Intraday Market Update
Yesterday afternoon's rally in the US equity markets continued marching onward before the bell today and in early trading as investors pick up risk assets at a perceived discount. The European debt contagion is being ignored, at least for the time being. But in a German bond auction on Wednesday, the country's debt managers failed to raise the full 7 billion euros from investors as planned, ending up selling only 5.4 billion euros in bonds with the rest being retained.

All major markets throughout the world climbed higher on Wednesday aided by short covering and an improved global economic forecast by the Organization for Economic Cooperation and Development (OECD). However, the OECD warns that although growth is rising faster than expected risks for a downturn are also increasing, mainly from the instability of sovereign debt and the growth in jobs is not keeping pace with economic growth.

The S&P 500 has made a complete round trip from Monday's highs near 1,090 to yesterday's lows near 1,040 and back up to today's highs of 1,090. Leading the charge today are the small caps with the Russell 2000 tacking on more than +2%. The NASDAQ is about +1% higher while the S&P 500 is higher by 0.8%. The DJIA is the laggard as it is higher by about +0.40%. In the SPX, the 1,090 level is acting as formidable resistance for now, and the line in the sand for the bears.

In economic news, April new home sales surged +14.8% over March levels to an annual rate of 504,000. Annual revisions included a combined +42,000 sales in February and March. April's surge also contributed to biggest drop ever in supply to 211,000 new homes, down -7% and hitting their lowest level in 42 years. This report shows the strongest activity since May 2008. But there are caveats that explain the impressive report. First, a huge negative in the report was the fact that prices declined -9.7% which is the lowest level since 2003. Second, as was the case with Monday's existing home sales data, the government's tax credit stimulus for homebuyers expired at the end of April and likely pulled forward demand. So sales data in upcoming months is uncertain at best and I wouldn't expect such rosy reports this summer.

Adding to the uncertainty in the housing market is that demand in May appears to have collapsed as a result of second-round stimulus which pulled sales into March and April. The Mortgage Bankers Association purchase index fell another -3.3% after a -27% plunge last week. The index is now at deeper 13 year lows. What's more is the collapse in purchase applications is hitting at a time when mortgage rates are moving to record lows as more and more homeowners are refinancing their existing mortgages to lock in low rates as the refinancing index jumped +17%. The average 30 year mortgage fell -3 bps to 4.80%. This could be signaling that existing homeowners are content with staying put and may put further pressure on future existing home sales.

Nevertheless, the major US homebuilder stocks are surging after today's data. The DJ US Home Construction Index is the best performer on our core sector list, gaining +3%. Toll Brothers was up as much as +6% but is now well of its highs (+3%), despite reporting dismal quarterly results and missing top line revenue. Executives said that May's activity suggests that the expiring tax credits weren't a factor for them, rather they believe the past few months of activity has been driven by an increase in confidence among buyers. I'm not sure what data they are interpreting but the recent housing reports are not screaming confidence to me, rather its obvious demand was artificially pulled forward by government stimulus and reduced prices, which is now plummeting as seen in the number of new purchase applications being submitted by homebuyers.

In equities, Citigroup is up +5% thanks to reports that the Qatar Investment Authority may be interested in part of the US Treasury's 27% stake in the company. Other financial stocks benefited from commentary on the financial overhaul bill out of S&P yesterday. S&P said it would not immediately downgrade major US banks following the passage of the financial overhaul bill, citing it will take several months to determine what effect the complex bill will have on complex institutions. American Eagle met expectations in its quarterly results, although its forecast for next quarter was very weak, which was in line with comments out of other retailers last week. AEO is down -15% while similar apparel names are getting hit, but not as hard.

Front-month crude is up $2.80 to $71.50 per barrel (+4%). The rally has been aided by a surprise draw down in gasoline and distillate inventories in the weekly DOE report. Gold is near its session highs, trading near $1,215 per ounce (+1.25%), while silver is higher by +2.6%. Natural gas has gained +2.50% and copper is higher by +1.38%.

International Markets:
Every major equity market throughout the world was higher on Tuesday. Notable winners include South Korea (+1.36%), Hong Kong (+1.11%), Australia (+0.98%), London (+1.97%), Germany (+1.55%), France (+2.32%), and Sweden (+3.75%).

Core Sector List:
Overall reading: 16 sectors advancing, 0 sectors declining.
Strongest Sectors: Home Construction, Banks, Oil Services
Weakest Sectors: Pharmaceuticals, Software, Retail

S&P 500 - Daily and 30-minute Intraday Charts:

Dow Jones - Daily and 30-minute Intraday Charts:

NASDAQ - Daily and 30-minute Intraday Charts:

Russell 2000 - Daily and 30-minute Intraday Charts: