The Three Things That Mattered Most Today

Stocks moved on three events today: 1) better than expected earnings from Best Buy, ConAgra, and Dr. Pepper, 2) a better than expected 7-year note auction has alleviate demand concerns, and 3) continued pressure on short sellers.

Financials were mixed today, instead the market was led by industrials, transports, and materials. This is also good news—let financials consolidate while other stocks advance.

Bonds move stocks, again. Major indices rallied at 1 PM ET as the results of the 7-year Treasury note auction came in better than expected.

The bid to cover ratio (the ratio of bids received to bids accepted) was 2.52, beating last month's 2.11 reading.

Stock traders are nervously watching the bond market to gauge investor interest in the debt of the U.S. Any signs of flagging interest will be pounced on by inflation hawks, claiming the U.S. is risking devaluing Treasuries by spending too much.

Yesterday, after a disappointing 5-year auction, stocks moved down immediately after the results were announced.

Short sellers continue to be under pressure. The S&P 500 is at at 6-week high, up 24 percent from the March 6th low; the NASDAQ turned flat for the year today (S&P remains down about 8 percent).

What's going on? If everyone is so bearish, how come we aren't seeing massive selling into this rally?

The funny thing is, we are. It's just not turning out the way the bears anticipated. Yet.

Look at what is happening with short positions. As stocks began rallying after the March 6th low, traders who believed that this was a lot of nonsense began aggressively shorting the market.

According to the NYSE, short interest on the NYSE rose 10.8 percent in mid-March, suggesting traders were increasing their bearish bests.

What stocks had the largest short positions? Duh: Citigroup, Bank of America, Wells Fargo.

What stocks have rallied the most in the past two weeks? Citigroup, Bank of America, Wells Fargo.

In other words, a good part of this rally has been short covering.

This is good and bad news for bulls. Good news, because shorts are having trouble maintaining their bearish positions.

Bad news, because we still need to get a more substantial boost in buying interest, and a drop in the selling pressure.

Regardless, the action as we head into the close of the quarter remains encouraging.




Questions? Comments?