The Dow recorded its fourth straight weekly gain last week as the end of the first quarter nears, with the major market indexes setting new 2010 highs and reaching levels not seen since before the financial implosion in the fall of 2008.

It was a nervous week that saw some sharp reversals the last two sessions.  This recent rally was done on low-volume and leaves us susceptible to sharp and quick pullbacks.  Investors are more likely at this point to take profits at the first hint of trouble rather than buy on the dips as we’ve been accustomed too.  We expect to see a bit of a battle between the bulls and bears here until we start getting corporate earnings early in April, which we think will be solid.  Usually by now we have companies revising forecasts lower, but we haven’t had any such announcements ahead of this earnings season.

As we look immediately ahead, the first quarter comes to a close this week. There could be “window dressing” activity Monday through Wednesday, in which fund managers buy the best-performing stocks and sell the worst-performing stocks to improve the appearance of a fund’s holdings for end-of-quarter reporting. For market bulls, the month of April is usually a welcome opportunity. Historically, April has delivered the biggest average returns of any month.

We have resistance at 1180 for the SPX and a break above that should send this market much higher.  1150 provides significant support.  We remain cautiously bullish and expect a slow grind higher again this week.

Weekly Economic Calendar:

Monday

  • February personal income and spending data is out on Monday, followed by the Personal Consumption and Expenditure (PCE) price index. Apollo Group Inc. (APOL) will enter the earnings confessional.

Tuesday

  • Tuesday offers up the March consumer confidence index. Charming Shoppes Inc. (CHRS), LDK Solar Co. Ltd. (LDK), and Sealy Corp. (ZZ) are slated to release earnings.

Wednesday

  • On Wednesday, the usual report on weekly U.S. petroleum supplies is joined by the March ADP employment report, the March Chicago purchasing managers’ index, and February’s factory orders. Dollar General Corp. (DG), Rite Aid Corp. (RAD), The Mosaic Company (MOS), and Research In Motion Limited (RIMM) will report earnings.

Thursday

  • Thursday brings the weekly report on initial jobless claims, as well as February’s construction spending, the Institute for Supply Management’s manufacturing index, and automobile sales for March. CarMax Inc. (KMX) is scheduled to report earnings.

Friday

  • Friday ends the week with March’s non-farm payrolls and the unemployment rate. There are no earnings reports slated for release.

New Trade Idea:

Buy Western Digital (WDC) April 39 Puts @ 1.20 or better:

optns3.28

The stock is breaking support lines here and with an uncertain week ahead of us we could see a sharp pullback in the tech names.  Use $2.00 as a target and .65 as a protective stop-loss.

Open Positions:

Buy MGM Grand (MGM) April 12 calls @ 1.00 or better:

The gaming sector is heating up again and MGM is certainly perking up.  We’re looking for a quick profit here so use a target of $1.40 and a mental stop-loss of $.65.

Buy MBIA (MBI) April 6 calls @ .75 or better:

The calls brushed our stop and this position has been closed.

Research in Motion (RIMM) April 75 calls @ $3.20:

RIMM will release earnings on Wednesday and we are seeing share accumulation.  Earnings are expected to be stellar and we should see a nice pop early this week.  We will use $5.60 as a target and $1.85 as a stop-loss.

DirecTV (DTV) April 12 calls @ $.80:

This position triggered our stop and was closed.

 

Written by Dan Micovic