Market Talk

US stocks rally as the bulls take back the conch from the bears, betting the global recovery remains on track despite all the noise coming out of Europe.

Stocks opened sharply higher, and never turned back. DJIA jumps 273 (2.8%) to 10173, its best one-day performance in two weeks (May 27). S&P 500 gains 31 (3%) to 1087, closing above key 1084 level. Nasdaq Comp rises 60 (2.8%) to 2219. Energy shares lead, even though crude futures gain only about 1.5%. Weak NYSE volume a red flag, but closing near session highs is a good sign. Euro back over $1.21.

News out of China shows a huge move in exports, including solid selling to Europe, giving some hope that despite everything going on in the Continent, merchandise is still moving and people are still spending. Here in the U.S., weekly jobless claims come in essentially flat at 456,000. The problem with that is that it remains in that elevated 450,000 range, which does not point to strong hiring (if any at all, really.)

Then there’s this TrimTabs report floating around, where the firm claims that, based on income-tax data (how they measure hiring) and expectations that a lot of those Census Bureau jobs are going to disappear, the economy will shed 200,000 jobs in June.

So caution is still warranted on the economic front, and on the technical front as well. There have been other rallies like today’s since the selloff began. The DJIA “surged” 285 points, or 2.85%, back on May 27, to 10259, and it “surged” 405 points, or 3.9%, back on May 10 to 10785. But both rallies came within the framework of the  larger selloff that began after the April highs, and both rallies were eventually wiped off the map.

“The spike in 1% moves, as well as the increase in the daily high/low ratio, portrays the increased volatility,” S&P’s Howard Silverblatt writes. “The daily closes over the last 15 trading days add up to over a 26% absolute change, yet the index stands 1.4% higher.”

And it makes no difference, night or day
The shadow never seems to fade away
                                 -The Band

The hand-wringing about a double-dip recession has heated up again. Every pundit’s weighing back in on the matter, Fed Chair Bernanke got peppered yesterday with questions about the possibility of another swoon and a WSJ op-ed today titled “Don’t Believe the Double-Dippers.”

Can’t really blame folks for the concern, but as we pointed out three months ago, it’s irrelevant. That’s right. It makes no difference if we backslide, because the sluggish pace of economic growth we’re likely facing will still feel like a recession.

And as we’ve said before, how the economy feels is probably more important than whether NBER tells us, many months in hindsight, if there was or wasn’t growth.

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Let’s poke the bull, shall we?

David Rosenberg, the Gluskin Sheff analyst who’s been one of the stalwarts of the contrarian camp through this massive bull rally, takes his analytical scalpel to the testimony of Fed Chairman Ben Bernanke yesterday, and finds if wanting:

Ben Bernanke made a statement yesterday that cannot go unchallenged, with all deference to his IQ and brilliance as an (academic) economist. To wit: “it appears to us that the recovery has made an important transition from being supported primarily by inventory dynamics and by fiscal policy towards a recovery being led more by private final demand.” What is he looking at? The chart below shows that this goes down as just about the weakest recovery ever in terms of real final sales growth, which has essentially been non-existent in per capita terms. Private payrolls grew in May at one-fifth the pace posted in April, it looks to us as if consumer spending stagnated for the second month in a row in May, and mortgage applications for new home purchases have sunk to a fresh 13-year low.

As for Mr. Bernanke’s notion that the economy is off life support, well, it’s time for him to climb down from his ivory tower. Food stamp usage just soared to a new record high — 40.2 million persons or 18.5 million households receive benefits. How is it possible that spending is going to drive the economy by any meaningful pace with so many people clearly in some stage of duress?

On the Street, this is called talking your book, and Washington has been doing it forever, no matter what the facts on the ground say. Remember the phrase “well contained”?

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Get along, little doggies.

The burden is still on the bulls to prove they can break out of the selling pressure that’s been rattling the cages the past six weeks. They’re making a pretty good case this morning, but as the market has proven time and again, it’s how you close that counts.

Stocks raced out of the gate, with the Dow opening up about 175 at the open, racing to more than 225 recently. The S&P 500 surged as much as 25 points, all the way to 1080. That, incidentally, is where resistance lies, according to UBS’ Art Cashin, who puts it in the 1080-1084 range. “A move (and close) above that would give the bulls new life.”

The first attempt to vault that level seems to have been rebuffed, although it won’t be the last. On the other end, the big support level of 1040 still stands, but nobody’s going to be talking about testing that today, unless things really crack.

But until the bulls get that new life, any rally should (and is) suspect. Listen, stocks are getting a lot of help from the euro today, which is bouncing off its recent lows, and back above $1.21 this morning on the latest soothing talk out of the ECB, which said it’s only maintaining its current battery of emergency actions, not adding any.

The euro is “a very credible currency,” ECB chieftain Jean-Claude Trichet said. Listen, if you have to tell people that you’re cool, I got bad news for you, Jean-Claude. You’re not cool. (Or, it goes like this: if you have to tell people you’re not Greece, you’re Greece.)

“We still expect pessimistic sentiment to help trigger a (stock) rally, but are getting concerned longer-term,” Brown Brothers Harriman said in a note late yesterday.

We think the bull market is aging, the most robust gains are behind us, and a wide trading range may be developing. As long as 1040 support is intact, we expect a rebound in the S&P 500 to develop. On the other hand, significant weakness has been exhibited throughout the correction putting the index’s longer-term trend in question. Further burden is now put on the bullish camp to disprove a possible longer-term topping process.

The first big test of that, firm says, will come at 1105.

(Photo: Paul Vigna)

(Editor’s note: the embedding code for some reason originally put David Cottle’s video in this space. While we’re fans of David’s, let him plug his videos on his own blog. Hopefully, we’ve now got this fixed.)

This is the bulls moment to take this thing back. The euro’s stabilized, even as Goldman Sachs throws in the towel on its estimates, and data out of Asia look better. But there are still counterweights: weekly jobless claims remain stubbornly stuck around 450,000, and the financial regulation bill is nearing its final form, which will likely crimp some bank profits.

It’s the Markets Hub.

US stock futures are springy premarket, indicating an opening dash higher when regular trading gets underway. Rebound in the euro overnight seems to be helping the mood; Asian markets generally higher overnight, but nothing too remarkable, and European equities are moderately higher.

Late-session evaporation yesterday in US stock markets was another setback for the bulls, but there’s no quit in that camp, as premarket futures attest. By the way, oil’s making a sneaky move higher, moving back above $75/bbl; gold continues to retreat, as does the dollar.

Weekly jobless claims, April trade deficit both due for release at 8:30 a.m. ET. S&P futures up 10.90; Dow futures rise 81. Ten-year note lower, yield at 3.22%.