- Stocks continue their rally, giving us the moves we want but still below the February peaks.
- Strong earnings and guidance offset another week of 400K jobless claims and a tumbling Philly Fed manufacturing report.
- Leadership is across the board but financials are holding SP500 back at a critical point.
- Can earnings and a decent technical pattern push stocks through to the other side?

MARKET SUMMARY

Good earnings overcome so-so economic data and rally stocks as per the plan.

Stocks did what we wanted them to do to close out the week ahead of the three-day weekend. We were looking for a move up toward the February peak, and they more or less did that. SP500 gapped higher and rallied to the March peak. It could not go beyond that. NASDAQ gapped just past its March peak and into the gap zone from the downfall off of its February peak. We hoped to get this high and cannot complain. It got close enough. We were taking some profits on the day because we got what we wanted. It would have been the height of foolishness not to after we got what we wanted and said we would take profits.

The interesting thing is that the market did not take profits overall. There were a couple of points were it looked like it might sell off. It gapped open and then sold off a bit. Then it tried to sell a couple of times in the afternoon session. The sellers simply were not strong enough. Volume was a bit lighter, but not pathetically light. Stocks managed to rally in the last half hour to close right at session highs whether it was on the SP500, NASDAQ or what have you. It was a good two-day rally to end the week. NASDAQ, +0.6%; SP500, +0.5%; Dow, +0.4%; SP600, +0.7%; SOX fell 0.05%; NASDAQ 100, +0.8%. NASDAQ 100 was leading the way higher with AAPL’s earnings and many other big-name techs performing well on their earnings results.

It may have seemed fairly easy with some of the big-name large caps leading the way. AAPL gapped higher on its earnings. We took some gain off of our more recent position in it. BIDU did not move up. It has been moving higher, and we decided to bank some gain there. We had a big option trade and we took a little off the table. BWLD was not necessarily racing to the upside, and we took nice gain there. We just were picking and choosing throughout the market. We took gain on LULU as well in one of our late positions. PLXS was up big on its earnings results. SCSS bolted to the upside with a huge 30% gain on the session. Now we have something like 90% gain built into our stock position on that play. Cannot complain there.

We even took some gain on TITN because it had a great week. Then it did the old gap-higher-and-reverse routine. Did not quite hit our target, but it was ripe. We took some 18% stock gain and 90%+ option gain on that. Even though it did not hit our target, it showed indications that it might try to pull back near term. We banked a little gain and took some interim gain on other positions as well. It was that kind of day for us, although the market overall held onto its gains rather well.

It was not a given that it would do that. Before the bell opened, we had initial jobless claims come in at 403K, cracking over 400K for the second straight week when only 390K was expected. Moreover, the prior week was revised higher to 416K from the original 412K reported. We see a tick higher in jobless claims, and it is worrisome when you see two weeks back to back. We will see what the rubber match does next week, but you have to be a little concerned, particularly when some companies are taking about trouble.

Other companies are talking in glowing reports. GE and DD beat estimates and boosted their guidance. That has been commonplace. Remember, coming into this earnings season I was talking about the very few warnings   or upside warnings, for that matter. That meant I felt that either stocks would be in line or they would be beaten. For the most part, they have been beating the lights out of their expectations, such as AAPL, SCSS, PLXS, QCOM, DD and GE. GE actual grew. It is ironic that the CNBC people are no longer there, always talking about the mother ship. As soon as GE dumps them, earnings start really coming in. Makes you think. I hope I did not give CNBC a complex.

Even though the jobless claims were worse than expected, they did not hamper the move at all. The Philadelphia Fed came out at 10:00 o’clock. It tumbled after an 18-year high at 43 in March. I think that is an appropriate use of the word. It tumbled to 18.5 when 33 were expected. That is almost half of expectations. What is going on in Philly? What kind of slowdown is this? This flies in the face of what we are hearing everywhere else. Could it be one reason the bond market is a little worried? I doubt it. There are probably other things worrying the bond market other than what is going on in the Philly region in manufacturing. If it is endemic to other manufacturing areas, it could be a problem. As we all know, manufacturing is what led the economy out of the black hole following the financial mess.

Leading Economic Indicators are better than expected, doubling up to 0.4% gain, although that was much less than the 1% recorded in February. That was revised higher from 0.8%. We had some decent data outside of a tumble down in the Philly Fed and a second consecutive week of 400K jobless claims. What is the focus right now? Is it Libya? No. Is it the budget deficit? It should be, but it is not. Is it the dollar diving lower? It does not seem to be. Is it the bonds mysteriously holding gains when they should be selling? No. It is earnings, baby. And earnings have been quite good. We have done better hanging onto stocks through earnings than we have selling before them.

Look at IBM. Its earnings were perhaps considered a disappointment on the initial run through, but look what happened on Thursday. It is up 2%, breaking out of its little inverted head and shoulders pattern. Stocks are reporting good results. Companies are doing well, and they are saying things look good. Most of them are big companies instead of smaller ones. That could be a problem, but there is also the small cap index that does not look like chopped liver right now. Overall, that is a positive for the market.

MONDAY

Next week is a big data week. There will be a lot of earnings still coming out. It is already the 25th on Monday, but earnings will run well into May.

New home sales will follow up on last week’s existing home sales. There is Case/Shiller which will give us a backward-looking view, but it has not been doing well. It will be interesting whether it can perk up. Will Consumer Confidence perk back up as expected? There are durable goods orders as well as the FOMC rate decision. Mr. Bernanke will come out afterward with the first-ever Federal Reserve Press Conference. They are coming out after the Fed makes its decisions so the Fed head can talk to the world and calm them down if necessary.

It also gives Bernanke the first shot out of the box. It will dilute any dissent to nothing because Bernanke will get to answer all of the dissents before they have a chance to say anything. Instead of them sniping around Bernanke and him having to stoically take it, he will be able to come out on the offensive with the new transparency of the Federal Reserve.

Of course the Fed will not tell us who they loan the money to or where all the money is sitting. That would be too much transparency. After all, it is only our money as tax-paying citizens of the United States of America. That would be just too much for us to know in a government of, for, and by the people. In any event, it will be interesting to see how Bernanke handles it and how the market perceives it.

Q1 GDP is coming out. It is expected to drop, and I think it could go below 1%. Some of the recent data suggests it may not fall that far, but it could go below 1%. Initial claims will be interesting to see. Then we have personal spending and income to close out the week along with the Chicago PMI and Michigan Sentiment.

That is tons of data with the stock market sitting right at prior peaks after a nice earnings run. This was a great move to the upside. We saw a two-week pullback with a bit of concern with all that was going on in the market. The Congress could not agree on any kind of meaningful budget cuts. Then we had great earnings and that pushed everything to the back burner and investors embraced stocks. They bought and were loving life.

We were, too, because we had bought a lot of stocks along the way. All that enthusiasm pushed them right back up for us. We loved the gains. As noted, we were taking them on Thursday. Now we have to deal with that prior high. Earnings seasons tend to run the opposite direction after that set that initial course based on the news coming out. If there is good news and an earnings session starts off well with good response, then you get some profit taking at some point. The key is “at some point”   we do not know when that will be.

We do know that we are at the prior peak yet again. We have to deal with that so soon. NASDAQ and SP500 do have a good inverted head and shoulders pattern. Perhaps they can continue to the upside. Earnings are great and guidance has been great. If that continues (and a lot of the SP and NASDAQ companies continue to say they expect results to be better than anticipated) why wouldn’t they move higher? The market rallies in anticipation of good news and earnings. It is not necessarily on the news, although it tends to knee-jerk around near term.

We have something of a loggerhead. We have the old high. We have a rally up to that level on great news. Can the news continue in its good fashion? Will that be enough to push it through those prior peaks? As you know, I am not 100% certain about that, and that is why we were taking gains on Thursday. If we had good gains locked in or new positions where we had not taken any before, we were taking some of those profits off the table. Why not? We got the move we wanted.

We may get a move higher on Monday, and we have to watch out. If there is a gap at the open, we have to watch for a reversal. If it gaps up and SP500 taps at that February peak and it cannot hold, we will probably take some of our SPY options off the table as well. We will see how it plays out. We banked some nice gain. We still have more that we could bank, but we are letting the market take us out of a lot of these positions at this point (other than our option positions.) May is coming up, and we have quite a few stocks with May options. We will look at taking more of those off the table on any further rally at this point.

We have to be a cautious. We will look at plays to the upside because of the patterns that NASDAQ and SP500 are showing us and because of the good guidance that we are hearing from these companies. It is not just paltry guidance. They are almost ebullient about the future. In some cases they are not, so we want to have other plays in hand. The thing is, we will have to look for them, because a lot of stocks ran very well this week. Many of them are extended near term, and you do not want to play chase on these. You typically get another shot. With the resistance just overhead, we may get that pullback to start. If the good stocks pull back and hold position and near support, then everything is still fine and they can continue to rally. We would move in as they break back to the upside.

We will look for the best upside we can find   the good stuff, not the scrubs. We may not be able to have as much as we normally do because of the good move into earnings. We will probably have to look at some downside in case these things fail. Like the Boy Scouts, we like to always be prepared.