US EQUITIES STAGE PULLBACK AS BUYERS STAGE PROFIT TAKING IN FINANCIAL SECTOR. TECHNOLOGY STOCKS GAIN ON POSITIVE OUTLOOK FOR SERVERS, EXPECTATION ON MICROSOFT DEBT OFFERING.
US EQUITIES staged a broad based pullback, with only elements of the technology sector finding support, as broad consolidation took place across the equity, financial, and commodity sectors. The wave of profit taking was fueled by a sense of overindulgent optimism regarding prospects for global economic recovery. Most analysts felt that Monday's pullback was to be expected in the wake of recent run ups which powered the financial, energy and material sectors to near seven month highs. Sentiment remains that for the near to midterm, the support offered by the unprecedented levels of capital being flooded into the credit markets and economic systems of the world, will likely keep the markets from undertaking another massive freeze up of credit that would fuel economic stagnation.
General appetite of risk staged a strong pullback today, as equities and commodities fell, while Treasuries and risk hedging currencies such as the low yielding US Dollar and Japanese gained. Global data was mixed as recovery comments from the ECB (European Central Bank) and China's central bank were countered by reports of Toyota's poor sales numbers and worse than expected readings on French and Italian industrial output. A lack of fresh US economic data also helped to spur Monday's profit taking. Expectations are for a possible upside move in the markets based on data releases later this week that should offer further glimpses into consumer activity (US Retail Sales) as well as possible upticks in inflation (PPI and CPI)
Financials, Energies, and Materials stocks led the markets lower. One sector which bucked the pullback trend was the technology sector. Besides the fact that technologies had already seen a wave of profit taking in the previous week, the sector benefited from positive analyst comments on SAP and Oracle as well as excitement generated as Microsoft announced plans for its 1 st debt offering in order to raise capital.
Technically, June Dow futures remain near overbought conditions. Market should likely pullback to an initial support level of 8310, with 8145 setting up as a key support level. A renewal of upward momentum could see the futures move back toward 8504, with a key resistance target of 8608.
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