Bulls Remain In Control Of This Market

The market remains in a confirmed rally as the bulls showed up and quickly quelled the bearish pressure from the first week of April. So far, we have seen two very mild pullbacks in the S&P 500, both very shallow in size (<3%) and scope (less than 2 weeks). This is very healthy action and suggests the bulls are clearly in control of this market.

Monday-Wednesday’s Action: S&P 500 Surges to Fresh Record High

Stocks opened lower on Monday as investors are now looking forward to Q1 earnings season. According to Thomson Reuters, earnings outlook for the current quarter is tepid at best. Analysts expect growth to increase by only +1.6% which is much lower than +6.2% last quarter and down from a 4.3% forecast in January. As of the beginning of the quarter, 107 companies in the S&P 500 announced negative revisions for their Q1 numbers. When you compare that ratio to positive revisions, it is the worst pace in 12 years. In other news, Alcoa (AA) missed numbers and JCP fired Ron Johnson.

Stocks rallied on Tuesday sending the DJIA to a another fresh all-time high and the benchmark S&P 500 came within 2 points of its 2007 all-time high. The fact that the bulls showed up yet again and quelled the bearish pressure illustrates how strong this market is right now. Furthermore, it is very interesting to see that the DJIA has not had a three-day losing streak this year, a clear sign of institutional accumulation. The last time the DJIA went this far without a three day losing streak was 1976 and the DJIA rallied 18% that year. Economic data was relatively light. In February wholesale inventories logged its largest decline since September 2011 and the business confidence fell again in March. Industrial production in the U.K. topped estimates which bodes well for their economy. Inflation in China fell in March (both consumer and producer prices) which gives their government room for further easing, if needed.

Stocks opened higher on Wednesday after investors digested a slew of economic data which was mostly positive. Overnight, China said it trade deficit jumped thanks in part to a strong rise in imports. Stronger imports suggests a stronger economy which bodes well for the global economy. In the U.S., the Fed released the minutes of their latest meeting which showed that policymakers remain concerned about keeping rates artificially low for too long. The minutes also showed that a handful of Fed officials want to end QE sooner than initially expected but they are in the minority which means QE will continue for the time being and that bodes well for stocks. President Obama sent his budget proposal to Congress on Wednesday which included some cuts and attempts to move closer to a reducing the deficit.

Thursday & Friday’s Action: Stocks March Higher

Stocks edged higher on Thursday as investors digested the latest round of economic data. Before the bell, the Labor Department said weekly jobless claims fell 42k to 346k which beat the Street’s estimate for 365k. Inflation concerns eased after both important and export prices fell in March. Important prices fell -0.5% and export prices eased -0.4% thanks in part to lower energy prices. Stocks fell on Friday as fresh EU concerns resurfaced.

Market Outlook: Confirmed Rally

As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we published a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce” and the rest is history. Most recently, on Wednesday, February 20, 2013 we sent out a note saying, “Time For A Pullback” and a week later on Feb 27, 2013 we sent a note saying “Bulls Quell Bearish Pressure.” Then, on Wednesday, April 3rd we said the Rally was Under Pressure and went back into a confirmed rally less than a week later after March’s jobs report was released. Stay tuned as we will continue to keep you in sync with the market and ahead of the crowd. As always, keep your losses small and never argue with the tape.