Stocks Cannot Quite Get on Track
-Â Stocks cannot quite get on track to end a solid quarter.
-Â Jobless claims lower but not really. The trend continues, however.
-Â Chicago PMI tops expectations, remains solid.
-Â Factory orders turn negative in February.
- IRS calls republican proposed budget cuts potentially devastating. Â
- Jumping EU CPI sends dollar lower on belief ECB will raise rates, Fed will do nothing.
-Â Another Fed president talks of rate hikes: Kocherlakota
- New quarter, new month. New money, profit taking, or both?
MARKET SUMMARY
A sluggish, lower open this time cannot yield another upside session.
Stocks closed out the quarter, and it was one of the best quarters in a decade. March was no great shakes of a month. Thursday was not that great of a session, but stocks were mixed and managed to close holding their gains. As noted, that pushed the market to one of its best quarterly gains in a decade. NASDAQ, +0.15%; SP500, -0.2%; Dow, +0.25%; SP600, +0.5%; SOX, -1%; NASDAQ 100, +0.1%.
Looking at the intraday chart, it was a very choppy session that was not able to make any headway with the SP500 closing lower. It was a little hungover after a solid Wednesday session, so some profit taking came in a little earlier than anticipated. There were very solid stock moves, but the market was sluggish. It seemed that some of the investors were trying to get a jump on taking profits Friday or taking a little off the board ahead of the premarket jobs report.
We were doing the same. We banked some interim gain on positions such as DE and AMZN. We took more gain on stocks such as GMCR and HAL. Many were performing well, and we locked in substantial gains. Again, we were not alone in doing this, and I anticipate we will be doing more of it on Friday along with others, particularly if the market gets a favorable jobs report and gaps to the upside. The market has been moving steadily higher over the past two-and-a-half weeks, and a good gap to the upside would put SP500 at its early March peaks. That might be just about all it can squeeze out of this run once the new money has been put to use.
April is always a good month for the stock market. Depending on who you talk to, it is either the second or third best month of the year, averaging a 3.5% gain since the 1950′s. That is not too bad of a track record. We could squeeze out some more upside, particularly given that March was a relatively flat month with that V bisecting it almost perfectly. We had a great January, a solid February, and then a middle-of-the-road, flat March. With April being a historically good month, we could see it bounce right back up and keep going. Of course, March is the fourth best month of the year historically, and it let us down a bit. It did recover to end the quarter, however, to keep the shine on stocks.
FRIDAY
What does the next session hold? Of course it is the jobs report, and the jobs report has been dominating the talk of the afternoon. That is why there was some profit taking before the close. We are expecting 185K jobs. That is not much. I have heard people saying 300K would be more the case. As always, the number right now, while important, is not as important as the reaction. If we get a 300K number, you think the market will jump? Probably so. Whether it will hold is the question. If we get an upside break on a good number X or on a bad number, for that matter X and it does not hold, then we will want to book more profit. We will not be the only ones doing that, I guarantee it.
The market has had a good run to this point. A lot of traders X big money X after painting the tape to the upside are not going to just let it go away without taking a little gain. We could very likely see more profit taking if is there any kind of move to the upside. The question is when will it occur, and off of what kind of action. Meaning, will it be a lower start and then run to the upside, or will it be a gap that then reverses? Beware more of the gap that reverses. That indicates it could turn into more of a sharper-selling day than just a weak start that muddles through the session and never gives the sellers a really good entry point.
If it is really clear and stocks gap up to a new high on the rally, that is when they want to take their shots. That is when we could see more of a decline, although we still do not anticipate a rollover. Just more of a test. More interesting will be later in the month, specifically April 27th when Bernanke has his first press conference after the FOMC decision. The new press conferences show the increased transparency of the Fed. I do not know if that is necessarily a good idea. Transparency, yes X we need to know what they are doing with the money. But having the Fed head up there fielding questions like the press secretary? Wow.
We anticipate taking some profits. We have built up some good ones, and we were taking some on Thursday. If we get the opportunity to do so on Friday, we would like to do the same thing. Then we will leave some on the table, of course, to see if the market can continue and rally in what is typically a positive month for stocks. We do not want to take everything off, we just want to lock in some money because we have had a good tape-painting run. Then we will see what the new money does with the new quarter.
What about new positions? Will we delve in or just be watching? There could be some positions that are just too good-looking to pass up, and there may not be many that perform that well. We will have to see how it unfolds. We do not anticipate buying much. Friday is never our favorite day for buying. We just have to wait and see what the market tells us it wants to do. After this run higher, I think this is a much better point to be taking some profits than taking new positions. If we get a pullback, then we might have a better opportunity to get stocks and plays in better risk/reward positions.
They are still out there, no doubt about it. There are just not as many of them. We would prefer to have a sack full of potential buys versus just a few. That tells us that the market would be more inclined to move higher near term than to move lower. When you have fewer of the stocks in position to break higher after a run when a lot of stocks are extended, what do you think is the natural course? Typically the market is a little heavier, it sags, and it wants to come back. It is best to just get a group of them ready to move than to try to pick a fight with a market that has run kind of far and needs to pull back.
April can be a very interesting month. You have that first Bernanke press conference, and there is a lot of other intrigue that has to be worked through. One of those is the budget battle right now where they are trying to cut a whopping $61B. They want it to be whittled down to $30B or $20B. I think the IRS Chief came out today and said that the Republican budget cuts were “potentially devastating.” My goodness. $61B dollars out of a $3T economy is potentially devastating? They call it cuts in non-discretionary spending, and they always laugh that off saying we might as well not even do it because it would not affect anything.
Of course, they said that about the drilling. They said it would make too little of a difference and it takes too long. We cannot have an immediate impact, so why would we do it? They said that 40 years ago X and 30, 20, 10 years ago. And then just this week. If we had started at any one of those times, we would be much better down the road. It is also not just the fact that it takes time; there is the perception. Whether we are ready to do it. If we are locked and loaded and hell-bent on doing it, that impacts the market.
Instead we are going to put the government fleet on renewable sources that take them off oil, I guess. That is really going to make a big difference. I cannot wait. Nothing new in this “energy policy.” It is just the same old, tired rhetoric that will not do one thing and will not help us with our independence at all. But I digress.
Those are some areas that are interesting ahead and will impact the market. The market has had a great resilience dealing with these. It has had a bunch of money coming in. The question is, will the money keep coming in? I started this section with one of the big questions: When will the Fed make its move, and just how serious is it right now? That is helping keep the market afloat. One trader said this the other day, and I have been saying it all along X is it the economic improvement or is it liquidity? The economy is not improving that much to sustain the best quarter in a decade. It is just not that strong. It is not strong at all, really, when you consider the job creation and the plight of the small businesses.
There is no doubt in my mind that this is a liquidity-driven move. Thus the Fed becomes very important as we move toward the summer. That makes the Bernanke speech very important, and the market could turn on that at the end of April. After all, we will be right in the middle of earnings, and it will be a very important direction for the market.
I will see you Friday and we will see what the job report returns. Hopefully we will get a good one, get a gap, and be able to bank some more nice profit.
