Intraday Market Update
After a volatile up and down overnight session in the S&P 500 futures, all of the major indexes are battling to hang onto gains in early afternoon trading. The bounce in the market at the end of trading yesterday continued in early trading, but the strength was sold into after another disappointing existing home sales report. The SPX is hanging on to its hourly 50-SMA, 200-day SMA, and hourly upward trend line that began with the lows on June 8. A break of these levels may bring in more selling.

Existing home sales fell -2.2% to a lower than expected annual rate of 5.66 million, compared to estimates of 6.20 million. The weak headline number is not the only disappointment in this report as the recent declines in the supply of homes on the market has slowed. Supply on the market fell only slightly in May to 8.3 months compared with a 7 month supply during the buying spree late last year which was attributed to the first round of government stimulus. Higher supply equates to less demand and that should continue to pressure prices. However, prices did firm in May but that can also be attributed to the artificial demand created by the second round of government stimulus that expired on April 30.

Closings for the second round of stimulus must take place by June 30 to qualify for the tax credit, however, delays in mortgage financing and short sales have Democrats in Congress lobbying to extend the deadline. An extension to the closing deadline could save as many as 180,000 buyer's existing contracts that were signed before the April 30 deadline from missing out on the tax credit. Lawrence Yun, NAR Chief Economist, said he expects one more month of elevated home sales. "We are witnessing the ongoing effects of the home buyer tax credit, which we'll also see in June real estate closings." New home sales are due out tomorrow and are expected to plunge to an annual rate of 400,000 compared to the April fed stimulus rate of 504,000. This should not be a big surprise considering the -27.1% nose-dive in purchase applications.

In Europe, concerns over the banking sector remain high as Fitch downgraded BNP Paribas, France's largest bank, while Credit Agricole S.A. said it would write down of about 400 million euros in the first half of this year from its holding in Emporiki Bank of Greece. Meanwhile, the UK government outlined its 2010 to 2016 tough austerity measures which are intended to eliminate the structural budget deficit through steep spending cuts and tax hikes, including a value-added-tax increase to 20%, up from 17.5%. The increased VAT tax is projected to raise an additional 13.6 billion pounds of revenue. The emergency budget seems to be tough enough to hold off a UK sovereign ratings downgrade as it is being taken positively by the currency markets. The EUR/USD currency pair bounced on the news and held a key support level near 1.225. The rebound in the EUR has probably kept the US equity markets from further downside pressure.

In equities, Walgreen Co. (WAG) Q3 earnings were a disappointment. The company reported earnings of $0.54 compared to estimates of $0.57, while revenues were $17.2 billion compared to estimates of $17.0 billion. Executives warned that they remain cautious on the US economy but are confident in their ability to deliver double digit earnings growth moving forward. Lazard downgraded WAG to Hold from Buy and shares are down more than -5%. Commercial Metals Company surprised investors in its Q3 report with a smaller loss than expected (-$0.08 vs. -$0.13e) and stronger revenue ($1.8B vs. $1.6Be), while also citing the company would be moderately profitable in its Q4 report. Shares of CMC are about breakeven. Cruise name Carnival (CCL) was in line with expectations in their Q2 report but offered soft guidance for next quarter and the remainder of 2010. Lazard defended CCL and retains its Buy rating. Shares of CCL are down -2.50%. Finally, Patriot Coal (PCX) is down more than -14% after they announced they would close their Harris No. 1 Mine due to sudden adverse geologic conditions.


Core Sector List:
Overall reading: 10 sectors declining, 6 sectors advancing
Strongest Sectors: Broker Dealers, Internet, Software
Weakest Sectors: Transportation, Oil Services, Oil

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