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Wednesday Look Ahead: Sentiment Splits on Stocks

Sell in May or jump back in?

Stocks rose for a third day Tuesday as Microsoft's $8.5 billion bid for Skype boosted optimism for more deals and China's report of a large trade surplus calmed concerns about slowing growth.

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AP

"This is a very evenly divided market in terms of sentiment. There's people out there who think this is just the beginning of a market sell off and there's others who think the market is ready to rally," said Brian Dolan of Forex.com.

Stocks reflected that divide Tuesday with the top two performing sectors in clear contrast. The defensive utilities topped the S&P industry sectors, with a 1.3 percent gain, followed by the growth oriented consumer discretionary sector, up 1.2 percent. The Dow was up 75 at 12,760, and the S&P 500 gained 10 to 1357.

Oil rose and gold, silver and copper all gained, as the dollar turned lower against the euro for the first time in four days. The dollar index also slipped. The euro was at 1.44 . Gold was up 0.9 percent to $1516.60 per ounce, and silver climbed 3.7 percent to $38.48.

Oil gained 1.3 percent to $103.88 per barrel, and RBOB gasoline surged 3 percent to $3.3797 per gallon on the NYMEX, as worries the rising Mississippi River could impact refineries in Louisiana.

"The risk assets generally are showing a desire to form a bottom and rebound after last week's sell off. If we get some strong Chinese data (overnight), we could have this rally underway," Dolan said. China releases retail sales, industrial production and inflation data overnight.

In the U.S., international trade data is released at 8:30 a.m. The Treasury auctions $24 billion in 10-year notes at 1 p.m., and there are several earnings reports of note, including Macy's, Toyota, Teva Pharmaceutical and Arcelor Mittal, ahead of the opening bell. Cisco and Symantec report after the bell.

Dow component Disney will also be a focus, after its stock fell late Tuesday on disappointing earnings news.

Symbol
Price
 
Change
%Change
CSCO
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DIS
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M
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MT
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SYMC
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TEVA
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7203.T
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Jeffrey Kleintop, chief market strategist with LPL Financial, says the rising stock market does not necessarily mean the 'sell in May' activity will not take place this year. "I think this is absolutely classic 'sell in May and go away' market behavior. You get this volatility and we're at this point in the business cycle where we're in transition. We're in a mid-cycle environment where the data points don't all go in straight lines anymore," he said.

"The market is rebounding a little bit, at least stocks and commodities are, from the double dip fear we had last week. It was overdone, but it might get overdone on the upside too," Kleintop said. His view has been that the S&P 500 will not be much higher than current levels at year end.

Kleintop said he is concerned rising gasoline prices and other costs could hold back the consumer. "We're focusing more on those companies that are benefiting from business spending because we think that will hold up better than consumer spending. The industrial sector and technology look better to us and lately we've added to the health care sector. It's a defensive growth play," he said.

Kleintop is also watching the CPI readings on Friday and expects to see signs of rising inflationary pressure on the consumer. "We've got a Fed that's got its pedal to the metal in terms of stimulus and we've got inflation... that may respark those inflation concerns that sent so many people into precious metals and commodities earlier this year," he said.

Questions? Comments? Email us at marketinsider@cnbc.com