- Nondescript session to end the month, but it was a golden month.
- Gold, already on a tear, explodes higher after Bernanke press conference while the dollar suffers its worst decline in 20 years.
- Personal income and spending decent as Michigan sentiment recovers.
- Chicago PMI sags, joining other lackluster recent data.
- New month, new money, more upside?

MARKET SUMMARY

Another slow session but a very solid month for stocks and gold, but of course not the dollar.

Much as Thursday, it was a nondescript session to end the month. It did not tarnish the fact that it was quite a gold month, however. There are a few reasons to call it a gold month, one being that gold was exploding higher. Stocks were also moving up very well. They say it was one of the best Aprils in 20 years. That is a relatively meaningless statistic other than to show that we made a lot of money. Once again we had a good month, and that was where some of the other gold came in. No real complaints even though the market was rather boring to end the week and the month.

Stocks managed to post gains overall, though there was some drag in the large-cap technology sector thanks to RIMM’s earnings. Earnings were driving much of the action, particularly in the industrials. Anything tied to the overseas trade or commodities was doing well. CAT says it is on its way to the best year in the history of the company. It is blowing away earnings and blowing away guidance.

GT announced strong earnings and guidance, noting trucking companies are finally replacing the tires on their vehicle fleets. They have cannibalized the trucks they mothballed during the recession, but now those tires are worn out and need replacing. Thus business is booming. CVX also reported great earnings. Nice gains down the entire list of announcers. We are about three-fourths through the S&P 500 earnings season, and earnings look good overall.

NASDAQ, +0.04%; SP500, +0.25%; Dow, +0.4%; SP600, +0.15%; SOX, +0.5%; NASDAQ 100, -0.25%. NASDAQ 100 was dragged down by RIMM and some other stocks that are struggling a bit in tech.

The day was very similar to Thursday with a modest start; indeed, trading lower early but then recovering and rallying through the end of the day. It was not the same altogether. Looking back at Thursday, it rallied into the close while there was some weakness on Friday. Some profit taking. Then as soon as stocks tested, they bounced back up toward the close. It was a positive move, but it looks tired after such a strong, solid move to the upside.

NASDAQ has rallied nicely off of the February low. It broke out, as did SP500, but it is bumping into a longer-term resistance point right now. You would expect it to slow down after such a good move. SP500 showed a little better on the day. It is still looking a bit extended. We will see what happens going forward. We have a new month coming next week, so we may get an additional rise as new money hits the market. We have been seeing that at the start of the month. After that, with this extended run, we may finally get that test of the breakout above the February highs. If it gives us that test, it will set up some new buy points.

Were we buying much or doing much of anything on Friday? Yes and no. We were buying some positions, but not many. We just moved in here and there on some good bounces from stocks in good patterns. We were also taking gain and banked nice profit across the board. For example, TRLG had a nice gap to the upside. A breakaway move. We have seen quite a few of those, and we banked some very nice 30% gain on the stock and almost 200% on the options.

We are seeing this pattern in the ones we like to play. We have seen gaps higher, and we were looking to play them after the breakaway move to the upside. PII made a big gap to the upside, and now it is in that tight lateral range. It is waiting for the 10 day EMA to catch up with it and likely be the catalyst to send it continuing in the direction of the gap.

It was more of the same with respect to the stock indices. They got liquidity reassurance when Ben Bernanke gave his press conference on Wednesday. He basically told the investors that, while he would not continue QE II, he would continue with a different form of Quantitative Easing by keeping the Fed’s balance sheet at its current size. And that size is bloated. They will reinvest the income from mortgage-backed securities and Treasuries that the Fed owns, of course, by virtue of buying all of them. The liquidity will stay, and stocks continued to perform.

MONDAY

Next week will be packed with a lot of economic data just as this week was, but it will be the big boys, so to speak. It all leads up to that Friday nonfarm payrolls report. We will get to see what the unemployment rate is. Right now it is expected to come in at 8.8% again. Can it last? Not with the initial jobless claims moving back up over 400K for the past three weeks. They are anticipated to be at 400K this week. That would make it a month of 400K or more, and that is not good for the jobs market and the unemployment report.

People start feeling better and want to come into the job market. As soon as they start looking around, they find there are not that many jobs. Then the unemployment rate will rise and everyone will get gloomy again. That is part of the recovery process, however. We need to recognize it for what it is and deal with it.

There are a lot of important stories out. The ISM starts the week, and that will be important. Manufacturing has led the recovery, and it is expected to fall below 60. That is still a high level, do not get me wrong. But it does shows that the momentum is slowing. We know the momentum is slowing when looking at Q1 and the first few reports we have seen of Q2. This will be a big one. If it slows down as expected   or is worse   that shows that Q2 is starting off on the wrong foot.

Factory orders are on Tuesday, and they could mean something. I do not expect much from the Challenger job cuts. ADP employment has been adjusted and may be a bit more accurate. They are expecting a good-sized gain. Note how the nonfarm private payrolls are mirroring that. What do you know? They should mirror each other if they are accurate. I do not pay much attention to ISM Services; no one seems to unless it gets really ugly. Continuing claims and initial claims will be watched closely along with productivity. As noted, it all leads up to the nonfarm payroll on Friday. There will also be scads of earnings.

As noted, we are only halfway through the earnings season. Half the SP500 stocks have reported, so we still have half to go, and it will be May. It is no longer just an April earnings season. It runs through mid-May as well because some big names announce in the following month. We will have earnings also driving the action. What often happens when you get a move one way or the other in the initial phase of earnings? You get halfway through, everyone knows the gist, and then the earnings do not have the same impact.

While individual stocks have been blasting off and providing those breakaway gaps that we can play, overall the move is slow. It makes sense after almost two weeks of upside. Remember, the market sold off into earnings and set itself up beautifully for this rally on good results. This is all a very solid technical setup. The facts came out in support of a move higher, and we have had that.

Now can the news be good enough to continue stocks upward without wanting to come back and test? There are a number of reasons that would suggest that stocks will come back and test. Number one, there is the two-week run. Number two, we are getting a little churn on both the SP500 and the NASDAQ. Number three, we broke through resistance; after such a long run, it has a tendency to want to come back and test that move.

The market does not have a lot of new ideas to create that next impetus to get it to break higher. Down around at this level back in mid-April, I was saying how the market needed impetus to move higher. It needed a catalyst, and it got it with the earnings. Now what is next? Peace in Libya? In Syria? That would help. A good jobs report might help, too, but it will have to pull back at some point. A lot of leaders that have been leading the move are stretched. As noted, there are others ready to move after taking a back seat for awhile.

Again, there is AAPL. Again, you have CRM. There are others out there that are the same. They are at a point where they have gone through a base or a trading range or making higher lows. They look ready to make a break to the upside and will take that baton of leadership as others are testing back after good runs. That is how a rally works. New waves of stocks come back up. They can be recycled ones that were leaders and got a bit too far ahead, and then they needed a rest. Now they are ready to move again. Or there are brand new ones coming up. After forming long bases, are ready to break out. That is great leadership.

You take what you can again both in leadership and in the market. We still see them coming up. That means this week, despite the fact that the market has rallied considerably, we will continue to look for upside plays. We may get that pullback on NASDAQ, SP500, and all the indices pretty much. But I do not think it will be any kind of cataclysmic selloff. I think it would come back to test the breakout. That would be totally normal, and it would also set up more stocks to move higher. Leaders that are extended come back and test, and they get ready to break back to the upside. They take a pause that refreshes and move on.

We will continue to look to the upside. It is tough to get in front of this market right now. There are not a lot of stocks that are in trouble. Just as we had gaps to the upside   breakaways that we are looking to play   we have breakaways to the downside that we will be looking to play as well. The problem is, in this kind of market, even if you get a breakaway move to the downside there is so much money coming into the market. After awhile, it flows back into these stocks because they have to put their money somewhere. They tend to drag them along back to the upside with the rest of the market no matter how bad it looked.

Look at GOOG. They are dragging it back up. It is at that critical point. Can it move through the gapdown point? You understand what I am saying. With all the liquidity out there, a lot of downside plays do not stay downside for long. If they make a quick hit and you can make some money, that is great. But playing a long downtrend is tough unless you are looking at the US dollar.

In any event, you see what I am talking about. We have the stock market, whatever index you are looking at other than the SOX (although even the SOX looks like it might want to move to the upside) you have big moves that are in progress. They have been under way for a couple of weeks. If we get a pullback, it is likely to be one that tests rather than a reversal.

Again, we will continue to look for plays to the upside. Our preferred course of events is that we get an additional move higher to start next week   the new money for May. Then we get a pullback to test. We will use any further move to the upside to take more gain as we have been doing on this move thus far. We will focus on newer stocks that we have not taken gain on (or just taken a little bit of gain on) that are making great moves. Then we will look for the pullback. We will probably not be too wild about buying a lot of positions on a continued move to the upside.

If we see good stocks like CRM or AAPL that are in position and start to move, we will not back off. We will buy some positions, but we will not load the boat. Then if we get a pullback, we can add some more. We will not back away from good stocks in position to move, but overall we will anticipate something of a pullback. At the same time, we know that rallies and selloffs can continue much further than any rational person would expect. That is why we buy when we see good stocks in good position saying, “Buy me.”