Drop in the Bucket

Stocks closed out the week on a decidedly sour note Friday, as buyers made an early exit and profit takers moved in earnestly. Volume on the major indices was on the high side, though not overwhelmingly. The drops on the Dow, S&P and NASDAQ were more of a reality check than indicative of a trend, so there's no need to get out the shovels.

On the day, the Dow lost 56.80 to close at 12.580.83. The NASDAQ failed to breach the 2,500 mark, falling 28.85 to 2,459.82 and the S&P 500 lost 10.25, closing at 1438.06.

What moved the market from inertia was the continued cold weather in the Northeast, prompting crude prices over $60/bbl. during the session. Oil ended the day at $59.89 after hitting a high of $61.00.

Coupled with oil shock fear was the continuing saga of interest rate phobia. A couple of speeches by Fed governors were interpreted as signals for continued tightening and that helped fuel the dour mood after mid-day.

In the final analysis, the market is suffering more from a lack of news than a preponderance of bad news and earnings reports. While the latter - earnings - has been lackluster in most sectors, the economy continues to percolate. It's a double-edged sword at present. Solid growth may induce the Fed to raise rates, so the good must be taken with the bad, and the bad may not be severe.

Today's pullback must be taken in the perspective of an overall long term upward trend. There's going to be a correction - there always is - but it's more likely to be short and not very serious - more along the lines of 7-10% than a 15-25% drop. The best strategy right now is to do what traders did on Friday: take some of the money off the table and see how the following weeks develop.

There's no need to get greedy here. Stocks are still pricey, but many will look a lot more like bargains in months ahead.

Blue Chip Two-Step

The Dow backed off again Thursday and was outpaced by the NASDAQ for the second day in a row. While the blue chip index was falling 29.24, the NASDAQ index lost only 1.87 and the S&P 500 dropped 1.71.

What is factoring into the equation for larger drops on the Dow in relation to the other indices is oil. Dow component stocks are generally more energy-dependent than the smaller, nimbler techs which populate the NASDAQ. In a simplified way, they will feel the impact of higher (and lower) energy prices in more profound ways than the techs.

Additionally, Exxon-Mobil (XOM) is a component, so moves in oil price relate directly to that company. It's not complete, nor is it a closed system, but the overriding principle is that higher oil (and to some extent other commodities) prices will have a more pronounced effect on the blue chips of the Dow.

Light sweet crude for March delivery gained $2.00 on Thursday, closing at 59.71.

Techs get a Boost as Blue Chips Wallow

The NASDAQ index took center stage today, gaining 19.01 in the session to close at 2,490.50 to close within a whisker of a 6 year high reached January 12 of 2,502,82. The last time the NASDAQ had maintained a price of over 2,500 was during February of 2001, at that time in the throes of a major collapse which began in March, 2000.

The 2,500 level is significant because it is nearly half of the all-time closing high on the index - 5,048.62 - of March 10, 2000. Followers of historical prices and Fibonacci numbers will be watching the NASDAQ closely to see if it can surpass the 50% retracement or fail at or around 2,525.

Any positive movement above that level would send a strong signal to investors that tech is fully recovered from the dotcom collapse of 2000 (in reality, it is) and that stocks - especially techs - may be undervalued in this area.

While the NASDAQ was making headlines, the Dow and S&P were flatlining again. The Dow Jones Industrial Average closed up a meager 0.56, with the S&P 500 gaining just 2.02. Once again, the Dow traded in a narrow range of just over 60 points, though the movements were distinct - up in the morning and down in the afternoon - before closing nearly unchanged.

The 30 components were nearly evenly split, with 14 up, 15 down and 1 - Citigroup - unchanged. The biggest move was by Caterpillar (CAT) which gained 1.22 to 65.64.

On the NASDAQ, the big price gains were made by mid-and-small caps like Blue Holdings (BLUE), Wellco Enterprises (WLC), FEI Company (FEIC), Intevac (IVAC), Aspen Technology (AZPN), SWS Group (SWS) and SMC Microsystems (SCMM), all of which gained more than 20% on the day.

In the mania of "irrational exuberance" of the late 1990s, big names such as Yahoo, eBay, Amazon, Cisco and Intel led the way higher. Perhaps today's sampling indicates that smaller, nimbler firms have the keys to growth in the new (post-crash) era of technology.

Volume was on the high side, with advancing stocks outnumbering decliners by a 4-3 margin. The solid gains in tech were influenced by a 3% gain in productivity in the final three months of 2006, while the stagnation in the big caps and blue chips was due in part to oil prices which vacillated from a high of 59.85 to close at 57.71, 1.17 lower.

The pullback in oil can only be seen as a positive and possibly a re-ignition of the downward trend which has persisted since August of last year.

Dull and Duller but Prepare for Launch to 20,000

If you thought yesterday's market action was about as exciting as ice fishing, then today's minuscule moves must have you itching to watch paint dry. Though volume was moderately better than Monday's, the markets barely budged, though all three major indices managed to post in the positive column.

Here's the exciting news: the Dow jumped a whole 4.57, the NASDAQ erupted 0.89 to the upside and the S&P 500 surged (word of the week) 1.01.

Wow! Don't cash out your 401k just yet.

Investors seem to be somewhat anxious about making any notable moves, even though the market continues to point towards a higher future. And I think that's where it's going, though I'd be remiss to predict just when this move will take place.

Normally, I'm bearish at times of little activity, but the US economy, despite complaints from wage earners and middle managers alike, is about to embark on another hyperbolic swell not seen since... well, 1999.

The 2000 mini-crash is now nearly 7 years in the past. That flop didn't exactly stop people from investing, nor did 9/11, the currency malaise, the inverted bond scare, the housing boom-bust cycle or any other nonsense the Fed or the financial press can dream up.

Truth be told, this market looks very much like the one we had in the early 90s. There's a ton of money itching to be invested and the risks are spread like no other time in our history. Companies populating the NASDAQ, NYSE and S&P 500 include the biggest and best global brands, emerging titans and a bevy of companies spinning off profits quarter after quarter.

The direction of the market is not really in question, but when the market will move is still undecided. This lull is a good indication that many stocks are consolidating and about to make another monster move forward. This quarter will probably be a great time to invest because the big move will be later this year and through 2010.

There's simply too much money with no place to go but into stocks. Whether or not stocks are a safe investment should be a topic for another day. Right now, it's time to enjoy the ride because it's going to be a really good one. Yes, there will be bumps, but the US economy is percolating at a very healthy rate and companies are brimming with cash.

The Dow is headed to 20,000 before the end of 2010. It's going to start slowly, but even a 6-7% increase this year will provide a solid base.

Uninspired Opening to Week

Stocks traded in an extremely narrow range for the second straight day. Friday was similarly sluggish and there was nothing to get traders excited on Monday.

The Dow ranged between 12,629 and 12,661, finishing higher by 8.25. The NASDAQ lost 5.28, the S&P was lower by 1.40. Volume was low to moderate, with gainers outpacing losers by a 4-5 margin.

Investors seemed content to sit on their hands awaiting something noteworthy in the way of economic reports or merger news. Once again, the price of oil exhibited volatility, peaking just a nickel below $60, but closing down 28 cents to $58.74.

Supertrader Carl Icahn made a $2.4 billion bid for Lear Corp. (LEA), boosting shares more than 4 points. There were a few other deals in the works, but none of them noteworthy.

With corporate earnings reports slowing to a trickle by the end of this week, the markets will be looking for some kind of spark.

The period from February through the second week of April is notorious for directionless trade, consolidation or outright selling. The Dow experienced declines in 3 of the past 5 years during that time span, and the last big near-crash occurred in April of 2000, though that was primarily experienced on the NASDAQ.