There was a slew of economic data that was released out of Asia and Europe overnight, and not much of it was favorable. In fact, the German PMI number of 48.8 showed that their economy is possibly entering a period of economic contraction. While this may not seem like huge news, keep in mind that Germany has been the major supporter of the eurozone through all of the recent crisis, and boasts the biggest economy in all of Europe. In addition to the bad German data, French PMI improved, but came in below the critical 50 level. A reading below 50 signals contraction and a reading above 50 signals economic growth, so this is obviously an important data point. Despite all of this negative news, rumors and opinions have surfaced that Europe will leave its current environment of economic austerity and potentially lower rates at the next ECB meeting. For this reason, markets are sharply higher today.
After being significantly lower ahead of the cash open, futures began to rally around 5:00 A.M., and equities are currently sitting near the highs of the day. At 1:00, a false tweet from the Associated Press stated the President Obama had been hurt in a terrorist attack, and markets tanked in a hurry. However, this headline was quickly denied, and equities shook off the entire move lower in a matter of minutes. Presently, the Russell 2000 is leading, up 1.1% on the day, while all other indexes are about 1% higher. After yesterday’s bounce, metals are again weak, with gold off 1% and silver 2% lower. Bonds continue to shrug at all recent movements by equities, as they have traded in a very narrow range for a week or so. The iShares Barclays 20+ Year Treasury ETF (TLT) is off 0.2% on the day.
CHART OF THE DAY
Dollar Tree (DLTR) – The discount retailer has been strong so far this year, up about 20% since January. The shares continue to stair step higher, guided by their 20-day moving average, after better-than-expected earnings at the end of February. DLTR is breaking higher from its current consolidation range, and appears to be off to the races yet again. Continued strength by those in its peer group and also other retail names should place upward pressure on DLTR going forward.
I like a long entry here with a stop on a close below 46. I would initially look for a move to 52, with 56 as a stretch target.
WHAT I’M EXPECTING
Today’s close will be very telling. Markets will often gyrate around key levels that many people are watching(in an attempt to “shake out” the weak hands), and today is no exception. Should the S&P 500 stay above the 1575 level into 4:00, I would expect a move back to the all-time highs near 1600 in the near future. If not, I’m looking for another test of the 50-day moving average, and continued downside toward 1500.