Resistance Is Futile

...and also nonexistent. With solid corporate earnings in hand, investors broke through the Dow Jones' 12,700-12,750 resistance right at the open, gapping nearly higher than the previous close. Within 5 minutes, the Dow was soaring past 12,800 and into the voided area between, 12,800 and 13,500.

If corporate earnings continue as strong as they've been - and there's no reason to suggest they shouldn't - stocks should continue their march higher. The Dow and other indices have exploded through two separate resistance levels in the past week with no real end in sight.

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Rather than facing the desperation of an extended recession, Wall Street may be right that one of the features of globalization is a real disconnect between corporations and the US economy. While those at the very bottom are struggling to find jobs, pay rising utility, fuel and food costs, corporations have gleefully passed those costs on to the consumer without missing a beat.

While there are a couple of sectors that have been harder hit than the general market - financials, home builders, retailers and some discretionary goods and services (notably alcoholic beverages and gambling) - the rest of the market seems poised to get past this period and move to higher ground.

Dow 12,849.36 +228.87; NASDAQ 2,402.97 +61.14; S&P 500 1,390.33 +24.77; NYSE Composite 9,310.24 Up 136.43

The open questions are whether the US (and to a larger extent, the world) economy can cope with higher prices for just about everything without some substantive changes. Gas at $3.00 - and soon $3.50 - a gallon, food costs spiraling out of control and credit strains have put Americans to the test, but they've neither stopped driving nor eating. Defaults on everything from mortgages to credit cards are dramatically higher, however, so the costs of everyday life cannot be sustained much longer, especially if jobs become scarce, which they haven't, yet.

With all the distortions caused by the subprime mortgage implosion and the related global credit crunch, it's difficult to predict direction over the long term, but for the past month, that direction has largely been straight up. There doesn't seem to be much more ground to gain before the markets become severely overbought and correct themselves through profit-taking.

Having the profit on trades in mind (and noting that today was an options expiration day) a cooling off period could come shortly, though we've just barely touched down into earnings season.

Of companies reporting better-than-expected first quarter results, Google (GOOG), Honeywell (HON) and Caterpillar (CAT) and Schlumberger (SLB) were notable standouts. Citigroup (C) posted a 1.02 per share loss and wrote down another $12 billion in bad loans, but was boosted by investors with a 4.5% gain. Other banks and financial services were also ridden higher. They really do take care of their own.

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For the week, the major indices posted their best gains of they year, up anywhere from 4 to 5%. On the day, advancers outnumbered decliners, 4764-1552, and new highs finally supplanted new lows, 216-152.

Of course, the oil barons couldn't resist the euphoria and closed at another all-time high of $117.00, up $1.83. The metals, however, were decimated, with gold down $27.70 to $915.20 and silver off 49 cents to $17.82.

Earnings will be a huge factor to next week's trading, and if the companies reporting come through with reports as robust as this week's early batch, the rally could be monumental. Shorts and puts players should keep abreast of developments and especially note how their individual positions compare to the general market.

I'm still not convinced that the economy won't eventually drag stocks down, but the corporate results appear to have overcome the worst-case scenarios.

NYSE Volume 4,193,403,000
NASDAQ Volume 2,221,355,750

No Follow-Through on Rally

Chartists will understand that most of the trade after 2:30 (the last 100 points on the Dow) on Wednesday was options-related and short covering, thus, follow-through needed some form of impetus. After the close on Wednesday, IBM released first quarter earnings data ahead of expectations, which looked as though it could be that fuel for a second leg of the massive Wednesday rally.

By Thursday morning, IBMs results were already old news.

Prior to the markets' opening, investors digested two bits of news. Initial claims for unemployment insurance shot up to 372,000. Merrill Lynch (MER) lost money for the third consecutive quarter, losing $2.14 billion, or $2.19 per share in the first quarter of 2008.

Rally over.

By the end of the day, stocks ended mixed, but mostly down.

Dow 12,620.49 +1.22; NASDAQ 2,341.83 -8.28; S&P 500 1,365.56 +0.85; NYSE Composite 9,173.81 -29.95

Declining issues took back the initiative from gainers, though by a slim margin, 3453-2782. New highs once more approached, but did not surpass, new lows. There were 189 new lows to 174 new highs.

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After gyrating around the flat-line all day, stocks spent most of the day going nowhere, though after-hours, Google announced higher 1st quarter earnings, providing a possible boost for techs on Friday.

Another major setback was Pfizer (PFE) posting earnings for the quarter of 0.61 cents, five cents below analyst estimates. Overall, earnings are coming in mostly mixed, though hardly terrible. Most of the damage seems to be in financials, retailers and companies with a dominant US-only presence. More globally-based operations are posting better earnings than expected, or are in-line with expectations.

On the commodities front, where everything from corn to used tires seems to be going up in price, the majors took a little bit off the top. Oil was off 7 cents, closing at $114.86, a number that is sending shock waves throughout the world economic community and forcing prices for automotive fuel (gas, diesel), home heating oil and any oil-related products higher.

Gold lost $5.40 to $942.90, while silver fell two cents to $18.31.

Volume was muted, as has been the case for most of the past 45 days. The possible explanations are that investors are sitting back, awaiting more data, though more likely is that hedge funds have been shut down or have substantially slowed the velocity of trade.

The latter explanation is preferable, if only to stem some of the volatility that was evident from last August through this January. Overall, markets seemed to have settled down somewhat, with the mortgage morass under some kind of management - though likely insufficient - and consumers dealing with higher food and fuel prices in whatever ways they can.

What's troubling is how this scenario eventually ends. Prospects of eventually surpassing the all-time highs from 2007 are dim, though the major indices are still only 8-12% off their highs. With the residential housing market still falling and credit markets still close to seizure status, from where is future investment to come?

NYSE Volume 3,682,688,500
NASDAQ Volume 1,838,124,125

It's All About Earnings

Wall Street shrugged aside more defeating economic news and focused instead on upbeat earnings reports from a number of key companies on Wednesday, boosting stocks on a day-long buying binge.

Results from JP Morgan (JPM), Intel (INTC) and Coca-Cola (KO) all beat analyst expectations handily as the bulk of quarterly earnings reports begin to flow from corporations to Wall Street.

Dow 12,619.27 +256.80; NASDAQ 2,350.11 +64.07; S&P 500 1,364.71 +30.28; NYSE Composite 9,203.76 +225.57

The rally was widespread, with 4976 advancing issues to just 1335 losers. The more startling development may be the shift in positions for new highs and lows. On the day, there were 197 new highs and 201 new lows, a very narrow, and generally insignificant, margin.

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What this may indicate is that Wednesday's rally could be the start of a broad move to higher ground, though there still is overhead resistance in the 12,700-12,750 area on the Dow. On the other hand, there is a voided area between 12,700 and 13,700, which could find itself occupied soon if the rally continues.

What will make the entire market move forward are improved earnings, like those seen today. While the price of oil continues to skyrocket, firms seem to be taking the unusual economic conditions in stride, largely unaffected by either slack US consumer demand or unbearably tight credit conditions.

Light, sweet crude oil gained $1.14, to another new record of $114.93 a barrel on the Nymex. In keeping with the tone of the day, gold added another $16.30 to close at $948.30, while silver gained 48 cents to $18.33.

The disconnect between the US economy and the stock market bears some inspection. How American companies can continue turning in solid profits in the face of a stagnant or slowing economy is just one of the implications of globalization. Many stocks listed on the major exchanges are global in scope and benefit from a weakened dollar in foreign markets, so it should not surprise anyone that these companies retain their competitive edge.

Companies that are more nationalistic, such as retailers, are seeing a harder time overall.

NYSE Volume 4,260,363,000
NASDAQ Volume 2,148,321,000

Bad News Spreads but Market Remains in Denial

There was enough discouraging news spreading around Wall Street for even the most intrepid investors to take note, but the major indices shrugged off soaring food and energy prices, more ugly housing statistics and uneven earnings reports to close marginally higher on Tuesday.

According to the monthly Producer Price Index (PPI) issued by the Labor Dept., wholesale prices rose by 1.1% in March and are up a stunning 6.9% over the past 12 months.

Also in March, there were 234,685 foreclosure filings against US homeowners, a 57% increase over last year. Nevada, California and Florida were the hardest hit states in the survey released by Realty-Trac, Inc.

Dow 12,362.47 +60.41; NASDAQ 2,286.04 +10.22; S&P 500 1,334.43 +6.11; NYSE Composite 8,978.19 +55.35

In earnings news, broker Charles Schwab, Inc. (SCHW) reported income from continuing operations rose to $305 million, or 26 cents per share, from $236 million, or 19 cents per share, a year earlier.

Johnson & Johnson (JNJ) bested estimates with $1.26 per share reported for the 1st quarter, though those numbers were tempered by slowing sales in several categories and the overall numbers boosted by the weak US dollar.

U.S. Bancorp (USB) saw a 4 percent drop in its first-quarter earnings while drug maker Forest Labs (FRX) posted improved earnings, but investors punished shares on a disappointing forecast for the remainder of 2008, sending the stock down 9%, losing 3.67 to 36.13.

Advancing issues edged decliners, 3431-2627. There were 277 new lows to just 96 new highs.

The price of oil added to the gloomy overhang, reaching a new high of $113.79, up $2.03. Gold gained $3.30 to $932.00. Silver was up 6 cents to $17.85.

Intel (INTC), Washington Mutual (WM), Coca-Cola (KO), JP Morgan Chase (JPM) and Wells Fargo (WFC) highlight the companies releasing earnings on Wednesday. The March CPI reading will also hit the markets prior to the open, and considering today's PPI numbers, they're likely to send another shock.

How long the markets can continue to ignore the steady flow of bad news is anyone's guess, but, considering the low volume of trading the past couple of weeks, the guessing game may soon be at an end as investors protect whatever profits they have left by selling.

NYSE Volume 3,540,240,250
NASDAQ Volume 1,843,419,375

Quiet Day Keeps Stocks in Range

Stocks zigged and zagged in a tight range on Monday (85 points in all on the Dow), but eventually ended the day on an unpleasant note as investors line up for earnings reports from major companies.

The most salient news was from Wachovia (WB), the latest victim in the ongoing banking/finance/credit crisis, posting a first quarter loss of $393 million or 20 cents per share. The nation's 4th largest banking outfit announced a cut to its dividend from 64 cents to 37.5 cents and is actively pursuing a $7 billion cash infusion through the sale of common and preferred stock, a highly dilutive - and desperate - plan.

Shares of Wachovia were hammered, losing more than 8% on the day.

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Overall, the news was pretty ugly, though largely expected, thus, the market's tepid reaction. Oddly enough, while the US equity market barely budged from the break-even line, indices around the world were roiled even before the Wachovia news, though especially the far-Eastern markets. The Nikkei and Hang Seng both lost more than 3%. European markets sustained losses of roughly 1% overall, while the US markets were essentially flat.

Whatever there is to the correlation between world markets, it seems that the US generally fares better, even though it is the bearer of most of the bad news. How far risk has been spread comes into play, as does the relative strength/weakness of currencies and economies. The confounding issue is that with all the weakness in the US economy, stocks still have not responded in a cascade of losses. Maybe the upcoming spate of earnings reports is about to change that dynamic.

Dow 12,302.06 -23.36; NASDAQ 2,275.82 -14.42; S&P 500 1,328.32 -4.51; NYSE Composite 8,922.84 -13.27

Stock sellers didn't miss any opportunities on Monday. Losing issues outnumbered gainers, 3827-2396. New lows ramped up to 277, to just 84 new highs. That gap continues to expand, signaling another downturn dead ahead for the major indices and stocks in general.

Crude oil gained $1.62 to $111.76. Gold advanced $1.70 to $928.79; silver added 10 cents to $17.79.

The lull in the markets is surely a temporary phenomenon as investors await all-important earnings reports. But, more shocks to the system like that which Wachovia delivered today will not be taken lightly much longer. We're close to a turning point and unless some major companies defied the markets and sentiment in the first quarter, life on Wall Street is going to get a heck of a lot cheaper very soon.

NYSE Volume 3,565,027,000
NASDAQ Volume 1,640,094,875