Monday, April 04, 2011

Country Embraces Socialism

{ Jobs report or not, stocks perform as expected, providing us opportunity to work our plan and take some more gain.
{ China PMI, M&A activity set the stage for a better, partially that is, jobs report.
{ My how the jobs picture has changed as our country has embraced socialism.
{ US PMI remains solid though misses its expectations.
{ SP500, DJ30 bumping February highs, unable to punch through even on the jobs data.
{ Running out of room at the prior highs or will the Fed liquidity continue to overcome world events and buoy stocks?


Stocks stick to our plan.

It did not matter whether the jobs report was there or not. Stocks performed per our plan, allowing us to catch more upside and bank some more gain. I always love it when a plan comes together. The stock market got a decent jobs report that showed over 200K jobs in the nonfarm payroll sector, and the private sector put in 230K jobs. The unemployment rate fell to 8.8%. While that is dubious, it was still good enough news for the market. It gapped higher as we were looking for it to do. It rallied through mid-morning and allowed us to bank a lot of gain on the session.

There was some selling as we expected. There was profit taking late in the day. Traders who had moved with the market on this nice run to the upside decided it was time to bank some gain. SP500 got through the March peak and ran out of steam as it approached the February peak. It sold way off of its high on the session.

Some late buying in the last hour helped push all the indices back up and keep them positive except for the semiconductor index; it closed down -1%. It is looking a bit winded, but they all closed positive and allowed us the opportunity to take that extra gain. I will talk about their patterns in a bit. Some of them are questionable, but the market did what we wanted on Friday, so I have no complaints.

NASDAQ, +0.3%; SP500, +0.5%; Dow, +0.46%; SP600, +0.3%; SOX, -1%; NASDAQ 100, +0.2%


Dollar: 1.4224 Euro versus 1.4162. The dollar was down. It had been surging premarket at 1.4106 Euro. Very solid. It surged on the good economic news; if the US economy is recovering, the dollar will, of course, be worth more. The other factor is the Fed. It would not be as necessary for the Fed to continue with Quantitative Easing beyond this second round, the QE II. But the dollar was unable to hold those moves, and it reversed.

There is a resistance line drawn there. I did not draw that in after today's action. That was drawn in long ago, looking at the October closing low back in 2010. It closed at that level, danced off of it some other times (including in February), and it touched it and rolled back down. That is not a sign of strength. Of course I do not have to tell you that. The dollar is having its troubles. Maybe investors did not believe that the jobs report was as good as the first-blush rally would have suggested. Maybe not. The dollar has a lot of reasons to be concerned about the future.

Bonds: 3.44% versus 3.46% 10 year US Treasury. You would expect bonds to have sold off aggressively given the stronger economic news, and they did sell off. They gapped lower, but they did not take out the recent lows and they recovered. The 10 year was stronger on the session with good economic data. That tells us there is still something bugging the bond market. What everyone heralded as good news X well, almost everyone X was not enough to keep bonds down.

Gold: $1,428.10, -11.90. Gold closed significantly lower. Gold was down fairly aggressively on the day. It still, however, remains in this consolidation and sitting on top of the three prior peaks. Gold does not look like it is about to roll over. With stronger US data, you would think gold would be under pressure because there would be less need for the Fed to continue Quantitative Easing. That would help overall stocks and other equities while diminishing gold. Gold is somewhat of an inflation play, and if the Fed can eliminate or limit its inflationary actions, gold would suffer.

Oil: $107.94, +1.24. Oil closed higher. Very solid. It topped at $108 during the day. These charts show it was higher than $108, but that is after the fact. It was a good session for oil, no doubt, as it breaks to a new high. It did not look like it would roll over. It had this double top where it came back and tested, but it just did not test as far as we thought it would. We thought it might come back to the 20 day. Instead it bounced off the 10 day EMA and made a new high. Oil continues to surge. It will be a long, high-priced summer in terms of gasoline. I am afraid, as Walmart told us on Thursday, a lot of other things will be higher in price as well. Walmart is seeing inflation really take hold and start to gin up consumer prices.

Coming from Walmart, that is interesting. Anyone who has dealt with them knows that the company is very persnickety with its suppliers. It is constantly urging them X well, I put that too nicely. It harasses them to lower their prices. If Walmart finally says prices are going up, you know its suppliers have said they cannot cut prices anymore. They will have to raise them.



Volume. Volume was mixed. It rose to 2.1B on NASDAQ, up almost 10%. It fell to 910M, down 15% on the NYSE.

Breadth. Breadth was rather anemic as it has been all week. 1.2:1 on the NASDAQ, and 2.4:1 on the NYSE. As those small and mid caps helped bolster the exchange breadth all week long.


SP500. I am looking at a volatility chart versus the orange SP500. As volatility spiked back in late February, the SP500 started to get rocky. Volatility was basically low during the rise, and then it spiked up just as the market cracked lower. That is exactly the action you would expect to see. As SP500 fell to its low on that pullback, volatility hit its peak. Then as the SP500 righted itself and rallied back up toward that prior peak, volatility has fallen off. It has not gotten to the lows of December, January, and February, but it is holding right above them. It is in spitting distance.

Looking at SP500 all by its lonesome, you can see that it did move over the early-March peak. It did not take out the February peak, and then it closed off of its high. A significant close off of the high, showing something of a doji on the candlestick chart.

There is not much instruction from MACD because it was unable to make a new high. You can maybe surmise that as it moved just past the early-March peak it was a lower MACD, but that is a tough read. We do have an ABCD pattern that is rallying, getting back up near the A point. What do you expect in those? When it gets near the A point, it will have a bit of struggle. We may see, after this good two-and-a-half to three-week run, we may see that the SP500 is going to struggle. Maybe it will come back and test early next week before it continues. Makes perfect sense. It has had a good run to the end of the quarter on tape painting. It would be normal for it to pull back and kiss the rising 10 or 20 day EMA.

NASDAQ. NASDAQ showed similar action. It was unable to move through the March peak. It gapped higher and reversed off a lot of its gain on the day. It closed positive, but showed something of a loose doji. Same three week run, roughly the same test of the March and February resistance. It would be normal for it to fall back, regroup a little after the tape painting, and see if it can make the next move higher. It is missing some help from key areas.

SP600. SP600 gapped to a new high, showing something of an evening star doji on the candlestick pattern. That is where it gaps to the upside, rallies, and falls back. It did not close negative, and it does not have to. Now we see, if it gaps lower, it has some near term weakens. Is that frightening? Shocking? No. It moved to a new high. It gapped and rallied over the old peaks. Coming back to test them would be quite normal indeed. If it holds that test and continues upside, that is fantastic. That is a great indication for the US economy. If it crashes and burns, rolling over and plunging to its death, that is obviously not a good thing. It is all about where it holds. If it can hold this old high or even the March peak and bounce from there, it is in great shape. We will have to see how it plays out. Small caps have been a very pleasant surprise along with their mid-cap brethren of late. Hard to complain about them.

SOX. The SOX looks a little decrepit. It rallied, yes, but it barely got through the 50 day EMA before it started to struggle. It never even scared the March peak, and forget about February. It did not even make the January peak. That could be part of a head and shoulders, but it would be a hunchback head and shoulders. In any event, it broke back below the 50 day EMA, and there was a bit of volume there. Perhaps we have something of a downside ABCD pattern in the works. That is just the opposite where you make a higher low and a higher high versus that lower high and lower low. There is selloff, it bounced, tested, and it bounced again. That is all inside of this early-March selloff. Maybe it will sell down. If it does, the first target is down near the March low.

In sum, the indices are a bit overdone right now. Even the small caps that have been the best performer over the past three weeks. They broke to a new high, but they are extended. A test is normal. NASDAQ and SP500 have some very interesting tests to make because they never made the new high. We will see how they perform and whether they roll over hard or just have a normal pullback.


Technology. SSYS had a very strong session. What a solid week. It broke above the prior trading range and had very solid action. Love that high-volume break. RAX has a good week as well. Not necessarily surging on Friday, but it had a very good week and a half, breaking to a new rally high. Not all of the moves in technology were so stellar. AAPL broke back down to the 50 day EMA on Friday. It is not breaking down, but definitely not looking all that strong. GOOG had rallied on the latter part of the week. Not bad at all. It bounced off of an old support level. It tested, filling part of that gap, and it held it. It just broke below it, and it looks like it filled most of the gap now that I look at it again. It filled a lot of it, and then it rallied higher.

We will see if it continues higher. Volume sure was low. There is a sharp selloff, a bounce, a higher low and a higher high. A gap to the 50 day EMA, rallied through it, and then fell back to close below that level. ABCD. We will be watching that potential downside play on GOOG. Would that be one where we are expecting a massive rollover? Not necessarily. A play down to the 200 day EMA looks about right. It is bumping up against some serious resistance. Just thought I would throw that out there and let you chew it over. The ABCDs work both ways.

Financial. GS was trying to bounce back up, and it ran into some resistance. It hit the 50 day EMA on the high, fell back. Still an upside day; it held some of the gap. Questionable. WFC is another questionable bank. Not for its pattern, but for what it is doing here. It looks decent from the pattern. Its practices are not that great, and what is questionable is its CEO saying they are giving all lenders a "second look." I know many small businesses that bank at WFC and have gone there looking for money. They did not get even the first sit down let alone a second look. But I digress. It is a nice pattern at the 50 day EMA, flattening out. Maybe it will provide a bounce (finally).

Industrial. CAT continues its strong move, up another 1.6% on Friday. You cannot keep that stock down. DE is still running as well. It is trying to run with the cats and was showing excellent volume Thursday and Friday, gapping to the upside and rallying quite nicely.

Energy. Energy had a great time the past two weeks. We took a little off the table on Friday. HAL gapped higher and sold lower. Classic near-term, profit-taking move. FTO is holding its own and still looking solid in the refining area. CHK cannot seem to get off of its own feet. It is just sitting at the 20 day EMA, working laterally the past three weeks.

Retail. Retail has been solid. BWLD is making a nice higher low at the 10 day EMA. It might be worth positions if you are not in it yet. It might be worth more positions if you are in it as it sets up something of a triangle. Not bad at all. LULU announced a stock split on the week. It rallied to the upside and moved laterally Wednesday, Thursday, and Friday. Still looks very good here. We took a little bit of interim gain off the table just in case Monday does not prove so kind to it and other stocks that have performed well. SHLD had a good move Wednesday, and then it faded Thursday and Friday. Perfect. Back down to the 20 day EMA, and in great shape to move higher.

What does all of this tell us? It tells us there are still stocks in good position to move higher. It also shows there are stocks such as CAT and its ilk that are still running higher but are not exactly in good buy positions. Overall the market indices look as if they are bumping into resistance, but some great leadership refuses to say down. It continues to move to the upside, and that is a continued bullish indication for the market overall. Not to mention it is great action in the small caps as well. Maybe near term they need a pullback, but the leadership (and a lot of it is the same leadership) still looks very solid.


To view the Economy Video use the following link:



VIX. The VIX fell sharply this week after the early-week issues. It gapped lower on Friday, recovered, but was still down on the session. It is back down in this range where the market peaked out a bit and started to fall. That drove the VIX back up. We will see if it has the same effect. As we look at the charts, you will note they are approaching those early-March peaks. Look where the VIX was when it was there. Very interesting.

VIX: 17.4; -0.34
VXN: 19.41; -0.33
VXO: 15.95; -0.5

Put/Call Ratio (CBOE): 0.89; +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: 51.6% versus 50.6%. Recovering but below the recent high at 52.2%. Investors remain a bit skeptical as SP500 tests the February highs with sentiment lower than it was during that month. Bulls peaked in late December on this upside leg and have made lower highs since. Still high overall but not necessarily bearish. Hit 55.1% in January and 58.8% on the December high on this leg. Still at a high level in a string of high readings but below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.1% versus 22.4%. Despite the three week rise, some investors are more skeptical about a further move though they are not running away with worry. Up from 19.5% to start March. Moving back up toward 23.3% hit mid-February, still well below the 28.3% in September 2010. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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.


Stats: +8.53 points (+0.31%) to close at 2789.6
Volume: 2.134B (+9.7%)

Up Volume: 1.05B (+159.77M)
Down Volume: 1.01B (-10M)

A/D and Hi/Lo: Advancers led 1.25 to 1
Previous Session: Advancers led 1.34 to 1

New Highs: 252 (+56)
New Lows: 28 (-8)





Stats: +6.58 points (+0.5%) to close at 1332.41
NYSE Volume: 910.49M (-15.7%)

Up Volume: 659.08M (+220.19M)
Down Volume: 227.56M (-396.02M)

A/D and Hi/Lo: Advancers led 2.39 to 1
Previous Session: Advancers led 1.41 to 1

New Highs: 579 (+215)
New Lows: 60 (+9)




Stats: +56.99 points (+0.46%) to close at 12376.72
Volume DJ30: 148M shares Friday versus 186M shares Thursday.



Next week the market starts off looking at a little bit of economic data. It does not begin until Tuesday with the ISM services and the Fed minutes. We will see just how many people on the Fed are looking to lay off after QE II ends. There is not a lot of data on Wednesday X crude inventories, the mortgage index. Initial jobless claims come in on Thursday. There are some consumer credit and wholesale inventories on Friday. A very light week in terms of economic data. More importantly, earnings are about to start. It is already April 4th come Monday. That means we have to start thinking about AA and its traditional kick off to earnings season.

What will stocks do? On Friday they had a good session, so to speak. They closed well off the high. The Dow 30 and the SP500 are butting heads up against the February highs, and thus far they have been unable to punch through. The jobs data was pretty good. Everyone was giving it a big cheer, but it was unable to hold the indices at their session highs, and it was unable to take out important resistance. Maybe they have run out of gas here. Maybe they put in all the effort on the three-week rally that recovered back up to the jobs number.

What drives stocks from here? There are earnings. Stocks could give back some ahead of that, and SP500 and the Dow may be indicating that they want to do that. We might get some good buy positions if that happens. We may get pullbacks to the 50 day EMA that allow stocks to move. Remember, there are still a lot of good stocks out. They are showing good patterns that are not necessarily overextended or that can rally to the upside. We can use those as vehicles on a continuing move.

We would really like to see some kind of giveback first, particularly heading into earnings. Otherwise you have the market hanging out up at the old highs on some low-volume moves to that level. If they get some data that is not great, they may get sold back aggressively. Further, if they get some data that is good right off the bat, they can rally further but then sell aggressively given they have had no giveback after this move. We will have to see how it plays out.

The first part of this week will tell some of the story for the near term action. The sellers kind of showed their hand on Friday. They came down and pushed the market around some, but they were not able to win the session out. Indeed, buyers came right back in late on Friday. You might wonder why they were coming in, but there is money still to be put into the market.

Oh, yes. The money. That is the Fed liquidity, and it is still there. QE II is winding down, and there have been four Fed officials saying they need to reconsider whether to continue with QE II and definitely any Quantitative Easing after that. Some suggest not only ending that program but raising interest rates by 75BP in the near term.

There are the hawks out there that say we have to throttle back on all of this liquidity. How does that impact the market? Obviously, to this point, investors have not been buying into the fact that liquidity will be withdrawn. It will be, and everyone knows that; the question is when. The sixty-four billion dollar question is what effect that has on the market in the interim as the knowledge becomes more accepted that the Fed is getting ready to end Quantitative Easing. That is where it really gets interesting, and we will just have to see. Thus far the market has brushed it off. At some point it will have to deal with it because the Fed will eventually remove that liquidity.

This is a good point to start watching. We have SP500 and the Dow coming up to these prior peaks in February. They have not broken through yet, and a little pullback is good. Where do they go from there? Can the SP500 break through the A point and continue on with the pattern having beaten the odds with an ABCD? It could, no doubt about it. If the economy continues to improve, if it picks up faster, then it could overcome some of the liquidity drain when the Fed ends its Quantitative Easing programs.

Right now, I simply do not think the economy is strong enough to do that. But we still have that SP600 that has moved to a new high, and decisively so. Perhaps it is forecasting that the economy will be strong enough to offset the start of the withdrawal of liquidity by the Fed. The Fed is not going to remove it all at once. It will not pull a Greenspan from back in March of 2000 when it called back all of its money overnight. That sent the market into vapor lock and the economy afterward. It will withdraw gradually, but it also has to withdraw at a reasonable pace given the worries about inflation. Bernanke is not worried about it, but Walmart is. Who deals with more costs on a daily basis and has a better figure on the actual, real-world inflation picture? You make the call. Walmart is pretty much on the ball with respect to pricing.

In any event, things start to get a bit more interesting now. The plan worked just fine. Stocks ran up to the end of the quarter, and we were able to bank some nice gain. We still have some excellent positions that show no fear. In other words, they show no sign that they are weakening. We will see how they fare after a pullback early this week. A pullback is likely coming. How the market weathers it will tell the story about the next moves in this market X this market that has thus far defied the odds, defied the geopolitical turmoil, and even five calls by Fed officials to start withdrawing the liquidity. Someday it will have to face that music, and we will see whether it has the character to continue higher. Of course, in this instance, character equates with economic strength. I will see you on Monday to see how this puzzle plays out.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2789.60

2796 is the February gap down point
2802 is the early March peak
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak

2762 is the February low
2729 is the 127% Fibonacci extension of the August 2010 run
The 50 day EMA at 2724
2705 is the February 2011 and consolidation low
2686 is the recent January 2011 closing low
2676 is the January 2010 low
2645-2650ish from December 2010 consolidation
2603 is the March 2011 low
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2550 from May and June 2008 peaks
2540 is the gap up point from early November
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
The 200 day SMA at 2491
The November 2010 low at 2460

S&P 500: Closed at 1332.41
1332 is the early March peak
1344 is the February 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low

1325-27 is the March 2008 closing low and the May 2006 peak. Bending.
1313 from the August 2008 interim peak
The 50 day EMA at 1300
1294 is the February 2011 and the consolidation low
1275 is the January 2010 low, early January 2011 peak
1255 is the late December 2010 consolidation range
1249 is the March 2011 low
1235 is the mid-December 2010 consolidation low
1227 is the November 2010 peak
1220 is the April 2010 peak
The 200 day SMA at 1195
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1173 is the November 2010 low
1170 is the prior March 2010 high
1156 is the Sept 2008 low
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks

Dow: Closed at 12,376.72
12,391 is the February 2011 peak
13,058 from the May 2008 peak on that bounce in the selling

12,283 is the March 2011 peak
12,110 from the March 2007 closing low
The 50 day EMA at 12,036
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,555 is the March low
11,452 is the November 2010 peak
11,258 is the April 2010 peak
11,205 is the April closing high
The 200 day SMA at 11,169
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
10,730 is the January 2010 peak

Economic Calendar

March 28 - Monday
Personal Income, February (08:30): 0.3% actual versus 0.3% expected, 1.2% prior (revised from 1.0%)
Personal Spending, February (08:30): 0.7% actual versus 0.5% expected, 0.3% prior (revised from 0.2%)
PCE Prices - Core, February (08:30): 0.2% actual versus 0.2% expected, 0.1% prior
Pending Home Sales, February (10:00): 2.1% actual versus 0.3% expected, -2.8% prior

March 29 - Tuesday
Case-Shiller 20-city, January (09:00): -3.06% actual versus -3.3% expected, -2.43% prior (revised from -2.38%)
Consumer Confidence, March (10:00): 63.4 actual versus 65.0 expected, 72.0 prior (revised from 70.4)

March 30 - Wednesday
MBA Mortgage Index, 03/25 (07:00): -7.5% actual versus +2.7% prior
Challenger Job Cuts, March (07:30): -38.6% actual versus 20% prior
ADP Employment Change, March (08:15): 201K actual versus 210K expected, 208K prior (revised from 217K)
Crude Inventories, 03/26 (10:30): 2.945M actual versus 2.131M prior

March 31 - Thursday
Initial Claims, 03/26 (08:30): 388K actual versus 383K expected, 394K prior (revised from 382K)
Continuing Claims, 03/19 (08:30): 3714K actual versus 3700K expected, 3765K prior (revised from 3721K)
Chicago PMI, March (09:45): 70.6 actual versus 69.5 expected, 71.2 prior
Factory Orders, February (10:00): -0.1% actual versus 0.4% expected, 3.3% prior (revised from 3.1%)

April 01 - Friday
Nonfarm Payrolls, March (08:30): 216K actual versus 185K expected, 194K prior (revised from 192K)
Nonfarm Private Payrolls, March (08:30): 230K actual versus 203K expected, 240K prior (revised from 222K)
Unemployment Rate, March (08:30): 8.8% actual versus 8.9% expected, 8.9% prior
Hourly Earnings, March (08:30): 0.0% actual versus 0.2% expected, 0.0% prior
Average Workweek, March (08:30): 34.3 actual versus 34.3 expected, 34.3 prior (revised from 34.2)
ISM Index, March (10:00): 61.2 actual versus 61.4 expected, 61.4 prior
Construction Spending, February (10:00): -1.4% actual versus -0.7% expected, -1.8% prior (revised from -0.7%)
Auto Sales, April (15:00): 4.61M prior
Truck Sales, April (15:00): 5.61M prior

April 05 - Tuesday
ISM Services, March (10:00): 59.5 expected, 59.7 prior
Fed Minutes, March 15 (14:00)

April 06 - Wednesday
MBA Mortgage Index, 04/01 (07:00): -7.5% prior
Crude Inventories, 04/02 (10:30): 2.945M prior

April 07 - Thursday
Initial Claims, 04/02 (08:30): 388K expected, 388K prior
Continuing Claims, 03/26 (08:30): 3700K expected, 3714K prior
Consumer Credit, February (15:00): $3.6B expected, $5.0B prior

April 08 - Friday
Wholesale Inventories, February (10:00): 1.0% expected, 1.1% prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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