- Market sluggish after move higher to resistance and no new catalyst to drive it.
- Inflation is here (as if you didn’t know): KMB says it has to raise prices because of higher commodities prices.
- Higher oil profits under attack from our leaders, but thanks to our leaders oil profits are higher.
- NFLX earnings fail to excite investors this time, just as investors look for a new catalyst.

MARKET SUMMARY

Techs scratch out a gain but no breaks over the February highs for NASDAQ or SP500.

Futures were modestly higher pre-market but then lost their mojo on the NYSE indices.  That was pretty much the story of the session.  Stocks started a bit higher, gave it all away, and then recovered into the afternoon and the close, but that still didn’t get SP500 back to positive.  Modest losses but stalling out just below the February high.  Even NASDAQ on its high fell 18 points shy of that prior peak.  NASDAQ +0.20%; SP500 -0.16%; DJ30 -0.21%; SP600 -0.29%; SOX +0.05%; NASDAQ 100 +0.27%.

Volume was the lowest of the year.  Breadth was flat.  Just nothing to drive the action for stocks though commodities pretty much continued their same action, i.e. higher.  Why?  Because the dollar continued its same action, i.e. it was lower.  Pretty vicious cycle: even with more than making up the difference in our lost dollar value (gratis the federal government) with our stock gains, when stocks take a day off and go nowhere our dollar continues losing its value.

As a result we picked up some stocks that should play better in this environment, e.g. MCP, DANG, and took part of our gain on the upside SPY position.  No major rollover, and no churn as volume was lower.  Just a very slow session after a move higher into the weekend.  If the market holds here, catches its breath, and gets a catalyst, then it can rally on higher.  One concern: the FOMC announces its next rate decision Wednesday, and afterwards gives his first ever post-FOMC press conference.  That has investors concerned.

TUESDAY

Monday and its New Home Sales (March) that rose 11.1% versus February’s 13.5% loss was just the beginning to this week’s data barrage.  Tuesday Case-Shiller comes out along with Consumer Confidence for April.  Pretty heady stuff. 

Earnings also renew their onslaught after a pretty light Monday.  Lots of after hours earnings, however, and overall they were solid.  NFLX was the big name, however, and its guidance did not live up to par.  We didn’t play it this time on earnings for several reasons, one being we felt earnings were going to lose their edge given all of the company’s actions to expand its services.  NFLX fell 4.5% or so after hours.

S&P futures as well as NASDAQ futures, however, were nicely higher in after hours trade.  now that rarely holds over into the next session, but the action is encouraging for a market that is once again looking for a catalyst to take it to the next level.  That next level is a breakout over the February rally high for SP500 and NASDAQ. 

Earnings would seem to be the likely catalyst, but many brokers and fund people we know are talking about Bernanke’s first press conference on Wednesday, how he comes across, and what kind of malarkey, if any, he purveys.  Certainly volumes fell Monday to subnormal levels for an earnings week.

For us the market action is the key regardless of what causes it; investors will always play the game of ‘pin the tail on the cause’ when it comes to market moves.  Monday left the indices holding most of the pre-Easter move but looking as if they don’t really want to take on the February high, at least not immediately.  A lateral move for 2 to 3 sessions would be decent for the upside action as it gives the indices a breather, a higher low, and a decent shot at the February highs (on NASDAQ and SP500, the large cap indices yet to take that level out).

As noted earlier, they need to make their move near this level without giving up too much ground.  They have formed an inverted head and shoulders and have moved back up to the neckline of that pattern.  A failure here is not cataclysmic, but it would mean the market has more work to do before it could make the break. 

There are some extended patterns in stocks but other good stocks are in position to rebound from pullbacks or breakout from patterns.  With the dollar at a point it can bounce, with gold and oil at points they can test, stocks are in position to move higher if those moves transpire.  Whether that is enough to break NASDAQ and SP500 through those February highs and sustain the move remains to be seen.  In our mind it is all about investors continuing to push new stocks into leadership and continue others advancing.  For example, the industrial equipment stocks have paused but can move higher from here.  Moreover, many of the early ‘cloud’ leaders fell hard to start the year but have bottomed and are rallying back.  If the market continues to ‘recycle’ leadership just as BD from ‘Doonesbury’ would recycle girlfriends in the early days of the strip (way back in the 1970′s) then it can make the break.

Therefore we do as we usually do, i.e. look for quality stocks in position to move higher and move into those when they show good breaks upside.  Of course at the same time we are looking at plays on the SPY to the downside just in case SP500 and NASDAQ cannot make the breakout.  If they cannot that does not mean they crash, but it does mean we can make some money on the roll back down as we did the first two weeks of April.