Less Bad is Good for Stocks,
But A 200-Day MA Test Looms   

• According to JP Morgan PMI data via the Asian Economonitor blog, rates of contraction for global manufacturing moderated almost universally in April, with the JP Morgan global PMI continuing to improve to 41.8 from a bottom of 34 in December 2008. While YoY declines are still large, this is now the fourth month where improvement from the worst is evident. As for stock prices, Mike Santoli's (Barron's) "overshoot unwound" phrase nailed what I have been trying to describe, i.e., a reaction to a severely "sell everything now" selloff. "The climb of 30% since the March 9 low has recouped the ground ceded in the disorderly, deleveraging, Depression-recalling, government-is-clueless selloffs of the fall and early this year."
• But the S&P 500 (and most other global stock markets) have yet to break up through their 200-day moving averages, which are still declining. Each trading day brings us closer to this turning point.
• "Dr. Copper" has led this rally, and is now above its 200-day MA, so is the China blue chip FXI ETF.  Within the S&P 500, the consumer discretionary SPDR as well as the materials and technology SPDRs are now above their 200-day MAs. In addition to bouncing back from the credit crisis-instigated un-orderly unwinding late last year, stock prices are also discounting the pace of improvement from the worst.
• Japan on the other hand is considered by global investors to be a less attractive laggard, ostensibly because international agencies are predicting a GDP contraction over twice that of the US. In fact, Japan's Nikkei 225 has actually been outperforming the S&P 500 in recovering over 40%. Like the S&P 500 however, the Nikkei 225 it is only now approaching its 200-day MA at just under 10,000 which is only now beginning to flatten out. A successful move about the 200-day MA would be the strongest signal yet that this rally is sustainable.
• Leading this has been a 78% surge in shipbuilding, a 70% jump in automobiles and a related 63% surge in transportation equipment, all better than any S&P SPDR recovery to date except the financials, where ironically Japan's banks are lagging not only the US, but the Nikkei 225 as well

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