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.
MARKET SUMMARY
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.
MONDAY
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.
