SUMMARY:
- Jobs report, even with its beat, could not live up to expectations, Chavez ‘peace’ overtures face harsh reality, market sells back.
- Late rally puts a better light on the session, and in the bigger picture this is still just a normal, albeit choppy, consolidation.
- Liquidity continues to trump overall, but keep a watch for oil spikes, spreading unrest, food shortages . . .
- Greenspan tells the feds to butt out with its regulations and taxes while Gross says Bernanke is way off regarding inflation.
- Jobs are being created, but the statistics are misleading as US labor participation rate is well below the historical average, making unemployment figures look better than they are.
- Friday may have been down, but it still suggests a November-like correction versus any major selloff.  But, watch out for those hot points that could set off the old stagflation malaise.

MARKET SUMMARY

Late rebound as shorts cover cuts losses to manageable, or at least more comfortable, levels.

Investors anticipated a better-than-expected jobs report. They got it, but it may not have been as good as they hoped. The 192K jobs beat the 185K expected, but futures were not loving it. Indeed, they bounced a bit on the news and then immediately sold off. As the stock market started to trade, the selling continued. It lasted most of the session until a late rebound. It was not just a late rebound, but a try that could not quite hold it together. At the end of the day, there was a rally into the Friday close. I think that was likely some short covering going into the weekend.

There was some bad news out about Libya. There was some fighting after the “peace day” offered by Hugo Chavez. Reality set in. Who will want Moammar Gadhafi as the head if they rose up in opposition of him? Saner heads prevailed. There were also issues the Saudi Arabia with some expected protests. The market was not too happy about it. Nonetheless, that late short covering came along in the event that good news occurs over the weekend. After all, the trend is still up in the markets, and you do not want to be caught short if good news pops. Who knows, maybe oil will drops to $40 a barrel. Yeah, right.

There was a lot of commentary in the market about economic data, about what the Fed is doing, about what former Fed officials are doing, etc. A lot of news and turmoil. Looking at the SP500 chart, it somewhat reflects the indecision that is occurring at this point. It had a nice upside day on Thursday. It could not quite get it together on Friday, although the rebound cut the losses almost in half and made it a fairly respectable-looking session on the close.

The bigger picture is just a nice, easy   and I mean very easy   consolidation of a strong, nearly three-month run. There is the initial run, the consolidation, and the second run and consolidation. This one is about half as long as the first one in November. There still could be more room to consolidate here. The day’s trade was instructive, at least in part. The market did not sell off wholesale even though good numbers were expected and they were not blowout. It is not rallying right now either.

That is the definition of a lateral trading range. In the big picture, that is not bad at all. We have a good base behind this market from the summer of 2010. There is the breakout, the first test, the next run, and now the second test. Hopefully the economy continues to improve (even at this slow pace) and nothing upsets the apple cart. There are surging oil prices, unrest spreading throughout the Middle East, inflation running rampant. There are several things to upset it that are definite possibilities, but right now nothing appears that burdensome for investors in the face of all the of the Fed liquidity.

Remember, liquidity is what is driving this action. It is not the booming economy   although without improvement, the market would not be moving up. It is obviously not oil prices over $100 a barrel. That does not help anybody with respect to our economy. It is that the Fed is still pumping in the liquidity. As of last week, Ben Bernanke gave no indication that he would stop the liquidity pump any time soon. If that is the case, stocks will rise because all of that money has to be pushed somewhere   namely the financial markets and commodity market. Any market that can hold some money is getting dollars shoved into it even now.

MONDAY

Next week the news slows down somewhat as far as the scheduled data, but there will still be some out there. Consumer credit will be interesting to see. It is expected to drop almost in half from what it was in December. We will have initial claims again. They will not be as important this time around because the jobs report is already in the bag. We will be watching it for next time. They are expected to rise a bit but still stay below 400K.

Retail sales will come out on Friday along with Michigan Sentiment. It will be cool to see what the consumer feels about the high-priced gasoline they have to burn in the tank versus spending it on their favorite latte or what-have-you.

The market is in a chop right now, whether it is with the leading stocks or the indices themselves. Of course there are stocks in position or setting up to move higher. We can buy them, but it looks like we have more time to spend with this consolidation. Thursday was a good move. Friday was just a giveback. The numbers were not as great as anticipated, but it was nothing major. If we could get another week or so of lateral movement   lateral maybe down to the 50 day EMA   that would be outstanding action. That would be a lot like November. It looks similar, and it is still a good consolidation. There is no major selloff that I can see.

It all comes back to liquidity versus anything else that could possibility take the market down. Number one on that would be if Bernanke says they are getting ready to wind this thing up. Then you would see interest rates probably take off even more to the upside. That is why he is probably deathly afraid of even mentioning it under his breath as a joke. If he did and someone heard it, you would not believe the selling that would occur in bonds.

In any event, it will be pretty ugly. It is like when DELL and other companies ran up tens of thousands of percent   eventually they were going to miss an earnings report. When they did it was not going to be pretty. Someday the Fed has to say they are out of here, and it may not be pretty. Maybe they can prepare the markets, but with this much liquidity out there they will have to sop it up at some point. When it happens it will be a gut-check period. For now nothing has upset the market. A bit of action in Saudi Arabia and Libya perhaps is getting things a little choppy, but it is not defeating the uptrend. It has not changed the character and there have not been any major breakdowns.

What do we do? I hate to say it, but we are going to do the same thing. We will look for opportunity to the upside. Again, it may take another week or so for this consolidation to finish. There will be leaders that move higher before the end of the consolidation, hence the name “leaders.” They will be setting up and taking off. We want to look at those and be ready. Always keep your watch list going. As they present buys, even though things may look a little dicey, you can take some positions.

Often they start coming out ahead of the market. You may not want to do it. Your gut may be telling you not to, but when the stock says “buy me,” you should pay attention. You may not want to load the boat, but take some positions and see how it plays out. The important thing is to get the risk/reward right so you are not hurt if it does not go your way, if you were a little early, or if the market does gets an unexpected (but really expected) shock.

We are going to look for those plays. They are still out there. BWLD was one today. They will show up, and will continue to form up as long as the liquidity stays there and there is nothing to trump the Fed’s hand at pushing money into the financial and commodity markets. We might get some downside plays because there are still some beauties. We took some more gain on the AKAM play today. It was a nice downside play, but it looks like it is trying to bounce. We decided to bag the rest of that. Others are starting to fall as well. As the market chops, those will tend to fall. That is how they will consolidate. While some stocks will bounce up and down or form shallow bases, others want to correct more. We will take advantage of those to the downside as well, just as we are doing now.

All the while, we have our eyes focused on the Mercedes-Granada corrections and when this one looks like it may end and make the break higher. Right now we have a higher high and a higher low. That is very positive action. We could see the break at any time. I anticipate and hope it will take longer than that so we get better buying opportunities. If the play presents itself, we have to stay with what has been driving the market to the upside and what has not been upset by the choppy consolidation brought about by unrest in Libya.