Happy Friday

Happy Friday, well, probably only for the bears today since the market is down. But this isn't all that surprising. My colleague Helene Meisler at RealMoney.com wrote today that the market has been down in 8 of the last 13 final trading days of the month since the March 2009 bottom. Today the pattern is holding.

Nonetheless, April has been another positive month for the market. If the S&P 500 were to close at current levels (1195), it would be up +2.1% for the month. Not bad.

Goldman Sachs (GS) is weighing on the financial complex after a federal criminal probe has been opened to examine the firm. That's the problem with these SEC lawsuits, they just open to door to more lawsuits which become a distraction for the firm, not to mention the legal costs.

The downdraft in the market is overshadowning a few very positive economic reports that were released this morning. To wit, Q1 GDP came in at 3.2%, basically in-line with estimates, but the consumer spending component of the report (+3.6%) showed its biggest gain since the beginning of 2007.

Also, the Univ. of Mich. consumer confidence report rose to 72.2, up from a preliminary reading of 69.5. And the Chicago Purchasing Managers index rose to 63.8, which marks the highest reading since 2005. These are strong reports that confirm the ongoing economic recovery we are seeing. Despite the positive news, my sense is that there are still many skeptics among us, and that will keep the 'wall of worry' firmly in place.

The dollar is weak today as the euro bounces on optimism that Greece will get some sort of aid. The weaker dollar is supporting commodity prices, with oil up to $85.70, and gold pushing higher to $1180. The gold etf (GLD) has broken out to new highs for the year, and looks like it will test its December highs.

Asian markets were mostly higher overnight; the 10-year yield is lower again to 3.66%; and the VIX is +11.6% higher as fear creeps back in the market, to 20.56, which is still below Tuesday's high of 23.20.

Trading comment: I have been waiting for a pullback, and today I may start by putting just a little bit of money to work. I don't mind nibbling on the way down, and putting some cash to work in stages. I will start with stocks that reported strong earnings but pulled back anyway. Today I am starting to bid on some GMCR.

long GLD, GMCR

Fed Stands Pat On Interest Rates

The Federal Reserve said the U.S. economy continues to strengthen, but that the slack left over from the recession is still so large that it expects interest rates to stay near zero for an "extended period."

The Fed also said the labor market is beginning to improve but still-high unemployment is keeping a lid on consumer spending.

After its two-day meeting, the Fed said it was in no rush to tighten policy, sticking to its forecast that economic slack, low inflation and stable inflation expectations should call for record-low rates for "an extended period."

Central bankers said there was no timeframe to "extended period."

Quote of the Day

"Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world."
— Albert Einstein: theoretical physicist

Markets Bounce After Big Selloff

The indexes fell -2% yesterday for the first time in months, and took the S&P below its 20-day moving average. The VIX saw an enormous spike higher, 30%, which shows fear was on the rise. The put/call ratio rose to 0.89, but did not top the 1.0 level I watch for.

This morning the markets are taking a breath, and bouncing from yesterday's lows. There were some more solid earnings reports (BRCM), and a lack of more headlines out of Europe.

Asian markets were lower overnight; the 10-yr yield is bouncing from yesterday's plunge to 375%; and the VIX is giving back -7.7% to 21.03.

Yesterday's Goldman Sachs (GS) fanfare overshadowed that there is an FOMC meeting taking place, and we will get the statement from them later today. I don't think we will see much change in the wording of their statement, but investors will parse the language closely for any nuances.

Trading comment: Yesterday's whack was a pretty good one, but I suspect we haven't seen the lows yet. The S&P 500 has pulled back roughly 3% from its highs so far. That said, there have been many individual stocks that have pulled back more significantly, and those might worth picking at. My strategy is to add to the individual names that I like, that have pulled back recently, and then look to add more exposure by putting more cash to work when I get a sense that the overall market has bottomed as well.


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

Goldman Gets Grilled

I have to admit that the reason my morning post is so late today is that I have not been able to take my eyes off of this ridiculous congressional hearing of Goldman Sachs execs. My first problem with it, is that Goldman didn't do anything different than any other investment banking operation across the globe. So when they paid back TARP, we were happy they made money, but no we want to demonize them for it.

Second, these congressmen don't even understand the issues that they are discussing, and proposing to regulate. They don't know the difference between a market maker, which just makes prices for clients to transact, and a financial advisor which has a fiduciary obligation to do what is right for his/her client. Its a joke, and the public expects these folks to come up with sweeping regulation that will protect us in the future. Good luck.

The market had already started off on a negative note after S&P downgraded the credit rating for Portugal. Then came the news that they also downgraded Greece's debt to junk. Good timing on downgrading both in the same day.

The news is hitting the euro, and boosting the dollar. Most commodities are lower, but gold is higher on a flight to safety trade. U.S. bonds are also up big on this flight to safety, with the yield on the 10-yr note plunging to 3.71% as a result.

The negatives above overshadowed some positive economic news in the form of a higher than expected Consumer Confidence number (57.9 vs. 53.5), the best reading since August 2008. Also, the CaseShiller home price index for February rose 0.6% yr/yr, which marks the first increase since 2006. I think the figures for March and April should continue to improve, marking a bottom in the housing market.

There were also more strong earnings reports from Ford (F), MMM, DuPont (DD), and Texas Instruments (TXN), but the stocks are lower as a result of the overall market.

Trading comment: I have cautioned recently that complacency was building. And last week (4/16), I noted the big spike in the VIX that day and said that these spikes were rarely one-day events, and that there was probably more to come in terms of a selloff. The market went on to make new highs in the ensuing week, but today the selloff has resumed. The VIX spiked as much as 20% today, gapping above its 50-day to as high as 21.25.

I think a lot of today's selling is profit taking, as the Nasdaq has been up for 8 straight weeks, a rare event. I have done bits of profit taking along the way, and raised cash. The S&P 500 has just pierced its 20-day average today, and I still think this pullback has more room to run. As such, I am doing little today, and hoping my patience has paid off.

long F


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

Monday Morning Musings

The market is adding to Friday's gains this morning in the face of some mixed news.

There were some strong earnings reports from the likes of Whirlpool (WHR) and Catepillar (CAT), but there were also some disappointments such as BlackRock (BLK). BlackRock probably isn't being helped by all of the chatter this morning about financial reform and what it will look like.

I don't want to get off on a rant about govt. regulation, but suffice it to say that it rarely has a beneficial effect ahead of the problems it targets. Does anyone view Sarbanes Oxley as a huge success?

There was also some M&A news this morning, with Hertz (HTZ) agreeing to acquire Dollar Thrifty (DTG) for a mix of cash and stock.

The dollar is higher today, pushing oil prices down a bit to $84.50, but gold is hovering near the unchanged level around $1155.

Asian markets were higher overnight; the 10-year yield is off a touch to 3.80%; and the VIX is +2.9% higher to 17.10.

Trading comment: The market continues to power higher, and breadth has actually been very good. The sentiment indicators are somewhat mixed, with things like the Rydex ratio and the CBOE 10-day put/call reaching bearish levels that have preceded corrections earlier this year. But some of the investor surveys are not showing the same levels of complacency, so I would say sentiment is mixed right now.

I have taken some profits in recent weeks, and still hold more cash than normal. But I also have held on to many of our positions as they continue to perform quite well. My game plan is to look for pullbacks before committing new cash, and to start out slowly in case we do get a correction that has some teeth to it.

long BLK


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

Goldman's Outlook

This isn't a post about Goldman's SEC troubles. Rather, Goldman released its monthly Market Pulse research piece, and here is a summary of their investment convictions at this juncture:

• U.S. economy headed for stronger growth in Q2
• That should be followed by a slowdown in 2H10, followed by a reacceleration in 2011
• Maintain outlook for disinflation vs. signs of inflationary problems
• See no reason why FOMC would raise rates in 2010
• Crude oil should stay in $80-90 range this year, top $100 in 2011
• 10-yr yield should ease back towards 3.25% by year-end
• 2010 target for S&P 500 remains 1250
• Gold should stay under $1165 in 2010, but hit $1350 in 2011
• Emerging market stocks now slightly expensive relative to developed mkts
• Small caps look attractive
• High yield credit appears attractive

In a nutshell, that's what GS is advising to their asset management clients, in terms of how to position portfolios for the near-future.

Greek Deficit Widens, Worries Markets

The market is lower this morning amid renewed concerns about Greece's budget deficit. It's amazing how back and forth the market is over Greece. One day it's no big deal, and Greece will receive aid, and the next day the sky is falling and its woes are troublesome. Today, the concerns is that even though financial aid has been pledged to the country, its bond yields are widening on news that their budget deficit hit 13.6%, worse than the 12.9% expected.

While most stocks in the U.S. are lower, there are some standouts that reported solid earnings and their stocks are higher: Sandisk (SNDK), F5 (FFIV), and Starbucks (SBUX).

There was also a handful of companies that reported solid earnings, but not enough to keep their stocks up, and they are selling off: Pepsi (PEP), eBay, and Qualcomm (QCOM) to name a few.

In economic news, existing home sales were stronger-than-expected for March at 6.8%. Also, core PPI rose 0.1%, in-line with expectations.

The Greece news is weighing on the euro and pushing the dollar higher, which is again hurting commodities. Oil is down -1.5% near $82.40 while gold is down -1.1% near $1136.

Asian markets were lower overnight; the 10-year yield is flat at 3.73%; and the VIX is +5.88% higher to 17.26.

Trading comment: Patience is paying off today as the 2-day bounce in the markets looks to have run its course and we are seeing some pullback. I would peg near-term support in the market at the 20-day moving averages, which equate to 1189 for the S&P 500 and 2450 for the Nasdaq.

The President is going to speak about financial reform in a bit, and I can't see that helping the market. He will likely scold Wall St., imply that the fat-cat bankers got greedy, say we can never let this happen again, and propose some regulation that will likely prove to be overreaching and solving a problem that has passed, like slamming the barn door after the horses are already out. Such is the case with govt. regulation. It is what it is.

The other fact that rarely gets mentioned is that while the banks received aid from TARP, they have mostly paid it back and I don't think the govt. lost any money on the deal. Conversely, govt. sponsored Freddie and Fannie are expected to cost the govt. hundreds of billions of dollars at the taxpayers expense. Maybe govt. should point the finger at themselves and ask why the heck they were allowing Fannie and Freddie to condone such lax lending standards??

long FFIV


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

More On Apple's Blowout Earnings

As promised, here is my coverage of Apple's conference call, and my thoughts on the stock, from TheStreet.com article:

Apple (AAPL) reported another stunning quarter. EPS beat estimates by 88 cents, coming in at $3.33, which represents 86% growth vs. a year ago. Revenue also beat consensus by well over $1 billion, coming in at $13.50 billion (up 49%). Gross margins were also very strong, rising to 41.7%, due to a favorable mix of more iPhones sold.

The number of iPhones sold was outstanding. The company sold 8.75 million iPhones (up 131%), which are more units than it sold during the holiday quarter in the fourth quarter. That is pretty amazing. Macs also came in above estimates with 2.94 million units sold (up 33%). And iPods were the strongest they have been in two years, with 10.89 million units sold (down 1%).

Getting back to iPhones, demand was very strong but led by extremely robust international growth. Asia-Pacific was the strongest region, and iPhones are now being sold at 151 carriers in 88 countries. Average selling prices declined a bit, to roughly $600. The new operating system (OS4) is coming this summer and contains 100 new features. With the rumors today of a new form factor coming as well, I expect iPhone demand to remain strong.

Macs had a record in terms of units sold in a second quarter. The company is comfortable with channel inventories and recently updated its Macbook Pro. iPods were also surprisingly strong, led by the iTouches (up 63%). iTunes had its best quarter ever, and the app store now has over 185,000 apps for sale.

In terms of the iPad, management said it was "shocked" by how strong demand was. It wanted to price the product aggressively to capture strong, early market share. Demand was so strong that the company had to delay the international launch, but it expects to be in nine countries in May. And the 3G version in the U.S. will be released April 30. I believe the iPad is going to be a big product segment for Apple and realize that it may weigh on gross margins in the near term.

Guidance was strong, factoring in the normal ultra-conservative practice of lowering EPS expectations. Management guided third-quarter EPS to $2.28-$2.39, the midpoint of which is roughly 12% below current Street estimates, which is normal. Revenue guidance of $13.0 billion to $13.4 billion is above current consensus estimates. Gross margins are forecast to decline near 36%, due in part to the lower margin impact of the iPad, as well as the start of the educational selling season. And the tax rate is expected to rise to 27% (it was 24% this quarter).

Overall, the company once again displayed superb execution and exceeded expectations on just about every front. Demand for its products remains white hot, and in the press release Steve Jobs said, "We have several more extraordinary products in the pipeline for this year."

So the innovations are not over, and neither is the growth for this company. Earnings estimates will continue to climb higher, and I feel compelled to raise my $300 price target I established last year to at least $325 by year-end, which is still a reasonable valuation for this great company.

long AAPL

Apple Knocks The Cover Off The Ball

The market is slightly higher in early trading, led by the Nasdaq on the heels of Apple's (AAPL) blowout earnings. The company crushed estimates on just about every metric, from earnings to Macs to iPods and especially iPhones. Apple sold more iPhones in the last quarter than they did during the previous holiday quarter. That was surprising. I covered the conference call for TheStreet.com, and will try to post my comments later.

There was also a handful of other big companies to report solid earnings, pushing most of their stocks higher, including: VMWare (VMW), Morgan Stanley (MS), AT&T, United Tech (UTX), Boeing (BA), and McDonalds (MCD).

The dollar is slightly higher today. That is holding back stocks in the energy and materials sector, even as oil and gold prices inch higher. Oil is trading up near $84.40 and gold is also higher to $1143.

Asian markets were mostly higher overnight, led by China and Japan, while Hong Kong was lower; the 10-year yield is lower again to 3.75%, testing its 50-day support; and the VIX is up a bit to 16.15, after breaking back below the 16 level yesterday.

It's pretty surprising that the Nasdaq is still hovering around the 2500 level. It hit a high of 2517 last Thursday, so it is now less than 1% off its high. Ditto the S&P 500.

Trading comment: I'm happy that some of our positions are doing well today, but I am still a bit surprised that the market continues to hover near its highs. I still think complacency is too high here, and that a pullback is more likely than not. Yesterday, the Rydex ratio that I have shown here before hit a new 1-yr high, indicating that market timers continue to rush into the bullish Rydex funds and out of the bearish tilted funds. That's a yellow flag in my book.

long AAPL, VMW


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

Positive Earnings Reports Roll In

The market reversed itself from yesterday's lows to help the S&P finish the session in positive territory. That buying interest has spilled over into today's session, with the major indexes all in positive territory so far.

Earnings reports have generally been positive so far, even thought some stocks that have reported strong earnings have seen their shares selloff on the news. Goldman Sachs (GS) and IBM both topped estimates, but their stocks are lower this morning. Ditto for the likes of Coca-Cola (KO) and JNJ. In the industrials sector, Eaton (ETN) and Illinois Tool (ITW) reported strong earnings and their stocks are actually higher on the reports.

Its really all about earnings right now, although there are other events moving markets. Europe's markets were higher this morning following news that Greece saw strong demand for its 2 billion euro auction of 3-month bills. Asian markets were mixed overnight.

The dollar is higher today, but commodities are rallying anway. Oil is higher near $83, while gold has bounced back above the $1140 level.

The 10-year yield is higher to 3.81%; and the VIX is -5.6% lower to 16.38 after a big negative reversal yesterday.

Trading comment: While the markets are bouncing, I still don't think that the full extent of the pullback was felt in just one trading session (Friday). I have not put cash to work yet, and am patiently watching for stocks that report strong earnings yet selloff anyway as good candidates to add to.

long IBM


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

Monday Morning Musings

The market is stuggling to stay in positive territory as the overhang from the SEC fraud charges on Goldman Sachs (GS) still linger. At question is whether the SEC widens its probe into other Wall Street firms.

As such, even though Citi (C) reported solid earnings this morning, its stocks is higher (+5.9%) but the rest of the financials are treading water near the unchanged level.

Losses in Asian markets overnight were widespread, led by China which plunged -4.8% on further speculatin that the government will move to further curb speculation in the Chinese property market.

The dollar is higher today, which is weighing on commodities in general. Oil is down another $2 to $81.15, while gold is roughly unchanged near the $1136 level.

The 10-year yield is a touch higher at 3.78%; and the VIX is also higher to 18.55 after its big spike on Friday.

Earnings season heats up again this week, with all eyes on Apple (AAPL) Tuesday afternoon.

Trading comment: I think the correction that I have been expecting started on Friday, in somewhat normal fashion. That is, the market often climbs higher while volatility grinds lower, until some catalyst results in selling en masse. This is what we saw Friday, and most of the time the selloff may take a breather, but then continue in the days and weeks ahead.

There are some out there calling for another 10% correction at this juncture. I don't share this view. Not every correction needs to be of the 10% variety. And considering the correction that just ended in February was roughly 10%, I don't think we see that big of a pullback this close in time. Its anyone's guess, but I'll go out on a limb and say if we pullback in the 3-5% range, that should be another good buying opportunity.

It often comes down to sentiment also. We want to see bearish sentiment rise as the market corrects. What we don't want to see is for investors to remain complacent. But given how quickly investors have turned bearish during previous slides, I think it is likely we will see a repeat performance.

long AAPL


*Note: Past performance is not indicative of future performance. Investing in securities involves risk, including the potential loss of principal invested. Investors should be aware that foreign investing involves special risks including grated economic, political, and currency fluctuation risks, which may be even greater in emerging markets. The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. However, an investor should note that diversification cannot assure a profit or protect against a loss. There is no assurance that these movements or trends can or will be duplicated in the near future.

Stocks Selloff Despite Strong Earnings

The market is moving lower this morning, and picking up downside steam after the SEC charged Goldman Sachs with fraud. The SEC charged GS with fraud involving a French trader and improper disclosure surrounding the structure of a CDO mortgage product, which allegedly resulted in as much as a billion dollars of losses after the subprime collapse.

GS stock is down more than -10% on the news, and this could further damage their reputation. I think the stock could be in the penalty box for some time. It could also weigh on the financials as a whole, as more institutions and transactions come under scrutiny by the SEC's new "Structured Products Unit'.

Last night, both Google (GOOG) and Intuitive Surgical (ISRG) reported strong earnings, beating top and bottom line estimates. But both stocks are being sold off this morning nonetheless. Ditto for Bank of America (BAC) and GE this morning. This was bound to happen at some point, as the relentless rise in stocks already discounted solid earnings reports, so when the news finally came it was time to take profits.

Today is also options expiration day, so my inclination is that the downside pressure in these stocks is being exaggerated as out-of-the-money puts that were sold are now coming into play.

Asian markets were lower overnight; the 10-year yield is down sharply to 3.76%; the dollar is higher, pressuring commodities. Oil is down to $84.50 while gold is down more than $10 near $1148.

Trading comment: The VIX is having a sharp spike higher, rising almost 20% near the 19 level. We have seen this scenario play out before, where the market grinds higher and higher until one day something finally breaks the streak. Past occurrences have proved to be more than just a one-day wonder, so I am not doing any buying today as I think this pullback has more to go.

The S&P 500 has been up for 6 straight weeks, but the streak looks like it will be broken this week. The SPX would have to close above 1194 to keep the streak alive. But the Nasdaq 100 still has a nice cushion, and is likely to log its 7th consecutive weekly gain.

long BAC, GOOG, ISRG; probably selling what little GS we still own

Happy Tax Day

Happy Tax Day. I expect to hear more than the usual amount of debates in the media this year about who messed up and complicated our tax system is, and how badly it is in need of reform. I totally agree, but I am not that optimistic that we will see meaningful reform anytime in the near future.

Back to the markets, stocks started the session off lower, but have since rallied back into positive territory. There were a handful of strong earnings reports last night and this morning, which has helped bolster bullish sentiment. Companies like UPS, JB Hunt (JBHT) and YUM Brands (YUM) all posted better than expected results, and their stocks are rallying higher. UPS also raised guidance for the year.

In economic news, industrial production for March rose a smaller than expected +0.1%, but the Empire State Manufacturing survey hit a five-month high at 31.9.

Asian markets were higher overnight. China announced that its Q1 GDP grew at the torrid pace of 11.9%. That is some serious growth, but China's market was flat as those results rekindled concern about tighter monetary policy to keep things from overheating.

The dollar is higher today on weakness in the euro again. Oil is bucking the trend, and hovering just below $86, while gold is off a buck or so near $1157.

The 10-year yield is down slightly to 3.84%; and the VIX is up +1.6% to a still low level of 15.85.

Trading comment: My cautiousness of late may seem unwarranted in the face of this relentless bullish stampede in the market, but such is life. That is why we only take partial profits during an uptrend, to let our remaining positions ride in case the market keeps rallying.

That said, the put/call ratio fell yesterday to 0.56, its lowest level in some time. With bullishness and complacency on the rise, I still think there is sufficient risk right now for a correction, so I am trying to sit on my hands and wait to put my cash to work at lower levels.

Google (GOOG) is on tap tonight for earnings. I will be covering the call for TheStreet.com, and will post a copy of my earnings recap here tomorrow.

long GOOG

Intel, JPM Get Earnings Season Off To A Strong Start

The market is nicely higher again this morning, overbought readings be damned, on the heels of some solid economic data and a strong start to earnings season from two bellwether companies.

I said yesterday that I would rather consider Intel (INTC) as the start to earnings season, and they came through with flying colors. The chip giant reported a very strong quarter, with EPS of $0.43 vs. $0.38 consensus. Gross margins were also well above estimates, and the company guided revenues for next quarter higher.

This led to a wave of buying in the tech sector. Specifically, the chip index (SOX) is leading the way, gaining +3.42% so far.

This morning, JPMorgan (JPM) was the first big bank to announce earnings, and they too topped estimates handily, reporting $0.74 vs. $0.64 consensus. Revenues were also better than expected. The bank index (SOX) is the second leading index today, gaining +2.73% in early trading.

We also had a couple of solid economic reports hit the wire. Advance retail sales for March increased +1.6% (vs. +1.2% estimate). Also, the CPI for March rose less than expected at +0.1%, while the core CPI (excluding food & energy) was flat. Year-over-year, core CPI rose a scant +1.1%.

The strong earnings reports and solid economic data have helped push the S&P 500 Index above the 1200 level for the first time since October 2008. Of course, there are a ton of earnings reports still to come, and INTC and JPM have set the bar pretty high. I would not be surprised to see some companies' stocks sell off on earnings reports that do not beat the estimates.

The dollar is lower today, and that is helping commodities. Oil is back above $85, and gold has regained the $1156 level.

Asian markets were higher overnight; the 10-year yield is also higher to 3.82%; and the VIX is down -2.65% to 15.77.

Trading comment: The put/call ratios were low yesterday, so I still worry about sentiment in here. But these strong earnings reports likely caused a wave of short-covering and more buying on the part of institutions. Topping the 1200 level is significant for the S&P 500, but I would suspect that these gains need to be consolidated before further upside progress can be made.

Quote of the Day

"Good communication is as stimulating as black coffee, and just as hard to sleep after."
— Anne Morrow Lindbergh: American writer and aviation pioneer

Greek Bonds Find Strong Demand

The market is slightly lower this morning, on the heels of weakness in overseas markets, strength in the US dollar, and a lackluster start to earnings season.

I am not a big fan of looking at Alcoa (AA) for market direction, but their earnings report last night is one of the things being cited today. I would actually rather look at Indian business outsourcing firm Infosys (INFY), which reported very solid numbers last night. Tonight is what I consider the real kickoff to earnings season, when bellwether Intel (INTC) reports.

The dollar is bouncing today, and that is causing weakness in energy and materials stocks. Oil prices are down to $82.75 currently, and gold is back below $1150, currently $1148.

In overseas news, Greece sold 1.56 billion euros in 6-12 month bills in an auction that was actually oversubscribed. In Britain, retail sales grew +4.4% yr/yr in March.

In Asia, most markets were lower with the MSCI Asia falling -0.5%. China managed to gain +1.0%.

Among the etf sectors, energy (-1.18%) and materials (-0.72%) are down the most. Tech (-0.09%) is down the least. And the only industry etfs to buck the weakness so far are the real estate etf (+0.97%) and hombuilders (+0.40%).

The 10-year yield is lower again to 3.83%, and the VIX has bounced from yesterday's mutli-year lows, currently +6.2% to 16.54.

Trading comment: The market continues to levitate around these levels, and it seems traders are showing skittishness. To wit, at the first signs of a lower market this morning, the ISEE call/put opened at an extremely low level of 54.

This highlights that at the first sign of weakness, traders rushed out to load up on puts. That is not exactly the type of action you would see if everyone was complacent. If that was the case, traders would just shrug off the weakness instead of rushing out to buy puts. This reinforces my inclination that any pullback could be short-lived.

Monday Morning Musings

The market is slightly higher this morning, on some M&A news here in the U.S. and also news out of Europe that the EU ministers have agreed to provide Greece with up to 30 billion euros of financial aid. The IMF is also meeting to come up with a plan of their own.

There is not a lot in the way of earnings reports yet, but earnings season kicks off today with Aloca (AA) reporting after the close. Other notables to report this week include Intel (INTC), Google (GOOG) on Thurs., and Bank of America (BAC) on Friday.

In merger news, Haliburton (HAL) said it will buy Boots & Coots (WEL), Reliant Energy (RRI) will merge with Mirant (MIR), Dyncorp Intl (DCP) will be acquired by Cerberus, and California Pizza Kitchen (CPKI) is seeking strategic alternatives.

The euro is bouncing on the Greek loan news, which is pressuring the dollar. Oil and gold are mixed, with oil up a fraction to $85 and gold off a little bit to $1159.

Asian markets were mostly lower overnight, while Japan rose +0.40%; the 10-year yield is lower to 3.86%; and the VIX is making new lows again down to 15.39, breaking below its recent support levels around 16. The last time the VIX was this low was June 2007.

Trading comment: No change to me near-term outlook for a pullback. While the Rydex ratio and the VIX are flashing caution signs, the other sentiment indicators I follow are not at extreme bullish levels. This is one of the reasons I think the pullback could be more mild this time around relative to Jan-Feb. But the market has been up 6 weeks in a row, which is a rare event, so I would be surprised if we didn't get a down week in the market this week.

long BAC, GOOG

Chart of the Day: Rydex Ratio Flashing Caution Signal

Yesterday I mentioned that one of the sentiment indicators I follow was flashing a yellow caution light. That ratio is the Rydex Nova/Ursa ratio, which measures flows into the Rydex bullish funds vs. the Rydex bearish funds. Basically, it measures what the Rydex market timers are doing in terms of getting longer the market when they're bullish, or short the market when they're bearish.

Like many of the sentiment indicators, we look at it from a contrarian standpoint, such that when the heard has all moved to the bullish side of the equation, sentiment has likely become too bullish and leaves the market vulnerable to a pullback.

You can see in the chart below that the Nova/Ursa ratio has recently spiked to a 7-month high. The last time is hit these levels was back in September 2009, before it topped out. Roughly a week after the ratio topped, the S&P 500 also topped (briefly) and gave up 50 points over the next 2 weeks for a 5% pullback.

Could the same thing happen this time around? Anything is possible. I usually like to look for confirmation in more than one indicator, and different indicators reach extreme levels at different times.

Right now, this is the only indicator rising this quickly, although I mentioned the ISEE call/put ratio did flash a couple days of overly bullish readings. Also, the VIX continues to hit new low levels, which also highlights high levels of complacency among traders. So this is something to put on your radar, and watch for confirmation signs from other indicators.

Trading comment: I posted that I have raised some cash recently, to get positioned for a potential pullback. At the same time, this 'stair-step' market (as I have called it) doesn't go down very easily. It continues to feel like each small dip is quickly met with buying demand. But yesterday's small rally came on lighter volume, while down days have come on higher volume recently. So I prefer to tread lightly here, still bullish, but cautious.

Chart of the Day: Gold Breaks Out

Someone just sent me this chart, which shows gold's recent breakout nicely.

The chart is actually the gold ETF (GLD), but its recent breakout completes a technical pattern known as a reverse head & shoulders. You can see the head and shoulders below identified by the price boxes in December (the left shoulder), February (the head), and March (the right shoulder).

This is a positive breakout, and with all the questions about various currencies in today's environment, it makes sense that investors as well as central banks are increasing their gold holdings as they percieve it to be a good store of value.

Since gold often trades inversely to the dollar, I wonder how this bullish implication for gold will play out in terms of the near-term path for the US dollar?

long GLD

Strong Retail Sales Prove Consumer Isn't Dead

The market is slightly lower in early trade, following yesterday's selloff in stocks. The one sector that is bucking the weakness is the retail sector, after a flurry of same-store sales reports that were very strong. Companies such as Macy's (M), Target (TGT), and Gap (GPS) all posted double-digit increases in comp store sales, a solid showing.

In other news, United, or UAL Corp (UAUA) and US Airways (LCC) are in merger talks.

The dollar is roughly flat, while the euro has picked up a bit after ECB President Trichet said that no information available to him suggests that Greece will default. The ECB also left their target interest rate unchanged at 1.00%, while the Bank of England left their lending rate unchanged at 0.50%.

The energy and materials sectors are lower today, with oil trading down below the $85 level, and gold down just slightly near $1150 after a big spike higher yesterday. Most commodities are lower this morning.

Financials have pared their losses, with the XLF +0.06%. Housing stocks are higher, and consumer staples (XLP) are roughly flat. On the downside, utilities are lower by -0.80% followed by energy (XLE) which is -0.71% lower.

The 10-year yield is a bit lower to 3.85%, after yesterday's 10-yr Note auction showed much stronger demand than expected. This caused bond prices to rally, and yields to plummet on an intraday basis.

The VIX is +3.5% higher today to 17.20. That is still a very low level. Its hard to believe the VIX spiked above 29 in February, but if the market starts to selloff in earnest, we know the VIX can get jumpy in a hurry.

Trading comment: I have been sounding the caution note this week, as I felt the market was a bit extended while at the same time sentiment has been growing more complacent. That is usually a recipe for a pullback, so I have been raising a little cash to get positioned. I have a post coming that shows an example of one of the sentiment indicators I follow that has been spiking higher recently, reflecting more bullishness among investors. From a contrarian standpoint, we want to be cautious when the heard becomes overly bullish, and vice verse.

Quote of the Day

"Never let yesterday use up too much of today."
— Will Rogers: Humorist

Is This Rally Running Out of Steam?

The market is down in early trading, on relatively no news. The dollar is higher so far, which has been cited as one factor that could be weighing on the market, and commodities more specifically.

Oil is trading lower to $86.50, but gold is bucking the dollar's strength, and spiking to $1147. Gold has had a nice bounce lately, but it might surprise you to know that it has yet to surpass its January highs.

10-year yields are a tad lower to 3.95%, but traders will be closely watching today's 10-year Note auction at 1pm ET. And disappointment over demand for bonds could push the benchmark yield back above the 4.0% level. I am still holding a small short Treasury position as a hedge against our bond holdings.

Asian markets were higher overnight, except China which did not participate.

The VIX is up 1.5% to 16.48 after reaching a new multi-year low yesterday at 16.08.

Trading comment: This market just keeps chugging along, despite volume levels running light. New highs have always been decreasing on the rallies, which is another yellow flag. I have also recently highlighted complacent sentiment as a possible negative. To wit, the VIX hit its lowest level yesterday since May 2008. Now I know we were in a bear market at that time, but May 2008 was certainly not a good time to be adding to longs.

It feels like there is sufficient demand that a dip would likely be a buying opportunity, but I have seen these scenarios before, and it would not surprise me if some news or event out of left field surprised the market and gave us a little short-term whack.

As I said, I am still bullish, I just don't want to chase a complacent market. I have raised a little cash and will look to be patient and await a dip before buying. We are also very close to earnings season, which always presents opportunities.

long TBT

Light Trading Ahead of FOMC Minutes Today

The market is trading down only slightly this morning, following yesterday's nice gains. There has been no economic reports today, but investors will be watching for any changes in the Fed's language when the FOMC minutes are released this afternoon. In particular, pay attention to the wording regarding low levels of interest rates for an extended period of time.

There was an explosion in a Massey (MEE) coal mine, killing some 25 people. Dangerous business. The stock is down -10% so far on the news.

The euro is lower after reports that Greece may want to renegotiate terms of its financial support. This is pushing the dollar higher in turn, and weighing on some commodities. But oil and gold seem to be bucking the dollar strength. Oil is higher near $86.75, while gold is also up again to $1137.

Asian markets were mixed to higher overnight. Australia's central bank raised interest rates again, this time by 25 bps to a 14-month high of 4.25%. Emerging markets continue to tighten monetary policy, from China to India to Australia. I think this is healthy, and hopefully will delay inflationary pressures.

The 10-year yield is lower to 3.95%, after briefly topping the 4.0% level yesterday; the VIX is -1.2% lower to 16.82.

Trading comment: The market rallied yesterday, but it came on very low volume. This signals there may have not been a lot of conviction behind the trading. That said, I wouldn't want to be sitting on the sidelines missing out on gains just because I thought volume was too low.

I bring this up because complacency seems to be on the rise a bit lately. This morning, the CBOE put/call opened at a fairly low level of 0.70, while the ISEE is even more elevated at 214. These are both fairly bullish readings for options players, and from a contrarian perspective, we don't want to see bullish get too high, as that leaves the market vulnerable to a pullback.

Yesterday I took partial profits on one of our positions (WFR) that has had a nice run. I wouldn't be opposed to doing that with other stocks ahead of earnings. Most stocks have had nice runs here, and could pullback following earnings announcements unless they really trounce the estimates.

long WFR

Monday Morning Musings

Nothing like coming back from vacation only to find your network down and unable to access pretty much anything. Ugh. Nevertheless, I am making do and should be up to full speed when the IT staff gets into the office.

As for the markets, they held up extremely well last week into quarter-end. And on Thursday, emerging markets got back on track with some very nice gains. I'll try to post some charts of this later.

I would not have been surprised to see the market pull back this morning on profit taking, after the run its had, but this energizer bunny market just keeps chugging higher. On Friday, with the markets closed, the govt. released the nonfarm payrolls report which showed the economy added 162,000 positions. This was the biggest gain in 3 years, even as consensus estimates were looking for 184k new jobs. Still, it is a step in the right direction for the economy.

This morning, there was also a couple of solid economic reports, with the ISM Services Index rising to 55.4, above expectations, the highest level for this index since mid-2006. Also, I have noted here how the recent housing data has been lumpy, but today's pending home sales report was a good one. Sales for February increased 8.2%, with the consensus looking for sales to be unchanged for the month. (Have you noticed how far off the consensus usually is for housing data?)

Apple (AAPL) is up slightly after the launch of its much anticipated iPad product. Stocks often pull back after running up into product launches, so I wouldn't read into today's action too much. Estimates show that Apple sold more than 300,00 iPads the first day, which isn't bad. Many analysts are raising their estimates and price targets to justify the strong demand. I have had a $300 price target on AAPL since late last year, but now more analysts are jumping on the $300 bandwagon.

The dollar is lower this morning, which is boosting commodities and the energy sector. Crude prices have topped $86, a level not seen since October 2008. And gold has also hit fresh highs near $1130.

Asian markets were mostly closed overnight for the holiday, but Japan was open and rose +0.50%. The 10-year yield is up to 3.99%.

Trading comment: I let our stocks run into quarter-end, but I am more inclined to take partial profits on stocks that are extended vs. adding to positions here. I prefer to raise a little cash, and look to add back to my fav positions on a pullback, of which I think we are a bit overdue. I am not calling for a big correction, but the market has basically been on a tear since its recent Feb. 5th lows, and so some consolidation and pullback would merely be healthy here.

long AAPL