- So much for a lazy rise as stocks get their catalyst and surge.
- Earnings trigger the upside rally as the pre-earnings pullback was just the right dip for a rally.
- Mortgage applications rise 5.3% . . . on refinancing.
- March Existing Home Sales rise on the back of distressed sales and cash sales, pressuring prices as inventories bounce higher.
- China pushing the yuan over the dollar as the reserve currency?
- Another rally takes NASDAQ, SP500 to the March highs for Good Friday, and likely some profit taking ahead of a long weekend.

MARKET SUMMARY

A good setup for earnings season gets its trigger, rallying toward Easter.

Tuesday we pondered a slow drift higher to Good Friday and wondered how the indices would remotely get near the February high much less the March high before the long weekend.

Wednesday showed us just how that would be done.  The indices had pulled back to an important support level on the Monday S&P downgrade news, holding that level and bouncing intraday.  That was the culmination of a two-week pullback preceding earnings season, and also the bottom of the right shoulder to an inverted head and shoulders pattern.  Many quality stocks used the selling to ease back to near support, sitting in good position to rise.  The stage was set and when the right earnings came along that triggered the buy orders and stocks surged.

They surged too good from the perspective of new positions.  Almost across the board stocks gapped higher, making it very difficult to use the move to obtain new positions with good risk/reward characteristics, particularly if you are playing a move to the January peak as we mostly are for this move.  We managed to get some new positions, but many solid stocks gapped away and never looked back.  Frustrating but we did get some entries and we are consoled by the fact that we picked up many good positions of late and already had some great stocks in hand and they most all moved higher in the Wednesday upside surge.

While NASDAQ and SP500 did not make it to the March highs, they did their best in trying to do so.  NASDAQ gained over 2%, SP500 1.35%, DJ30 1.5%, SP600 1.9%, and SOX surged 4.3% on the back of TXN’s strong results.  Volume was not huge, but it was up solidly on both NASDAQ (above average) and NYSE (right at average).  Still a long way to go to the February peaks, but the indices did a much better job than we imagined as of the Tuesday close.

THURSDAY

Last day of the week ahead of a three-day weekend.  Initial clams, Philly Fed, and Leading Economic Indicators scheduled, many more earnings are coming.  Many came after hours: AAPL, FFIV, QCOM, SCSS, PLXS reported and surged.  YUM and CMG, both in restaurants, reported and were down.  The rise of tech and the decline of retail starting?  Not ready to write off retail with its strong patterns and moves, but with the headwinds of gasoline and inflation you have to be on guard.

So we will be on guard but that change, if it comes, likely won’t be determined on Thursday.  What we are looking for is simple.  We anticipated a move toward the January high ahead of the break given the nice pullback right ahead of earnings.  That rally did better than we anticipated as of Tuesday evening, and it was so good we were not able to take many additional positions given the strength of the move and the time and room to run left ahead of the holiday.  We likely won’t be taking new positions upside Thursday.

What we will be doing if we get that kind of rush seen Wednesday and what looks as could happen on the Thursday open given the after hours earnings results and response.  That could easily push SP500 to the February peak, just 13 points further.  If there is a gap upside you should beware for near term positions. It will likely be used, at some point in the morning, as a profit taking opportunity.  It could be the afternoon, but if there is a roaring open many will book profits and then leave for the weekend.  If there is a slower open perhaps stocks build into an upside move and then take some gain.  Either way, we anticipate some profit taking, particularly if SP500 comes within spitting distance of the February peak.

Given some of our positions are performing well after hours and another solid upside push would put other positions in a range we could take some gain, we will look to take some profits as well.  The focus is on newer positions that we have not booked gain on yet, but don’t forget about older positions with May or June options; as with Rohm Emanuel, you don’t want to let a good emotional event pass without taking advantage of it.  If there is an upside gap and run that sputters, that is a perfect opportunity to bank some gain.

As the same time don’t forget the longer term.  Many solid stocks are still in great shape to continue higher even if many gapped out of buy contention Wednesday.  We have many great positions we have held for a long time and others in great position we have not held as long but would like to.  Yes we bank partial profits as stocks make initial targeted moves and again when they make a second great run, then we typically let the rest of the position run as long as the market will let it.  Thus positions in AAPL, PCLN and the like have some huge gains built in.  Bear that in mind as you book some gains as this market could still rally further given the Fed has indicated it will continue to ‘reinvest’ in maturing bonds even as QE2 ends.