Bonds Rally, But Will Stocks Do the Same
The
market was flat yesterday. But that is a semi
accomplishment since the indices opened sharply lower. Volume trickled
off again, and yesterday turned out to be the lowest volume day all week,
in fact it was close to the lowest volume session this month. Despite the
lower than average volume level, SPX tested and then protected support at
1301, exactly like I thought.
For SPX 1301 should be a strong area of support. And I knew it
would certainly be strong enough to provide a bounce on the first test -
that is why we've been going long this week after all. Even though 1301
is an area of strong support, it is not a must hold level for the
bulls.
The bulls can let 1301 be taken and maintain trend. In order for
the bears to even have a glimpse, or sliver, of hope at taking the short
term trend back, they need to break 1280. And to confirm a stronger
trend, the type of trend that lasts for months and not weeks, the bears
need to break the every sturdy 1250 support.
More
on resistance and support for the major indices will be discussed in the
weekend video which is available to all members online.
Yesterday afternoon we sold our
position in ECTE. As mentioned in the alert, the close of ECTE was more
about taking 35% than due to the increased selling pressure. The
increased selling was expected as shares neared $5 resistance. And I
fully expect shares to eventually hit $6.
Today is a big day for the market. Not only will it have to fend
off mediocre earnings from Google (Nasdaq: GOOG) and Bank of America
(NYSE: BAC) it will also have to digest CPI data in the U.S. and Eurozone
along with a Moody's downgrade of Ireland.
Earnings season is underway and thus far results have been
uninspiring - especially considering the market has risen over 100% over
the past two years. Given that ascent I would expect companies to
continually report record breaking quarterly financials.
The banks, JPMorgan (NYSE: JPM) and BAC reported big earnings, but
revenues fell. Alcoa (NYSE: AA) reported a great quarter and maintained
guidance, but said increasing costs could hamper growth. Google reported
an increase in costs as well, which hurt profits. The market has been
unresponsive thus far, and the selling pressure has been localized to
specific stocks, but that could change as hundreds more earnings reports
roll out next week.
Moody's downgrade of Ireland isn't a big deal - we
know they are screwed. It's more or less a constant reminder that we
tackled solvency problems with liquidity. While the stitches keep the gun
shot wound from getting bigger, the injury is far from healed. And the
policy that attempts to heal the damage causes inflation if left in place
for an extended period of time.
Emerging economies already have official double digit inflation.
China reported an 11% increase from February on food items. But the
developed economies in the U.S. and Europe have not experienced excessive
inflation. Europe is beginning to show signs of higher prices and the
inflation rate is above the 2% target. A report this morning showed
the Eurozone inflation increased to 2.7% in March, up from 2.4% in
February and well ahead of expectations and the target 2% increase.
The U.S. got a first glimpse at its future in today’s CPI data,
which was expected to show a 0.5% increase in March. The results were
inline, and core inflation only edged 0.1% higher. But today’s increase
pushed the official inflation number up to 2.7% at an annualized pace,
which is near the high end of the Fed’s comfort level. Additionally, just
before the open Industrial Production and Capacity utilization beat
expectations and provided stability to a rocky pre-market. The biggest
thing to pay attention to today is Russell support at 820 and oil support
at $107, if neither hold, we’re heading lower to kick-start next
week.
