Monday, April 18, 2011

Stocks Move Higher to Close Expiration

- Stocks move higher to close expiration with leaders again improving, but the move doesn t change anything heading into next week.
- Consumer prices rise sharply overall though the core fades.
- Production and Capacity post solid gains
- New York PMI posts a solid month as manufacturing keeps its end up.
- Michigan Sentiment first peak at April bounces back.
- Expect a light volume, holiday shortened week with earnings driving the bus.


Stocks rise on an uneventful expiration.

It was an expiration session on Friday. As you might imagine, it did not do much to change the complexion of the market. The indices bounced a bit more and volume was up, but it is typically up on expiration. It has been higher the last two expirations in particular. The SP500 and NASDAQ bounced further off of their 50 day EMAs, but they did not make major changes to their character.

Some leaders continued higher, and that is something we have seen of late. DDS made an upside move, and DSW made a solid move to the upside as well. They were joined by a few stocks across the board. It was not a lemming rush to the upside, but there were leaders once again moving higher as seen on Wednesday, Thursday, and to end the week on Friday.

Stocks started modestly lower but bounced almost out of the gates. They moved up through most of the session, at least until mid-afternoon. There they made a lower high and sold back toward the close, but they did not sell off all the way. NASDAQ, +0.16%; SP500, +0.4%; Dow, +0.46%; SP600, +1%; SOX, +0.66%; NASDAQ 100, -0.16%. Note that the NASDAQ 100 was the mirror image of NASDAQ overall. It was dragged down by some of the large-cap techs that had a rough session. GOOG was slammed down on its earnings. CSCO was down again. AAPL was down, falling back to the bottom of its range and support. We were looking for it to bounce again.

These names are the old vanguard. In the 80's and 90's, they were the newcomers that turned the world on its head with their products. The problem is that, overall, they are not growth stocks anymore. They have become more mature companies that generate money with cash cows. The cash cows keep producing income although innovation is low. The classic story of these is MSFT with its Windows operating system that produces most of the money. It does have games and the like, but it is really not innovating anymore.

Ultimately stocks did close higher, though they were slightly off their highs. They did not change the character of the market or push the ball further downfield. They rallied but the February peak still appears somewhat distant. They are in good position to make a higher low and rally up into next week, which is a shortened week for Good Friday. The market will be closed on Friday. Even though it is earnings, we thus expect a light-volume week ahead of Easter that might see stocks drift to the upside. It may put them within reach of the March high, if not the February peak.

There was plenty of news to drive the action on Friday, but that was not the catalyst. It was more about earnings and following through on a technical pullback. More of the story could be told next week, but we may have to wait to the week after for the definitive answer on how the market will move with respect to that February peak. A lot of what drove the market was the other markets and how they are being treated based on what the Fed and US Government is doing.


Dollar: 1.4424 versus 1.4488 Euro. The dollar was actually higher on the session. Thursday we had a steep decline, and Friday there was a modest bounce. The dollar has definitively undercut the November 2010 low. It tried to rebound off of a lower low in March. It looked like there may have been a false breakdown there, but it was stymied by the 20 day EMA. The dollar has slid down ever since, and things do not look positive for it.

The dollar is very weak technically, and I do not expect it to get better. Other central banks are starting to raise their interest rates, but the US is not going to follow suit. It said it will continue with Quantitative Easing at least through the end of QE II in June. Therefore the dollar will continue to be undercut in terms of its value. Of course, that means we will have continued problems with inflation. Gasoline rose to 3.815 cents per gallon this week, up 10 cents in a week. We are having serious issues with the dollar, and that is causing serious issues with the products that we have to consume.

Bonds: 3.40% versus 3.50% 10 year US Treasury. Bonds jumped higher. The economic data was actually better than expected mostly across the board, yet bonds gapped through their 50 day EMA. What is going on? If the economy is improving, bonds should be falling and yields should be rising. If the Fed is going to stop with its Quantitative Easing, bond yields should start rising because the Fed stops buying them and pushing yields lower.

Something is bothering the bond market again. Back in December and January when it moved laterally, it turned out that was Egypt and the boiling pot in North Africa and the Middle East. Then it rolled down after that. We said it was just Egypt and maybe it is not the end. Then we had Libya and then the Japan problem. We saw the fear ratcheting back up. Two weeks back it looked like it was over and it broke back lower. Then, all of a sudden, there was a gap to the upside and a test. Then another gap to the upside puts it right back in the fear game. We do not know what is out there. The bond market is worried about something breaking. Maybe it is European countries having a problem, or more problems in the Middle East. We will have to see what happens.

Gold: $1,486.00, +13.60. Gold rallied sharply again to a new all-time high. Very strong move to the upside. As we noted on Thursday, just a pullback the prior couple of sessions to near support of the 10 day EMA. Sitting right on top of the prior peaks and then bolting higher on Thursday and again on Friday. Gold can be equated somewhat to bonds as a fear trade, and here we also view it as an inflation trade. Unless it would be somewhat contrary to the bond market because bond yields are falling as bonds rallied last week. You would think if they were in conjunction with gold and worried about inflation, they would be falling and rates would be rising. Maybe there is a bigger fear component in gold than we picked up before, mainly because the bond market was trying to fall. It has reversed and now they look somewhat hand-in-hand, trying to define some problem out in the world that we cannot pin a name on yet.

Oil: $109.66, +1.55. Oil had another good day as well. After selling off sharply Monday and Tuesday, it found support at the 20 day EMA as well as the early-March peak. It has bounced three consecutive sessions. It is not blowing the cover off the ball, but it was a good move on Friday. It is off its high but recovering. It is unfortunate because we saw some gasoline prices start to head lower. They were up early in the week, and then they were heading lower late in the week. Now they will probably bounce right back up given that oil is moving up to $110 a barrel.

What had problems the last time it got between $110-115. That caused problems with gasoline and other areas because it created demand destruction. That is when the price gets so high that people have to do without and put off buying things. Maybe they do not put them off at all -- maybe they just have to put most of their money in the gas tank versus making other discretionary expenditures.






Volume. The internals were somewhat bulked up by expiration Friday. NASDAQ volume gained almost 5% to 1.8B, and NYSE volume gained 13% to just over 1B shares on the session. It did move up.

Breadth. Breadth was solid at 1.9:1 on NASDAQ and 2:1 on the NYSE.


SP500. SP500 continued its bounce off of the 50 day EMA. Thursday it was an interesting move as it undercut that level and reversed to move to the upside. That was good action. It showed there were buyers at that level, and it continued higher on Friday. It is really not dispositive because it is expiration Friday and we have a short week coming ahead. It is still in the potential inverted head and shoulders. Looks like it may have put in the right shoulder and we may very well get a rally next week up to the February peak. It is a quiet week and it looks as if the SP500 wants to move to the upside, and light volume can send it that way heading into the holiday.

NASDAQ. NASDAQ showed the same action, coming off the 50 day EMA as well. Looks as if it is also putting in the bottom to a right shoulder to this inverted head and shoulders. We like what we see here. It could also rally up next week to the March peak or even make an attempt at the February high just on a momentum move. The techs have been dragging, however, because the large-cap techs have been holding them back. It is still the same pattern as the SP500. They both have a sector or two that are holding them back, but they act as if they both want to try a bounce to the upside.

SP600. The small caps posted almost a 1% gain on Friday. A good continuation move off their 50 day EMA. Very solid, getting back up to the mid-February peak. Unlike SP500 and NASDAQ, the small caps did break over those levels and rally to a new high. They are testing the move and heading back upside now. That is a good indication for the market overall and for the economy down the road.

SOX. Semiconductors remain in a bad situation. They were up on the session almost 0.7%, but they are really mired in a very sloppy selloff right now. Still below the 50 day EMA. They have a gapdown point. They have a lot of prove coming next week. Maybe they will just follow the rest of the market when they try to make a move.


Retail. There were some good moves again as retail stocks are taking the lead. DDS had a strong move to the upside. DSW had a nice upside gain of nearly 3%. DECK enjoyed a nice move, also almost 3% on strong volume. LULU had a good break to the upside ones more. PCLN had a break higher as well. Retail is once again cranking back up and getting to work.

Technology. Tech was mixed. NVDA continued its break to the upside, although it hit the 50 day EMA and peeled back somewhat on Friday. XLNX bounced. We will see if it can get any momentum as it tries to come off a support level. We are watching these semiconductors closely because the overall pattern of the SOX is not that positive.

Internet has been very strong lately. SABA bounced nicely. A good, sharp bounce on solid volume. TTWO got a good volume shot. It broke to the upside and closed well off the high. Looking at the recent action from mid March, it has an interesting triangle pattern that has formed up again. Looks like a triangle pattern or a trading range over the 50 day EMA. It could make a break higher. Some of the big names are not as impressive. AAPL tumbled back down. It is the group that I talked about earlier. The large caps had a tough time, and they were not able to make that move.

Energy. A recovery is trying to take shape. HAL bounced back above its trendline on some volume. Maybe there is some life there. FTO is edging to the upside, trying to hold it all together. Natural gas is still struggling. CHK is down, but it is holding its 50 day EMA. Energy is trying to make a recovery move.

Metals. Metals are not trying to make a recovery move. FCX fell on stronger volume. AKS posted a modest loss, and it is struggling right now. STLD may hit the bottom of its range and bounce. It sold off. Look how volume jumped up as it sold back to this prior range. It is one to watch. It may give us a trade off of that level. We will have to see.

Industrial. Industrials finished up the week decently. They were down a bit on Friday, but they are trying to hold in a lateral move. CAT is over its 50 day EMA and the February and March peaks. DE is doing the same, trying to hold over the 50 day EMA. They are not in bad shape, just trying to hold and make the next break to the upside.

Financial. Financials are in bad shape. JPM was down again after gapping lower on Thursday. WFC is diving on heavy volume to the downside. At least some of the regionals are not so bad. STT is holding with a pair of doji at the 50 day EMA. We will see if it can bounce from there.

It is the same story we have seen all week with some areas moving higher. Retail is strong. Software is looking good. Other areas are not doing as well, such as large-cap tech and financials. Energy is hanging on and may be able to recover. We have some possibilities for recovery that could help the SP500 and NASDAQ move up toward that February peak next week.


VIX. There was a gap lower on Friday, and it took it down to the April 2010 level. That is coincident with other points from a long, long time ago, and a market far, far away. All the way back in 2004-2006. What happened during those years? The market moved laterally, but then it rallied during this period. There was not anything negative about that. There is no negative connotation right now with respect to it touching this level. It may try to signal an interim top, but right now there is not that kind of correlation between volatility and the stock market moves. It is not that really close correlation. In any event, volatility can continue to fall for quite some time while the market rises. You have to worry when volatility rises while the market is rallying.

VIX: 15.32; -0.95
VXN: 17.48; -0.22
VXO: 15.3; -0.76

Put/Call Ratio (CBOE): 0.93; -0.04

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: 55.4% versus 57.3%. After flying 6 points higher the prior week, bulls checked their stampede a bit. Lower but still moving toward that 60+ level that indicates some trouble for a bull run. Hit 55.1% in January and 58.8% on the December high on this leg. It is matching those readings 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: 16.3% versus 15.7%. Rebounding some but still suffering the hangover from that plunge lower from 23.1% to start April. Fell like a stone on that decline, moving below the April 2010 low. 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: +4.43 points (+0.16%) to close at 2764.65
Volume: 1.81B (+4.46%)

Up Volume: 1.07B (+259.16M)
Down Volume: 709.03M (-181.99M)

A/D and Hi/Lo: Advancers led 1.88 to 1
Previous Session: Advancers led 1.29 to 1

New Highs: 84 (+33)
New Lows: 31 (-20)





Stats: +5.16 points (+0.39%) to close at 1319.68
NYSE Volume: 1.05B (+13.44%)

Up Volume: 657.83M (+194.23M)
Down Volume: 377.46M (-65.26M)

A/D and Hi/Lo: Advancers led 2.12 to 1
Previous Session: Advancers led 1.26 to 1

New Highs: 152 (+51)
New Lows: 27 (-2)




Stats: +56.68 points (+0.46%) to close at 12341.83
Volume DJ30: 235M shares Friday versus 141M shares Thursday.



There is plenty of economic data. Housing starts and building permits are on Tuesday. Existing home sales on Wednesday. Thursday you see the FHFA Housing Price Index. That will give a good picture of the housing market overall. There will also be some other typical data such as initial claims and the Philly Fed. Leading indicators are out on Thursday as well.

There is no Friday report due to Good Friday. We have a four-day week that proceeds Easter, and that is historically a light-volume week. We are expecting light-volume trade. That means that we have a bounce in progress. We will have a lot of earnings, and they will be driving the action as well. Thus far some earnings have not been a great, but the market has been able to hold at the 50 day EMA support and bounce. We may get a drift toward the March and April peaks. That would not be bad; a move up to those levels is what we are playing for. If it gets up there, you can bet your bottom dollar we will be taking gain off the table.

We have some new positions that we started on Wednesday and Thursday during this action, and that gave us a good slingshot to the upside on those positions. We can take some gain there. As our other positions move up, we can bank some there as well. At this juncture, we are not banking on a breakout. We are looking for a move back up to this February peak, and that will be the definitive test for SP500. Will it get tossed back down like a sack of potatoes, or will it use this inverted head and shoulders to make the breakout? That will be the story it will tell us, but not likely next week. It will probably be the week after that when the market comes back from Easter.

During that time, we want to take advantage of it. We will be looking for a few plays to the upside to see if we can capture this continued move. Maybe we can get a little earnings wave to push it higher into that February peak. There are still some stocks in good buy-point positions, even after we picked some up on Wednesday, Thursday, and Friday as market moved higher. Not all stocks leave the gate at the same time; therefore, we can catch them in waves. We probably do not have a huge amount of time to play with here, but this can give us a nice four-day move up to that high. If we get there, there will probably be some profit taking. That would be our plan, anyway.

We will continue to look for some plays up to the February peak. At that point, we just have to see which way the market takes us and be ready for either way. There could be a downdraft from that level if this move is not strong and the earnings do not come in and corroborate a breakout move. If things do improve strength-wise and we get the breakout, I am all for that, too. We cannot complain since we are obviously upside-biased at this juncture.

We will see what wrangling there is over the weekend with respect to the budget. The next big vote will be the debt ceiling. I am of the opinion that you do not need to raise the debt ceiling. We are going to pay our debts. All it does is make us try to come to terms with where we will spend our money since we will not be able to borrow anymore. If we cannot borrow anymore, we have to make tough choices.

I know a lot of the politicians are saying that our creditors would run away from us because we will not be able to pay the debts. We will pay our debts, however. You know we will. I think creditors would be more excited about us actually saying we will put a limit on how much we borrow so we will make the tough choices about where we spend our money. Would they be happier with us saying "what the hell" and raising it another $2T? What do you think makes creditors more comfortable? To dilute what they have or to take the necessary steps to ultimately make the debt they are holding worth something? I will let you make the call on that one.

Have a greet weekend!

Support and Resistance

NASDAQ: Closed at 2760.22

2762 is the February low
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

The 50 day EMA at 2740
2729 is the 127% Fibonacci extension of the August 2010 run
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 2516
The November 2010 low at 2460

S&P 500: Closed at 1314.52
1325-27 is the March 2008 closing low and the May 2006 peak. Bending.
1332 is the early March peak
1344 is the February 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low

1313 from the August 2008 interim peak
The 50 day EMA at 1308
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 1206
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 12,285.15
12,283 is the March 2011 peak is bending
12,391 is the February 2011 peak
13,058 from the May 2008 peak on that bounce in the selling

The 50 day EMA at 12,131
12,110 from the March 2007 closing low
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
The 200 day SMA at 11,267
11,258 is the April 2010 peak
11,205 is the April closing high
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

April 12 - Tuesday
Trade Balance, February (08:30): -$45.8B actual versus -$45.7B expected, -$47.0B prior (revised from -$46.3)
Export Prices ex-ag., March (08:30): 1.3% actual versus 1.0% prior (revised from 0.9%)
Import Prices ex-oil, March (08:30): 0.6% actual versus 0.5% prior (revised from 0.3%)
Treasury Budget, March (14:00): -$188.2B actual versus -$189.0B expected, -$65.4B prior

April 13 - Wednesday
MBA Mortgage Index, 04/08 (07:00): -6.7% actual versus -2% prior
Retail Sales, March (08:30): 0.4% actual versus 0.5% expected, 1.1% prior (revised from 1.0%)
Retail Sales ex-auto, March (08:30): 0.8% actual versus 0.7% expected, 1.1% prior (revised from 0.7%)
Business Inventories, February (10:00): 0.5% actual versus 0.8% expected, 1.0% prior (revised from 0.9%)
Crude Inventories, 04/09 (10:30): 1.627M actual versus 1.952M prior

April 14 - Thursday
Initial Claims, 04/09 (08:30): 412K actual versus 385K expected, 385K prior (revised from 382K)
Continuing Claims, 04/02 (08:30): 3680K actual versus 3700K expected, 3738K prior (revised from 3723K)
PPI, March (08:30): 0.7% actual versus 1.1% expected, 1.6% prior
Core PPI, March (08:30): 0.3% actual versus 0.2% expected, 0.2% prior

April 15 - Friday
CPI, March (08:30): 0.5% actual versus 0.5% expected, 0.5% prior
Core CPI, March (08:30): 0.1% actual versus 0.2% expected, 0.2% prior
Empire Manufacturing, April (08:30): 21.7 actual versus 15.0 expected, 17.5 prior
Net Long-Term TIC Fl, February (09:00): $26.9B actual versus $51.1B prior (revised from $51.5B)
Industrial Production, March (09:15): 0.8% actual versus 0.6% expected, 0.1% prior (revised from 0.0%)
Capacity Utilization, March (09:15): 77.4% actual versus 77.4% expected, 76.9% prior (revised from 77.0%)
Michigan Sentiment, April (09:55): 69.6 actual versus 66.5 expected, 67.5 prior

April 18 - Monday
NAHB Housing Market Survey, April (10:00): 17 expected, 17 prior

April 19 - Tuesday
Housing Starts, March (08:30): 520K expected, 479K prior
Building Permits, March (08:30): 538K expected, 517K prior

April 20 - Wednesday
MBA Mortgage Purchases, 04/15 (07:00): -6.7% prior
Existing Home Sales, March (10:00): 5.00M expected, 4.88M prior
Crude Inventories, 04/16 (10:30): 1.627M prior

April 21 - Thursday
Initial Claims, 04/16 (08:30): 390K expected, 412K prior
Continuing Claims, 04/16 (08:30): 3650K expected, 3680K prior
Philadelphia Fed, April (10:00): 32.9 expected, 43.4 prior
Leading Indicators, March (10:00): 0.2% expected, 0.8% prior
FHFA Housing Price I, February (10:00): -0.3% prior

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

Jon Johnson is the Editor of The Daily at

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