Market Talk

US stocks finish mixed after a mainly weak session, amid a worse than expected consumer confidence report, a better than expected housing report, and a lackluster auction of Treasury bonds. For the first time in weeks, earnings isn’t a major focus of trading. (Video recap here.)

DJIA slips 12 to 9097, S&P 500 loses 3 to 980, but Nasdaq Comp adds 8 to 1976. Again, late surge cuts the losses. It’s interesting to note that the market couldn’t get any juice out of a report on home prices that many, even the report’s namesake, considered a positive sign.

Conference Board’s consumer confidence reading falls for a second month, and by more than Street expected. Case-Shiller shows slightly moderating home-price deterioration, but also first monthly rise in nearly three years. That fuels some hopes that housing has actually and finally struck a bottom.

Of course, the report showed yearly declines in the 16-17% range, which is only marginally better than the 18-19% losses it was showing a few months ago. But even Robert Shiller said he was surprised by the data, and considered it a good sign.

Treasury’s auction of two-year notes is mediocre, and with the government auctioning off yet another record amount of bonds, on a weekly basis, there is fear for the auctions slated for later this week. Elsewhere, crude falls under $68/barrel.

Can't lose with this hand, no sir. Can't lose.

Are we just tired, or are we overstretched?

Stocks are pulling back this morning, and while some tape-painting in the last half-hour of the session can cover up a lot of warts – witness yesterday’s action - we’re going to go out on a limb here and start questioning how much upside is left in this rally.

It occurred to us over the weekend that stocks were overbought. Look at it broadly: the S&P 500 is down about 37% from its 2007 highs, right? But earnings are down nearly 66%. They topped out at $24.06 for the index as a whole in the 2Q07. They were already on the way down when the index topped out around 1560 in October of ’07.

Now, earnings for the current 2Q are expected to clock in around $6.17, and by the end of 2010 are expected to hit $8.33. That is a far, far cry from the heights of 2Q07, yet stocks are down only about 37% from the ’07 highs.

That illustrates one optimistic group of investors.

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Tone’s slightly softer for US stocks premarket, with the oxygen getting thinner now with each step higher in the major averages.

Fixation on 2Q earnings reports is easing a bit, and other influences are likely to carry some currency with equity investors, like Treasury’s record $42B sale of two-year notes this afternoon; $39B in five-year’s tomorrow; and $28B in seven-year’s Thursday.

Case-Shiller May home price index due at 9:00am; Richmond Fed’s July manufacturing index, Conference Board’s July consumer confidence index both due at 10:00.

S&P futures down 6.40; DJ futures 47. Ten-year higher, yield at 3.69%.