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Waiting for a Driver – Stocks Choppy as Earnings, M&A, Economic Data Flow

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May 21, 2015

Choppy trading continues early Thursday, still near record highs, after an important close for the bulls when the S&P 500 (SPX) held 2120 on Wednesday. Action could start to taper off today and tomorrow if traders look to turn a three-day holiday weekend into a four-day break. And with thinner volumes typically come volatility flares. Crude oil is threatening $60 a barrel after upbeat Chinese economic data, but has had some trouble clearing that line. Treasury yields have stabilized, with the benchmark 10-year rate just under 2.25%. Still, the upward trend in yields looks intact.

Today’s economic docket brings more data on the closely watched housing sector. After strong home construction data a few days ago, Wall Street will look to today’s reading on existing home sales to see if the trend extends there. It’s likely that housing volume has a lot to do with the prospect of higher interest rates in coming months. Also this morning, weekly jobless benefits claims totaled 274,000 in the latest week, above the Reuters estimate for 271,000.

FIGURE 1: HOLD THE LINE.

The S&P 500 (SPX) churned in lackluster trading Wednesday that ultimately ended in a lower close, but even with that close the closely watched support line of 21020 held. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

The Best Buy Indicator? Here’s an upbeat report that proved pretty surprising to many on Wall Street. Best Buy (BBY) reported quarterly earnings and revenue that topped analysts' expectations, goosed by strong demand for large-screen TVs, smartphones, and appliances. Comparable-store sales were up 0.6%, compared to consensus estimates of a 0.1% increase. It’s been an earnings season marked by sales disappointments, leaving many investors frustrated with trying to solve this puzzle of consumer spending. Dollar Tree (DLTR), for instance, disappointed with earnings results.

Mum on M&A. Salesforce.com (CRM) was a strong gainer in extended-hours trading after the cloud-computing company reported better-than-expected fiscal Q1 profit earnings. The company also raised its revenue guidance for the year. But the surprises stopped there. In recent weeks, shares have jumped amid merger speculation. The post-earnings conference call included some questions specific to M&A intentions but no dice. Execs swayed the conversation to future growth but kept it high level.

Coming Next Week: Don’t come in blurry-eyed on Tuesday because a major economic report greets us first thing that morning. Durable goods data is on tap and will be closely scrutinized to see if the uptick in hiring is translating to spending on big-ticket purchases. Much of Wall Street has been asking, does waning demand at Target (TGT), Dollar Tree (DLTR), and others mean that households are instead saving up for washing machines and cars? Next week wraps up with another look at GDP, the broadest look at our economy.

Good trading,
JJ
@TDAJJKinahan

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JJ Kinahan

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