Stocks Unable to Hold ISM Gains, Crosscurrents Blowing in World Economy

Stocks are set for a down open Wednesday after bleeding lower yesterday afternoon. The strong ISM number gave the market a big boost in the morning, but stocks could not hold those gains and are back at yesterday’s low pre-market.

The cliché goes, “Sell in May and go away”. Will that hold true this year? There are some macro cross-currents in the market right now, with strong earnings but lingering economic concerns. Also, the Dow had led the market recently, showing a flight to safer stocks.

Traders never like when markets are lead by the Dow, it shows skepticism. Tech and the Russell both lagged yesterday and reversed hardest towards the end of the day, giving a sell signal.

Yesterday also felt a bit more like a short squeeze vs. real buying as traders have been trapped since last week.

ADP numbers today were disappointing, perhaps giving clues to Friday’s big jobs numbers, which could play a big part in determining short-term direction for the market. European unemployment hit a record since the launch of the Euro currency at 10.9%, blowing some growth concerns across the Atlantic.

The big area of support for S&P is 1390-1392 (SPY $139.30-139.40), then the line in the sand at $138.50-138.70.

Apple (AAPL) is always worth watching even if you aren’t trading it because it often holds the key for the market. Yesterday AAPL spiked in the morning but showed relative strength in the afternoon to reverse into negative territory. The stock is continuing lower this morning and set to open below its 50-day moving average.

Coca-Cola (KO) is one bellwether name that continues to impress with earnings and climb higher, even in the face of high commodity price headwinds.

Another blue-chip name performing well is American Express (AXP), which had operating leverage for the first time this quarter.

Broadcom (BRCM) is down slightly overnight after earnings, and is a stock we think can be bought on weakness.

Herbalife (HLF) is trying to recover from yesterday’s massive sell-off, which was triggered by probing questions about the revenue model from famed short-seller David Einhorn. The stock has recovered 5% of those losses in the pre-market.

Gold futures are down this morning as well, following the markets lower, as investors continue to interpret the strong ISM number as discouraging for new QE3.

By John Darsie

Disclosure: Scott Redler is long ZNGA, AGU, XOM, POT, SLB, BAC, DNKN, LNKD, LNKD calls, GLD, GM, MSFT. Short SPY.

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