Stocks Set for Profit-Taking at the Open

The market ignored the specter of the Fed yesterday, but it's looking like it won't be able to do that again today.
Author:
Publish date:

Stocks were setting up for a weaker opening this morning as futures shuffled down in the red.

At 9:09 a.m. EDT, the

S&P 500 futures were at a negative 6.1 points, just under 5 points below fair value and an indication of some negative sentiment for the early going. The

Nasdaq 100

futures had tumbled back towards initial weakness after inching up an hour ago, and were down 43 points, indicating some strong selling pressure on large-cap tech stocks at the open.

Despite the surging optimism of a few on Tuesday, the Fed hasn't disappeared, and investors may want to cash in on yesterday's stellar post-holiday rally this morning. On a percentage basis, yesterday marked the biggest one-day run-up in the

Nasdaq Composite

Index's history, while the

Dow Jones Industrial Average

rose about 2.2% and the S&P 500 grew 3.2%.

"After you rally more than 10% on the Nasdaq 100 in one day, you're likely to see a little bit of profit-taking," said Bill Meehan, chief market analyst at Cantor Fitzgerald.

Maybe the market has just realized what yesterday's hot consumer confidence number means: that consumers haven't been fazed by the recent bloodshed on the Nasdaq and that the Fed may have to really choke the economy if he wants to slow down demand.

"The market barely blinked at the much stronger-than-expected consumer number yesterday. That means no pulling back on demand and that the carnage on tech stocks didn't do anything to dampen consumers," said Meehan.

So, it looks like last week's malaise, which had the market pitching and veering between happy highs and morose, depressive lows, continues to linger. Real balance probably won't return until the market gets a more solid indication of whether the Fed has successfully slowed the economy, and how much work remains to be done with interest rates. Some observers are saying expectations of another 75-basis points have already been priced into the market, while estimates of what the Fed will do before the end of the year range from between 50 and 100 basis points.

At least pre-open and post-open action was back in sync yesterday, so this week's moves may be a little easier to predict.

If the market is able to recover after the open, some traders think we could get some real momentum in the market.

"We haven't been able to see two back-to-back good days in a row," said Todd Clark, head of listed trading at

WR Hambrecht

. "If we can do that, some momentum players might come back into the market. If we can add to yesterday's advance it would be very encouraging. Otherwise we'll just drop back into the kind of funk we've seen in the last few weeks."

Investors will probably want to stay on the sidelines until the data comes in, but aggressive traders might cull some cash from today's action.

"Investors will have to wait for data tomorrow, but aggressive traders should take advantage of this morning to get long some of the technology stocks, particularly the semiconductors," Meehan recommended.

There's plenty of data scheduled for today, but nothing too market-moving. The Chicago Purchasing Manager's Index for May, which helps predict tomorrow's more official NAPM report, and April new home sales come in at 10:00 a.m. EDT while the Redbook Retail Average through May 27 compared with April is reported at 10:30 a.m. EDT. These figures could have some influence on a market which is dying to know what the Federal Open Market Committee will do with interest rates at its mid-June meeting.

Thursday's and Friday's numbers are the ones to really watch, with the NAPM report, or Purchasing Managers' Index, and the key employment report out on Thursday and Friday, respectively. Both of these numbers are timely, provide a good snapshot of economic growth and inflation, and are relatively hard to predict, so they could send a jolt through the market. For Reuters consensus estimates on any of these numbers, see the

Economic Databank.

The Treasury market was chugging back after giving back last week's gains yesterday, and the 10-year note was up 8/32 at 101 3/32 and yielding 6.346%. Bonds slipped on a surprisingly strong May Consumer Confidence Index yesterday and to soaring stock prices, indicating more Fed interest-rate increases.

The large European bourses were

mixed by midsession, having lost a lot of earlier strength seen in tech.

The Paris CAC 40 was up 52.04 to 6377.53, while Frankfurt's Xetra Dax was off 0.19 to 7119.07.

Across the channel, London's FTSE was down 30.2 to 6329.4.

The euro was trading up at $0.9310.

Most

Asian markets closed up overnight, but showed mixed confidence in the Nasdaq's Tuesday boom. While the wave of optimism in U.S. markets fed heated rallies in Hong Kong and Korea, Japan was less convinced and stocks there gave up some of their early gains, closing just barely in the green.

Hong Kong's benchmark Hang Seng index jumped 722.96 points, or 5.2% to 14,713.86, its biggest point gain this year. In Korea, the benchmark Kospi index rose 40.62 points, or 5.9% to 731.88

Taiwan's TWSE index, meanwhile, rose 175.10 points or 2% to 8939.52.

In Japan, the Nikkei index closed up 103.55, or 0.64%, to 16332.45.

In Tokyo currency trading, the dollar shed earlier weakness and rose against the yen to 107.23 yen. Fears of a Bank of Japan intervention at the 106 yen level and the strong performance of U.S. stocks sent it back up as trading turned to London. The greenback was higher at 107.50.

For a look at stocks in the pre-open news, see

Stocks to Watch, published separately.