- Flagging economic and earnings data (and a weaker dollar) start stocks out lower, but when the dollar weakens, stocks recover.
- A credible recovery by the indices and some nice pullbacks to support by leaders put a different light on the market after Tuesday.
- Housing starts reek.
- Industrial Production, Capacity Utilization post disappointing fades.
- Earnings start to disappoint.
- UK inflation jaw dropping.  Bank of Japan declares Japanese economy in severe stress.
- Looking to proven leaders in good position to make us some more money.

MARKET SUMMARY

Economic data has its impact, but stock market still takes its cue from the dollar.

It looked like it was going to be another down day as stocks were negative before the open. They were not negative all morning, however. They were actually positive before the earnings and economic data came out, and they were both downers. It was not too long ago that earnings data drove the market to the upside. There was the pullback into earnings season, and then the nice two-week rally as earnings got under way and good announcements were reported. As is often the case after the season is well under way, however, stocks get the gist of what is going on and investors stop buying on all the good news. We get to the good-news saturation point, and then stocks make their pullback. That is what happened the past three weeks, and it was on for Tuesday as well.

As noted, it was not the case early on. There was about a 100-point swing in the Dow Jones futures from high to low after the economic data came out. What economic data am I talking about? There was a whole slew of results. First, we had the housing starts for April. They fell a surprisingly nasty 10.6%. That was compared to March’s 12.9% reading. If you recall, February was a stinker as well, down over 10%. March rescued the housing market from those terrible February numbers, but April is right back in the toilet, so to speak, with a 10.6% decline.

Permits fell 4% when they rose 7.5% in March. There is a decline in both areas. The one silver lining is that the new homes inventory is falling. That is exactly what needs to happen. Once new home inventories reach a low-enough level, we will see some firming in pricing. Maybe then we will see price increases. Of course that is like the job market right now. There is virtually no hiring anymore because everyone has been laid off. There is some modest hiring, but no major swell at all. Thus, while job losses have ceased, that does not mean that job creation and new hires are in the offing. We could bounce along laterally for a long time, and that is the same with housing prices. That is why the market was rather bummed when the news came out.

Industrial production and capacity utilization were also disappointing at .0% and 76.9% respectively. That was well below expectations in both cases and also well off the numbers from March. Throw on top of that the earnings results, and you have some issues with just how strong this recovery is   at least its sustainability. HD beat on the bottom line, but it was a bit light on the top line. LOW said its customers are opting for lower-priced goods when they had been buying the higher-priced items in Q4. That tells us that gasoline is killing the consumer. WMT had in-line results, but that was not enough to help. HPQ’s outlook for the entire year missed. It said that consumers were simply not buying as many personal computers and that, of course, is not good for HPQ and all the other tech stocks.

There was other earnings news this week from other companies. KSS had a good earnings report, and it was okay on Tuesday’s trade. The problem is when it has raised prices on certain prices, it is meeting what they call “price resistance.” In other words, buyers simply are not buying the items that they raised the price on. They are able to sell more other goods, but they have to keep their prices down in order to get the buyers to pry open the wallet or purse and make the purchases. LOW said that it was having difficulty in selling the higher-priced goods now. Consumers are buying things that they have to in order to upkeep their houses versus the want-to-do items.

THE NEWS

The UK inflation rate is 4%. That is a jaw-dropping level. That is a Chinese-type inflation rate, and it is a case in point: You can have severe inflation without having economic growth. Everyone is worried about having inflation only if the economy really picks up. What the UK is showing, and what we have seen many times is history (including US history), is that you can ignite serious inflation while you still have serious unemployment and a very lackluster economy. You call that stagflation. We are not really worried about that right now, but we should be worried in the US.

The Bank of Japan said that Japan was having a hard time recovering after the earthquake and tsunami. Its economy was in a severe state. There are issues about just how fast Japan will recover. After all, everyone said it was a disaster but there would be a recovery because they will have to rebuild and buy all those great US products that we export now. We are an exporter nation versus an inventing nation. They said we would be able to sell those things and then our multinational companies will do just fine. Look at how CAT reacted on the day to the news. It gapped sharply lower on very high volume. Ditto with CMI. This was not a good day for the industrials, and that is not a good harbinger for the Obama export economy.

If the rest of the world will not need our stuff, who will buy it? The beauty of the United States has always been that we have entrepreneurship. We have small businesses always coming up with a better idea or a better way of doing things. We have the money and ingenuity to get the stuff manufactured and get it to market, and we buy a lot of our own stuff. We create technologies. We create the new services and products that drive additional demand. Those also drive better jobs because we have new technologies. Our standard of living increases.

Do we care what other countries do in that case? No. We make our own wake. That is why you do not want to be a country relying on exports to other countries. That is apparently what the Obama administration wants to do. It is devaluing our currency and making our savings worthless, trying to gear up exports by giving all of the stimulus money to multinational companies. A few pennies were thrown to companies for green products, but France and Germany have already dropped their programs. Germany dropped its solar program in the biggest unreported story in the year in terms of green jobs. Germany has abandoned the solar projects it funded to the tune of billions of dollars because it is not creating any jobs. It costs too much money.

We cannot learn from Europe, yet we try to emulate them. Europe is learning faster than we are. It is insane, but that is what happens when you turn everything over to the Federal government with agenda-driven politicians. I would rather have a small government that just wants to facilitate commerce between the states and create a fair playing field that allows everyone to bring a good idea to the market. I digress, but it is an important digression because it feeds directly into what is happening in the world and why some of your stocks are going down.

Looking at the intraday chart, there was a big swing in futures. Futures were trying to recover even after the bad news, but it rolled over. Stocks did get back to flat which was nice, but then they tanked and again started the recovery action. Looks like two and a half days to the downside was just about all the SP500 wanted to put in on this particular sell off. It had another day downside, but it was two-and-a-half days over the last three sessions. Then it started to recover, and it recovered through the day and into the close. It was nothing spectacular. It did not even make it back to positive on the close, but it did recover its 50 day EMA that it gave up intraday. I harp about not any one point being specific support or resistance, but it is good to see the 50 day EMA hold because it is one that nearly everyone watches.

Similar action across the market, and some of the indices did manage to close positive. NASDAQ, +0.3%; SP500, -0.04%; Dow, -0.55%; SP600, -0.3%; SOX, -1.2%; NASDAQ 100, +0.25%. NASDAQ 100 was aided by some recoveries in AMZN and AAPL. No huge moves, but it was a respectable recovery.

On Wednesday the data slows down a bit. There will be more earnings news, however, because DELL announced earnings after hours. Its results were varied depending on how you look at them. Its margins were good, and it beat by $0.08 on the bottom line. Its top line missed by $400M, but that did not seem to bother investors after hours. That may help give a bit more upside impetus to stocks and the growth stocks when they get to trading on Wednesday. Maybe that will help the rebound continue off of the lows as it did on Tuesday.

Tuesday was not a great reversal. It was not one of those days were you can say that that was the move that did it. Nothing too spectacular. It did show that buyers stepped in. Higher volume, closed off the lows, and almost positive   indeed, it was positive on NASDAQ. Little ABCD patterns. Add the fact that some leaders are in good position to move up after this pullback. I am looking at ACOM and some others I have already talked about such as FOS and KLIC. KSU in the railroads has an ABCD pattern of its own. NTGR looks solid. I do not want to leave out PPO, which has a great flag pattern as well.

Many leaders have come back. There are leaders across the spectrum of market in position to move back to the upside. If DELL’s earnings are any indication, we could get some rebound action on Wednesday. If we do get some upside, I would like to put my money in proven winners. Stocks that have performed well and have pulled back to support, are holding, and are ready to move up again. When they start moving back to the upside   as early as Wednesday morning   I would like to buy into them.

You want to buy some of them right away, but others should wait until the close. I want to temper this by saying that I suspect that any bounce to the upside may be short lived. It may not provide a new rally high. You typically play ABCD patterns to the prior peak. Anything after that is lagniappe, as they say down in Cajun country. Our prayers and thoughts go out to those who will suffer the high water coming their way through the opening of the Bonnet Carre Spillway and the Morganza Spillway. I used to work over there when I first got my undergrad. There are a lot of good people over there and a lot of good food. It is really a different lifestyle that is fascinating, and I hope they are all right. They will survive; they always do. It is just a shame to see them have to go through that.

In any event, this may bounce back up to the top of the ABCD pattern, and then we have other issues to deal with. There is the closing of the Mississippi River. You cannot get oil and gas through there, and also other goods such as cotton, soybeans, etc. It will cost more because it has to go elsewhere by alternate means of transportation.

We will play an upside move, but then we will look to see if this thing will tap out. If the economic data remains poor and it starts to roll back over, we will definitely load back up on some downside. You can make some pretty quick money as we made on a few of our plays. We banked some gain here. On some of the others, if the market wants to rally and they want to rally with them, we will have to close them out. Some of these may not rally with the market because of the types of sectors we are playing.

We may get a bounce. We will look to play that bounce with some great leaders that look to be in great shape to move higher. I will temper that with the idea that we have to watch out when we get back to the prior highs. We may not get a breakout. If we do, yee-haw, but we just have to take what the market gives. That is what we have been doing. If it sets up nice plays, we will move into them and then reevaluate when we get to the next resistance point.