Investors had expected the worst from the banks, which is why the financial index was down 30% since May. The market will not be able to break 1250 resistance and rally higher without the bank stocks.

Goldman Sachs (NYSE:GS) Chief economist, Jan Hatzuis is forecasting 0.5% GDP growth for the first quarter of 2012. He also predicts that the Fed will announce QE3 in the next 6-9 months.

Stocks look poised to push higher again this week. The S&P 500 is on the cusp of a break above resistance at 1,335. And that would likely set up a test of the post-crash highs at 1,344.

But as Jason Cimpl told his TradeMaster Daily Stock Alerts members this morning, earnings are coming and stocks have been relentless since recent lows:

Although the market participants have seemingly not cared about economic data for the past few weeks, the market will not move higher if earnings disappoint. And earnings season will officially begin next week. Even though the bulls look unstoppable now, and to a large degree they have been over the past eight months, a poor earnings season will awaken the bears.

Additionally, I would prefer the market fall to 1301, which lets the bulls regroup before they take stocks to new highs.

Alcoa (NYSE:AA) starts earnings season next Monday, April 11.

And speaking of Warren Buffett, one of his top executives, David Sokol, has resigned on accusations of insider trading. Apparently, Sokol bought $10 million worth of Lubrizol (NYSE:LZ) before he suggested a Berkshire-Hathaway buyout of the company to Buffett.

Lubrizol stock jumped nearly 30% on the news that Berkshire would acquire the company. Sokol made nearly $3 million on the deal. And he is insisting that he did nothing wrong.

The Fed is set to release data about lending from its discount window during the financial crisis some time this week. Conspiracy theorists often point to the Fed's overnight lending as a sure sign that the financial markets are manipulated with cash infusions by the Fed. Really, in a general sense, these open market operations are there to provide short-term liquidity to qualified banks to help them settle daily transactions. This lending is also used to manage monetary policy on a daily basis.

I’m sure by now you’ve heard that Goldman Sachs (NYSE:GS) has been indicted for fraud. Goldman is accused of creating securities that were designed to fail, so it and its hedge fund cronies could make billions in profits.   

 

Case in point: Abacus 2007-AC1. “Abacus” was a 23-part series of “synthetic collateralized debt obligations” that Goldman Sachs constructed and sold to supposedly sophisticated investors.   

 

According to Bloomberg, a “synthetic collateralized debt obligations” was a mixture of “…credit- default swaps (CDO), used to transfer the risk of losses on debt, and securitization, used to slice the risk in a pool of assets into various new securities.”

Senate Banking Chairman Christopher Dodd is all set to put his latest banking regulation bill up for a vote. The bill would put an end to proprietary trading, lend transparency to hedge fund trading and derivatives, and give the Federal Reserve the power break up companies if they pose a “grave threat” to the economy.  

 

Dodd’s proposal would also create a nine-member “Financial Stability Oversight Council” of regulators, led by the Treasury Secretary. According to Bloomberg, “…the council can make recommendations to the Fed to impose “strict” rules for capital, leverage, liquidity and risk management to make it difficult for firms to grow so big and complex that they endanger the financial system. It could require the Fed to regulate non-bank financial firms that threaten financial stability, ensuring that “the next AIG would be regulated” by the Fed…”   

 

It’s clear what Dodd is trying to accomplish here. He’s trying to make it so that financial firms can’t engage in trading activities that could ultimately destabilize the entire economy. I’m not sure these proposals, as I understand them, accomplish the objective. 

An influential German business confidence survey showed a surprise drop in the country, the first in 10 months. A cold winter has apparently hurt retail sales in Germany.

That's pressuring the euro, and providing strength for the U.S. dollar. It's been pretty well documented that the euro does not tend to rally alongside the dollar. And that's what we saw yesterday.

One positive note from yesterday - Maguire Properties rallied off of support at $1.50. Volume was strong and the stock broke above its 50-day moving average. You may recall yesterday, I said the stock needed to rally, and soon. Now, it needs to keep rising.

Also yesterday, TradeMaster Daily Stock Alerts' Jason Cimpl told us he expects consolidation for the stock market this week. (Consolidation occurs when prices don't move much as investors adjust to a new price level.)

Yesterday, the S&P 500 traded in a tight 7-point range. And it won't be surprising if it holds to a similar tight range today. We might anticipate the negative news from Germany to be offset by an improved reading of the Case-Shiller home price index.

I plan to be unavailable for a few hours, starting around 10 a.m. this morning. I want to hear the members of the New York Fed try and defend their actions regarding the AIG (NYSE: AIG) bailouts in front of Congress.

The New York Tines published some of the prepared testimony of the principal players. I try to keep a level head, but I'm reaching for my pitchfork and torch right now.

*****Recall that the New York Fed orchestrated what ultimately became an $85 billion bailout. A good portion of that cash was paid directly to other companies with which AIG had entered into the now famous credit default swaps. These were essentially insurance contracts on mortgage backed securities held by banks and underwritten by AIG.

A full $25 billion in AIG bailout money went to pay off Goldman Sachs (NYSE: GS). Here's a section from the New York Times (Mr. Baxter s the general counsel for the NY Fed):  

Mr. Baxter explained that the New York Fed felt compelled to pay out A.I.G.'s counterparties in full to unwind tens of billions of dollars in derivative contracts because "there was little time, and substantial execution risk and attendant harm of not getting the deal done by the deadline of Nov. 10." That was the date when A.I.G. was scheduled to report its earnings and could face downgrades from credit ratings agencies. A downgrade would have led to more collateral calls and even greater liquidity problems for A.I.G., Mr. Baxter said.