for the year. Chinese officials, in recent comments, have been challenging the dollar's position as global reserve currency.

The meeting was the first in the Strategic Economic Dialogue, initiated by former Treasury Secretary Hank Paulsen and now expanded to include the State Department.

"It's not just about the renminbi and the dollar and whether they can buy bonds or not. If the U.S.-Chinese is the most important bilateral relationship in the world, we need to broaden it away from economics," he said, adding the talks will probably range from Iran and North Korea to global warming.

"There's unlikely to be any earth shattering decisions coming from these talks. The market is mostly interested in the dollar and international monetary regime change," he said. There is a joint press conference Tuesday at 4:45 p.m., then later U.S. and Chinese briefings.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.