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Wednesday Look Ahead: Bulls Hanging On

Tuesday, 28 Jul 2009 | 6:26 PM ET
AP

The bulls are still in charge, for now.

Stocks Tuesday once more showed surprising resilience, shrugging off a triple digit loss in the Dow to finish just slightly lower. Driven more by momentum than news, the Dow ended down 11 at 9096. The S&P 500 was down 2 at 979, while the Nasdaq was higher by 7 at 1975.

A drop in consumer confidence to 46.6 in July from 49.3 in June weighed on the market and on the dollar. The report came shortly after an encouraging S&P/Case Shiller report on home prices showed the first month-over-month gain in 34 months, another sign housing could be stabilizing.

Wednesday's headlines will include another batch of major earnings news and some key economic reports, including durable goods at 8:30 a.m. and the Fed's beige book on the economy, released at 2 p.m. There is also a major auction of $39 billion in 5-year notes at 1 p.m.

Traders have intently been following the dollar, and the related "reflation" trade, where risk assets move in tandem with the currency. On Tuesday, the dollar inched up after trading at its lows for the year, while most commodities moved lower and Treasurys sold off. The stock market was lower most of the day, and many traders expected it to hold onto the lows.

"I think it was pretty interesting how stocks rallied back, and Treasurys were up nearly a point going into the auction and reversed all their gains and were down on the day," said David Gilmore, partner with Foreign Exchange Analytics. "If you're going to be looking for a correction in riskier assets and equities, the whole sort of risk spectrum, you'd expect bonds to do better than they did today."

Treasury traders too were surprised at how poorly bonds reacted, and by the surprisingly soft demand at Tuesday's auction of $42 billion in 2-year notes. The lackluster performance raised concerns about the success of the auction of 5-year and 7-year note auctions, Wednesday and Thursday respectively.

"I thought the two-year note would go well," said John Spinello, Treasury strategist at Jefferies. "It was the first (2-year) auction that tailed 2.5 basis points in a couple of years."

Active trading in Treasurys resulted in yields moving in a fairly wide range. The 10-year was yielding 3.691 percent at the end of the day, after moving between 3.617 and 3.734 percent. The two-year was at 1.076 percent.

"We think we're going to get another dose of reality in the beige book, and it's likely we'll see risky assets fall further," said Brian Dolan, chief currency strategist at Forex.com.

More From CNBC.com

Earnings reports Wednesday include Conoco Phillips , Sanofi-Aventis , Time Warner , Wellpoint , Southern Co , General Dynamics , Medco , Moody's and Arcelor Mittlar . Auto makers Honda , Nissan and Daimler also report.

After the bell, Aflac , Companhia Vale do Rio Doce , Hartford Financial , Tesoro , Symantec , and Fiserv are among companies reporting.

Other events to watch include another hearing by the CFTC on energy markets. Also, New York Fed President William Dudley speaks at 8:30 a.m. in New York. His topic is factors driving U.S. growth and inflation.

Questions? Comments? marketinsider@cnbc.com

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

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