Monday, April 30, 2012

Stocks Post Fourth Straight Gain

SUMMARY:

- Investors focus on consumption, sentiment, and Amazon versus GDP and Spanish downgrades.
- Stocks post fourth straight gain as the indices continue their therapy.
- Approaching the prior highs the indices look better but maybe not good enough.
- GDP misses expectations even though weather driven consumption tops expectations.
- Michigan Sentiment final tops expectations.
- Spain downgraded to a couple of steps above junk as unemployment hits a staggering 24.4%.
- Google now sued by the DOJ. AAPL, GOOG . . . who next? Shades of MSFT yet again.
- End of month Monday, turn of new month may keep the money coming in for now but the indices then have to deal with the recent highs.
- Jobs report may put the move on hold: last time we were at these levels was, of course, the April jobs report and stocks sold afterward.

Uninspired but stocks hold on to a fourth day of gains.

Stocks made it four days in a row on Friday. It was not a huge move, but it was an upside day. Stocks had to overcome various issues. The GDP was not nearly as good as anticipated, although consumption was up. Apparently that is what everyone hung their hats on, as it helped lead to a rally. Earnings were out and they were mixed. We had big earnings from our dear friend AMZN. AMZN exploded to the upside and dragged a lot of retail higher with it. There were some other good results from travel companies and other stocks as well. Everything related to consumers seems to be doing better right now.

It was four out of five for the week, and the market has not done that in a while. It has not been at this level for almost a month. They are approaching those March peaks that were the post bear market highs. We will see what happens when we get there. As noted, investors seemed to hang their hats on the consumption aspect of the GDP, and that dovetailed with the big move from AMZN. Huge gap to the upside. This offset the Spanish downgrade that took it to two notches above junk. Amazing. Unemployment in Spain is 24.4%. Of those people 25 and under who are of working age, there is 50% unemployment. That is impressively bad.

Michigan Sentiment helped out and kept things moving to the upside. It fueled that extra consumption attitude where everyone thinks we will spend our way out of this. Maybe that is the case; it has been helping thus far. When you throw all that liquidity into the market, you have purchasing. What we still have to come back to is that real earnings are negative. A lot of this increase is on paper. There is a lot of money being made by some huge multinational corporations and financial institutions. They are handing out big bonuses, and that is helping to spur some of the consumption. The warm winter also helped drive the consumption aspect of the GDP number.

The indices are approaching those prior highs. Four days of rallying. They managed to hang on and show good effort even in the face of some Thursday selling and a selling attempt late in the session. You have to wonder just how strong they will be when they get back up to those prior highs. That said, they picked up some great positions on the week. We snagged PCLN as it came off of the 50 day EMA. It is rising back up near those prior highs. We snagged stocks such as BBBY that made a good move to the upside. It is not the only one. PII was coming off of its lows, and ISRG was doing the same. We have some great stocks that made moves to the upside. We got some that were not so high already that are starting to move as well.

Looking through the market tonight, there is a dearth of stocks in good position to buy. And I mean a dearth of stocks. We can try to buy some right before earnings, but that is loading up the gun with a couple of bullets, spinning it, and taking your shots. I do not like to do that. We have the jobs report coming out next Friday. It will be a very interesting week with respect to what the market will do. A lot of stocks have moved up just as the indices have moved up. The question is whether they will continue or if it was just a rise on lower MACD that will run out of juice. Those are all questions that will have to be answered. Maybe to start next week we can get a day or two to the upside. It is the end of the month on Monday. On Tuesday we have a new month which sometimes brings in new money. If we get a couple more days to the upside, we definitely want to bank some gain at that point.

With the jobs report, we will have to see. Things have not been good in the weekly jobless claims, and the last report was not that great. Heading into the jobs report, stocks were flat at best before starting to fade into Good Friday. Remember that the market was closed that Friday, but the jobs report came out. Nonetheless, we will focus on the fact that it was a good week for stocks and, thus, a very nice close to a week that was a bit unexpected with the strength to the upside.

On Friday the gains were rather modest. The indices sold back late, but they were never really that strong.

SP500, +0.24%; NASDAQ, +0.61%; Dow, +0.18%; SP600, +0.99%; SOX, +0.17%

In sum, the indices looked better. They were engaged in a little self-help therapy, trying to overcome the recent weakness. They did a decent job. They are approaching those highs. They did decently, but, again, you wonder if it will be good enough. We have Europe that is in so much trouble. Looking at some of the numbers in the U.S. economic reports, you cannot put a lot of faith in what you are seeing. But there are good stocks that are on the move. By golly, we will let them move for us as long as they will.


OTHER MARKETS

There was a bit of impact in other markets, but maybe it was not what would be expected.

Dollar. 1.3251 versus 1.3239 euro. If the U.S. numbers were as strong as the market seemed to indicate, you would have thought the dollar would rise. But it did not. As much trouble as there is in Europe, the dollar still went down on Friday. Spain got cut two notches, and now it is two notches above junk, and yet the dollar declined. What is going on?


Bonds. 1.93% versus 1.95% 10 year U.S. Treasury. Bonds managed a modest gain. Bonds were stronger. Indeed, they were stronger intraday at 1.88% yield on the low. Perhaps bonds were a bit worried about the GDP number. Maybe not that much, as they bounced down from their highs.


Gold. 1,664.80, +4.20. Gold had another upside session. Gold is worried about something, and it has been eking higher. But it is still below the 50 day EMA. It reached lower several times over the past week and a half, and it found support and rallied up. Now it is back at the nemesis. It failed the last four times it has hit the 50 day EMA, but it has remained in this lateral move. It is forming a rounded base after breaking out from this downward wedge. It broke out, it gave it up, but it held the trendline and has moved laterally. It is forming a base, a rounded bottom, and an inverted head and shoulders is setting up. From the look of it right now, gold is anticipating a break to the upside. Something may happen. Maybe the indices break lower and gold breaks higher. We will have to see.


Oil. 104.85, 0.30. Oil was up on the session. It was a decent week for oil overall. It was not huge to the upside, but note the trend. After bottoming in early April, oil is slowly moving higher. It did break through the 50 day EMA. As with gold, oil broke out from a range and then tested the range. It looked as if it would fail, but it moved back up. It has not broken higher yet, but it sure looks like it wants to do that.


TECHNICAL SUMMARY

Note that the internals were much more subdued this past week versus what we saw in the day to day volatility and the back and forth action from mid- to late March and early April.

Volume. NASDAQ +1%, 1.76B; NYSE -3.2%, 690M. The volume was mixed on this move to the upside. It did not tell us much. Some days were higher; some days were lower. No clear, definitive statement that the buyers were totally back in and ready to run stocks to the upside. That said, volume was stronger on this move than it has been in prior moves, and that is a positive. It shows there was some buying and, as we saw in many of our key stocks that make good moves to the upside, there was good volume this past week.


Breadth. NASDAQ +1.8:1; NYSE +2:1. Breadth was blas , and that is what you would expect given the rather lackluster gains on the indices. Nothing that significant. The session itself was not too significant other than the fact that the indices avoided rolling over after three upside days.


THE CHARTS

SP500. SP500 did have three upside days and then a fourth added on Friday. Not much, and it put it right into the teeth of some resistance, this interim peak from mid March, and also what we will call twin peaks from late March and early April. It is just below those levels, but it has to get through this interim level first. That is the problem with success at this point. The indices were in trouble, they have been getting boxed around since mid March, and they bounced back and forth in day to day volatility. They had a pretty good slide, and then they were back and forth all through the first half of April. Then they caught a bid this past week and moved to the upside, rescuing themselves by moving back above the 50 day EMA. They are not out of the woods by any stretch of the imagination.

SP500 still shows a weak MACD. It is approaching the prior highs and MACD is lagging. Volume has been up and down, but it has been a bit better. It is trying to heal itself and continue the run; indeed, that is what it did. The most significant question we have to deal with is what will happen when it bumps up against these March and early April highs that were the post bear market highs. As we will see, that is an issue with just about all of the indices.


DJ30. DJ30 posted a very modest gain, but it was nonetheless up for the fourth session as well, having recovered the 50 day EMA early in the week and rallying to the upside. It cleared an interim peak, and that is important. It still has serious work ahead, however. It made a nice bounce, no question, just as SP500 did , but now it has real work to do at the twin peaks spanning March into early April. In any event, you have a selloff, a recovery, and now the lick log. Will it be able to break through, or will it roll over in a more significant fashion? This is a classic downside set up. We just have to see if it makes the roll to the downside. Note that MACD is trying to come back, but we also note that it is lagging considerably where it was in mid March when stocks were just a little bit higher than they are now. It has the same issues. What will it do when it reaches that level?


NASDAQ. NASDAQ shows the same picture. A gap to the upside on Wednesday with the strong earnings from AAPL, and then a gap to the upside on Friday with strong earnings from AMZN. It cleared this interim range from early April, and now it is sitting right below. NASDAQ is now at these interim peaks. It is at a gap up point and, interestingly, a point where NASDAQ gapped up and then gapped down. It had two really great earnings reports from two important NASDAQ stocks. That has brought it back up to this interim gap point. As with the other indices, we will see this week whether AAPL as any more gas in the tank. It has put some really good earnings out on the table. The market has rallied very nicely, coming back from an ugly gap lower below a key support level. It has rallied and it is trying to heal itself. There is a big test ahead this week.


SP600. The small caps are important to the economy, as we have heard ad nauseam. They are back up to those prior highs from the bear market. This is where it gets interesting in terms of the potential head and shoulders pattern. A four-day rally. It overcame this little hump that could have been a right shoulder, and now it is back up to a key level. As with the other indices, this is where it will have to earn its pay (or not).

The small caps look good. They have held with a little double bottom at support and are bouncing. If they can lead, that would be huge for the market overall. But they have not answered that question yet. They have rallied well, and now they have to continue. They may to want test a bit first, move laterally, and then break higher. If they do that, it is a very solid move. The small caps will be an important index to watch over the next week as the large cap indices (SP500, Dow, and NASDAQ) bounce up closer to their highs. Will the small caps fill in and provide that strength?


SP400. SP400 is even closer to its prior highs than the small caps. It has moved through that February flat top, and now it is looking at the twin and even triple peaks from March. This will be an important index to watch as well. It may not be as economically sensitive as the SP600, but it is more significant with respect to the domestic economy than the large cap indices because the large caps are the companies that deal with international and overseas operations. Those are the places getting all the jobs. We are talking about the U.S. rather than that export economy that really will not do it for us; it has only produced pathetic gains in economic terms. We need the small and mid caps to do the lifting. Thus we will be watching these two indices this week.


SOX. SOX still looks very weak. It did bounce without a doubt, but it had also broken below its March low and its April low. It has recovered back into the range, but it is still below some very significant levels, not to mention the 50 day EMA. This is an important index to watch in the coming week as well. Semiconductors tend to lead or give the indications downside a bit earlier than the rest of the indices.


LEADERSHIP

Note that the week saw mostly leads from retail in stocks like AMZN AAPL, PCLN and EXPE. It was travel, internet shopping, bricks and mortar, or those companies that supply consumer goods. They were the market leaders, but that is not to say there were not leaders elsewhere.

Some of the financial stocks did just fine. STT had a good week and moved up to a prior high. JPM still looks halfway decent, sitting on the 50 day EMA, but it just does not go very far. Nonetheless, you get the point. There are some significant possibilities for additional moves, but overall there are darn few plays out there to the upside. Perhaps that would be expected given the action in the indices. They were up, coming back from some pretty significant selling and weakness, particularly if you look at NASDAQ. It made it back up, but it was struggling.

Thus a lot of the stocks have rebounded from troubling patterns. A lot of semiconductors have rebounded, but you do not really want to buy into them at this point. After four days to the upside, we have stocks such as PCLN that ran quite well to the upside. They are approaching old highs and, as with the indices, they will have to show something here. But they had great weeks. Then we have other stocks that rebounded but are still struggling somewhat. There are more than a few of those out there. One example in the semiconductors is NVLS. It bounced back up, but it is at some resistance and has a series of tops that it has to face.

The leadership is something you would expect. We have had some good moves on the week. There are still stocks in position to move higher, although many of those have already made the break. But there are still a few out there. But, as noted on Thursday, there was not going to be a lot of buying to do on Friday. There may still not be a lot of upside buying to do because there are just not that many stocks in good position to buy. At least not stocks that we want to buy that have good enough trading volume or good enough option spreads. It is getting hard to find those stocks. Of course we will come up with a few, but when you couple it with the fact that there are earnings, that makes is difficult to locate them as well.

There many stocks to the downside that we can look at, and we will be looking at more of those. But as we saw this past week, a lot of these stocks bounced to the upside such as RL. It had broken down, it was heading to fill the gap, but a funny thing happened along the way: It reversed and rallied Wednesday through Friday. It is still in trouble. It is at this down trendline and could easily roll back over. That is just what I am talking about. Some stocks that broke, tried to recover and did a decent job, but still have a hard road to hoe in order to get back above the prior highs and hit new rally highs. That will be the dilemma of the market this week and maybe into next week. We have the jobs report coming, and the market has four days to the upside. At the minimum, it would probably want to test ahead of that number.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html


GDP at 2.2% saved by the 'Consumer Spring in Winter', but nothing else in the report looks terribly positive.


GDP- 1st read, Q1 (8:30): 2.2% actual versus 2.5% expected, 3.0% Q4 2011

1. Warm weather: April in February
2. An extra day in the quarter (Leap Year)
3. Supposed jobs surge

AND 2.2% IS ALL WE GET???

Inventories: In Q4 they added 2.2% to growth. In Q1 just 0.59%.

But . . . Consumption (the consumer) rose 2.9%, topping expectations. This was the part of the report the news people jumped on. Yes things are weak but not the consumer. No doubt the consumer spent, aided by that non-winter.

BUT . . . 29% of the gain was from sub-prime auto loans as the government tries to sell the cars its two kept companies manufacture. Yes, sub-prime is back. Anyone who can crawl into a GM or Chrysler dealership qualifies for a loan. Likely his dead grandmother as well.

Business investment: -2.1% versus +5.2% in Q4. The first decline in 3 years!

Key points:
1. Consumer saved the quarter but how long will that last? Wages adjusted for inflation are negative. Just how much buying was pulled forward by warm weather?
2. At 18 quarters from the collapse the economy has yet to produce a quarter of 4% GDP growth and we are supposedly in recovery. FOR THE FIRST TIME EVER, the US has not had a 4% or better GDP quarter in SIX YEARS.
3. US Debt to GDP ratio stands at 100.8% (more debt than GDP output) as of 3/31/12.

Big Problem: ECRI's recession call looks more and more likely. It said recession by late summer. It is on track.


Michigan Sentiment Tops Expectations


Michigan Sentiment - Final, April (9:55): 76.4 actual versus 75.7 expected, 75.7 prior (76.2 March Final)

What can you say? It was a warm spring in the frozen north.


Spain on the brink: unemployment explodes, debt downgraded.


Hard to imagine: Unemployment at 24.4%, an all-time record.

Workers 25 years and younger: 50% unemployment rate.

Debt: BBB+, outlook negative. Just two more notches to junk!

What this means for the US:



US Sues Google, and AAPL, and . . .

The FTC hired a top gun lawyer on its antitrust case against Google. That means the government is ready to proceed with a lawsuit against Google.

In 1998 the US took on Microsoft because it was successful. That was the beginning of the end of the tech rally. When government attacks success, the success is at least truncated.

MSFT came up with a good product and good marketing and garnered most of the market. AAPL has produced such successful products it has changed markets and captured large shares. These are not monopolies; they were not created by the government. Indeed AAPL almost FAILED, took no government money, and then re-invented markets to become the greatest tech company today. That success makes it a target in this administrative environment.

This Administration is hostile to business, at least business its friends don't run.












THE MARKET

SENTIMENT INDICATORS

VIX: 16.32; +0.08
VXN: 17.52; -0.31
VXO: 15.68; -0.07

Put/Call Ratio (CBOE): 0.85; +0.02


Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 41.9% versus 44.1% versus 48.4%. The fade is turning into a full out run (stampede?) as the bulls leave the optimistic arena. Still over 35% (below which is considered bullish) but dropping fast. Ironic, eh? Just as the market found support to bounce the bulls ran. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.7% versus 23.7% versus 21.5%. Unable to push higher to match the bull's retreat. Have to get over 45% to really be a good upside indicator, but do you think it will move over 35% anytime soon given how high the indices are? Does not seem likely, does it? Back where it was in late March, and that was down from the 25% to 26% level it held for weeks. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +18.59 points (+0.61%) to close at 3069.2
Volume: 1.762B (+1.03%)

Up Volume: 963.62M (-286.38M)
Down Volume: 776.35M (+289.29M)

A/D and Hi/Lo: Advancers led 1.81 to 1
Previous Session: Advancers led 1.57 to 1

New Highs: 143 (+46)
New Lows: 30 (-2)


SP500/NYSE

Stats: +3.38 points (+0.24%) to close at 1403.36
NYSE Volume: 690M (-3.23%)

Up Volume: 2.02B (-640M)
Down Volume: 1.48B (+180M)

A/D and Hi/Lo: Advancers led 2.1 to 1
Previous Session: Advancers led 2.18 to 1

New Highs: 203 (+31)
New Lows: 12 (-3)


DJ30

Stats: +23.69 points (+0.18%) to close at 13228.31
Volume DJ30: 110M shares Friday versus 107M shares Thursday.


MONDAY

Some serious economic data is on tap. Monday is Personal Income and Spending along with Chicago PMI, both very important data given the import of the consumer and given how manufacturing led the economic recovery. Tuesday is the ISM. Very important as well; will it follow the regions lower? Construction Spending, well, not so important. Wednesday is ADP, important as the pre-jobs warm up. Thursday is Challenger layoffs, and, of course, Initial Claims. Friday it's the nonfarm payrolls, and with the Initial Claims number less than good there is room for disappointment for the second month (or more accurately, second year). Of course it the results are jumbled because we simply trust what our government gives us anymore.

Important week for data and for market action. The indices rebounded but have a serious test of the prior highs ahead of them. Many stocks that rebounded and aided in this move are also in position where they could roll back over. There are some seriously good stocks out there: PCLN, ISRG, PII, BBBY, and EBAY. They are all performing well and moving up. We are happy to have them on board, but then we get back to the market and indices such as the SOX and SP600 and whether they will be able to follow through to the upside.

With the jobs report, we may get a pause. Maybe a little nervousness ahead of the report given a four-day run. There is the end of the month on Monday and the beginning of a new month on Tuesday. Sometimes that brings in new money. That could be offset by the jobs report looming. We have had a good run thus far. We can expect a little test back at some point this week.

One thing to keep in mind is that we were close to this level when we had the last jobs report. That would have been on April 5, and that was the Friday that the market was closed. Stocks bounced a bit and then faded a bit ahead of the number, closing slightly lower just before the jobs report. Now we are back there again, and now we have another jobs report to deal with.

If we get some more upside, we will be more than happy to bank a little gain. We have not had a huge move, but we have had a decent move. We can bank some gain on positions that we have taken and that have run back up after some of the chop from late March and early April. I remain skeptical as to whether the market can continue given the economic data. I do not think it is nearly as strong as we are being led to believe by some of the reports. Looking at the data, it is difficult to see where the strength is coming from. But those are my opinions, and the market does what the market does.

Right now we have a good rally and some good leadership stocks. There are not that many to buy right now. Do not be disappointed if we do not have a lot of upside plays. It is just the nature of the beast. Again, we had the chop, the selloff, and now a rebound back to the upside. The quality stocks held support and are bouncing nicely. A lot of the market is in trouble after a good move to the upside and need to test. The ultimate question is whether this lateral move that started in late January turns into a nice consolidation that breaks to the upside. Indeed, what we have right now is just a little lateral move trading in a range, and it could break out to the upside.

Overlay that with the economy and the economic data weakening somewhat, and that throws it into question. But that is all it does, so we just make good plays and good decisions. We are wading through earnings season. There are always landmines in earnings season. As we have seen, some stocks blow up and some stocks run up. That is the way it is. Often that is why we get out of at least part of a position ahead of the results, and we will continue to do that next week as well.

There are landmines everywhere. There are possibilities of catastrophe with possibilities of a new breakout. The market is, as always, a game of probabilities. We will continue to look for plays that give us good probabilities in these conditions. That is what we want to play. Pure and simple, you look at each play as a probability: the amount of money you can make for a good pattern versus the amount of money you stand to lose if it goes against you. Obviously, you want to have much more money to the upside than potential loss. That is the way the game is played. Thus if we do not get those good probability plays, then we will not make the plays. Since we do not have scads of those to choose from after a four-day rally, there simply will not be that many upside plays until we get a bit better development in the market either moving higher, clearing resistance, and coming back to the U.S. or failing and rolling over.

We have had a good week, and we will see if we can bring more positives next week that will make us a bit of money on our upside plays before the market decides to fall, if, in fact, that is what it does. Have a great weekend!


Support and Resistance

NASDAQ: Closed at 3069.20

Resistance:
3090 is the mid-March interim high
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3026 from 10/2000 low
3042 from 5/2000 low
3000 is the February 2012 post-bear market high
The 50 day EMA at 2995
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
The 200 day SMA at 2730
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low


S&P 500: Closed at 1403.36

Resistance:
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1378 is the February 2012 peak
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1374
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1274
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low


Dow: Closed at 13,228.31
Resistance:
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 12,969
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,161
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak


Economic Calendar

April 24 - Tuesday
Case-Shiller 20-city, February (9:00): -3.5% actual versus -3.4% expected, -3.9% prior (revised from -3.8%)
Consumer Confidence, April (10:00): 69.2 actual versus 69.5 expected, 69.5 prior (revised from 70.2)
New Home Sales, March (10:00): 328K actual versus 318K expected, 353K prior (revised from 313K)
FHFA Housing Price I, February (10:00): 0.3% actual versus -0.5% prior (revised from 0.0%)

April 25 - Wednesday
MBA Mortgage Index, 04/21 (7:00): -3.8% actual versus 6.9% prior
Durable Orders, March (8:30): -4.2% actual versus -1.7% expected, 1.9% prior (revised from 2.4%)
Durable Goods -ex Transports, March (8:30): -1.1% actual versus 0.5% expected, 1.9% prior (revised from 1.8%)
Crude Inventories, 04/21 (10:30): 3.978M actual versus 3.856M prior
FOMC Rate Decision, April (24:30): 0.25% actual versus 0.25% expected, 0.25% prior

April 26 - Thursday
Initial Claims, 04/21 (8:30): 388K actual versus 373K expected, 389K prior (revised from 386K)
Continuing Claims, 04/14 (8:30): 3315K actual versus 3300K expected, 3312K prior (revised from 3297K)
Pending Home Sales, March (10:00): 4.1% actual versus 0.5% expected, 0.4% prior (revised from -0.5%)

April 27 - Friday
GDP-Adv., Q1 (8:30): 2.2% actual versus 2.5% expected, 3.0% prior
Chain Deflator-Adv., Q1 (8:30): 1.5% actual versus 2.2% expected, 0.9% prior
Employment Cost Index, Q1 (8:30): 0.4% actual versus 0.5% expected, 0.4% prior
Michigan Sentiment - Final, April (9:55): 76.4 actual versus 75.7 expected, 75.7 prior


April 30 - Monday
Personal Income, March (8:30): 0.2% expected, 0.2% prior
Personal Spending, March (8:30): 0.5% expected, 0.8% prior
PCE Prices - Core, March (8:30): 0.2% expected, 0.1% prior
Chicago PMI, April (9:45): 60.0 expected, 62.2 prior

May 1 - Tuesday
ISM Index, April (10:00): 53.0 expected, 53.4 prior
Construction Spending, March (10:00): 0.5% expected, -1.1% prior
Auto Sales, April (14:00): 5.4M expected, 5.1M prior
Truck Sales, April (14:00): 5.7M expected, 5.7M prior

May 2 - Wednesday
MBA Mortgage Index, 04/28 (7:00): -3.8% prior
ADP Employment Change, April (8:15): 170K expected, 209K prior
Factory Orders, March (10:00): -1.8% expected, 1.3% prior
Crude Inventories, 04/28 (10:30): 3.978M prior

May 3 - Thursday
Challenger Job Cuts, April (7:30): -8.8% prior
Initial Claims, 04/28 (8:30): 375K expected, 388K prior
Continuing Claims, 04/21 (8:30): 3300K expected, 3315K prior
Productivity-Preliminary, Q1 (8:30): -0.6% expected, 0.9% prior
Unit Labor Costs, Q1 (8:30): 3.0% expected, 2.8% prior
ISM Services, April (10:00): 55.5 expected, 56.0 prior

May 4 - Friday
Nonfarm Payrolls, April (8:30): 162K expected, 120K prior
Nonfarm Private Payrolls, April (8:30): 167K expected, 121K prior
Unemployment Rate, April (8:30): 8.2% expected, 8.2% prior
Hourly Earnings, April (8:30): 0.2% expected, 0.2% prior
Average Workweek, April (8:30): 34.5 expected, 34.5 prior



By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Sunday, April 22, 2012

Indices Close Mixed on the Week

SUMMARY:

- A bit more expiration volume as indices close mixed on the day, mixed on the week.
- Large cap indices still holding the 50 day EMA, still in decent shape. Of course small caps and semiconductors are still in not so decent shape.
- AAPL effect? Large cap, big name leaders testing and weighing on the markets, but other stocks look solid as the big leaders make very normal tests of very strong runs.
- First week of earnings sees 85% of S&P reporting beating estimates.
- Headlines say German business sentiment helping the euro versus the dollar while the ongoing EU sovereign debt crisis said to help US bond markets. All the while European bond yields and CDS rates climb.
- French elections and their impact on France. A preview of the US?
- A fall from the highs then two weeks of lateral movement. The next move should be close to showing itself.
- Market still looks heavy as some leaders fade, but many quality stocks still on the move.
- AAPL earnings and an FOMC meeting could provide the market the information it needs, of course on top of Europe's troubles, French elections, earnings, economic data . . .

Expiration comes and goes leaving the market basically unchanged from Thursday.

The stock indices finished expiration Friday mixed, and they also finished the week mixed. SP500 and the Dow were to the upside while NASDAQ was to the downside on the day and the week. It is as if the markets did not know what to key off of for the week and on Friday. There was a bit more expiration volume. It kicked up, but there was not a lot of volatility. Looking at the intraday chart, there was a gap to the upside and then a rally through lunch that was given away in the afternoon. Rather typical expiration action, particularly when you have had some of the fireworks earlier in the week such as on Thursday.

There was better German sentiment, and that was said to bolster some of the other markets such as the euro versus the dollar. There were also earnings. MCD was in line and showing good U.S. sales. MSFT beat. ETFC beat by almost 50% as perhaps the retail investor is returning. Those numbers benefited the individual stocks, but outside of that there was not much of a coattail effect. Of course when the likes of SNDK, RVBD, and TPX all reported earnings that missed, there was a counterbalance. There is also that ever-present EU sovereign debt issue hanging there. It was said to impact the U.S. Treasury, sending them to the upside.

We have some news out of Europe that supposedly is hurting U.S. markets, and other news is supposedly helping U.S. markets. Then you have a mixed bag in the States. You get a mixed bag overall in the indices both on the week and on the session.

SP500, +0.12%; NASDAQ, -0.24%; Dow, +0.50%; SP600, +0.57%; SOX, -2.38%; NASDAQ 100, -0.4%.

Obviously the large caps were leading to the downside as the NASDAQ 100 topped the overall NASDAQ's decline.

It was a week that left the indices undecided. The large caps are still holding above the 50 day EMA, working laterally after that fall two weeks ago. The smaller caps and the SOX are struggling below the 50 day EMA after their fall. That was three weeks ago with a two-week lateral move. We had that initial decline, and we have had a two-week lateral move. No resolution yet, but there were some events that may precipitate more interesting action in the week or two ahead.


OTHER MARKETS

Dollar. 1.3215 versus 1.3122 euro. The U.S. dollar was down. The German business confidence supposedly helped the euro versus the dollar. Okay, I guess we can buy into that. The dollar did fall, but it held its lower trendline and the 200 day EMA. Very interesting. It is in quite an interesting pattern that could lead to an upside break. As with the rest of the market, it is equivocal right now, but it is setting up some support. That support has been steady. We will see if it can bounce.


Bonds. 1.96% versus 1.96% 10 year U.S. Treasury. Bonds were basically flat on the session, and the 10 year was actually flat. Bonds were higher and yields were lower on the week. That is the sovereign debt issue that was discussed on Friday in some other headlines. Some headlines were saying that the German confidence was helping the markets. Others said that the ongoing European sovereign debt crisis was hurting markets in Europe and helping some markets in the U.S. while stalling out equity markets. Even the headlines are contradictory, but of course you know that. It can even be contradictory within the same news source. There are different writers with different takes, and you are left scratching your head over a mishmash of opinions.

Bonds were up nicely on the week. There is no issue with respect to the allure of U.S. bonds thanks to the ongoing problems in Europe. We had the big jump in bonds when we had one of those weaker bond auctions in Europe a couple of weeks ago. We supposedly had better bond auctions this past week from Spain and Italy. But U.S. Treasuries are still holding their gains. Even though these bond auctions were termed successful, we saw interest rates on the continent continue to rise. As they continue to rise, we see our interest rates fall because money is being moved into U.S. Treasuries. We also see credit default swap rates on the rise in Europe. The spreads are widening, and that means risk. The market makers have to widen those spreads to hedge their bets.

In any event, bonds had a good week in the U.S., at least holding their gains from the moves higher two weeks back.


Gold. 1,643.00, +1.60. Gold was virtually flat. It continues its now rather tight lateral move. It is a trading range after the breakout and then the failure in late February. That was after the Bernanke talk where it was perceived that there would be no Quantitative Easing. This was after the Bernanke talk two weeks earlier where it was perceived that there WOULD be Quantitative Easing. The sum total was, with the FOMC minutes and Bernanke's subsequent talk, they said we may have to wait for QE3. Notice that I did not say they had scrapped plans for QE3. If you look at gold, it is just working laterally in a range and biding its time to see if the Fed will move once again.


Oil. 103.83, +1.56. Oil was up on the day. It remains in this range, but it continues to hold its bid as well. There are too many issues out there for it not to.


TECHNICAL SUMMARY

Volume. NASDAQ -3.8%, 1.89B; NYSE +17.5%, 894M. Volume was mixed, most likely due to the same thing that pumped up volume on Thursday: expiration. Of course it did not impact the market evenly. That could be good given that NASDAQ sold. You would like to see volume contract a bit if you are playing the upside. Volume was up as the SP500 (and the small caps, for that matter) posted a gain. You want to see that upside volume that shows more buyers than sellers. Again, all of this was likely just an expiration distortion, so we cannot put too much into it.


Breadth. NASDAQ +1.45:1; NYSE +1.9:1. Breadth was a yawner.


THE CHARTS

SP500. SP500 is still holding above the 50 day EMA. This is a two week lateral move over this level after the fall three weeks ago that undercut the 50 day EMA but then managed a relatively quick recovery. Higher low, putting in a higher bottom above the March low. The trend is still in place, it just looks heavy. Yes, it is over the February peak, so there is really no head and shoulders here. At least not a classic one. There is a two week lateral move over the 50 day EMA that we are still going through. It has the look of a lower high trying to set, but it has not yet.

MACD is lower, no doubt. The day to day volatility was there at the top. Up one day, down the next, up, and then back down again. It could not make the move, and consequently it fell away from the high. Now it has bounced along. It is basically the same story: Up a day, down a day, or up one day and down two days. You get the picture. But it has not broken yet. It does not look good. It looks heavy, but it has not broken. You can say that about all of the large cap indices.


DJ30. The Dow has a more classic head and shoulders trying to set up. Maybe it is a double head and shoulders. It is still above its 50 day EMA as well. It sold off sharply, hit the trendline and bounced, and then it just moved itself laterally over those past two weeks, similar to SP500. Heavy, yes. It still has the same problems. Lower MACD. This one put in a lower low versus the SP500 which put in a higher low. It has a lower MACD, a lower low. It has bounced but is below the prior peaks, and it looks to be running out of gas. You name it. Again, it has not broken down. It does not look great because some of the leaders that have pushed it higher thus far are struggling, but it is hanging in there.


NASDAQ. NASDAQ is the same story. It is holding the 50 day EMA for the past two weeks. Third test to this level after that decline off of the new post bear market highs. MACD put in a lower high here as well. It did put in a higher low, so it still has the trend in place. As with SP500, it simply is not that powerful looking. The major point is that they are holding support, and we have no follow-through to the downside. Follow through is everything. You can have patterns that look weak or you can have patterns that look great. If they can never follow through in the direction of the apparent trend, or the trend change that wants to take place, then it is as good as if it never happened.

NASDAQ is struggling, but some of its main components are struggling as well, such as AAPL. It is down to its 50 day EMA (that it perfectly normal, by the way). GOOG is falling down to its 200 day EMA. PCLN is in a modest two week decline as well. With those horsemen in a bit of trouble, it is understandable that NASDAQ will experience some downside as well. But as with its main component, AAPL, NASDAQ is still holding its 50 day EMA. It looks to be something of a periodic test of that after a nice, long run up the 10 day EMA and 20 day EMA until peaking in late March. Now it is in a 50 day EMA test. Nothing unusual about that at all, as I discussed earlier in the week.


SP600. The SP600 never made the break through their 50 day EMA. They have tried but failed. The small caps potentially have a head and shoulders setting up. As I said, those are important patterns, but a lot of times they set up and then never do anything. They dissipate and the move continues. We will see. It is up to leadership to help lead the small caps (and, indeed, the market) to the upside, even if the big leaders that led the move higher have to take a breather for awhile.


SOX. SOX struggled. It put in a lower low on this pullback, dropping 2.4%. It is still holding just above the early-March lows, so it has not really broken out of the range. It is trying. It put in a higher low and now a lower low. You could say it has put in something of a head and shoulders. It certainly looks like it wants to fill the gap from mid January. There are several gaps starting from early January on. It could easily move back and fill those. Of course, that would pressure the rest of the market to come back and test a bit more. Will they break down as the stocks make a further and deeper test? Not necessarily. We will talk more about this when we look out to the coming week. Suffice it to say that the week ended with the large cap indices holding support. They look as if they are weaker, but the selling has not been able to follow through. The growth indices the SOX and SP600 never did break back above the 50 day EMA, and they have toppish looks to them.

You have heavy looks on the large cap indices that could fall further but have not. Then you have toppish patterns on the smaller indices. They have not broken down either. It looks a lot like they are going to, but none of them have yet.


LEADERSHIP

The question we have to ask: Is this something of an "AAPL effect"? AAPL makes up a large percentage of the SP500 and the NASDAQ's movement. When AAPL fades, they fade as well. As noted, there are other large cap stocks that carry a lot of weight that are struggling after nice moves. PCLN is one. GOOG is another. Others are performing well. MSFT announced earnings and gapped to the upside. It is no slouch when it comes to it is impact on the NASDAQ either. But AAPL is huge, and as it fades it tends to impact the trade overall. We can understand that, and there is no intuitive problem with it. The thing is, there are still a lot of stocks holding up really well that can move these indices higher. Or at least that could offset what we are seeing from AAPL and friends. Of course those are big stocks, and they do sag the market when they move. It takes a lot more of the smaller stocks to fill in the gaps, but it looks to be doing so.

What do I mean? SBUX was down a bit this week after it announced its earnings, but it still looks solid. UA has put in a five-week lateral move, and then it started a break higher on Friday. PII announced good earnings and gapped higher. ISRG had blowout earnings again, gapped to the upside, and it helped move things. Of course there is the old, stodgy standby KO. It announced good earnings and gapped to the upside as well. These are not necessarily going to all lead the market higher, but they are definitely helping to offset some of the sag from the bigger names. And they are holding the indices up at that near support. There are still many other stocks that are good looking right now and can move. UA and SBUX definitely look as if they can continue. Then there is PII after its breakaway gap. It can continue as well.

We are finding stocks that look good all around the market. TITN is another one. This does not mean that they will necessarily be able to offset any heaviness in the indices. But when we put this "AAPL effect" into perspective, you can understand why the indices are fading as some of the leaders pull back. You can also understand why there are still a lot of stocks out there that look good and are moving up even though the indices are pulling back. They just do not have the market cap of AAPL and friends to move the index higher. But they are helping offset or blunt some of the impact of the moves from AAPL, CMG, PCLN, et cetera.

Is this necessarily when we look at the indices negative patterns? I went through all the reasons that they looked bad. But again, they are still holding up with no follow through. That is important. Seeing how some of the leaders are sagging and pulling things back but a lot of other stocks are still positive, that suggests that this is exactly what is going on. Thus, once AAPL and company finish their pullbacks, they will be in decent buying shape. The other stocks that have helped hold the index up by moving higher during this should likely continue to do so. Maybe we get a synergistic effect and really get something good going. Of course, as soon as I say that things will crack because there are some issues ahead. But you have to do the analysis and look at leadership and where they all stand to come up with our game plan for what the market may do and how we will react.


THE ECONOMY

French election and its ties to the US elections.

The socialist candidate in France is leading current president Sarkozy by 6% to 16% depending upon the poll. France is the second strongest economy in Europe behind Germany. Its bond yields are on the rise as are its credit default swaps rates. Its credit rating is on downgrade watch from S&P and Moody's is likely to follow. Compared to Greece, Spain and Italy, not many appear worried about France. If the socialist is elected (voting starts Sunday) and implements his policies, that will change rapidly. This is very instructive for the US for those who will take a look at history.

The socialist platform Hollande espouses? Increase government spending, increase taxes, decrease immigration. In our lifetimes (at least for most of us) we have seen firsthand the failure of socialism and communism as economic systems. Yet as happens about every thirty years or so, capitalism is blamed. Without capitalism, US capitalism, Europe would not have lasted this long. One example: the US invented the vast majority of the drugs that Europe and other parts of the world demand to receive at lower prices, forcing the US to subsidize the world's cheaper miracle drugs. Without the capitalist system where risk taking and invention are rewarded, there would be no such drugs. Another example: but for the wealth created by capitalism, Europe would have had no defense against the USSR as its socialist systems could not produce enough wealth to fund their own defense.

Keynesian economics stating that government spending will create supply and demand is simply empirically wrong. The most recent proof is quite clear, the massive spending from the 'stimulus' bill and the massive liquidity poured into the system by the Federal Reserve. If it worked we would have millions upon millions of jobs created here in the US given the massive government spending.

Yet, this economic 'recovery' is the worst since the Great Depression. Seventeen quarters out we average 2.4% GDP growth with just four quarters at 3% or better, none over 4%. The last reading of 3% (Q4 2011) and that was mostly made up of inventory buildup (inventory building is not good if sales are not growing); remove the inventory build and that GDP read was below 2%. The low end of historical US trend growth is 3%; when emerging from recessions we typically have 7% to 11% GDP growth per quarter for many quarters. Adjusting for inflation, sales and wages are not only flat, they are down. Once more we proved that massive government spending does not work, yet what do many want here: more taxing for more spending. If this worked, the USSR would be here today and an economic superpower.

France's socialist tendencies have kept its growth hobbled for decades. The French socialist candidate's 'solutions', however, are going to smash down on the accelerator and race France off the economic cliff. France cannot support its own spending; there is no way it, the second strongest European economy, can support the other countries or even help Germany stave off the Continent's economic woes given it is apparently, based on the current voter polls, set on committing economic suicide.

Cross the Atlantic to the US. What is the difference here? The only difference is our heritage of entrepreneurship and fervent individualism. That is rapidly losing its power in the face of 47% of the voting population paying no income taxes and an entitlement state where those receiving government benefits average MORE disposable income than those making the average US income. Are they going to vote to have to work for effectively less pay than they can get for not working? They are not bad people, but if you pay someone not to work, he won't work. When your education system through 3 decades of federal intervention has failed to inculcate the necessary values and norms of a free, self-governing society, what do you get? Many kids in high school do not even know why we are a separate country, that many of the reasons we revolted from England and King George are present here today in the laws and regulations promulgated by our federal government.

In my day if you had less you went out and worked hard to have more. Now you turn to the government, and not even for a job but a handout, a grant, a subsidy. Kennedy was a democrat and he reminded us we do not look at what our country can do for us but what we can do for our country. How things have changed when the entitlement society grew to equal the entrepreneur portion of our society. Tocqueville wrote of this long ago, and in this election it could all come true.

If nothing is done, the US will, on autopilot, follow France and Europe off the cliff with automatic tax increases in 2013 (Bush cuts expire), no cuts in entitlements (thus increasing our $60T entitlement burden), continued governmental corruption and waste (the latest example in the GSA scandal), and if not overturned by the Supreme Court, the complete domination of the citizenship thanks to the 2010 health care act. Of course those are just the automatic impacts; those in power will actively work to further regulate every aspect of society through executive orders and regulations promulgated by the EPA and other non-elected officials, Congress be damned. The Supreme Court will change dramatically and the recent 5-4 decision allowing us to maintain firearms outside a militia will be reversed. Again, Tocqueville warned of this, as did Ben Franklin, Ronald Reagan and many others, throughout our history. Given we do not learn from economic history, it is not surprising we did not learn this lesson either.



TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html



THE MARKET

SENTIMENT INDICATORS

VIX: 17.44; -0.92
VXN: 20.17; -0.82
VXO: 17.54; -0.89

Put/Call Ratio (CBOE): 0.88; -0.12


Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 44.1% versus 48.4%. Fading more abruptly after bouncing to 50.5% recently. Still not excessive either way but is fading off relatively high levels from February. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.7% versus 21.5%. Rebounding after the surprise decline last week. Now bulls and bears are congruent in their heading, i.e. bulls lower, bears higher. Was 23.6% a month back and that was down from the 25% to 26% level it held for weeks. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -7.11 points (-0.24%) to close at 3000.45
Volume: 1.891B (-3.81%)

Up Volume: 826.13M (+70.5M)
Down Volume: 1.09B (-120M)

A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Decliners led 1.66 to 1

New Highs: 63 (-6)
New Lows: 36 (-16)


SP500/NYSE

Stats: +1.61 points (+0.12%) to close at 1378.53
NYSE Volume: 894M (+17.48%)

Up Volume: 1.91B (+560M)
Down Volume: 1.88B (-870M)

A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Decliners led 1.44 to 1

New Highs: 112 (+39)
New Lows: 31 (-9)


DJ30

Stats: +65.16 points (+0.5%) to close at 13029.26
Volume DJ30: 212M shares Friday versus 140M shares Thursday.


MONDAY

With that in mind, we can look at what is coming up next week. We start with looking at the economical calendar. It is fairly full. It does not really get rolling until Tuesday. Although, over the weekend we have the French election which will be quite important in the outlook on the market overall.

We have Case/Shiller, Consumer Confidence, and New Home Sales on Tuesday. We have a triumvirate of important reports. Then on Wednesday we have Durable Goods. It is always interesting to see where they are trading. They have been volatile of late, back and forth. Then we actually have an FOMC two-day meeting that we will get the results from. We will get the next look at the psyche of the Fed. Thursday we have Initial Claims and Pending Home Sales. On Friday we have another revision of Q1 GDP. It is expected to come down somewhat along with the Michigan Sentiment final for April.

We will have Europe, the scheduled economic data, and the earnings reports as well. Thus far, earnings have been coming out pretty well. Of the SP500 stocks that reported this week, 85% have beaten the street on their results. Not bad. We will have 400 or so report this coming week. It will be very busy. We do not like earnings season for stocks that we have because it makes it very difficult to play them. We make decisions about whether we want to ride them through the results or not and how much we want to ride through. We decide if we want to take some profits, for example. Or if they are not performing well and we just do not feel good about the pattern we can close them.

We also love earnings season because, on stocks that we feel will do well and we keep some positions, they have a great run like on PII. We also can play off of the moves that result from earnings. An example again is PII. It gapped to the upside in a breakaway move. It has had a nice test. It could put in a pennant and continue to the upside. We have played those quite frequently, the continuation gaps whether up or down. They tend to make us money as we leverage more into winners that are showing positive patterns and continue to the upside. We will be looking to play stocks such as that. In other words, we will still be looking to play the upside move for several reasons I have talked about before.

There is no question we have the day to day volatility that has come into the market. It started at the peak in late March. We had gaps to the upside followed by immediate selling. That was followed by immediate buying and immediate selling. Day-to-day, things got choppier, and then the market sold off in early April. But it did not break. It has moved laterally since. Two weeks laterally with the large cap indices holding support. As noted before, MACD is lower. Some leadership is falling. It does not look that strong, but there has been no downside follow through. As noted, we think this might about the "AAPL effect" where some of the leaders that led the move to the upside are obviously pulling back but have not sold off. AAPL at the 50 day EMA just as the NASDAQ is at the 50 day EMA. Coincidence? Not really. Not when you look at the percentage of AAPL as relates to the NASDAQ.

We have this pullback and it is holding. Things do not look great, but we have other stocks that look just fine in the leadership area. While the market looks heavy and some of its leaders fade, there are many quality stocks out there that can offset at least on a temporary basis and hold the market in place. We can make money off of those. Then when stocks such as AAPL decide to move back up move its 50 day EMA, if that is going to be the case, then it will bring the market right back up.

I want to reiterate that this is a normal move. You had a long, lateral base in AAPL. We had July through December, and then a breakout. Now we have had a run of the 10 day EMA and 20 day EMA. We have had four to five bounces, and then we got the fade to the 50 day EMA. That is so normal in action. MACD put in a higher high as it was moving up. Yes, it tailed off at the end, but it has made its pullback. Now we will see if it can break to the upside.

This reminds me of PCLN, a stock that we got into awhile back. It put in a base from April into January. Just a regular trading range, and then a breakout and test. We were fortunate. We were watching it, we got into it, and it ran beautifully for us. Now PCLN is coming back to test as well. Some people say it has put in a mini head and shoulders. It has. We will see if it comes back to the 50 day EMA as well and holds that. If it does, we could very easily be moving into new positions on PCLN. Maybe on this bounce we get the run to 1000 that we have been looking for.

I do not want people coming away from this saying, "Well, Johnson is off his rocker. He is super bullish now." I am not super bullish; I am concerned about what is ahead for the market. I am concerned about what is ahead for the economy. Very concerned. But I also cannot let my feelings about what I think may be happening in the economy overall bias what I am seeing in the market. What I am seeing from AAPL and others is totally normal action, so I cannot let my gut feelings about the economy color what is going on. The economy has pulled back, and these stocks have pulled back. But the regional reports in manufacturing have not flipped negative, so I cannot say we will have a recession. Yes, ECRI says we will, and I have a lot of faith in ECRI. But I also have a lot of faith in what stock charts are telling me. If they think money will flow back in from the Fed, then they could go up.

Maybe we will find out on Tuesday that that is not the case. We will have AAPL's earnings and we will have the Fed on Wednesday. Those are some pretty powerful stories coming out in the market. If we have a negative reaction to AAPL's earnings and/or the FOMC decision and the statement, then things could get ugly. As noted, the indices are holding up at support for now. It would not take much to shove them over the edge if things got really ugly, however. Any big story can still hurt the market. But that has been the case for months upon months. We see good stocks in position as the other stocks pull back. Those other stocks that are pulling back are still not really harming themselves. I think it would be a bit much to jump to the conclusion that the market will crumble and crater from here.

I am apprehensive, but I always am. I am even more apprehensive now given the action that I see. It looks like rounded tops. We have volatility, lower MACD, some internal volatility. I am cautious as can be. But when I see good patterns and I see totally normal action in some really strong, powerful stocks that are still showing that they are strong and powerful, I am not going to automatically clam up or jump ship. We will get more information, and we will definitely see where this market is going over the next week or so. We have some major news coming. What I see now does not automatically say that we will go lower.

I hope that is clear. I have tried to make it clear over the past two nights and explain what some of the volume and volatility is that we have been seeing. I hope that you understand that, while I am cautious, I still see positives that would be positive in any market that you looked at. If you see that, you cannot ignore it, just as you cannot ignore obvious negatives as well. We are at a crossroads, yes. These stocks that are pulling back could break down, but if they can maintain their strength and their trend, they could also continue right back up. We will find out more over the next week or two. That is the way it always is. But we just have to act when the market says act. If we do that, we will be in good shape.

Have a great weekend, and I will see you next week.


Support and Resistance

NASDAQ: Closed at 3000.45

Resistance:
3042 from 5/2000 low
3026 from 10/2000 low
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3000 is the February 2012 post-bear market high
The 50 day EMA at 2990
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2754 is the October 2011 high
The 200 day SMA at 2725
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low


S&P 500: Closed at 1378.53

Resistance:
1378 is the February 2012 peak
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1371
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1273
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low


Dow: Closed at 13,029.26
Resistance:
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak


Support:
The 50 day EMA at 12,940
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,147
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak


Economic Calendar

April 16 - Monday
Retail Sales, March (8:30): 0.8% actual versus 0.3% expected, 1.0% prior (revised from 1.1%)
Retail Sales ex-auto, March (8:30): 0.8% actual versus 0.6% expected, 0.9% prior
Empire Manufacturing, April (8:30): 6.6 actual versus 17.5 expected, 20.2 prior
Net Long-Term TIC Fl, February (9:00): $10.1B actual versus $102.4B prior (revised from $101.0B)
Business Inventories, February (10:00): 0.6% actual versus 0.5% expected, 0.8% prior (revised from 0.7%)
NAHB Housing Market Index, April (10:00): 25 actual versus 29 expected, 28 prior

April 17 - Tuesday
Housing Starts, March (8:30): 654K actual versus 700K expected, 694K prior (revised from 698K)
Building Permits, March (8:30): 747K actual versus 710K expected, 715K prior (revised from 717K)
Industrial Production, March (9:15): 0.0% actual versus 0.2% expected, 0.0% prior
Capacity Utilization, March (9:15): 78.6% actual versus 78.5% expected, 78.7% prior (revised from 78.4%)

April 18 - Wednesday
MBA Mortgage Index, 04/14 (7:00): 6.9% actual versus -2.4% prior
Crude Inventories, 04/14 (10:30): 3.856M actual versus 2.791M prior

April 19 - Thursday
Initial Claims, 04/14 (8:30): 386K actual versus 375K expected, 388K prior (revised from 380K)
Continuing Claims, 04/07 (8:30): 3297K actual versus 3275K expected, 3271K prior (revised from 3251K)
Existing Home Sales, March (10:00): 4.48M actual versus 4.62M expected, 4.60M prior (revised from 4.59M)
Philadelphia Fed, April (10:00): 8.5 actual versus 10.3 expected, 12.5 prior
Leading Indicators, March (10:00): 0.3% actual versus 0.2% expected, 0.7% prior



April 24 - Tuesday
Case-Shiller 20-city, February (9:00): -3.4% expected, -3.8% prior
Consumer Confidence, April (10:00): 69.5 expected, 70.2 prior
New Home Sales, March (10:00): 320K expected, 313K prior
FHFA Housing Price Index, February (10:00): 0.0% prior

April 25 - Wednesday
MBA Mortgage Index, 04/21 (7:00): 6.9% prior
Durable Goods Orders, March (8:30): -1.9% expected, 2.4% prior (revised from 2.2%)
Durable Goods -ex Transports, March (8:30): 0.5% expected, 1.8% prior (revised from 1.6%)
Crude Inventories, 04/21 (10:30): 3.856M prior
FOMC Rate Decision, April (24:30): 0.25% expected, 0.25% prior

April 26 - Thursday
Initial Claims, 04/21 (8:30): 373K expected, 386K prior
Continuing Claims, 04/14 (8:30): 3300K expected, 3297K prior
Pending Home Sales, March (10:00): 0.5% expected, -0.5% prior

April 27 - Friday
GDP-Adv., Q1 (8:30): 2.6% expected, 3.0% prior
Chain Deflator-Adv., Q1 (8:30): 2.2% expected, 0.9% prior
Employment Cost Index, Q1 (8:30): 0.5% expected, 0.4% prior
Michigan Sentiment - Final, April (9:55): 75.7 expected, 75.7 prior



By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Monday, April 16, 2012

Stocks Fade asTwo-Day Bounce Falters

SUMMARY:

- Two-day bounce falters and stocks fade leaving some indices at support, others grasping.
- China GDP rumor a complete miss as GDP misses expectations.
- Internals continuing to match prices in their day to day volatility.
- CPI continues to advance, eating up real earnings.
- Bank earnings lavished with praise but who couldn't make money borrowing for 0% for a guaranteed 3% or better?
- Michigan Sentiment falls on energy concerns, but expectations are still quite good.
- The mixed Friday finish (in terms of support) hold out some upside possibilities, and earnings could rally stocks, but if not, the indices certainly look heavy.

Just a little Friday nervousness or prepping for a downside week ahead?

The market was pensive Friday, at least early on. The China GDP rumored to ring up a 9 handle did not even make expectations. It fell to 8.1% versus the 8.4% expected and the 8.9% in February. A cool three-year low. It dampened the animal spirits, the market lost its bid, and it fell. After a two-day rebound off the five-day decline, stocks lost a bit of nerve ahead of the weekend. More nervousness before the weekend, than we thought would pop up given many issues were already gone with North Korea's missile breaking up right after launch. Not a lot of excitement out there. Maybe there is a worry about Europe over the weekend. It continues to struggle, no doubt. We found out that the Spanish banks borrowed a surging 227B euro, up from 152B. That basically matches the Italian borrowing, which is not a good sign. The banks are cash strapped. They need help, and there is your nervous trade in the U.S. given Europe is such a big partner with us.

Stocks were having a bit of trouble pre-open. Futures started lower and continued down into the bell. They tried a little bounce, but it did not last for long. Michigan Sentiment came in weaker than expected at 75.7. That was off from 76.2 in March. Expectations were still good, so things kind of washed. I will talk more about CPI and other economic issues, but I will note that, thanks to the rise in inflation, real earnings were down -0.4%. That is significant. It is hard to continue to spend when your earnings go the other way.

The market had a tough day of it. It has been down pretty hard, it rallied pretty hard for a couple of days, and Friday it was down again with losses over 1%. That day to day volatility remains.

SP500, -1.25%; NASDAQ, -1.45%; Dow, -1.05%; SP600, -1.38%; SOX, -1.82%.

A down day again, and significantly so. What does this mean? I have talked about day-to-day volatility with bigger upside moves and downside moves. They are becoming more frequent. You have an up day and a down day, or two up days and a few big down days. And they are large; the advance/decline line is swinging in big numbers. We are not seeing 2:1 or 1.5:1, but big moves. That internal volatility, the price volatility, as well as the rounded tops in the patterns are still worrisome and it looks as if they could turn lower once more. They certainly did that on Friday, but it was also a mixed market as to how they closed, at least in terms of support. SP500 and NASDAQ held the 50 day EMA. On the other hand, the SP600 and the DJ30 either fell back from or broke through the 50 day EMA. SOX fell back from its 50 day EMA, and that is an important one for the rest of the market.


OTHER MARKETS

Dollar. 1.3076 euro versus 1.3194 euro. With worries about Europe once again, the dollar moved up. It was getting a little money thrown its way. It is holding up quite well, trying to set up and bounce again. Trouble in Europe spells stronger dollars. That helps us out on our import prices, and it helps us on inflation. We are not importing as much inflation because that drives the prices price of oil down. That is always helpful given we fail to produce here, and we prefer to pay extraordinary amounts overseas and send our money elsewhere. But that is another story altogether. Kind of.


Bonds. 1.99% versus 2.06% 10 year U.S. Treasury. More trouble in Europe means more money to U.S. bonds. Yeehaw, here we go. The irony of it is that trouble in Europe could ultimately lead to the Fed being a little more lenient with its Quantitative Easing stance. It is perhaps a double push for bonds running them to the upside.


Gold. 1,660.00, -20.60. As the dollar rose, gold had a tough time of it. It closed sharply lower on the day, but it is still in this lateral range. It is interesting. Gold broke above the prior range, and now it has been bouncing around laterally ever since. It has almost set up another range within a range. I did say "almost." The way it is trading is very interesting. Still stretching out laterally.


Oil. 102.84, -0.85. Oil prices were lower. Oil is still holding decently. It has a big flag pattern that formed off of the breakout from the prior four-month trading range. It has broken down into that range, but we will see if it makes the break upside. It is running into resistance. It has bumped into the tops of that prior base. It is having a bit of trouble, and that will help. It helps us all because we do not have as much outlay for oil. Of course, $103 is not that much lower, but I suppose that every bit helps.


TECHNICAL SUMMARY

Volume. NASDAQ, +0.75, 1.458B; NYSE +0.73%, 691M. Volume edged to the upside on Friday the 13th, but it was not much. Not a huge jump in volume, but we have definitely seen more volume on the down days than on the up days. That is just the way it has been. That shows, net/net, more selling than buying right now. We will look at the charts in a moment and see how that all ties in.


Breadth. NASDAQ, -3.5:1 versus +2.8:1 Thursday; NYSE -3.3:1 versus 4.6:1 Thursday. Breadth is the same situation I have talked about with the day-to-day volatility. On NASDAQ, the up day on Thursday was not as strong as the down day. NYSE was not as sharp a decline, especially when compared to the 4.6:1 on Thursday. It is a bit of a mixed picture. The overriding picture is the size of the moves. We are up over 3:1 and 4:1, when we were lucky to get above 2:1 prior to this recent bout of volatility.


THE CHARTS

SP500. You can see the five days down and the two-day bounce back above the 50 day EMA. Now a fall back to the 50 day EMA. Down, up, and then a key test here. Very key. If it holds, that is great; it can then move back to the upside. On the other hand. It has that rounded pattern to it with declining MACD. It would go against my feelings and what the stock market is generally telling us that it would continue to the upside. On the other hand, it has not changed its character because it refuses to give up the 50 day EMA on any consistent level. A lot of traders are calling for Dow 1327 as the next support. That would it right at the late-January peak. We will see. It definitely looks bearish to me, but my feelings do not move the market. We are setting up and preparing ourselves along the lines that we will be able to take advantage of a fall if we get it.


DJ30. DJ30 was down. It fell back through its 50 day EMA. Two days up, now back through the 50 day EMA and coming up to this trendline. It has a confluence. You have a horizontal support, and you have this trendline advancing to the 12,800 level. We will see what happens next week. I am not holding my breath for this one to hold. There is a little head and shoulders action. We picked up some DIA puts on the day as the index fell back away from the 20 day EMA and back through the 50 day EMA.


NASDAQ. NASDAQ is another index that has not changed its character. Yes, it is down to the 50 day EMA for the first time in about four months, but it is holding. It bounced off of that level, it faded on Friday, but it is still above the 50 day EMA. It can still make its move, but it is very similar to the SP500 in that it has this one hump, the second hump, and then trying to put in a higher low. NASDAQ has AAPL, PCLN, and GOOG. Of course GOOG did not help today with that strange stock split it put out on Thursday. Nonetheless, they are performing well and holding the index higher. We will see whether NASDAQ can be the holdout and the index that makes the difference to the upside again, or if it just holds out and then cracks and falls and drops with everything else.


SP600. SP600 showed similar action kind of. The small caps were already below the 50 day EMA. They bounced up and could not retake it, and then they faded from that level on Friday. They did not even get back up to the February peaks that we were looking at for a potential head and shoulders. Maybe we have a lower shoulder and it just rolls over. We will probably be looking at an IWM play to the downside. That would be a small cap put play on that ETF.


SOX. SOX is doing the same thing that SP600 is. It rallied up to the 50 day EMA, virtually stalled there, and then rolled over on Friday. It did not make the February peak either. That does not mean it will not fall just because it did not make it back up to that level. Not at all. It has put in a bear flag below the 50 day EMA break. It looks like it wants to fall back to the downside. That would not be good for the market. Where the SP500 goes, a lot of stocks tend to move with it.


LEADERSHIP

Metals. Metals were struggling. BHP has set up a downtrend. Look at these triangles, one stacked on the other, heading to the downside. Looks like it is rolling back down right now. FCX bounced sharply on Thursday, and it was backing off on Friday. But it has not necessarily shown that it is rotating back down. If China will be weak, it suggests that we will have weakness again in FCX.

The steel stocks did a little backtracking. AKS was down on the day, but that was after a good rebounded up through Thursday. They are not out of the picture completely. It is mixed in metals right now. Some to the upside and some to the downside. Overall they are struggling. They would have to pull something out of the hat to really get things turned back around.

Technology/Semiconductors. AAPL is having troubles. It broke through the 20 day EMA on the close for the first time in quite some time. GOOG had its strange two for one stock split. It issued a third class of shares that gave no voting rights. The owner said they would not dilute their power at all. It is kind of a two for one, but not really. We will call it the revenue miss that resulted in that 4% decline on the day. That sounds good.

Semiconductors are having a bit of trouble. LRCX was putting in a lower high and a lower MACD. It is struggling a bit. NVLS is holding the 50 day EMA. It is trying to make a stand, very similar to the stock market indices as well. SNTC fell back from a bear flag test of the 10 day EMA.

Financial. Financials reported some good earnings. They did not have great results on the session. JPM was down -3.6%. Still above the 50 day EMA, however, so maybe it will just retrench a bit. WFC is talked about by some analysts as supposedly the greatest bank ever seen. The talk is that it is making all the rights decisions and doing the right maneuvers. But come on. A trained monkey could borrow money for 0% and then turn around and get a 3-5% return on bonds. It is tough out there for those banks. WFC was down, but it is also still above the 50 day EMA. STT is at the 50 day EMA as well. It is trying to hold on to support and break back to the upside.

Financial Services. Money is flowing into some financial areas. MA was up 1.5% on the day. V was up 1.75% with a good two-day bounce going in. DFS looks like it wants to make a break higher as well. All these credit services are doing just fine.

Healthcare/Medical. Health care as been getting money all along. It was down a bit on Friday. It tried to rally. CELG faded but is still in a very good pattern. ESRX looks as if it wants to continue to move to the upside. ARAY posted a nice 1.5% gain on Friday when most of the market was lower. Money is still working its way into the health care/medical area.

Chinese. China is still looking good even with the lower GDP. YNDX held quite well on the day. It still looks as if it wants to break to the upside. BIDU was flat. It did not go up much. It could not hold the gain on the early part of the session, but it was still a solid end of the week for BIDU. You have to like that.

There was bad news on the Chinese economy, and yet the Chinese stocks are still showing good movement and good relative strength. Perhaps that is a positive. We will see bottoming in the Chinese stocks. It is showing signs that that is what it wants to do. It has been down for a long while. Very interesting. These Chinese shares that are traded in the U.S. could give us some insight into just what the Chinese stock market will do.


THE ECONOMY

CPI rise cutting wages to negative growth.

While prices are still considered 'in control' with a 0.3% overall CPI rise, in line with expectations and less than February's 0.4%, a steady price rise has its impacts.

Particularly true when the core keeps rising. Even taking out gasoline (up 1.7%), the core is closing in on the overall CPI's gains. Not a good sign at all as the pressure for some more serious inflation spikes is there.

Of course inflation has very deleterious effects on citizens. As prices clime real wages have to rise more in order for consumers just to stay even. Real wages are not keeping ahead, they are not even keeping even. No, they are again negative, now 4 out of the last 5 months.

Real wages fell 0.4% in March and there is nothing to suggest they will start gaining ground. The consumer loses in so many ways. Prices are up while staying in cash you see your wealth decline just by holding the same number of dollars. Then you have to take those dollars that are worth less and pony up more of them to pay for goods and services. The consumer quickly gets decimated in an inflationary environment.



THE MARKET

SENTIMENT INDICATORS

VIX: 19.55; +2.35
VXN: 21.44; +2.1
VXO: 19.28; +2.51
Put/Call Ratio (CBOE): 0.96; +0.1


Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 48.4% versus 50.5%. Back to where it was three weeks ago as Bulls more or less flat line just as the market flat lines. Not excessive, not low, not telling us much. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 21.5% versus 22.6%. Bears are fading and bulls are fading. Do you call that apathy? Was 23.6% three weeks back and that was down from the 25% to 26% level it held for weeks. Getting a bit worrisome but nothing screaming a major dive is coming. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -44.22 points (-1.45%) to close at 3011.33
Volume: 1.458B (+0.76%)

Up Volume: 199.1M (-990.9M)
Down Volume: 1.28B (+1.016B)

A/D and Hi/Lo: Decliners led 3.48 to 1
Previous Session: Advancers led 2.77 to 1

New Highs: 57 (+7)
New Lows: 39 (+17)


SP500/NYSE

Stats: -17.31 points (-1.25%) to close at 1370.26
NYSE Volume: 691M (+0.73%)

Up Volume: 472.95M (-2.717B)
Down Volume: 3.02B (+2.685B)

A/D and Hi/Lo: Decliners led 3.28 to 1
Previous Session: Advancers led 4.62 to 1

New Highs: 46 (-16)
New Lows: 30 (+13)


DJ30

Stats: -136.99 points (-1.05%) to close at 12849.59
Volume DJ30: 141M shares Friday versus 119M shares Thursday.


MONDAY

There is a heavy economical calendar starting on Monday with Retail Sales. Seeing how the afternoon earnings are negative yet again for consumers, how will they be able to maintain their consumption? They were down for three to four months in a row (inflation adjusted), bounced to flat, and now are down back to -0.4 after Friday's report. We are losing buying power as we go forward. That is not great for retail sales, but March could still have been positive. We had an early Easter, and they were saying they were getting good sales. When you couple that with the warm weather, we could have a nice report. We saw that in the Same Store Sales.

Empire Manufacturing will be important. It is out before the market. Then we have the usual housing news out on Monday as well as on Tuesday. There is Production and Capacity on Tuesday. Then on Wednesday we have basically nothing before Thursday's Jobless Claims, the Philly Fed, and Existing Home Sales that day as well.

There are some important reports, no doubt. The market needs some good news to keep going. Why? It looks top heavy to us right now. There are many reasons: The rounded patterns, the falling MACD, the day-to-day volatility of the prices, as well as the internals. And there are some key stocks in the market that are still heavy. We are not necessarily seeing crashes lower, but we are having trouble holding on to gains. Perhaps earnings can be the silver bullet that pushing the indices back to the upside once more before they fall. After all, we were looking for a little more bounce than the two days that we get Wednesday and Thursday. It is a bit disappointing that we are not getting a further setup. Then again, things typically are not perfect setups in the market.

We can expect some more volatility right now, bouncing back and forth as the market tries to determine where it wants to head. Again, my gut tells me it will head lower now with these setups. As noted, we picked up some downside plays on Friday from the DIA, for instance. We are looking to play to the downside. If things start off rocky next week, we will not hang around much longer with the upside. We have expiration coming on Friday. We have to keep that in mind. We have earnings coming out every day. They will pick up speed. We have to keep that in mind as well. There are many pitfalls and possible rescues out there for the market. Right now, I am not sure if the market will take them positively. But it would be a change of character if it started taking things on the negative side.

Again, the market has not broken necessarily. We have some indices in serious trouble (like the DJ30), but the overall leader has been NASDAQ, and it has not broken its 50 day EMA. Perhaps we get salvation yet again with bids coming back to the market. We can handle that, no problem. We just do not expect it. Then again, the market is in a state of change right now. It looks like it wants to transition to the downside. Even in those situations, you will get sharp upside moves as we saw on Wednesday and Thursday. Some good news will come out, the market will be a bit too oversold, and it will need to bounce. At these times before a new trend is established or the old trend reestablishes itself, then you need to watch out for the change. But we are getting a bunch of volatility right now, and that can lead to the ultimate change. It has not done it yet.

Again, people keep coming back and buying this market because they think things are getting better. If that is what they want to think, so be it. Whatever the market does, the market does. We are hedging some of our bets right now because the indices do not look that great. We have some leading stocks that have been peeling back, and money has been shifting a little more defensively. And then we have that doggone increased volatility from day to day.

We will see more next week. We will see if it does fall. We have a bunch of good upside positions in good shape. As long as they hold, the upside has a very good possibility. But if they start to crack again, we will have to take care of those positions and expand the downside as we have been doing. Have a great weekend, and I will see you on Monday.


Support and Resistance

NASDAQ: Closed at 3011.33

Resistance:
3042 from 5/2000 low
3026 from 10/2000 low
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3000 is the February 2012 post-bear market high
The 50 day EMA at 2985
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2754 is the October 2011 high
The 200 day SMA at 2719
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low


S&P 500: Closed at 1370.26

Resistance:
1378 is the February 2012 peak
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1369.51
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1272
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low


Dow: Closed at 12,849.59
Resistance:
12,876 is the May high
The 50 day EMA at 12,925
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak


Support:
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,131
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak



Economic Calendar

April 10 - Tuesday
Wholesale Inventories, February (10:00): 0.9% actual versus 0.5% expected, 0.6% prior (revised from 0.4%)

April 11 - Wednesday
MBA Mortgage Index, 04/07 (7:00): -2.4% actual versus 4.8% prior
Export Prices ex-ag., March (8:30): 0.5% actual versus 0.5% prior
Import Prices ex-oil, March (8:30): 0.5% actual versus 0.0% prior (revised from -0.1%)
Crude Inventories, 04/07 (10:30): 2.791M actual versus 9.009M prior
Treasury Budget, March (14:00): -$198.2B actual versus -$193B expected, -$188.2B prior

April 12 - Thursday
Initial Claims, 04/07 (8:30): 380K actual versus 355K expected, 367K prior (revised from 357K)
Continuing Claims, 03/31 (8:30): 3251K actual versus 3350K expected, 3349K prior (revised from 3338K)
PPI, March (8:30): 0.0% actual versus 0.3% expected, 0.4% prior
Core PPI, March (8:30): 0.3% actual versus 0.2% expected, 0.2% prior
Trade Balance, February (8:30): -$46.0B actual versus -$53.0B expected, -$52.5B prior (revised from -$52.6B)

April 13 - Friday
CPI, March (8:30): 0.3% actual versus 0.3% expected, 0.4% prior
Core CPI, March (8:30): 0.2% actual versus 0.2% expected, 0.1% prior
Michigan Sentiment, April Preliminary (9:55): 75.7 actual versus 76.1 expected, 76.2 prior


April 16 - Monday
Retail Sales, March (8:30): 0.3% expected, 1.1% prior
Retail Sales ex-auto, March (8:30): 0.6% expected, 0.9% prior
Empire Manufacturing, April (8:30): 17.5 expected, 20.2 prior
Net Long-Term TIC Fl, February (9:00): $101.0B prior
Business Inventories, February (10:00): 0.5% expected, 0.7% prior
NAHB Housing Market Survey, April (10:00): 29 expected, 28 prior

April 17 - Tuesday
Housing Starts, March (8:30): 700K expected, 698K prior
Building Permits, March (8:30): 710K expected, 717K prior
Industrial Production, March (9:15): 0.2% expected, 0.0% prior
Capacity Utilization, March (9:15): 78.5% expected, 78.4% prior (revised from 78.7%)

April 18 - Wednesday
MBA Mortgage Index, 04/14 (7:00): -2.4% prior
Crude Inventories, 04/14 (10:30): 2.791M prior

April 19 - Thursday
Initial Claims, 04/14 (8:30): 375K expected, 380K prior
Continuing Claims, 04/07 (8:30): 3275K expected, 3251K prior
Existing Home Sales, March (10:00): 4.62M expected, 4.59M prior
Philadelphia Fed, April (10:00): 10.3 expected, 12.5 prior
Leading Indicators, March (10:00): 0.2% expected, 0.7% prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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