Shorts Enter Market As S&P 500 Nears New Multi-Year Highs – Retail Sales, HD Earnings Up:
The S&P 500 neared new multi-year highs today after positive news from Home Depot and the retail sector. U.S retail sales rose more than economists predicted as consumers hit stores in droves. The Commerce Department said today, retail sails rose 0.8 percent in July 2012 after falling 0.7 percent in June. This is the first time in four months retail sales have increased after a warm winter that caused retailers to have inventory correction issues. There is early evidence these gains will continue due to back-to-school shopping although they may not be as robust.
Home Depot also helped market sentiment early today after it announced stellar earnings. The company’s shares rose over 2.5 percent in premarket trading today after the company increased its earnings forecasts and posted second-quarter results. The company expects to earn $2.95 as opposed to its earlier forecast of $2.90. This was good news for housing bulls.
This wasn’t enough to keep shorts from entering the market after the S&P 500 reached new highs since April 2012 and it’s poised to break through these levels which would be multi-year highs. The S&P 500 ETF SPY hit 141.38 in the first few minutes of trading but fell at the end of the trading day as shorts who called it wrong a few weeks back doubled their bets.
We are bullish on equities and would not short the S&P 500 medium run while the Dow has initially jumped above several key technical levels. Expect some retests after the quick rally next week which would allow the S&P 500 to hit new multi-year highs.
We were bullish recently but are more neutral on markets short term. We don’t believe the TLT – 20 year bond ETF will continue to fall to new lows without the S&P 500 finding a bid. This analysis could change in the intermediate-run.