Profit-taking follows strong rally
David Russell | [email protected]
S&P 500 futures are down about one-tenth of a percent, following declines of a similar magnitude in Europe. Shanghai and Tokyo fell more than half a percent overnight despite a positive close in U.S. indexes yesterday.
The S&P 500 has advanced in 11 of the last 13 sessions after bouncing at its 50-day moving average in mid-April. It's now more than 4 percent above its previous record closing high from 2007, following breakouts earlier in the year by the small-cap and transportation indexes.
Investors must now decide how much of a pullback to expect before buying again. Not many catalysts are found on the calendar through the end of next week, with corporate earnings winding down and few economic reports scheduled, so traders may take their cues from technical levels. If that's the case, the S&P 500 is likely to have support between 1585 and 1600. But it's not clear we will even fall that far.
A theme of global strength has been developing over the last month as European banks recover, credit spreads narrow and emerging markets deliver positive news. Latin American e-commerce stock Mercadolibre, for instance, rallied earlier in the week and Chinese travel agency Ctrip.com is up this morning on a strong quarterly report. Chinese trade also beat expectations on Tuesday and commodity stocks, which correlate with global growth, have outperformed in recent sessions.
But in the shorter term, there are reasons to be cautious because crude oil and metals face bearish momentum. The 10-year Treasury yield is also back to a potential resistance level, which could draw buyers to bonds and away from equities.
Currencies and commodities are mostly bearish as the euro falls and the Japanese yen rallies. Energy prices are down by more than half a percent and copper has shed almost 1.5 percent. Agricultural products are also mostly lower, while precious metals are mixed.
Aside from CTRP, several other companies are moving. Electric-car maker Tesla Motors is surging after reporting strong results and boosting guidance. Green Mountain Coffee and Groupon are also higher, while cautious guidance is sending Activision Blizzard and Rackspace lower. Monster Beverage is down as well.