Short Term Trading Week Starting: 6 May, page-115

US Closing Update

Gaps Filled

Good morning,

After a major round trip, SPX and NDX both held their 50 day moving averages on Thursday.  Short covering contributed to today's gap fill as too many were overstaying their welcome and short in the hole… though there was a substantial pause and drift at the bottom of the 1 April gap.  At midsession the bull machines were turned on near 2838.50 after an intraday low of ES 2836.25.  Today's down gap was retraced as yesterday's low was breached on the upswing.  The profile is quite unbalanced and traders will observe follow-through action overnight.  SPX closed at 2870.72 or -0.30% and quite a bit off its low of 2836.40.

In a previous note I mentioned a margin of 100 SPX points or so and do not mean to make light of that massive dollar amount -- only to point out that the spill was controlled so far.   Weekly support at 2850 has held but bulls don't want to lose that on a sustained basis because it would mean billions more in losses if the weakish structure to 2815 were collapsed.  NYSE breadth recovered starting mid-session but A-D lines remained below neutral.  Closing values for NYSE breadth: -1.74:1 and NASD breadth: -1.47:1.  VIX ended the day pretty much flat after an impressive run.

US Treasuries lost quite a bit of their initial gains as stock ran higher and the bond market action was highest at the short end with the 2-year note down 4 bps to 2.26% and the 10-year down 3 bps to 2.46%.  The long bond  was down 1 bp to 2.88% after a 19B 30-year auction got decent demand.  US PPI for April came in as expected 0.2% and 0.1% for the headline and the core respectively.   Weak China data colored that action while US PPI came in muted at 0.2% and 0.1% respectively.

Tomorrow we have CPI and Core CPI before the bell.   Wishing you a great day.