MarketSnapshot-A Top Kill or A Bullish Fill?

The stock market made quite a run Thursday, with bulls essentially calling the shots from the open to the close. The S&P 500 gained 3.3%, ended at its high for the session, and closed just below its 200-day simple moving average (1104.46), which is a key technical resistance point.

Accordingly, as many participants ponder an extended and hopefully oil-free, beach weekend, there is a technical line in the sand that will be challenged on Friday.

The current disposition of the futures market suggests the cash market will start in neutral. Close attention will be paid to whether bulls step up again or whether there is ultimately a top kill that is filled with packed selling aimed at stopping the buying pressure.

Unlike BP (BP), which is conducting its own closely watched top kill procedure, we won't have to wait another 48 hours to determine if the top kill effort took. We will know in about 7 hours from now.

As far as Thursday's rally was concerned, we thought it had the look of being a forced-fed move as the scope of the gains was out of line with the reported impetus for the rally. In effect, all China did was reaffirm something the market believed to be true a week ago anyway when the S&P 500 declined 3.9% and the Financial Times had nothing to say on China's euro holdings.

The ability to get so much out of something so little is a classic sign of a market that was thought to be oversold on a short-term basis and was desperately looking for a catalyst to launch a technical rebound.

Now, it is about follow through.

The market hasn't been able to record back-to-back gains since April 28-29. With the upcoming holiday weekend in the U.S., headline risk will be an overhanging factor throughout today's trading. That could curtail buying interest, although it does seem as if the negative emotion surrounding headlines out of Europe has subsided. That is not to say Europe still can't cause problems, but the feeling that a European tape bomb is waiting just isn't as strong as it was a week or so ago.

That latter thought presumably pushes the geopolitical conflict on the Korean Peninsula to the top of the list of headline risks. Then, there is always the "unknown factor" with negative implications that traders would prefer not to sweat over the weekend, which would be the case if they take home long positions.

The supposition is that today could resolve itself on a fairly flat note. The start of trading will begin that way as the S&P futures are trading roughly in line with fair value.

The Personal Income and Spending report for April had the same mixed feel to it. Income rose 0.4% (consensus +0.4%) while spending was unchanged (consensus +0.3%) following a 0.6% increase in March.

On a bright note, personal current transfer receipts did not play a part in the income gain, as they dipped 0.2% in April. Instead a 0.5% increase in wage and salary disbursements for private industries played a leading role.

Real disposable income was up by a like 0.5%. Interestingly, the personal savings rate increased 0.5 percentage points to 3.6% from 3.1% in March, suggesting consumers saved a good portion of the income gain.

Real personal consumption expenditures were unchanged, as a 0.1% decline in goods was offset by a 0.1% increase in services.

The PCE price index, excluding food and energy, increased 0.1% (consensus +0.1%) on top of a 0.1% increase in March. That dropped the year-over-year change in core PCE, a favored inflation indicator for the Fed, to 1.2% from 1.3%.