Sluggish Session as Stocks Cannot Push the Rally Higher

SUMMARY:
- Sluggish session as stocks cannot push the rally higher . . . BUT they don  t sell off after quarter end either.
- More of same news-wise, but liquidity still wins out despite lackluster day.
- Hear that?  Earnings are coming but damn few guidance releases, upside or downside.
- Big chip deal after hours sparks chip buying.  Will the chips change tech’s luck?
- Bernanke late Monday implies there is current inflation but calls it transitory.

MARKET SUMMARY

Stocks overall stagnant, but liquidity helps fuel continued commodities run.

Basically no   new   news on Monday, just more of the   usual  : Japan still struggling containing the leaking radioactive water, Europe dealing with a debt crisis AND inflation (PPI jumped more than expected, and the US still dealing with a potential government shutdown due to budget disagreements (if only it was THAT easy to shut down the feds).  In short, nothing really exciting. 

There was the story about McDonald  s hiring plans for 50,000 full and part-time workers, something it says it will do in one day.  Good news for sure.  Of course that that has to drive the first lady and the food police nuts: McDonalds enjoying that much success peddling burgers, fries, fried pies, sweet coffee has to irk them to the point they can taste the bile rising.  At the same time it is exquisitely ironic: the Obama administration desperately wants more jobs and wouldn  t you know it, the company that is the lightening rod for the first lady  s attack on fast food is the company that is enjoying enough success to personally provide one-fourth the amount of jobs the March jobs survey reported.

Aside from the comical, there was no news to drive stocks.  So after that rally up to quarter  s end and the March peak did stocks run out of gas?  Not in the pre-market.  Futures were up, led mostly by commodities while at the same time techs were struggling.  What does that show?  In the absence of all other catalysts, liquidity wins out. 

But alas, it did not win out all session, at least for many sectors and stocks.  Commodities and stocks related to industrial activity performed decently, but much of the rest of the market could not hold early gains.  Indeed, by the first half hour the gap was filled.  The following bounce attempt failed and the indices spent the rest of the session working laterally.  Things got a bit dicey in the afternoon, but in the last hour stocks recouped some losses to close basically flat with techs lagging the move though coming back as well.

TUESDAY

While Monday was notable for its lack of news, Tuesday at least has something scheduled to offer with the March ISM Services index and the Federal Reserve minutes for the mid-March meeting.  Not real market movers though it will be interesting to see how many at the Fed voiced concern with the continued QE program.

Earnings season is also coming rapidly.  The market has moved well into earnings, typically a problem as it is hard for stocks to live up to expectations in the form of a rally, in this case a three week rally to next resistance.  On the other hand have you noticed many pre-earnings season guidance adjustments?  Not many even with hard comps this time around.  We interpret that as earnings in-line and better.  That can help spur the rally farther.  One thing this market has shown a propensity for and that is better than expected earnings.  January was straight up.  October enjoyed a steady upside climb.  Of course the market is much farther along with its rally, but it also has come off a sharp February to mid-March selloff. 

After hours TXN added to the mix.  Semiconductors had turned over but after hours TXN is buying NSM.  Two big players merging.  That always gins up the excitement and it certainly did after hours with chips rising across the board.  Overall, however, the after hours was more subdued.  Indeed as the evening has worn on the futures have dipped modestly negative.

Can this acquisition turn the chips and thus spark a continuation rally?  Stranger things have happened.  It will certainly tell us a lot about where this rally is in its life cycle.  If the market gaps and turns over then we know it is a bit overdone.  If it gaps and holds then you wonder how far it can run heading into earnings.  That would certainly put the February peak at risk of becoming second fiddle on SP500.  Moreover, if chips reengage that would put extra horsepower in the rally, again making the February high problematic for SP500.  Of course if the market ignores the chip deal that tells a story as well, i.e. that the market doesn  t care about the chips right now.

So for Tuesday watch and see what the market does in the aftermath of the TXN/NSM deal.  If it is a non-event and chips continue lower then the rally likely has some tougher going near term.  A bit of pullback ahead of earnings, however, is not a bad thing.  A pause to reload is time well spent. 

Other drivers?  Tonight Bernanks says the Fed will act if it sees inflation that it deems is more than simply   transitory.    More than that, Mr. Bernanke said the current inflation IS transitory.  Big news as Bernanke says there is inflation at all.  He still maintains, however, that inflation expectations are stable and well anchored.  Hmmm.  The recent sentiment surveys certainly suggest that, at a minimum, inflation expectations are increasing.

Is this the first indication from Bernanke that the Fed will be changing its policy?  Sure sounds like it to us given the admission of inflation, transitory or not, along with the reference to   well anchored   inflation expectations.  As noted, inflation expectations are already rising and he knows that.  Talk about heding.

This sets up an interesting Tuesday session though futures are basically flat, continuing the Monday market action.  There are sectors moving well and others that are setting up new plays in an ongoing process that has continued throughout the rally.  At the same time SOX was rolling over while NASDAQ and SP500 bump resistance.  These stories are more sauce for the goose as Spock said in   The Wrath of Kahn.    Many issues threaten the market, but nonetheless the market has continued higher.  It is up to the issues to take it down if they can.

Jon Johnson

Stock Splits & IH Alerts

InvestmentHouse.com