A rally in the face of negative press is bullish. The optimism could be short lived, but the bullish momentum remains despite gloomy news reports.

With weak earnings from the banks and minimal economic data to embrace, I took a bearish position yesterday.

I don't know when I'll sell my gold for sure, but I know what I'll be looking to buy when I do.

Jack Ma, the chairman of the Chinese Internet conglomerate Alibaba Group, said last week that he is "very interested" in buying Yahoo! Inc. (Nasdaq: YHOO).

The market was slammed yet another time yesterday. Although unlike Thursday and Friday, the indices recovered into the close.

Once again financials led the charge lower and the big banks like JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) were down 3%. Energy and technology components were also hurt and stocks like Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) were down 1% and Exxon Mobil (NYSE:XOM), Apache (NYSE:APA), Continental Resources (NYSE:CLR), which we're short, and Halliburton (NYSE:HAL) were down 2%.

The market slumped lower yesterday and the bulls lost their four day winning streak. Volume was low in the decline, as it has been for most of the week.

Financials were the big losers yesterday; bank stocks, including Bank of America (NYSE:BAC) JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) were all down more than 3%.

It's always nice to know that stocks can actually rally. And seeing stocks build on their gains throughout the day is a bonus.

Yesterday's rally appears to be a mix of relief and short-covering. For instance, I suspect the move for Citi (NYSE:C) was helped along by shorts saying "enough is enough" and covering their downside positions.

You'll notice that Bank of America (NYSE:BAC) finished in the red, though off its' early lows. Investors are still bearish on banks.

Growth forecasts for the U.S. are being drastically cut after yesterday's disastrous Philadelphia Fed manufacturing survey. Economists predicted slight expansion, instead we got the worst reading since March of 2009.

JP Morgan (NYSE:JPM), who just cut its GDP forecasts, cut them again. And the cuts are big. From 2.5% to 1% in the 4th quarter and from 1.5% to 0.5% in the 1st quarter of 2012.

Citi (NYSE:C) was less dramatic, cutting 2012 growth from 2.7% to 2.1%. Citi also cut earnings estimates for the S&P 500 by around 4%.

Read any basic investment book and it will tell you that small-cap stocks are riskier than large-cap stocks. On an individual basis, that may be true.

However, if you do your homework and dig deep into the financials of small-cap stocks, you can reduce risk and increase reward dramatically.

For the record, small cap analyst Tyler Laundon points out that small caps tend to outperform large caps over the long-term. He believes that many investors mistake small cap 'risk' for what is actually short-term price volatility...

In 2008, we knew that the mortgage-backed securities depleted the cash reserves at banks to the point that they were insolvent. In January of 2010, it was the uncertainty of Greek sovereign debt along with other European countries that caused a very sharp pull back for stock prices.

But it's more difficult to find a culprit for the declines we've seen lately.

Yes, there have been weakening economic data, to the point that GDP growth may be below the 2% line. That's close enough to negative growth that some are throwing around the "r" word: recession.

For the second time in a week, we had a "margin call" day. That's what I've started to call those days where the market sells off steadily all day, because it's as if the market itself received a margin call, and has to sell stock relentlessly, regardless of fundamentals.

Now, since I mentioned fundamentals, that's the place to begin our discussion of what's happened to the stock market lately - and what we should be doing about it.

As I wrote yesterday, analysts and strategists alike are on record saying they do not want to lower earnings forecasts for stocks. They typically cite the fact that companies have steadily grown earnings, even when economic data weakens, like last summer, when economic data was so weak, the Fed began the bond buying program known as QE2.

The market weakened a little more on Tuesday, but the indices stabilized and kept the decline to a minimum. Volume levels were low as SPX consolidated at 1332 support. The industrials were hit the hardest and financials showed unusual strength. Large cap technology also continued to motor higher as stocks like HPQ, AAPL GOOG and MSFT rallied nearly 1%.

The TradeMaster portfolio was active again yesterday. On Monday a Chinese stock and RCMT were added to our long positions. Yesterday, F and another small cap stock were added, but F was a short.

Ford announced its second quarter results Monday before the market opened. Financial results were solid and EPS beat analyst expectations. And shares gapped 2% higher to begin the session. But high volume sales immediately dropped shares back to $13.15 from $13.44 intraday highs.

It's probably no surprise that Apple (Nasdaq:AAPL) beat earnings expectations last night. After all, Steve Jobs is an egomaniac who reportedly always under-promises so he can enjoy the attention when he over-delivers. It's good showmanship, and good for a pop in the stock.

Still, the results were impressive. Net earnings beat by nearly $2 a share ($7.79 vs. $5.87 expected) and sales came in $3.6 billion better than expected at $28.6 billion. Apple sold 20.3 million iPhones and 9.3 million iPads.

Perhaps even more amazing, Apple added $10 billion to its cash hoard during the quarter. It now has $76 billion.

Well, Alcoa (NYSE:AA) managed to meet on earnings, and beat on revenue. All in all, I'd say that's pretty good. I'll also say it's a darned good thing Alcoa came in good. After a day like yesterday, investors needed some good news, or at least some "not bad" news.

The S&P 500 dropped below support at 1,320, though only by a point. Volume wasn't particularly heavy, so we shouldn't read too much into the 1,319 close. In fact, yesterday had all the makings of a bear trap: negative headlines, a drop through support, right at the outset of earnings season.

Of course, we will need to get some more positive earnings news to turn the tide. And we will have to wait for Thursday when JP Morgan (NYSE:JPM) and Google (Nasdaq:GOOG) report.

Now, here's some reader mail.

The ADP Payroll report is out – and it is bad. As in, not at all good. Not even a little. According to payroll processing firm ADP, payrolls in the U.S. rose by 38,000. Expectations were a bit rosier, at 170,000. Some sources were even looking for 190,000.

 

This sure doesn’t bode well for Friday’s Non-Farm payroll number. 180,000 jobs are expected for May. We’ll see if the government statisticians can pull a rabbit out of Uncle Sam’s hat. It would seem unlikely.

The U.S. dollar and Treasury bonds are weaker today after the Group of 8 said the global economy was growing and the perception of Greek debt problems improved.

 

As we know, a weaker dollar sets the stage for higher stock and commodity prices. Oil is perhaps the best indicator of economic growth expectations. And its inverse correlation to the U.S. dollar is also airtight. So much so, that if you see oil rally, bullish economic commentary is usually not far behind.

Yesterday, we talked about bubbles and tech stocks. While it's possible to argue that certain sub-sectors of the Nasdaq may have some bubble-like valuations, technology blue chips are definitely not in bubble territory.

As I noted, the Nasdaq 100 (NDX), which is comprised of the 100 largest companies on the Nasdaq, is currently trading with a trailing P/E of 12.5, according to the Wall Street Journal.

The pundits agree. It's a technology bubble. And all because social media stock LinkedIn (Nasdaq:LNKD) now trades with a P/E of 600 on a paltry $15 million in trailing earnings.

It was somewhat lost in the shuffle in Wednesday. Investors were so stunned at Fed Chief Ben Bernanke's admission that commodity inflation might accelerate over the next few months before the Fed is forced to act on interest rates, they missed the part where the Fed lowered its 2011 GDP growth estimates from a range between 3.4% -- 3.9% to 3.1%.

For anyone pinning his or her hopes on 3.9%, that's got to be disappointing.

But after yesterday's first read of Q1 2011 GDP growth -- a measly 1.8% -- investors are likely to take another look at the total message delivered by the Fed.

For an economy that has been highly dependent on government and corporate spending, Chambers' outlook wasn't very encouraging. But on a day when Cisco was pounded for around 15%, and Google (Nasdaq:GOOG), Microsoft (Nasdaq:MSFT) and Apple (Nasdaq:MSFT) all finished in the red, the Nasdaq as a whole actually posted a gain.

Now, Apple alone accounts for 20% of the Nasdaq 100 (the 100 largest stocks on the Nasdaq). Throw in Google (4.2%), Microsoft (3.6%) and Cisco 1.6%, and you're looking at 30% of the Nasdaq 100. Nearly one-third of the Nasdaq 100 was lower on Thursday, easily the most influential tech companies, and the Nasdaq managed a gain for the day.

So, a headline on Yahoo! Finance today read “Nokia, Microsoft in pact to rival Apple, Google.” Apparently, Nokia (NYSE:NOK) and Microsoft (Nasdaq:MSFT) are feeling the heat for missing the smartphone boom and so they are going to team up to go after the leaders in the space.

Now, to me, this is the equivalent of the Carolina Panther teaming up with the Cincinnati Bengals in order to compete with the Green Bay Packers. It’s just not going to work. Two companies that have completely failed to have any semblance of market awareness simply aren’t going to suddenly morph into a cutting edge technology giant.

So far this year, the S&P 500 has dropped 3% or more in one session 3 different times. The two previous times, it clawed back some of the losses over the following week. We’ll have to wait and see of there is any upside after yesterday’s big drop.   

 

The S&P 500 is now testing the lows from the “flash crash” on May 6. This is interesting because it was assumed that trading that day was something of a fluke as computer trading programs went haywire. But now that stocks are back to those levels, we must consider that the drop may not have been a fluke.  

 

The question now is: can stocks find some strength? Or perhaps a better way to ask the question is: are the sellers done?   

Wireless media company KongZhong Corp. (Nasdaq: KONG ) announced ahead of the bell Friday a cooperation agreement with Microsoft’s (Nasdaq: MSFT) MSN China to be the sole content provider in China for the information channel and mobile games channel of Mobile Messenger 3.0.

Mobile Messenger 3.0, which was officially launched today in China, is the mobile phone version of Microsoft’s instant-messaging application, Windows Live Messenger.

“This cooperation agreement is win-win for KongZhong and MSN China,” said KongZhong President Nick Yang. “We expect that greater dissemination of our services through Mobile Messenger 3.0, one of the leaders in its field, will bring increased traffic to Kong.net.”

The Beijing, China, company said it will pay MSN China a fixed fee per channel and that the cooperation period is for one year.

The EPS consensus of seven analysts surveyed by Thomson Financial for the current quarter, which ends this month, is $0.02 per share, compared with $0.21 per share for the same quarter last year. The EPS consensus of eight analysts surveyed by Thompson Financial is $0.12 per share for the fiscal year 2007 and $0.18 per share for fiscal year 2008.

Shares of KongZhong were up 5%, or $0.24, to $5.03 in mid-morning trading Friday.

Stock indices appreciated for the fourth time this week as speculation of a possible deal between Yahoo! Inc. (Nasdaq: YHOO) and Microsoft Corp. (Nasdaq: MSFT) overshadowed news of slow U.S. job growth.  Among small caps, shares of EasyLink Services Corp. (Nasdaq: EASY) moved up on news of a buyout, while 21st Century Holding Company (Nasdaq: TCHC) fell sharply.

The Russell 2000 added 4.01 points, or 0.48 percent, to 832.88, less than a point below its record close on April 26.  The Dow Jones Industrial Average closed in record territory for the fourth day on a row, adding 23.24 points, or 0.18 percent, to 13,264.62.

Wall Street is bullish this morning amid reports Microsoft Corp. is looking to acquire Yahoo! Inc. and despite news of slow U.S. job growth.  In small cap action, shares of Shutterfly, Inc. (Nasdaq: SFLY) got a lift on news of a narrowed quarterly loss, while Voxware, Inc. (Nasdaq: VOXW) regained listing compliance.

At 11:14 a.m. ET the Russell 2000 had added 2.60 points, or 0.31 percent, to 831.47.  The Dow Jones Industrial Average was up 30.06 points, or 0.23 percent, to 13,271.44.

Shares of New York-based 24/7 Real Media, Inc. (Nasdaq: TFSM) are down following a report by the New York Post this morning that software giant Microsoft Corp. may bid to buy the online advertising company for as much as $1 billion.  Shares are down $0.29, or 2.83%, to $9.95.

The Dow is cruising toward another record close while the Russell 2000 is sagging in midday trading.  In small cap action, a sharp drop in revenue is hurting shares of Openwave Systems Inc. (Nasdaq: OPWV), while shares of Synchronoss Technologies, Inc. (Nasdaq: SNCR) got a lift on news its quarterly profit doubled.

At 2:30 p.m. ET the Russell 2000 had lost 2.84 points, or 0.34 percent, to 830.96.  The Dow Jones Industrial Average was up 29.58 points, or 0.23 percent, to 13,135.08.  That’s above Thursday’s record close of 13,105.50.

April 13 (SmallCapInvestor.com) – Stocks closed the day in positive territory as an upbeat profit forecast from pharmaceutical giant Merck overshadowed an earlier report of a drop in U.S. consumer confidence.  In small cap action, shares of Medis Technologies Ltd. (Nasdaq: MDTL) rose on news the company made sales to Microsoft, while news of a buyout lifted Cutter & Buck Inc. (Nasdaq: CBUK).

The Russell 2000 rose for the second straight day, adding 4.33 points, or 0.53 percent, to 819.38.  The Dow Jones Industrial Average rose 59.17 points, or 0.47 percent, to 12,612.13.