- Boring by any other name is still boring. But . . .
- Jobless claims post third week over 400K as the 4-week average moves over 400K as well.
- First run at Q1 GDP is as lackluster as expected. Without government spending the economy is overall . . . crappy to not so crappy.
- Market looks a bit tired, extended, and likely to test the breakout, but who wants to challenge it?

MARKET SUMMARY

Slow session but stocks recover from a sloppy morning to post modest gains, but nonetheless gains.

On Wednesday I did a play on a famous line, saying that Quantitative Easing II by any other name is still Quantitative Easing. Of course I was discussing the end of Quantitative Easing II and Ben Bernanke’s statement that he would keep the Federal Reserve’s balance sheet at the same level. He is saying he will continue to keep liquidity high by reinvesting (a popular phrase among our leaders in this country right now) in mortgage-backed securities and treasuries.

Of course the dollar tanked and gold spiked because it was the same old story (the weak dollar). Regardless of what young Timmy Giethner and Ben Bernanke say, we do not have a strong-dollar policy in the US. No, Virginia, there is no strong dollar anymore. We are just watching it fall. Some say it is correcting to a normal low level. That is true. It is a normal low level when you had almost an economic collapse, but hardly the level we would expect if the economy was as strong as it was in the 1980′s and 1990′s.

But I digress. Thursday the action was more like, “Boring by any other name is still boring.” The market started soft. Futures were down, but they were moving higher into the open and stocks did manage to turn positive. They bounced around, up and down through lunch. That is a nice trading range, but it was a very narrow range. 1354 on the low and 1357 on the high. Hard to make a lot of money on that, even if you are trading it by the day. In any event, it was boring with a twist. Once again stocks managed to rally   if you want to call it a rally. I’ll say it moved to a new session high in the last hour and closed positive nearly across the board. There were the notable laggards of late, the SOX and NASDAQ 100.

Boring without a doubt, but that twist at the end did make it somewhat interesting. It shows that the buyers were still there. There was profit taking all through the morning session, but when buyers had a chance and push came to shove, they stepped in and picked up some positions. There was no great volume and nothing spectacular. What would you expect after a breakout over the February highs and a run of more than a week? Stocks are coming off the February low and then rallying almost straight up to the breakout by NASDAQ and SP500. They continued higher on Wednesday and Thursday. It was not all easy going on Thursday but, again, the twist was they managed to close with a gain. Upward bias? You bet. A strong day? Hardly. But we do have good earnings. Even with bad economic data, investors found that liquidity from the Fed trumped near-term worries over an economic slowdown.

What am I taking about when I say slowdown? Jobless claims are over 400K for the third consecutive week. After finally breaking below 400K and holding that level for a while, they have thrown in the towel. What is happening? People are running out of benefits and going back on the rolls. They have to try to find a job. They are not getting them and people are getting laid off on top of that. People are running out of benefits, but continuing claims are holding steady right now. They dropped on the week, but they probably dropped because of the long-term people falling off the rolls. There are people being laid off now because there is 400K+ weekly. It went to 429K when only 390K was expected. The prior week was revised 1K higher to 404K. The four-week average moved above 400K as well, coming in at 408.5K. The EMA is going in the wrong direction. Quite a bummer as my sons would say. I admit I still say that myself.

What does this mean for the unemployment rate next week? It will likely go back up, I’m sorry to say. There are a lot of mixed signals. Mixed signals are good when you have had nothing but bad news. It shows volatility. Some people say that means things are better. They are seeing something improve while others say it is still terrible. Volatility is good, but we are seeing a slowdown. We could likely see the unemployment rate move back up. People thought things were getting better, so they started coming into the jobs market. Then there was disappointment. Next thing you know, when that phone call comes, they are saying they cannot find a job and are tallied into the monthly score of the unemployed. We will see what happens, but I suspect it will rise a tenth of a percent or so.

The other big news on the economic front was the advanced reading of the Q1 GDP. It was actually better than expected. It came in at a whopping 1.8%, and that topped the 1.7% expected. Of course, compared to the 3.1% gain in Q4, it was pathetic. I was expecting it to come in below 1%, so this was a boon. There were some things that helped hold the GDP higher. Consumer consumption was solid. Spending rose 2.7%. As part of that, durables were up 10.6%. That is solid. Consumers are feeling good in Q1, but we will see what happens. There was that big spike in gasoline prices in the back half of the quarter. Not sure if they will be able to continue after that. Thus far, however, everyone feels sanguine about it from what I can tell.

Equipment and software were up 11.6%. Very nice action indeed. The interesting thing was   wait for it   overall government spending was down 5.2%, the biggest decline since 1983 when Ronald Reagan was President. Oh my gosh, it is time to do another Obama/Reagan comparison? Reagan in 1983 had the biggest drop in government spending ever because he was antigovernment. He wanted to shrink government, and that was early in his term. Now is Obama doing the same thing? Not really. You have to consider how much the spending exploded under President Obama the day he took office.

The man is the quintessential spendthrift. He has tried to do everything in the first two years. He wants healthcare, and he wants to regulate the entire world economy through regulating the US economy. He is spending tremendous amounts of money, so a 5.2% overall government spending decrease and a 7.8% decline in federal government spending is not a big deal   at least compared to what Reagan did. The levels are astronomically high right now early in Obama’s presidency versus Ronald Reagan’s. Reagan was shrinking a bloated government from the 70′s. Now the spending has declined because there were huge outlays during the first two years under Obama. It is not a real comparison. It is good to see it happening, but it is quite scary because it was so high to begin with.

Looking at the PCE in the GDP, the core was at 1.5%. That was versus 0.4% in the Q4, almost four times as much. Unbelievable. What is the moral of the story? 1.8% actual versus 3.1% in Q4. Federal government spending dropped 7.8%. GDP growth fell to 1.8%. That tells us that if the government is not spending money, then the economy is not moving forward. 1.8% is horrible growth. Not indicative of an economy that is recovering. It is no coincidence that it is down when government spending declined.

FRIDAY

It is Friday already, and we can only hope that it is not as boring as things were on Thursday. I was tired anyway on Thursday, and it was very hard to stay awake with the lackluster action. MSFT announced earnings after hours, and it was down somewhat. There are still a lot of earnings hitting the wire. The market is less excited about each earnings report than it was last week and earlier this week. Good news is still treated well and poor news still gets stocks boxed around the head and shoulders.

There is important economic data out before the market. There is personal income and spending and some PCE (Personal Consumption Expenditure Index) and see just how much inflation it is showing. Not much is expected. Employment costs are not expected to rise much. We never really worry about that, although economists seem to think it is important. It never seems to correlate to inflation, but if it gets higher that will get people more worried.

There is also the important Chicago PMI. Manufacturing led the economy out of recession. We will see if it can surprise to the upside. It is expected to drop. It would be nice to see it move higher. Maybe then we could break the string of weaker economic data that the economy has been showing of late. Then there is the final Michigan Sentiment for April. We will see if it can top 70 and give us a little surprise. I am not sure about that considering gasoline prices. We will see.

We have plenty on tap economically, and we have plenty on tap with respect to earnings. MSFT is leading the way with its after-hours results. It is not the only one; there some other great ones out there that announced. SIMO was pulling back a bit on Thursday, but it has had a good week. It was up nicely after hours. Looking at that chart, way up at 1223 (and it closed in the 11′s). This printed circuit board maker had a really good quarter. Maybe that will help spark the semiconductors to continue their move higher. There is the old story that says, “And the children shall lead.” We will see if the smaller guys can actually lead the large boys higher.

The SP500 and NASDAQ are sitting on top of seven-day gains. They have broken out and they are rather extended. We love to buy on Friday anyway, right? Of course not. Friday is a good day to sell. There is the old adage of “Buy on Monday and sell on Friday,” and those often have some basis in fact. We are typically selling on Friday if we can, but there have been opportunities on Fridays over the past couple of months. We cannot totally ignore those. I do not see much opportunity right now, though. As seen in leadership, a lot of them are extended at this point. It makes sense with the move we have had   a breakout and a continued rally higher. We have some good plays we will be looking at. If they make a good move, we can pick up some shares, but we are not anticipating Friday to be a big buy day.

I would like to see another run to the upside. If it starts to stall out a bit, we will lock in some gains. There are some stocks out there that we can still do this with. We have taken gains from a lot of positions, but there are others still moving higher where we have not taken that initial target gain yet. We have some that we were just letting run a bit more on Thursday because the market chopped around early and then took off to the upside later. That is positive action, and we do not want to cut runs short.

If we get a gap to the upside on Friday that maybe starts to waffle, that might be a good time to take a little profit. Do not clear the boards, but just take a little profit. The market will probably test. It will have to test that breakout. The way things are now, it looks as if it will hold given all the liquidity that Ben Bernanke will keep in the market and economy. Therefore, I would expect it to move back to the upside after a pullback. All that will do is set up better buys over the next week than we would necessarily get on Friday.

The market is still in good position. It has moved higher and is a bit extended, but that does not mean it cannot move even higher. We have seen that before (the impressive November-February run). We do not want to cut things off short. Remember, we have this base that it just broke out of. Was there much testing on this run from November? No. We do not want to get too enthralled with the idea that there has to be a test. There may be one. If there is, I’ll just say do not panic over it. Just let stocks run and take advantage of opportunity. If there is a test, we will get new buy points we can move into. We will use them as long as everything remains status quo with respect to liquidity.

We will let plays run tomorrow. If we get a chance to take some gain, we will take it. If we see decent plays to buy into, we will buy. We will not put a lot of money to work, however, because we have already run. I am more inclined to let it give us more of a pullback, get some sweeter buys, and move in for new positions at that point. Have an outstanding evening. The weather is great out there for some of us. Our prayers go out to those continuing to suffer through the horrible weather seen in the last week.