Will the Market Tune Change in June? Bounceback clears Dow 10,000

This week’s market rally has held the all-important S&P 1040-1044 support levels, as we indicated on May 20th live at the MarketWatch office with David Weidner. If you played the bounce off S&P 1044, you gained a solid 4+% return this week on the S&P.

For the month of May, the S&P 500 was down -8.2% and Dow Jones Industrial Average finished the month at 10,136.63. Yesterday, the Dow closed at 10,172.53, up 35.9 points this month.

As a side note, the Dow closed 2009 at 10,428.05. If you take a look at the Dow chart below, you will see price recaptured the 50-day moving average on the 1-month time frame and is back in the choppy range witnessed earlier this month and at the end of May. Below, I outline a few reasons why the Dow could charge higher and once again approach the level where the Dow started out 2010.

Dow Components with Good Demand

Currently, BP’s (NYSE: BP) stock is being spanked — a well-deserved reaction to their devastating destruction of Gulf of Mexico and surrounding shorelines. The steady lift for the Dow could come from none other than BP’s beneficiaries Chevron (NYSE: CVX), Exxon-Mobil (NYSE: XOM) and Proctor & Gamble (NYSE: PG).

Why are these companies beneficiaries? At this very moment, the retail consumer of gas is boycotting BP gas stations due to their disgust of the ongoing spill. I have talked with people who said they go across the street to a competitive gas station and pay an additional 10 cents just to feel better about where their money is going. Therefore, BP is bleeding market share to its competitors as we speak as the severity of their brand damage persists in the public eye. This, of course, is good for the other Dow components mentioned above.

Solid Earnings

In addition, global tensions (i.e. the Middle East, North/South Korea), the Shanghai composite hitting YTD lows, and the European debt crisis have pushed down markets. However, U.S. companies are delivering solid numbers during this phase of the recovery and job numbers are picking up. Even if the government is the primary agent of hiring, it still means more consumers buying goods at retail with income from an employer.

Two perfect examples of billion dollar companies forging ahead with positive earnings are Del Monte Foods Company (NYSE: DLM) and The Men’s Wearhouse Inc (NYSE: MW), both up 6.68% and 18.91% yesterday.

Next week, tech giant Microsoft (Nasdaq: MSFT) will be on everyone’s radar at the E3 Conference (June 15th-17th) unveiling Project Natal. Natal is the new Wii without a handset. We all know how Nintendo’s stock performed following the explosion of the Wii in households across the globe. Expect big surprises out of Microsoft and a potential blockbuster product in Natal, catalyzing a big splash higher for MSFT’s dormant stock price.

With big names like XOM, CVX, PG and MSFT slated to tick higher, the Dow could stabilize in the near-term and possibly tune up in June. We shall see shortly as the May storm is behind us. Based on yesterday’s bounce back above Dow 10,000, the correction camp is defending their stance strongly as we look to the start of July 12th earnings season on the horizon.

Economic Improvements

Here is a dose of news to reflect upon in your assessment of recent economic indicators: Durable goods orders, such as computers and aircraft, were up 2.9% in April (non-defense spending was even higher, up 3.4%). Personal incomes were up 0.4% in April, but consumers weren’t spending the additional money; according to the Commerce Department, consumer spending was flat compared to March. Sales of existing homes were up 7.6% in April, according to the National Association of Realtors.

Do you smell panic? Do you feel the fear factor of AIG (NYSE: AIG), Lehman, Merrill Lynch (NYSE: BAC), Bear Stearns, WaMu, and Citibank (NYSE: C) all crashing? I don’t.

What I see happening is the boycott of British Petroleum at local gas station corners and a continuing flight to support U.S. blue chip Dow components Chevron, Exxon-Mobil and Proctor & Gamble’s Dawn. I see solid earnings news (for a bad economy) and improvements in important areas of the economy. Therefore, I will take the contrarian view because I think the U.S. economy and the Dow Jones Industrial Average has a reasonable chance to hold firm support.

Disclosure: Author is long MSFT; no positions in the other companies mentioned

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