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Quiet morning session sees fractional gains

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The major indexes have reached their best levels of the session in what has been a rather quite morning of trade, with Dow component Citigroup (NYSE:C) $37.35 +1% providing a lift to the Dow Industrials (INDU) 8,258 +0.6% and helping lift this major index above its DAILY pivot of 8,240, which should give further potential to the 8,300 level in today's session.

While Citigroup (C) is one of the first Dow components to report earnings, IBM (NYSE:IBM) $79.24 +0.6% reports earnings later tonight, with General Motors (NYSE:GM) $35.80 +2.7% and Johnson & Johnson (NYSE:JNJ) $57.51 +0.24% reporting their recent quarterly earnings tomorrow morning.

Dow Industrials Chart - Daily Interval

This morning's opening trade was somewhat "critical" in my mind for index bulls and it has been encouraging for bulls to have held the 8,200 level in the Dow this morning. I've updated my Dow chart to show this week's new pivot retracement and last week's low closes came right near the 8,200 level, which shows up as 61.8% retracement in our weekly pivot retracement.

I'm expecting some formidable resistance this week near Dow 8,338 from conventional retracement (pink), which also ties in with our aggressive upward trend that the Dow seems to want to follow along with its shorter-term 21-day SMA providing momentum to the upside. Still, the 200-day SMA of 8,340 along with 38.2% retracement from conventional retracement provides resistance. Resistance that probably can't be broken to the upside, without some encouraging news from other Dow components set to report earnings in the next couple of day. Still... today's upside report to the bottom line from Citigroup and bullish response from the market should give bulls some encouragement with others set to report.

Equity bulls should be liking what they see from today's bond market action with selling starting to pick up in the shorter- dated 5-year Note. The 5-year June Futures Contract (ff03k) 112'230 -0.21% is off 8/32 as its YIELD ($FVX.X) rises to 2.961% and has the YIELD curve flattening (usually bullish for equities). The longer-dated 30-year June futures contract (us03m) $111'07 -0.2% is off 8/32 and has the 30-year YIELD ($TYX.X) rising to 4.979%.

Equity bulls like to see selling across the major maturities as this hints that the MARKET probably isn't looking for any type of Fed easing near-term and cash coming out of Treasuries can then flow toward stocks. The May Fed Funds futures contract (ff03k) 98.785 -0.01 points and has the MARKET looking at a less than 15% chance of a Fed ease at its May 6th meeting. A quick look at the June Fed Funds futures (ff03m) 98.805 has shows a 22% chance of a Fed cut at its June meeting.

Again... it has been my observation that higher probabilities of a Fed cut has been BEARISH for equities as it gives us the impression that the MARKET expects economic slowing and the need for further accomodative policy from the Fed.

In recent sessions, the selling in Treasuries, combined with a lower trade in the Fed Funds futures contracts should give an underpinning bid to equities.

Still... it will be important to monitor earnings and any forward looking statements from some of the "key" Dow components, which are considered "sector bellwethers" for the various sectors of the economy.

Jeff Bailey

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