The news flow yesterday was construed in unusually positive terms and provided a very buoyant environment for equities. The FASB changes on M2M, although they had somewhat been anticipated, provided a fresh impetus to a more upbeat outcome from the G20 deliberations and other signs that the US downturn in the US economy is not getting worse at least.

The S&P 500 moved through 835 as anticipated in my comments yesterday but really failed to make much progress towards the critical 875 level and there was some selling pressure during the last of hour of trading and the index closed almost exactly at the 835 level.

The release of the employment data should provide a reality shock this morning - but the positive spinmeisters will be keen to point out that unemployment data is a lagging indicator and that we should be focused on the leading indicators.

President Obama conducted a good press conference last evening in London following the G20 summit and at least he was not completely carried away by the back slapping and hyperbole, but reminded us all that while the "creation" of a trillion dollar fund for the IMF (including a $250 billion chunk of SDR’s) those nasty toxic assets are still sitting out there on the balance sheets of financial companies around the world and will continue to act as zombie influence on global credit creation.



The Nasdaq 100 Index (NDX) tagged the 62% retracement level at 1300 and continues to out-perform the other broad indices.



Among other pieces of news for the market to digest yesterday was the smaller than expected decline in the rate set by the European Central Bank. This gave a boost to the euro although not as much as may have been expected as the ECB admitted that another rate cut is coming next month.

Commodity currencies were one of the big beneficiaries of the celebrations about the G20’s focus on the emerging markets - the Australia, New Zealand and Canadian currencies are all moving up and undermining the US Dollar index.



The rotation out of defensive stocks into early cyclicals was one of the themes in yesterday’s broad rallies, and it should be expected that while asset allocators continue to subscribe to the view that the market’s discounting of an economic recovery is under way, exchange traded funds such as XLB and XLI should see further inflows.

However, as the chart reveals, the XLB fund is now facing a major hurdle and the doji star is perhaps a recognition of that challenge.



The MSCI Bric fund, BKF, moved right up to resistance from the January high.



Last Thursday I discussed the topping formations on Morgan Stanley (MS). The hourly chart from yesterday reveals that, despite a very upbeat session for many financials, this company failed to find buying interest.



As noted on several previous occasions, the investment grade corporate bond sector fund LQD is not responding to the same positive sentiments that are providing a bid for equities.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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