Volume Slips Despite the Market Finding Support at Session Lows; CSCO Soars in After-Hours Trade

Led by a solid rally from the Russell 2000, stocks found support more than once throughout the day. New home builder confidence was better than expected again as consumer prices were below expectations according to government figures. Unfortunately, the economic figures didn’t spark any sort of excitement among institutions. Volume was lower on the day and certainly a black mark on the day, but it was the fact the market was unable to eclipse yesterday’s high that is somewhat concerning. We’ll need to see the market build off today’s gains and have volume flood the market. Not a terrible day by any stretch, it simply just left us wanting a bit more from the market. In the after-hours session CSCO provided the market with some good news as the stock beat earnings and boosted its dividend. John Chambers is notorious for speaking what he sees (despite seeing a great economy at the end of 2007) and this time his comments weren’t as bad as they were in March. If you remember back in March CSCO’s earnings provided a downside catalyst with its negative view of the economy. This time around it doesn’t appear to be all that bad according to CSCO. The stock is trading more than 80 cents higher in after-hours session. Friday we’ll get the dreaded monthly options expiry. Volatility did pick up yesterday, but still remains relatively tame. Option expiry weeks are notorious for increasing intraday swings and volume in the market. Thus far, we have not seen either. Perhaps tomorrow will be a different day, but nothing is guaranteed. Earnings plays like KORS, FLT, and others have provided some good solid profits for those taking advantage of the morning gaps. Tomorrow we’ll get PRGO and ROST reporting earnings and tonight NTES will report. We’ll be paying close attention to these stocks as they open tomorrow and will take advantage if the opportunity presents itself. Another interesting point to continue to look at is the sell-off in bonds. TLT and TBT are two ETFs to watch but the 10 year has gone from 1.4% to 1.8% in a short time. That is one big move in bonds recently and it will be interesting to see how mutual fund flows react to rising yields. Remember, rising yields are well correlated with stock market returns. Keep an eye on yields. Now that hump day is over we’ll be looking forward to another fun summer weekend.

More Twist, No QE as Stocks End Flat

The story of the day was the Federal Reserve and its actions. With very little on the economic front the market turned and waited on the Federal Reserve to deliver its rate and policy announcement. Failing to initiate a third round of quantitative easing the Federal Reserve did extend its “Operation Twist” until the end of the year. Stocks reacted in volatile fashion and during Bernanke’s testimony, but finally settling near the unchanged level as volume fell on the day. Taking a step back we saw a good day of consolidating the recent gains. Avoiding any further deterioration will be a must for us to continue on a new uptrend. Gold and crude oil did not react as if there was going to be immediate action by the fed to pump more liquidity in the market. Crude was down more than 4% at the stock market close a big tell the trend in crude remains to the downside. Gold finished down roughly 1% on the day as both commodities continue to act as if the Federal Reserve will not print any money any time soon like the equity market. It is quite clear stocks are expecting the fed to step in with further easing to support the market. At the end of the day we follow price and where it goes we do. Opinions mean very little. Listening to Bernanke during his press conference it is apparent he is looking for Congress to get its house in order. The unfortunate part of the quantitative easing is in order for it to work properly budgets must be balanced. Continuing to raise the debt burden only acts as a drag on the economy. Sure short-term bursts of debt are okay and manageable. However, massive debt spending over extended periods of time coupled with money printing is very flammable. History has provided enough evidence when money printing goes unchecked, fiat currencies always dissolve or evolve causing very painful contractions. We need our fiscal policy in order to avoid financial disaster down the road. Luckily we have price as our guide and we’ll be taking full advantage. The future is unknown and while many will try to predict what will happen know one actually knows. Using a rule based system allows us to focus on what matters and ignore the junk you hear from the financial media. Cut those losses and let your winners run.