The stock market seems to have lost its bullish buzz into the opening this morning, with the Asian trade failing to provide positive guidance and the Press seemingly suggesting that the impending Bank of America earnings are the reason behind the setback. However, it is also possible that the largely retail driven rally of the last 1 1/2 month, has simply run out of fuel and its also possible that last week’s softening of US numbers has fomented concerns for the economy again. On the other hand, with the US economic report slate this week less active and the reports scheduled for this morning potentially offsetting, the fear of slowing should take a back seat to earnings from Wall Street. With 11 of the Dow 30 stocks reporting this week and the market chaining together six weeks of generally bullish action, it is possible that the market is poised for a modest technical correction. Perhaps the stock market is taking its cue from the President, who suggested again yesterday that the U.S. economy was not yet out of the woods. In short, the President generally continues to undermine sentiment in the equity markets and it could take a series of very favorable earnings surprises and or a distinct improvement in the scheduled US data to prevent a slight correction in prices early this week.
S&P 500: After reaching the highest level since January 12th last week, the June S&P seems to be poised for a weak correction. With the April 14th Commitment of Traders with Options report for S&P 500 Stock Index showing the Non-commercial position to be net long 19,287 contracts, and the Non-reportable position also net long 50,662 contracts, that made the “combined” spec and fund position net long 69,949 contracts as of early last week. With the S&P actually managing to add about 32 points to the highs last week, from the level where the COT report was measured, it is possible that the S&P did reach a partially overbought condition late last week and that in conjunction with renewed doubt in the economy and some concern for corporate earnings flow gives the bear camp the edge to start the week. However, we think that market will get enough favorable news from the earnings flow this week to stem the corrective action rather quickly. Initial downside targeting and an up trend channel support line are seen at 844.85, with more significant buying support seen down at 840.30.
DOW: With a large number of Dow stocks (11) reporting earnings this week and the market focused on Bank of America earnings report early today the market looks to be presented with a quasi volatility event to start the new week. Since IBM earnings are not due out until after the close today the stock market might be under pressure early today before being bailed out by IBM news after the close. However, the April 14th Commitment of Traders with Options report for Dow Jones Index $5 showed the Non-commercial position to be net long 5,497 contracts, with the Non-reportable position net short 2,986 contracts, and that made the “combined” spec and fund position net long only 2,511 contracts as of early last week. Therefore, despite the Dow managing a really impressive run up over the last six weeks, the Mini Dow hasn’t seen its spec long position puff up and in turn put the market into a technically overbought positioning. Therefore, the market would not seem to be overly vulnerable to aggressive technical liquidation and close-in support is probably going to hold at 7,845.
NASDAQ: Like the rest of the market, the Nasdaq would seem to already be in the midst of a corrective action, but the market might be able to garner some quick support from favorable earnings from IBM after the close today. Up trend channel support in the June Nasdaq is seen down at 1322, but slightly lower support is also seen down at 1319.25. The April 14th Commitment of Traders with Options report for Nasdaq Mini showed the Non-commercial position to be net long 16,696 contracts, with the Non-reportable position net long 3,454 contracts, and that made the “combined” spec and fund position net long 20,150 contracts as of early last week. Given the run up at the end of last week and the positioning of the Nasdaq in the COT reports this morning one could come to the conclusion that the Nasdaq is a bit over extended and in need of a modest corrective slide.
TODAY’S MARKET IDEAS: None.