Profit Reports Trust Swine Flu, At Least For The Moment

The market is getting another strong bounce today, after another round of better than expected earnings reports. Many investors thought the market might take a breather yesterday after the FOMC announcement, but the buying pressure lightened momentarily but never really went away.

Most of the companies I follow exceeded profit expectations last night and this morning, and their stocks are higher. Consumer staples companies like PG and CL are the only examples I can find of stocks that beat estimates but are lower on the day. This looks like a move out of safety stocks and into the more aggressive names that are leading the market.

Case in point are the growth stocks like FSLR and GMCR. These two growth companies are not in the same industry (solar, and coffee makers), but they both have high growth rates, handily beat estimates, and their stocks are surging more than +20% today.

A couple of other standouts are ESRX and Visa (V), which also both beat estimates and are getting nice boosts in trading today. Growth stocks have really been leading this market lately, and the trend must be killing those funds that keep trying to short this market.

The WHO has raised its alert level for the swine flu, but that seems to be taking a back seat this morning to the positive string of earnings reports. The market also seems non-plussed by the pending Chrysler bankruptcy filing. Tech is leading the way, followed by retailers, despite the soft consumer spending figures reported.

Asian markets rallied strong overnight; the dollar is a bit lower, weighing on gold prices; oil is roughly flat; the 10-year yield is higher for a second day, after spiking up following the FOMC meeting yesterday. It is hitting new highs for the year at 3.15%; the VIX is another -4% lower to 34.64.

Trading comment: My cash is building up due to the small profit taking I have been doing on various positions, while having little opportunity (read: pullbacks) to put that money back to work. If I am feeling a sense of performance anxiety, I can only imagine how bad it must be for those managers who never embraced this recent rally.

I didn't pull the trigger yesterday on any new buys, and am still monitoring the names I have mentioned recently (RIMM, FCX, SLB, etc).

long ESRX, V; some clients long FSLR, PG

FOMC Alert: Fed Sees Gradual Resumption of Econimic Growth

The FOMC announcement came out will little changed from 6 weeks ago, in terms of their actions and goals. Here is their statement:

• Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.
• Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing.
• Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.
• Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
• In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
• In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 0.25 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
• As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.
• The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.

Dude, Where's My Pullback?

Color me surprised that the market didn't pull back on this morning's news. Q1 GDP came in well below expectations at -6.1% (vs. consensus of -4.7%), though still better than Q408's figure of -6.3%. I would have thought that this headline alone would have sparked some selling, but no dice. Did I mention it's hard to keep a good market down?

The highlight of the GDP report was personal consumption, which swung to a +2.2% increase from last quarters -4.3% plunge. This is one factor that investors viewed extremely positively, especially in light of the rising unemployment figures. Also, the inventory drawdown was a big drag on GDP, but if this activity is behind us it implies the restocking of inventories will add to GDP growth in the second half of the year.

The banks are the leading group this morning despite a Bloomberg.com story that preliminary results from the stress tests indicate 6 of the 19 largest US banks will require additional capital. But the gains so far today are pretty broad-based. Nice to see.

The FOMC also meets today, and are expected to leave rates unchanged at 0.25%, so the market's attention will once again turn to any comments that are made in the policy statement.

Asian markets were higher overnight, the dollar is lower today, while both oil and gold prices are higher; the 10-year yield is slightly lower, near 2.99%; and the VIX is plunging -5.8% to 35.74.

Trading comment: Yesterday I added a position in Visa (V) to our accounts, and I'm still looking to add FCX and RIMM somewhere in here. I am also looking at the insurance etf (KIE), which still appears to be trading at depressed levels.

That said, the market is up a lot this morning, and could selloff after the FOMC announcement. I will look to do some minor trimming/profit taking ahead of the event on some stocks that have nice gains, just to lock something in. This is not a major statement, just trading.

long V

Can't Keep A Good Market Down

Once again, the market opened lower, but in the first hour of trading it has climbed back into positive territory. Of course, yesterday the market sold off into the close, so we'll have to see if this early strength sticks. But it sure seems like its getting hard to knock this market down, despite an extended 7-week rally and an overbought condition. Frustrating if you're looking for a pullback, but beautiful if you're fully invested.

Consumer confidence for April just came in better than exepcted, with a reading of 39.2 vs. 26.0 last month. It is likely that the recent stock market rally has helped boost sentiment, and hopefully this bodes well for a continued pickup in consumer spending.

Banks are lower after the WSJ reported that BAC and Citi may need to raise billions of additional capital to satisfy regulators due to the stress tests. Northern Trust (NTRS) is selling $750 million of common stock in a capital raise of its own. Stress test results will be officially released May 4th.

Healthcare stocks are higher after solid earnings reports from Pfizer (PFE) and Bristol Myers (BMY). US Steel (X) is lower after reporting a worse than expected loss and saying its order book remains low and demand is expected to fall to a 50-year low. Ouch.

Asian markets were lower overnight on swine flu fears and concerns about bank capital; the dollar is lower this morning vs. the Yen and Euro; but oil and gold are also both lower; the 10-year yield is a touch higher to 2.93%; and the VIX is down a bit to 38.28.

Trading comment: I keep waiting to pull the trigger on some new buys, but haven't yet. Today could be the day for Visa (V), as it looks like that one is breaking out. I am also looking at FCX, which has pulled back nicely towards its 50-day average. I would like to see RIMM and GS pull back further before stepping up on those.

The market continues to work off this recent overbought condition more by going sideways rather than downward. This usually means that there is still a lot of cash that is looking to get invested and take advantage of market pullbacks. I still think there is a deeper pullback towards SPX 800 out there, so I don't want to get too aggressive, but I also need to make money during all this back and forth trading.

Monday Morning Musings

Stocks opened lower this morning after investors worried about the outbreak of the 'swine flu' and what impact it might have on the global economy. But the fears don't seem to have persisted for long, as the major indexes have already bounced back into positive territory. Talk about being hard to keep this market down--

The energy sector is the biggest laggard today, after a strong last week. And drug and biotech stocks are the strongest on the heels of the swine flu news. There were several more strong earnings reports this morning, including HUM, VZ, WHR, and QCOM. Also, GM is higher after announcing news about progress in its restructuring.

Asian markets were mostly lower overnight; the dollar is mixed vs. the Yen and Euro today; oil and gold are both lower, as well as most commodities; the 10-year yield is lower to 2.98%; and the VIX is 3.7% higher to 38.20.

Trading comment: On Friday, I added the agribusiness etf (MOO) to our portfolios. The fund had a strong bounce on Friday, accompanied by a nice pickup in volume. Hopefully that trend continues. I am still looking for a good entry point on RIMM, GS, and V.

The SPX has rallied to 868 so far today before stalling. Last weeks' high was 871, so watch that level. Also, the high for the month as been 875, so there is a bit of resistance around those levels, and breaking above them would be a strong, bullish signal.

The market is still overbought, but working it off as it continues to cosolidate recent gains in a sideways fashion. There are lots of managers on the Street waiting for a pullback to put cash to work and get more fully invested. Unfortunately, the market seldom accomodates the herd.

long MOO

Fed Releases Methodology of Stress Tests

Here is a summary of the details the Fed released today regarding the "stress tests" for large U.S. banks:

• Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized. However, losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks.
• Lower overall levels of capital—especially common equity—along with the uncertain economic environment have eroded public confidence in the amount and quality of capital held by some firms, which is impairing the ability of the banking system overall to perform its critical role of credit intermediation.
• Given the heightened uncertainty around the future course of the U.S. economy and potential losses in the banking system, supervisors believe it prudent for large bank holding companies (BHCs) to hold additional capital to provide a buffer against higher losses than generally expected, and still remain sufficiently capitalized at over the next two years and able to lend to creditworthy borrowers should such losses materialize.
• The purpose of the Supervisory Capital Assessment Program (SCAP), which is being conducted by the supervisory agencies, is to assess the size of these capital needs. The SCAP is a forward-looking exercise designed to estimate losses, revenues, and reserve needs for BHCs in 2009 and 2010 under two macroeconomic scenarios, including one that is more adverse than expected.
• Should the assessment indicate the need for a BHC to raise capital or improve the quality of its capital to better withstand losses that could occur under more stressful-than-expected conditions, supervisors will expect that firm to augment its capital to create a buffer.
• A need for additional capital or a change in composition of capital to build a buffer under an economic scenario that is more adverse than expected is not a measure of the current solvency or viability of the firm.
• To determine the necessary capital buffer, supervisors did not rely on a single indicator of capital, but examined a range of indicators of capital adequacy including but not limited to pro forma equity capital and Tier 1 capital, including the composition of capital.

This news has turned out to be pretty much a non-event so far, in terms of moving the market. The financial sector (XLF) is still higher on the day by +1.6%. If the SPX closed at current levels, it would equal a decline of -1.0% for the week. Still an hour and a half to go--

Go Cavs!!!!

More Solid Earnings Reports, Housing Data Boost Stocks

The market is off to a strong start after another batch of strong earnings reports, as well as some data on new home sales that came in better than expected.

Among the companies that beat earnings expectations were: AMZN, SLB, AXP, and F. MSFT matched consensus estimates, and MMM missed estimates, but both of those stocks are joining the first group in moving nicely higher. The market is in a forgiving mood this morning.

Oil is moving higher this morning, above $51, which along with Schlumberger's earnings are really boosting the energy stocks. SLB is up +8.7%, despite management saying that Q1 results will be difficult to duplicate due to the deteriorating business environment.

Amex is up +13.7% despite their comments that the company is increasing its provisions to protect against deteriorating credit. There were also comments recently by Obama aimed at reigning in interest rate hikes by the credit card companies. But these factors aren't holding back the stock, which is probably getting a boost by short-covering.

New home sales for March reached 356,000, above estimates. But investors really like the inventory number, which showed the supply of homes on the market fell to 10.7 months, from 11.2 last month. The homebuilder index (XHB) is the leading industry so far this morning (+4.0%).

Later today we will hear from the govt. regarding its methodology for conducting the "stress tests" on the leading US banks. The actual results won't be released until May 4th, but this news could still move the market later today.

Asian markets were mixed overnight; the dollar is lower again, boosting gold and commodity prices; the 10-year yield is higher to 2.97%; and the VIX is lower again to 36.58.

Trading comment: The only trade I made yesterday was adding HANS to our aggressive accounts. The stock staged a strong breakout on a huge increase in volume. The surge in volume is a good indicator that the move has some legs to it. We shall see.

This market sure doesn't want to pull back, but it hasn't run away to the upside either. Last week's high was SPX 875, which we are still below. The market also remains overbought, so some continued sideways consolidation would be a bullish solution for working off that overbought condition.

long HANS

Market Struggling With Mixed Messages This Morning

The futures were pointing to a higher opening this morning, but a weak housing report threw a wet blanket on that. There were several more solid earnings reports last night, including some tech bellweathers.

AAPL and EBAY both topped earnings expectations, and both stocks are up today. AAPL beat estimates by a wide margin, and I heard it was the 25th consecutive quarter in a row they achieved this. Nevermind that they offered conservative guidance for next quarter, they always do that. I am confident that they will beat the estimates again next quarter, as Mac sales could pick up. And they have a big iPhone refresh still to come this summer.

There were also solid earnings reports from the likes of COP, PNC, EXC, and ZMH. UPS was the one standout that reported weaker earnings, and also issued downside guidance. They said they don't see a real recovery until 2010.

The existing home sales report was the one that caused stocks to drop. Homes sold during March fell 140k to 4.57 million, below expectations. It seems market participants were hoping for better numbers. Home sales slid -3.0% month/month, but prices actually rose over that period. So there is a small mustard seed for you.

Asian markets were higher overnight; the dollar is slightly lower today, which is helping boost gold price back above the $900 level; oil is also a tad higher near $49; the 10-year yield is flat around 2.95%; and the VIX is also flat near the 38 level, after an upward reversal late yesterday.

Trading comment: I did not pull the trigger yesterday on any new buys. I am still looking for a good entry point on GS and RIMM, and would also add V to that list. This morning, I did add a trading long position in HANS for our aggressive accounts.

I am hearing of a growing chorus of folks calling for a correction in the market. This tells me that there is still considerable cash on the sidelines, as well as many underinvested managers. They could all be right, but my inclination is that as long as the Street is positioned this way, pullbacks will continue to be mild relative to recent past corrections.

long AAPL, HANS

Market Quickly Erases Early Declines

Yesterday, the market opened weak, and then climbed throughout the day. This morning, the market was weak once again, but has quickly moved into positive territory. The Nasdaq is leading the way, +1.2% in the early going.

Yesterday's rally came on lighter volume than the previous day's decline, which gave me a bit of pause that it might be a one-day bounce before the selling resumed. But so far today, that notion is being questioned. Although it's still very early.

The reaction to earnings reports has been pretty positive. This morning, Morgan Stanley (MS) missed estimates by a wide margin, which pressured the market before the open, and is weighing on that stock. But other stocks like BA and COF, which also missed estimates, are actually higher this morning.

And for stocks that beat estimates, like YHOO, SNDK, WFC, and MCD, all of those stocks are nicely higher, some by quite a bit. I would also like you to take a look at the charts of stocks like CAT, which missed estimates and opened lower yesterday, but has had a huge 2-day bounce since. Feels like its getting hard to keep a lid on this market.

Asian markets were mixed overnight; the dollar is lower vs. the Euro and Yen today; oil is roughly flat near $48.50, while gold is a touch higher; the 10-year yield is up to 2.95%; and the VIX is -2.5% lower to 36.19.

Trading comment: I did a bit more trimming yesterday, although it feels like that profit taking was premature. Such is life with trading. You have to forget about trying to time the market perfectly, and simply focus on trading profitably. You may miss some big moves in the market here and there, but there are always more opportunities, that's for certain.

I still want to get in on some individual names like GS and RIMM, but am hesitant to chase them. Ditto for some of the ETFs I mentioned yesterday. Just sitting on my hands for now.

S&P 500 Breaks Through Its Recent Uptrend

In the chart above, you can see that uptrend line that I have been talking about. This is the uptrend that has been in place since the March 9th lows. Sometimes it depends on how thick you draw your line, or which points you connect, but in this case I think its pretty clear that yesterday's selloff broke that uptrend line.

As such, the odds have increased that the market could be in for a multi-week consolidation of the recent gains. This would be another change in character for this bear market, considering every other rally has failed and then led to new lows.

The recent rally last for 6 weeks, which is a pretty common time frame for a rally phase to run its course. The market had also reached heavily overbought levels by several measures (breadth, oscillators, % of stocks above 50-day average, etc). For now, it looks like that SPX 875 level that marked the highs in Feb. has acted as pretty solid resistance.

On the downside, we'll have to see where the market find support. If we get a further selloff this week, I want to see the SPX 790-800 level hold. That would be a great sign to get long, and play the range from 800 to 875 for as long as it lasts.

After this overbought condition gets worked off, I am hopeful we will see another push higher. Recall that the early January highs on the SPX were 943, so that is a level to watch for if and when the market can get above that 875 resistance.

Trading comment: Yesterday's selloff was pretty steep, such that I am closer to putting some of the cash I raised last week back to work. On the individual stock side, GS and RIMM look attractive around these levels. On the etf side, I am looking at the IEZ, KIE, and IHI.

long a little IHI

Fed's Kohn Says Pieces of Recovery Coming Into Place

The market is mixed this morning, after bouncing from early morning weakness. There have been a flurry of earnings reports last night and this morning, which have basically been a mixed bag in terms of positive and negative reactions.

There are too many earnings reports to cite in this space, but a few of the standouts include IBM, which posted solid earnings and gave strong guidance. It's stock is up slightly. Also, US Bancorp beat estimates, and that stock is bouncing nearly +8%. Broadcom (BRCM) gave good guidance also, but announced its offer to buy Emulex (ELX) for a 40% premium, which is weighing on shares of BRCM today.

CAT lowered guidance, hurting its stock today, and Northern Trust (NTRS) missed estimates by a wide margin, and that is likely helping push the financials lower so far.

Fed Vice Chairman Kohn stated that pieces of the economic recovery this year are falling into place, and that the view among Fed officials has improved in recent weeks. I think this statement was likely well thought out before it was released, and as such I am pleased to hear these remarks. I don't think he would have made them unless there were definitive signs to support the notion.

Asian markets were lower across the board overnight; the dollar is mixed today; oil is lower again, while gold is a bit firmer; the 10-year yield is down to 2.79%; and the VIX is flat at 39.0 after a huge spike up yesterday (but still below its 200-day average).

Trading comment - see seperate post

Monday Morning Musings

The market is getting whacked in early trading on the heels of profit taking in the banking sector, after Bank of America (BAC) reported higher than expected loss provisions. Also, given that the market has now rallied for six consecutive weeks, this profit taking should not be surprising. It's just that this morning it looks like everyone is trying to sell at the same time.

The bank index is down the most so far, with the BKX -8% after BAC's loan loss provision climbed $5 billion since last quarter. This item is overshadowing the company's $19 billion in pretax income, and bringing into question some of the stabilization that investor's felt after hearing from companies like Goldman Sachs (GS) and Wells Fargo (WFC).

Credit card companies are also lower after presidential economic adviser Larry Summers said in an interview this weekend that the White House will focus on credit card abuses. This may weigh on the profits of those companies, but even the average investor would applaud this move as the credit card companies simply abuse their privileges, imo. I see my interest rates change constantly, and I think sometimes they try to delay posting payments simply to implement those egregious late fees.

In other news, Oracle (ORCL) has stepped in and said it will buy Sun Mirco (JAVA) for $9.50 after talks with IBM faltered. The news has JAVA spiking more than +30% again. Also, both Pepsi (PEP) and Eli Lilly (LLY) reported better than expected earnings this morning. Let's hope they set the tone for the bevy of earnings reports still to come this week.

Asian markets were mostly higher overnight, while European bourses are lower this morning; the dollar is making a one-month high vs. the Euro, while lower vs. the Yen; oil prices are plunging today, while gold prices are higher; the 10-year yield is lower, down to 2.85%; and the VIX is spiking +12.7% to 38.25, after a multi-week slide to new lows for the year.

Trading comment: I am glad I did that profit taking on Friday, at least for the moment. This choppy environment lends itself to active trading. I still believe that many managers are underinvested here, so I doubt this pullback will be all that deep, but anything can happen. Lately, pullbacks have been one and two-day affairs. As such, I may start buying back positions if the market is down today and again tomorrow. But it's still early, so let's see how the day shapes up.

long WFC

More Better Than Expected Earnings: GOOG, GE, and C

The market is slightly lower in early trading, after a strong late-day rally again yesterday. Today is options expiration, which likely added to some of the volatility this week. My guess is that many traders were leaning short the market, and those late day rallies were the signs of short-covering ahead of today's expiration to square up positions.

Last night, Google (GOOG) topped earnings expectations by 23 cents, a nice beat. The stock is trading higher this morning, but not as much as it was in after-hours yesterday. The CEO made some cautious comments about advertising spending in this economy. This morning, GE reported better than expected earnings, and Citi reported a smaller loss than expected.

In economic news, the Univ. of Michigan consumer sentiment survey came out this morning, and has bounced to its highest levels since last September, a promising sign. If confidence continues to improve, that would go a long way to improve consumer spending, bank lending, as well as housing and stock prices (asset values).

Asian markets rose overnight; the dollar is mixed this morning; oil is trading slightly higher, while gold is lower again; the 10-year yield is higher at 2.89%; and the VIX is down again near the 35.0 level, extending its recent downtrend (another good sign). If the next leg of this rally can knock the VIX below 30, that would be very bullish.

Trading comment: I took partial profits on our Illumina (ILMN) position today, on the heels of some good news regarding genome sequencing orders. The company reports earnings next week.

I also took partial profits on our small cap etf (UWM) position, just to lock in more profits. I continue to look for good trades to put more cash to work, but the pullbacks lately have been very brief and shallow. For next week, it will be interesting to see if SPX 850 holds.

long GOOG, ILMN, UWM

Market Wrap

Here is a quick wrap of the session:

• The Dow and Nasdaq advanced for a second day as technology and bank stocks rallied.
• The S&P 500 reached its highest close since early February. The market overcame a disappointing report on May housing starts and a bankruptcy filing by the biggest U.S. operator of shopping malls.
• Semiconductor stocks were among the leaders. Nokia gained 1.52 to 14.88 after reassuring investors it can meet profit goals in the first half of the year. Texas Instruments, whose chips are used in mobile phones, rose 79 cents to 17.80.
• Bank stocks erased early declines when Regions Financial said it would report a first quarter profit. Shares of Regions gained 1.70 to 6.70. JP Morgan Chase closed up 68 cents at 33.24 after exceeding estimates for first quarter earnings.
• Harley Davidson was another star performer. Shares gained 98 cents to 18.11. Harley posted better-than-expected profits and expanded a plan to cut jobs.
• The Dow closed up 95 at 8125.
• NYSE volume totaled just over 1.6 billion shares.
• The S&P 500 was up 13 points. The Nasdaq gained 43.
• Advancing issues beat decliners by nearly 4-1 on the NYSE and by 5-2 on the Nasdaq.
• The 10-year Treasury note dropped 18/32 to yield 2.83%.

Trading comment: Another late-day rally showed up with surprising strength. The chart below shows that uptrend for the SPX that has been in place since the March 9th bottom. Yestereday, the SPX successfully bounced off that uptrend line again, keeping the trend intact for now.

More Profit Reports Beating Expectations

There were a handful of positive earnings reports this morning, beating consensus expectations. But after yesterday's strong late-day rally, the news isn't propping up the market in early trading. Of course, given the late day turnarounds we have been seeing, its safe to say its still early. (I think the last time I said that the market got whacked)

Here are some of the companies that topped earnings estimates: JPMorgan (JPM), Baxter (BAX), Illinois Tool Works (ITW), and Nokia (NOK). All four of these stocks are nicely higher today, a good sign to see given the angst over how Q1 earnings reports would come in. JPM also looks to have benefited from some "write-ups" of previously written down assets.

Economic news was mixed. The Philly Fed Index came in better than expected, like the Empire index yesterday. But housing starts and building permits for March slid more than expected. The silver lining of the housing starts number is that it helps reduce the inventory of homes on the market, such that when the housing market turns higher, demand could quickly outstrip supply, given the growth demographics of our country.

Asian markets were mixed overnight. Reports out of China showed that GDP for the country grew +6.1% last quarter, below expectations and the slowest pace in the last decade. Given that other reports show that power consumption in China declined last quarter, I think these official GDP figures could be overstating actual growth. Such is China.

The dollar is mixed this morning, while gold is trading lower, and oil prices are roughly flat; the 10-year yield is higher at 2.79%, halting a 3-day slide; and the VIX is barely higher at 36.50, after closing at a new low for the year yesterday. The downtrend in the VIX is encouraging.

Trading comment: This market sure doesn't want to go down for long. That's a sign that people remain underinvested, and in the case of big quant hedge funds, I'm hearing that they continue to short the market and have not participated in the recent rally.

I took partial profits on our real estate etf (IYR) yesterday, and trimmed a bit of our Google (GOOG) positions ahead of earnings tonight. If the S&P 500 rallies more today, I may also trim some of our SSO position. That's just profit taking.

The SPX continues to find support along its uptrend line that has been in place since the March lows. I'll post this chart later, but the correction won't begin until this trend line first gives way.

long GOOG, IYR, SSO

Consumer Prices Show No Inflation At The Moment

The market is slightly lower in early trading. Yesterday's selloff picked up strenght late in the day, but given the rally we have experienced, I don't think anyone is all that suprised by the decline.

Today's economic report showed that consumer prices (CPI) fell 0.1% in March (vs. +0.1% consensus). Also, CNBC reported that consumer prices fell yr/yr for the first time since 1955. For those worried about inflation, this report lends itself to the notion that those worries are premature, at least for the time being.

The April Empire State Munafacturing Index came in at -14.7, which is much improved from last month's -38.2, and well above the consensus of -35.0. This is a survey on general business conditions, and bodes well for improved sentiment in the manufacturing sector after a huge drawdown in inventories.

In corporte news, P&G declared a 10% increase to its dividend, helping boost the stock and pushing the consumer staples group higher. Intel (INTC) reported earnings last night that were pretty good, but the stocks is selling off today nonetheless. The company said that they believe we have seen the bottom in the personal computer market, and they believe the worst of the inventory correction is now behind us.

Asian markets were mixed overnight; the dollar is higher so far today, and gold is a bit higher also; oil is trading down a bit, below the $50 level; the 10-year yield is lower again to 2.77%; and the VIX is also lower again, near 37.50.

Trading comment: I didn't take any profits yesterday, but I am getting closer to doing so. The ISEE Sentiment Index is too high for my liking, coming in at 181 and 176 the last 2 days. Ditto the CBOE put/call ratio, which was 0.67 and 0.76 the last 2 days. Those indicators point to rising bullishness, just as I believe this rally is getting long in the tooth (into its 6th week).

That doesn't mean we have to plunge back down, the way the market did last fall and earlier this year. We could just get a mild pullback. But we will only know that with hindsight, and my strategy remains to be active in tacking profits and redploying that cash after pullbacks.

Do Producer Prices Raise The Question of Deflation Again?

Sorry for the late post. I came into the office early this morning only to find the Internet connection was down. For me, nothing is more frustrating. No quotes, no Internet, no email, and no CNBC (since I stream it). At least the phones were working so I could hop on the Goldman Sachs conference call (more on that in a later post).

The market is lower this morning on the heels of a weak retail sales report, a big decline in producer prices, and likely some good ol' profit taking. Of course, the market has been lower in early trading several times recently only to see the declines erased by the end of the day. This occurred again yesterday. I'm not saying it will happen again today, but anything is possible.

The Producer Price Index for March fell -1.2% (economists expected it to be flat), and decreased -3.5% yr/yr. Those are pretty sharp declines, and are causing concerns of deflationary pressure to surface again. Funny how quickly folks can go back and forth from worrying about inflation to deflation with just one report.

Advance retail sales came out also, and showed a decrease of -1.1% for March, a far cry from the +0.3% increase economists expected. I'm not sure where the discrepancy comes in, but I'm surprised this figure was so weak. It will be interesting to see if there are upward revisions to it going forward.

In corporate news, JNJ topped earnings expectations and reaffirmed its 2009 outlook. That is helping the stock bounce +2% in a down tape. Goldman Sachs also crushed its estimates ($3.39 vs. $1.60 consensus) on both the top and bottom line. That stock would be up big, except the company issued a stock offering at $123 to raise $5 billion. The proceeds, along with savings from a lower dividend, are expected to be used to repay the TARP funds to the govt. as soon as possible.

Asian markets rose overnight, with Hong Kong spiking +4.6%. Reports out of China showed new monthly loans in China increased almost +30% yr/yr to record levels as the money supply in the country surged.

The dollar is mixed today; oil is higher, while gold is trading lower; the 10-year yield is lower to 2.80%; and oddly the VIX is lower by -1.6% to 37.19, despite the decline in stocks. Go figure.

Trading comment: I didn't take any profits yesterday, as the market continues to hang in there well. I may be getting too cute in looking for SPX 875, considering we got to 860 yesterday. But as long as we close above 850, I can see another push higher. I am a bit concerned by the increasing levels of bullishness showing up in the put/call ratios. But let's see how today unfolds.

Monday Morning Musings

The market is slightly weaker in early trading, but financials have bounced from their lows are are now higher, bucking the broad-based weakness.

The energy sector is the biggest laggard, after the IEA reduced its global oil demand forecast by 1 million barrels per day. That is causing oil prices to dip below $50, and oil and gas stocks are lower as well.

The Wall St. Journal is reporting that talks between Microsoft and Yahoo are back on. Also, Express Scripts (ESRX) is paying $4.675 billion to acquire the NetRx subsidiaries from WellPoint (WLP).

In other news, Goldman Sachs (GS) is considering a multibillion share offering to help repay its $10 billion TARP loan. GS was initiated with a Buy rating this morning at Citi, and the stocks is nicely higher (+4.5%). Goldman reports earnings tomorrow morning, and the bar has likely been raised after Wells Fargo (WFC) preannouned sharply higher profits last week.

Asian markets were mostly closed overnight, while Japan fell a bit; the dollar is lower this morning, helping push gold prices higher; the 10-year yield is lower to 2.85%; and the VIX is +6% higher to 38.80, after falling meaningfully last week below its 200-day average support.

Trading comment: Last week I added some additional long exposure via the SSO and IYR etfs. We also took final profits on our gasoline etf (UGA), which is looking like a good call this morning.

This rally looks like it may be getting a little long in the tooth as it enters its 6th week off the lows, a natural resting spot. As such, I will look to take partial profits on some of our trading positions, and raise some cash, which I would then look to redeploy on a pullback. I still believe this active trading strategy will outpace the proverbial buy and hold strategy this year.

long IYR, SSO

The Week Ahead

Here's a preview of the week ahead for investors from Reuters:

NEW YORK (Reuters) – If Wells Fargo's (WFC.N) strong first-quarter preliminary performance is any sign, stocks could rally further this week on any reassuring news when three other big banks post quarterly results.

The earnings season starts in earnest, with banks Goldman Sachs (GS.N), JPMorgan (JPM.N) and Citigroup (C.N) set to report their latest scorecards. Both JPMorgan and Citigroup are Dow components.

General Electric (GE.N), another Dow component, will report earnings on Friday. GE, whose businesses range from broadcasting to making jet engines, is closely watched because its results and outlook may shed light on the broader economy's health.

Hopes that the economic slump may be abating and some stability may be returning in the banking sector have helped underpin a month-long recovery in stocks from 12-year closing lows hit in early March.

"The market is looking like it wants to continue the rally," said Andre Weisbrod, president and chief executive officer of STAAR Financial Advisors Inc in Pittsburg, Pennsylvania.

"But again, so much of this depends on the news of the day. It looks like we're going to see the banks showing some improved cash flows, and that's certainly better than the opposite situation."

The benchmark Standard & Poor's 500 Index (.SPX) scored its fifth straight weekly gain at Thursday's close, when trading ended for the short holiday week. On Thursday alone, both the S&P and the Nasdaq jumped almost 4 percent, while the Dow industrials climbed 3 percent.

The latest rally was triggered by Wells Fargo, the fourth-largest U.S. bank, which surprised Wall Street by saying it expected to post a record $3 billion profit for the January through March quarter. Wells Fargo will report earnings on April 22.

Investors are hoping that more banks will sing the same positive tune when their results roll in.
Goldman Sachs Group Inc, which will report earnings on Tuesday, converted from an investment bank to bank holding company status last September after Lehman Brothers collapsed.

On Good Friday, Goldman Sachs was said to be considering a multibillion-dollar stock offering to help repay money borrowed from the U.S. government, according to the Wall Street Journal.
Looking ahead, JPMorgan is due to report results on Thursday and Citigroup (C.N) on Friday.

OBAMA'S OPTIMISTIC

President Barack Obama said on Friday that despite the recession's heavy toll, the U.S. economy is showing "glimmers of hope." He didn't mention the "stress tests" being performed at 19 big U.S. banks. The financial markets anxiously await those results, due at the end of April.

But the president expressed confidence that his administration was addressing the problems of both troubled banks and non-bank financial institutions.

U.S. financial markets were closed for Good Friday.

For the short holiday week, the S&P 500 rose 1.7 percent, the Dow Jones industrial average (.DJI) gained 0.8 percent and the Nasdaq composite index (.IXIC) climbed 1.9 percent.
For the year, the Nasdaq is up 4.8 percent, while the Dow is down 7.9 percent and the S&P 500 is down 5.2 percent.

ARE BANKS LENDING?

The banking sector's health has been a major worry after fallout from the financial crisis led the U.S. government to pump billions of dollars into such troubled institutions as Citigroup, which gave Wall Street a surprise last month when it said it was profitable in January and February.
With the economy mired in a protracted recession, investors are eager to see if banks have begun lending again to consumers and businesses, whose spending would serve as a crucial underpinning to an economic recovery.

"The banking sector has been in focus for Wall Street for the last six months, so next week sharpens that a little bit more," said Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois.

On Friday, the Federal Deposit Insurance Corporation said U.S. regulators closed Cape Fear Bank of Wilmington, North Carolina, and New Frontier Bank of Greeley, Colorado, which became the 22nd and 23rd U.S. banks to fail this year.

EARNINGS, CPI AND HOUSING STARTS

Investors may need to keep the eyedrops handy this week as they sift through torrents of earnings reports and some major U.S. economic indicators for March, including the Producer Price Index, the Consumer Price Index and housing starts.

Besides bank earnings, earnings are expected from other bellwethers, particularly in the tech sector, which was mostly spared most of the pain in the market's recent fall to 12-year lows.
Chip maker Intel Corp (INTC.O) is set to report first-quarter earnings on Tuesday, while Google Inc (GOOG.O), the Web search leader, reports results on Thursday -- both after the bell.

Earnings are also on tap from Dow component and health-care company Johnson & Johnson (JNJ.N) on Tuesday; transportation companies CSX Corp (CSX.N) and AMR Corp (AMR.N) on Wednesday; motorcycle maker Harley-Davidson Inc (HOG.N) on Thursday and toymaker Mattel Inc (MAT.N) on Friday.

NO TIME TO GET COCKY

When U.S. stock trading resumes on Monday, investors will assess whether the economy is improving and the rally is likely to continue -- or whether bears still have the upper hand.
The S&P 500 is up 26.6 percent from its March 9 bear market closing low, but it is still down 45.7 percent from its record high of October 2007.

"The short-term momentum is still bullish. This move off the March lows probably has more legs to it," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading in Boston.

"But what we're telling our clients is that once you start to get above the 860 area in the S&P 500, and 8,200-8,300 in the Dow, we want to start getting out of speculative long positions and paring back our equity exposure."

Mindful of the fragility of previous rallies, including one after the November lows, strategists advocate some caution.

Worth noting: The CBOE Volatility Index (.VIX), or VIX, commonly known as Wall Street's fear gauge, slid on Thursday to its lowest close since September 2008.

"In our opinion, this is still a bear market move," Strazzullo said. "So you've got to be careful. It's been a great run over a short period of time, but we don't see it as a bigger picture change in trends, so I don't want to get careless -- not at these levels."

Wells Fargo News Pushes The Bears Back On Their Heels

The market is sharply higher in early trading, after finishing on a strong note last yesterday.

Before the open, Wells Fargo (WFC) announced its earnings would be double consensus estimates. They said the Wachovia business they acquired is doing well, and also said that net charg-offs for Q1 would be $3.3 billion, down nicely from last quarter's $6.1 billion incurred.

This news throws a wrench in the bears' argument that banks would announce terrible earnings, and lead a new leg down in the market. The bank index is surging +11.3% right now, and will likely continue as more bears cover their shorts, and if more companies in the space report similar solid earnings. I am glad I no longer have any shorts in this area.

The only sector that is not up today is the consumer staples sector, which is being weighed down by Wal-Mart (WMT), which reported same-store sales of +1.4% in March, but that was below estimates of 3.3% growth and below last months tally of +5.1%. So expectations were higher, especially after the strong earnings from the likes of Family Dollar (FDO) yesterday.

The Bank of England held rates at 0.5% and said it remains committed to quantitative easing. Barclays (BCS) confirmed it will sell its popular iShares fund business to CVC Capital Partners for $4.4 billion, a nice price tag. Japan also closed sharply higher after the Japanese govt. announced a larger than expected economic stimulus plan, equivalent to 3.1% of the country's GDP.

The dollar is higher today; oil is also trading higher, while gold is lower on the session; the 10-year yield is up to 2.93%; and the VIX is -3.1% lower again to 37.64, breaking to a new multi-month low (a good sign).

Trading comment: I'm glad I used yesterday's weakness to add to my long positions. It eases my performance anxiety just a bit. I added to my SSO broadly, and also got long the real estate sector (IYR) in my aggressive accounts for the first time in years. This is just a trade, but I think the positive news coming out of the financial sector should benefit the REITs as well. Also, this is another heavily shorted area, which could benefit from short-covering.

This market continues to stair-step higher, but it will be interesting to see if the rally takes a breather as we near the 6-week mark off of the lows. The market bottomed on 3/9, so six weeks takes us out into next week. The market often has 4-6 week rally and selloff phases, which is why I am keying off of this time frame. Just something to put on your radar.

long SSO, IYR; long WFC, WMT is select client accounts

Treasury Extends TARP Funds To Life Insurers

In a move that is not all that surprising, the Treasury is extending the availability of TARP funds to life insurance companies that qualify as bank holding companies. Details have not been finalized, but the insurance stocks are rallying on the news, and this should help the group avoid further ratings downgrades which have been rolling in.

Yesterday's TALF auction by the Fed drew less demand than expected, which is a slight negative. The minutes of the last FOMC meeting will be released at 2pm, but I suspect most already know that the Fed governors will likely have made comments about further economic weakness.

There is also a meeting going on right now with the SEC about the uptick rule, so we should expect some comments to come out of that meeting with the potential to move the market. The SEC chair said she is under severe pressure to revisit the uptick rule and modify it in some way.

Earnings season kicked off last night with Aloca (AA) and Mosaic (MOS). Both commodity-related companies missed consensus estimates and their stocks are lower. Conversely, value retailers Bed, Bath & Beyond (BBBY) and Family Dollar (FDO) beat expectations, and their stocks are nicely higher (BBBY is up huge).

Also, in the housing industry Pulte Homes (PHM) will merge with Centex (CTX). This type of consolidation is healthy, and good for the housing industry overall.

Asian markets were lower overnight; the dollar is mixed so far; oil is trading lower, while gold is slightly higher; the 10-year yield is lower at 2.87%; and the VIX is also lower near the 40 level.

Trading comment: I used the brief dip this morning to start adding to some of my long positions (SSO), and will likely look to use any further weakness today to add more. I was hoping the S&P 500 dipped closer to 800, but maybe 814 is all we are going to get right now. I am looking for another push higher, but realize this rally could need a bigger breather sometime in April considering we are already 4 weeks off the bottom.

long SSO

Volatility Creeps Lower Despite Down Day For Stocks

The chart above shows the Volatility Index, what I refer to on a daily basis as the VIX. The VIX is sometimes called the "fear index", for it spikes higher when there is fear amongst traders, and moves lower as complacency sets back in.

As such, it usually move inversely with the overall market. On a down day like today, it normally moves higher. That is why the VIX stood out to me today. Although it was higher in the early going, it reversed lower as the day wore on, and finished down -1.3% for the session.

First off, let me just say that a lower VIX is bullish for the overall market. Especially a move lower from the extremely high readings we have been stuck at for the last 6 months. I would like to see the VIX eventually get back down below the 30 level. This would be a good sign that the market was returning to some "normal" level of daily volatility.

But the move today could have been influenced by some news that could come as early as tomorrow from the SEC regarding the 'uptick rule'. If the SEC moves to modify the uptick rule, which I think is likely, it would equate to lower volatility at the margin, and have a downward influence on the VIX.

Here is a summary of today's market action:

• Stocks fell for a second day as the market confronted the beginning of first quarter earnings season.
• Wall Street anticipates a seventh straight quarter of declining profits. Today’s selling was orderly and appeared to fall under the umbrella of “normal profit-taking” following big gains in March.
• Investors had to deal with a number of troubling issues. Confidence among chief executives of American corporations dropped to a seven-year low in the first quarter. Moody’s Investors Service said the default rate for corporate bonds was the highest in March since the Great Depression.
• Emerson Electric delivered a bit of good news. The company cut its earnings forecast, but the end result was not as severe as many expected. The stock closed unchanged at 30.89.
• Managed health companies lifted after the government announced a bigger-than-expected rate increase for Medicare plans. Humana gained 1.61 to 27.92.
• The Dow closed down 186 at 7789.
• NYSE volume totaled about 1.26 billion shares.
• The S&P 500 was down 19 points. The Nasdaq fell 45.
• Declining issues beat advancers by nearly 4-1 on the NYSE and by 3-1 on the Nasdaq.
• The 10-year Treasury note was up 9/32 to yield 2.89%.
  

Earnings Season Kicks Off Tonight

The market is lower again in early trading. Yesterday morning the market was also down, but I said a lot could happen by the end of the day. By the close of trading, the Dow had cut its losses to just -41 points. Let's see if today works out similar.

Earnings season kicks off tonight with the report from Alcoa (AA). Every single strategist out there thinks earnings are likely to be disappointing and guidance to be tepid. From a contrarian perspective, its possible that could set expectations low enough that even bad earnings reports from many companies won't push their stocks down further. We shall see.

Other than profit taking, there is not a ton of news this morning. Housing stocks are down the most, while healthcare and biotech are down the lease. Financials are also starting to bounce, with stocks like GS and MS bucking the weakness so far.

Asian markets were mostly lower overnight. The Bank of Japan left their interest rates unchanged at 0.1%, helping the Yen bounce modestly. The dollar is higher vs. the Euro. The 10-year yield is lower at 2.89%. And the VIX is slightly higher, still hovering near 41, just below its 200-day average.

Trading comment: Yesterday I took more profits on that short-term hedge I put on, and today I will start looking at adding some long exposure. I am looking at the financial etf (XLF) as well as the real estate etf (IYR), both of which remain beaten down, unloved, and could get another bounce.

I have not waded into individual stocks in a big way because I want to see how earnings reports come out. But stocks that dip after they report could offer good trading opportunities.

Monday Morning Musings

The market is off to a weak start, taking a different tone from Friday's strong close. Although lately, the market has been opening weak and then closing strong quite often, so anything can still happen today.

Tech stocks are lower after talks between IBM and Sun Micro (JAVA) have hit a wall. The WSJ reported that Sun rejected IBM's formal offer. (I think they should have taken it)

There is not much else in the way of corporate or economic news this morning. This week starts earning season, and with little guidance offered by CEOs of late, it seems that this quarter's earnings report could generate more volatility than normal in stock prices. As such, I would not make any big bets about which companies might blow away estimates, and vice versa.

Asian markets rallied overnight, shrugging off the missile launch by N. Korea. HSBC successfully raised $18.5 billion in an offering. Also, the Japanese govt. plans to unveil a new stimulus plan worth more than 2% of GDP on Friday.

The dollar is higher this morning, which is weighing on commodities. Oil is lower, near $51, and gold has broken below the $900 level. The 10-year yield is off slightly to 2.88%; and the VIX is up +6%, back above its 200-day average, around the 42 level.

Trading comment: I put on a small hedge late last week, that I have only taken partial profits on. If the market pulls back further, I will look to take full profits and begin to add to some long positions. I am leaning toward adding some exposure to the financial sector, as well as consumer staples. I will keep In The Money readers posted.

Wall St. Week Ahead

Here is a preview of the week ahead in the markets from Reuters:

NEW YORK (Reuters) – U.S. stocks should rally further this week, if investors get more signs that the economic slump is abating and earnings season does not get off to a rocky start.
Alcoa Inc (AA.N) will report results on Tuesday in the unofficial start of first-quarter company results.

But given that the aluminum producer is expected to post another loss, the outlook it provides will be key to investor sentiment.

In this holiday-shortened week, volume could be light, raising the specter of increased volatility as investors look to string together a fifth straight week of gains. Many market participants are likely to be out of the office this week, when Passover begins. Markets will be closed on April 10 for the observance of Good Friday.

After investors got a boost in recent weeks from economic reports suggesting that the grip of the 16-month-old recession may be easing, analysts said stocks probably would make further headway.

The benchmark S&P 500 (SPX) ended on Friday up 24.5 percent from a 12-year low hit in early March.

The broad market's recovery from that significant low helped to propel the Dow Jones industrial average to its best four-week advance since 1933. On Friday, the Dow closed back above 8,000 for the first time since early February.

For the past week, the Dow advanced 3.1 percent, the S&P 500 rose 3.3 percent and the Nasdaq climbed 5 percent.

"I think we've still got quite a bit of room on the upside," said William Stone, PNC Wealth Management's chief investment strategist in Philadelphia. "We seem to have become medicated in March and into early April and have shrugged off some negative numbers," he said.

"The medication was that expectations on the economy got low enough that we were able to get some numbers that while ugly, are a bit better than expected," Stone added.

HOPES THAT THE WORST IS OVER

The highlights of the week's economic releases include Wednesday's minutes from the Federal Reserve's March 17-18 policy meeting, at which it decided to pump an additional $1 trillion into the U.S. economy, partly by buying government bonds for the first time since the 1960s.
On Thursday, the government will release data on the latest weekly jobless claims and the international trade deficit for February.

Besides that, investors will keep tabs on any rhetoric out of Washington as the Obama administration works to prop up the banks and drive initiatives for economic recovery.

"The last couple of weeks, we have been seeing a few green shoots of slightly better macro data," said John Praveen, chief investment strategist at Prudential International Investments Advisers in Newark, New Jersey. The market will be looking for "follow-up on whether we are going to have an improvement in the macro data."

Also set to command attention: The U.S. Securities and Exchange Commission will meet on Wednesday to consider an updated version of the so-called uptick rule to regulate a type of trading blamed for dramatic declines in stocks.

Friday's bleak March nonfarm payrolls data became the latest economic data point that the stock market shrugged off, leading some analysts to say the economic damage could not possibly get much worse.

According to the government data, the U.S. unemployment rate soared to 8.5 percent last month, a new 25-year high, as employers cut 663,000 jobs and slashed workers' hours to the lowest on record.

Even so, the benchmark S&P 500, the Dow Jones industrial average and Nasdaq (.IXIC) all finished the session in positive territory, and each registered a fourth straight weekly advance.

Still, there are concerns that the stock market's recent run higher could soon hit a pothole.
"We believe a deep pullback to 750-775 in the S&P 500 (.SPX) is the kind of final low we expect to see," JPMorgan U.S. equity strategist Thomas Lee said in a note.

The S&P 500 ended on Friday at 842.50, and according to Thomson Reuters data, the index's 200-day relative strength chart shows that it remains well off the range that typically signals overbought conditions.

A NEGATIVE MILESTONE FOR EARNINGS

Analysts expect Alcoa to report a second consecutive quarterly loss this week, mostly due to the fact that the price of aluminum has dropped nearly 10 percent this year.

Alcoa, like most producers, has cut production in the last six months as the global economic downturn stunted demand.

"The question is: 'What is the outlook for these companies for the rest of the year?' Like all of us, they don't know. All they can really do is project the current environment, which is clearly negative," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

According to the latest Thomson Reuters data, first-quarter earnings are expected to drop 36.6 percent from a year earlier, marking the longest streak of negative growth since Thomson Reuters began tracking the data in 1998.

Economists Surprisingly Accurate On Today's Jobs Report

The big bad jobs report didn't come in as bad as feared, and the market is pulling back only slightly as a result. You could even argue that the selling is more profit taking after a nice rally, rather than a reaction to the headline jobs report.

The nonfarm payrolls report showed the economy shed 663,000 jobs in March, in-line with estimates. The unemployment rate ticked up to 8.5%, also in-line with estimates, from 8.1% last month. These numbers are not good, and won't help consumer sentiment, but for investors they are a lagging indicator. So if you're using the employment numbers to forecast market direction, you've got it backwards.

Research In Motion (RIMM) reported strong numbers last night, beating estimates for earnings and margins, and they also raised guidance in a bold statement of confidence. That helped the stock spike some +20% today. Of course, yours truly sold shares yesterday because I was worried about conservative guidance and a reaction like the stock received last quarter. As Bart Simpson says, "Doh!"

Also, IBM and Sun Micro (JAVA) are said to be finalizing their deal to buy JAVA for $9.55, which is still 14% higher than the stock is trading for right now. I guess the market is skeptical of that price tag.

Asian stocks were modestly higher overnight; the dollar is also slightly higher today, which is weighing on oil (below $52) and gold a bit; the 10-year yield is higher again to 2.81%; and the VIX is again just below its 200-day at 41.0. Given yesterday's rally, I would have expected it to break below the 40 level.

Trading comment: The stubbornly high VIX, combined with the overbought market, had me a bit nervous coming into today. As such, I bought a hedge position (SDS) in my aggressive accounts in case the market got whacked today. But it looks like that is not going to be the case, so I am scaling out of that position for a small gain.

I still want to add to my long exposure on a pullback, which might be a little too consensus at this point. Hard to say. But at least I have had enough long positions on during this rally that we are still ahead of the market on the year.

long SDS

FASB Softens Rules On Mark-to-Market Accounting

The FASB finally voted to soften the mark-to-market accounting rules. Well, better late than never. The Board revised the rules to allow companies to use their judgment to a greater extent in determining the "fair value" of their assets. The board also made it easier for companies to avoid having to take impairment charges against earnings when they suffer losses on their investments, especially when there are fire-sale transactions in the market.

This is helping the bank index bounce, but the whole market is rallying this morning. Housing stocks are among the leaders, as are retailers and energy. So the rally is really broad-based, which is good to see.

Europe was up big this morning also after the ECB voted to cut rates .25% to 1.25%. This cut was actually smaller than expected, which is helping the Euro rally big time vs. the dollar.

Asian markets also soared overnight, on optimism that M2M would be relaxed here in the US. Hong Kong surged +7.4%, while Japan spiked +4.4%. The G20 leaders also decided that they will double the resources of the IMF to $500 billion, which can be used to support developing nations. I have heard that Eastern Europe is quite the mess right now.

Oil is higher today, rising to $52; but gold is lower, breaking below $900 level; the 10-year yield is higher to 2.76%; and the VIX is only -1.5% lower to 41.66. This is barely below the 200-day. I would have expected it to be lower on a big rally like today. A tad worrisome.

Trading comment: I have been trading a few stocks for short-term trades. I took profits on RIMM today ahead of earnings, and trimmed VMW on a big spike. I think stocks could pull back after RIMM reports, and possibly on tomorrow's jobs report.

I have not made any major etf trades lately. In my aggressive accounts, I am buying a hedge position in SDS in case a pullback does materialize. But bigger picture I would still look to use pullbacks to add more long exposure.

long VMW, SDS

Market Rebounds From Early Lows After Weak Employment Data

The market took a big dip right after the open, on the heels of a weak ADP employment report as well as a continuation of the selling pressure that showed up in the last hour of trading yesterday.

The ADP employment report showed 742,000 jobs were lost in March. That is a big number, and bodes poorly for Friday's official jobs report. Historically, employment always bottoms after the economy, but in the interim these rising unemployment figures don't help consumer confidence, lending, etc.

In other economic news, the ISM Manufacturing Index came in at 36.3, higher than last month's 35.8. Pending new home sales for February rose +2.1%. Stability in the housing market would go a long way to adding to stability in the market and broader economy.

The bank stocks are leading the action so far. FDIC Chairman Bair said that she is cautiously optimistic the US banking industry is getting on better footing. And several smaller regional banks today paid back their TARP funds to the govt., and those stocks are trading higher. We are still waiting to see who will be the first big bank to pay back the TARP, and get the govt. out of their hair.

Asian markets were mostly higher overnight; the dollar is slightly higher this morning; oil is lower, near $48, while gold is trading higher near $925; the 10-year yield is lower again to 2.67%; and the VIX is -2.5% lower to 43.03, but still above its 200-day.

Trading comment: I didn't make any trades yesterday, as the late day weakness was a bit disconcerting to me. But this morning's action is very positive, as long as the SPX can remain above its 50-day near 790. I am still looking for another push higher in the market before earnings season starts up.