- No big gains, but no backing down from resistance either.
- NASDAQ, SP600 put in seventh upside session as indices overcome Chinese rate hikes, more layoffs.
- Challenger jobs cut survey posts an increase.
- ISM Services expands but less than expected and at a slower pace.
- Obama: If you don’t raise the debt ceiling, watch out for a second recession. More politics designed to get their way versus tackling our problems.
- The test is not really a test as the market continues upside but still faces resistance.
- Some quiet before the jobs report . . . and earnings.

MARKET SUMMARY

Nothing big for the indices, but leaders continue their run.

After SP500 and DJ30 took a modest day off Tuesday, futures were lower once more. Looked as if a nice little test was in progress, one that could digest some of last week’s gains over a few days and set up new buys and a new move upside, perhaps one that takes out the February high on SP500 and NASDAQ.

China’s central bank or whatever it is called (‘The People’s Democratic Freedom Socialist Bank?’) raised its benchmark rate another 25BP, the fifth increase in nine months. This in order to combat the fastest growth in inflation for China since 2008. China is finding it is very tough to subsidize an economy with low rates and free money and avoid inflation. Empty office buildings in Beijing while new office buildings funded with government money is not the kind of sustainable growth you want, but China is now caught in the web of trying to extricate itself and let ‘market forces’ take over when it knows if it does there could be a crash. At the same time it wants to prevent inflation. Good luck! Kind of ironic given that everyone says China is so much better off than the US. Okay, it is, but at least things are not coming up roses everywhere for them.

Given we are an export nation (for now; there is always hope better policies and foresight replace what is in DC now), any issue with China is an issue for us. Thus futures were lower on the news, at least that was the spin put on it. Perhaps after 6 days to the upside, 5 of them over 1%, the stock market needed a break?

It tried to take the break but would not really back down. Not bad action given the market surged the prior week. Not wanting to give up gains, a bit of stinginess, is a good thing. Also, consider it took the market almost two months to sell off yet just a week to recover most of the losses. Now relief rallies can be sharp and fast and that is what this rally has given; it is also, however, the inverse of how it usually works: weeks of scratching out gains just to have them obliterated in a few sessions when the market folds. Thus the action suggests a bit of bullishness even if SP500 and NASDAQ are still below their February resistance.

Intraday stocks were soft, sold in the first half hour, but then recovered to positive despite the China news, Challenger job cuts rising, and a mediocre ISM Services report. They tried to give it all away in the afternoon session, but a late drift higher pushed all but SOX positive. Ah SOX, the less than fair-haired child of the market since February, is lagging the move. Got started late on the rally and is struggling more now. SOX is usually more volatile so take the moves with a grain of salt, but also continue watching SOX because if it breaks the market likely heads for a deeper test.

NASDAQ 0.29%; SP500 0.10%; DJ30 0.45%; SP600 0.26%; SOX -0.76%

Still at the key February levels, still not a very good test. SP500 is the closest while NASDAQ continues higher. Cannot go on forever, but it can go on longer than you expect; seen that a few times have we not?

Nonetheless, as noted above, there is still key resistance, still low volume, still rather thin leadership in terms of new breakouts, still the same economy, still a potential head and shoulders. In short, don’t get blinded to the initial premise that this was and is a relief bounce until it proves otherwise. It has rallied more than it suggested early on, but it has made it to our original suggested peak.

The market can test back here for a few sessions and break higher. It can do that and make the break then reverse. It can try the test and fail. It can turn and sell. So many choices.

That is the way it always is. A good move upside made us money and now we are positioning for the next move. Taking gain when the market rises but also letting portions of positions run. Having some downside positions at the ready in the event a test turns ugly. We have good stop points on the upside plays that protect our gain.

Right now we are nibbling here and there. That is fine but we are not loading up; not time to do so. A bit of patience while the market dispatches this resistance, one way or the other. It may take the Friday jobs report to get the market off the dime. After all it rallied well up to key resistance and wants to see the next major data point as the catalyst. Yes the market typically anticipates moves, but near term it is buffeted by the news of the day. Hope springs eternal and stocks rallied ahead of the jobs report . . . and earnings.

Earnings are going to be solid again judging by the lack of warnings. Solid enough to break the indices out? That is also part of the next step in the market: is the news strong enough to turn aside any final doubts about the economy over the second half of 2011?

Lots of questions as is, as noted, typical in a range after a move up or down to resistance or support. We have to assume the market is still range bound until it shows otherwise, thus we prepare for downside by having plays at the ready as well as good stops on our upside plays. It doesn’t hurt that we have already taken nice gains on the way up and will take more as the opportunity presents. Again I anticipate a downturn in the range, but as with the upside rally that went further than anticipated, I will gladly be surprised and make money once again on the move.