The week is beginning in bullish territory, with the major indexes closing higher on the day. Momentum-leading homebuilder stocks are off to an even better start, thanks to a strong announcement from Lennar (NYSE:LEN), which saw earnings beat expectations by more than 20 percent. Sales increased double digits and prices rose 5 percent. There were also a few areas of weakness, such as Houston, which has been hurt by the plunge in oil prices.
Crude oil and equities were down on Friday, while gold rallied. In contrast, today crude oil and equities moved higher, while gold fell. It typically takes a few days for the market to get its bearing after a Fed meeting and we might see a clear trend emerge this week. The U.S. dollar is also rallying after comments from one of the most outspoken Fed officials.
On Monday, St. Louis Fed President Bullard said the FOMC vote was close and rates could go up in October, though he noted the short time period doesn't leave much room for data to change. Bullard cannot vote at FOMC meetings, but said he would have voted to hike rates. He also chastised CNBC's Jim Cramer during an interview with that network, saying the Fed cannot prop up stocks. He said, "I've got a message for your friend Jim Cramer. The Fed cannot permanently raise stock prices. The idea that the Fed is going one way or the other, and this is what's driving the stock market, is not true…And to have him cheerleading for lower rates 24-hours a day is, I think, unsavory." This is a switch from his position a year ago. In early autumn of last year stocks suffered a brief sell-off. At the time, Bullard said the Fed could do a fourth round of quantitative easing if necessary and stocks immediately rallied, with his comments effectively marking the bottom.
Economic data this week will be closely watched. The flash manufacturing PMI for various nations will be released on Wednesday. China's will have the most direct impact on financial markets, specifically industrial commodities such as copper. The third and final revision of second quarter GDP will be announced on Friday. The forecast is for 3.7 percent growth, the same as the second estimate, but the odds of an upward revision are good thanks to data strengthening over the quarter.
Key levels to watch this week: 4900 on the Nasdaq and 2000 on the S&P 500. A move above either level would trigger a short-term bullish signal for technical traders. Oil has been in a trading range between $44 and $48 in September; unless oil moves outside of the band, more sideways trading is likely.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.