All the indexes except for the Dow and the S&P set new 52-week highs but a sell program at the close removed the majority of the day's gains.

Market Stats Table

The economic calendar today was very light with only the weekly Chain Store Sales and the JOLTS survey. The weekly chain store sales came in a +2.9% and the largest weekly gain since December 2001. The rebound in demand came as the nation thawed out from the last winter blizzard and spring like temperatures brought consumers back into the sunlight and the malls. This pent up demand pushed the year over year sales growth to 3.4% and the fastest rate since July 2007. Sales for the rest of March should be strong thanks to an earlier Easter on April 4th instead of April 12th. However, analysts caution that the rest of the month is not likely to be as strong as last week simply because of the weather factor.

Gasoline prices are responsible for a large part of that sales gain. After selling in a narrow range for most of the year we have seen steep price rises in the last four weeks. Last week prices rose to their highest level since October 2008 and +80 cents over their year ago levels. If oil moves over $85 that would push gasoline over $3 per gallon and start weighing on consumer spending once again.

The Job Openings Labor Turnover Survey (JOLTS) improved to -2.4% in January from -22.5% in December. This is a major improvement suggesting the labor market is quickly improving. Hiring and openings rose while separations declined. 4.08 million people started new jobs compared to 4.0 million in December. Separations declined to 4.1 million from 4.2 million in December. Obviously those numbers are very close to reversing to positive territory but that has not happened yet.

Construction remains the major drag on the labor market. All the different employment reports should improve over the next three months as the government hires 1.1-million census workers.

JOLTS Chart

Economic reports out on Wednesday include the Mortgage Applications Survey, Regional Employment, Wholesale Trade, Oil and Gas Inventories and Treasury Budget. None of those will matter to the market.

The EIA oil inventory report has shown gains for five consecutive weeks totaling nearly 15 million barrels. With the surge in consumer activity last week there should be an equivalent surge in gasoline demand suggesting there could be a decline in gasoline inventories. With spring and summer driving ahead we should see demand continue to increase over the next couple months even if the economy remains flat. Gasoline inventories are currently 7.6% over 2009 levels. The price of crude has already priced in expectations for this increased demand.

OPEC meets on March 17th to discuss production quotas but nobody expects any change. With prices holding over $80 and compliance with the production cuts at only 57%, OPEC is in a state of bliss. Everybody is cheating and prices are holding at the highs for the year. There is no reason to change the quotas. However, they may issue some harsh comments about enforcing quotas just to juice prices a little more. Regardless of what they say nothing will change in actual production.

Cisco (CSCO) announced its new CRS-3 router that it claimed would change the Internet forever. In its optimal configuration of 72 nodes the new router can handle 322 terabits of data per second. That is equivalent to every person in China making a simultaneous video call. Every movie ever made could be streamed in 4 minutes. The entire library of Congress could be transmitted in less than a second.

This router is not cheap with the cost for a basic model starting at $90,000. Cisco has invested $1.6 billion developing this product and has tested them on an AT&T commercial backbone between Louisiana and Florida. AT&T said its network traffic grew +40% in 2009. AT&T traffic has risen 5,000% since the release of the first iPhone. The routers are three times faster than their current CRS-1 product introduced in 2004 and will be available commercially in September.

Cisco CRS-3 Router

Google announced last week a new super-fast broadband network that they claim will deliver data 100 times faster than the traditional broadband network. The network will offer wire-line service directly to consumer's homes at a competitive price according to the press release. Google said their first test would cover at least 50,000 people and potentially up to 500,000 people. Interesting they used the term people instead of homes. The government is expected to announce its vision for the future next week and ask for 100-megabit broadband to 100 million homes by 2020.

Service providers like AT&T, Sprint and Verizon are touting the coming 4G network but don't expect any material increase in speed for several years. The new networks are based on a new technology called Long Term Evolution or LTE. Verizon is planning on launching that in 25-30 markets this year and cover 100 million people. AT&T plans to deploy its 4G in 2011. LTE networks would require over 10,000 new cell sites costing over $100,000 each. Gartner expects the build out to cost more than $8 billion over the next 3-5 years. Verizon already spent $9 billion at a government auction to buy a spectrum to deploy its new network on. AT&T said it is in no rush to go to 4G until the infrastructure is in place. Until then they are going to continue to "improve" their 3G network to 7 megabits per second for the ten AT&T phones and devices enabled to work at the higher speeds. If they could just keep from dropping calls I would be happy.

A Verizon spokesman said AT&T's 3G speeds were only theoretical maximums reached in a lab. However, Verizon's new LTE network would be able to achieve actual speeds of 5-12 megabits per second when it deploys. Cisco's John Chambers said the company expects Internet traffic to grow by 500% over the next several years and be driven by things like video on demand, video conferencing, YouTube video, now in HD, and things like the iPad. Cisco was criticized in 2004 when the announced the predecessor CRS-1 router for building an expensive piece of hardware that provided more bandwidth than would ever be used. Fast-forward to today and bandwidth saturation has exploded to more than 20 times what was in use in 2004. So, John, what have you got up your sleeve for 2015? Cisco rallied to $26.50 on the news but appears very top heavy after breaking out to a new high over the last week in expectation of the announcement.

Cisco Chart

Shares of the government welfare companies exploded higher today on a rumor the government was going to abolish short sales on companies it owns. AIG, C, FRE and FNM rocketed higher but lost most of their gains after the SEC denied the rumor.

AIG spiked +$5.50 (+17% intraday) on the rumor plus comments from Bloomberg that more asset sales were on deck for the company. AIG traded 58 million shares compared to an average of 13 million. The NYSE contacted AIG about the surge in trading and AIG reiterated its policy of not commenting on such matters. About 16.4% of AIG stock is currently shorted or at least it was at the open this morning. I am sure a lot of those shorts were blown out by the +17% spike. Fannie and Freddie both saw heavy volume and both gave back nearly all their gains for the day. Short interest on FNM/FRE is about 12%. They are both penny stocks now so a gain of 25-cents is a monster move.

AIG Chart

Citigroup traded over 1.71 million option contracts, six times higher than normal. Over 1.43 million of those were call options with the bulk of those going at the $4 strike that expires in March (5-cents) and April (15-cents). The government will be eligible to sell its 27% stake in Citi starting later this month. Citi was also pushed higher by the expectations they would price a preferred secondary with a 30-year fixed-rate yield. Prices are expected to be in the 8.875% range. The initial offering was expected to be $2 billion but is thought to be many times over subscribed.

Citigroup Chart

The airlines were talking recovery today and helped push the Dow Transports to a new 52-week high. United Airlines said it was "clearly seeing signs of economic recovery and premium corporate travelers returning" according to CFO Kathryn Mikells. "The return of higher quality traffic, combined with significant reductions in capacity, has really begun to improve our relative revenue results."

Low cost carrier Southwest Airlines said March bookings were "very strong." AirTran Holdings cited "rapid improvement" in yields. American Airlines said unit revenue should be up 6.5% to 7.5% in the first quarter. Delta said business trends were improving and unit revenue would be up +16% in Q1. This overly bullish burst of positive comments sent all the airline stocks higher and pushed the transports to a new high.

Dow Transport Chart

Texas Instruments provided it's mid quarter update Monday evening and investors promptly sold the stock. TXN raised their estimates to the higher range of their prior guidance. TXN had previously guided investors to profits of 44-52 cents for Q1. In the update on Monday they narrowed those estimates to 48-52 cents. They raised the revenue estimates to $3.07 to $3.19 billion compared to the low end of the prior guidance at $2.95 billion. Analysts were expecting earnings of 49 cents on revenue of $3.08B. Investors were not impressed. TXN lost -2% for the day.

An analyst at FBR was talking up suppliers of the Apple iPad including TXN saying Apple will build five million iPads in the first half of 2010. Other parts makers contributing to the iPad include Broadcom, Triquint Semi, Skyworks and Infineon. He said five million units would drive some material revenues for these companies with the emphasis on Broadcom. He also sees Q1 production of 9.3 million iPods, up from 4.0M, 1 million desktops, up from 500K, 1.7 million notebooks, up from 1.0M. He reduced his iPhone estimate to 6.0 million from 7.5 million based on Apple's desire to lower inventories before the release of the new iPhone this summer. For Q2 he expects 7.3 million iPhones, 7.2 million iPods, 500K notebooks and 100,000 desktops. APPL shares rallied to $225 on the news and a new all time high before giving back a couple bucks at the close. Apple is the only real tech company that is seriously growing product sales and product line. This makes them a continued buy on any real pullback.

Apple Chart

The markets were basically flat on the anniversary of the bear market bottom as if investors were taking the day off to reflect on the year's activity. The rally over the last twelve months was the strongest 12 months in the last 75 years. Most analysts expect the markets to keep rising as the economy recovers but at a far more gradual pace. Quite a few expect mostly range bound trading for the next couple months until the Q1 earnings are released. If those earnings show top line growth then maybe the summer won't be ugly. If earnings growth is still from cost cutting and we get more cautious guidance then we could see the summer doldrums settling in hard.

Volume was actually decent at 9.1 billion shares but after you factor in the volume on the Citi, AIG, FNM and FRE spikes we are pretty much back in the high seven billion range. That is exactly where we have been for the last two weeks with the average volume since Feb 16th at 7.7 billion shares. Investors are not buying the highs but at least they are not selling them either. In 2009 there was $375 billion in new cash put into bond funds and a net outflow of $11 billion from equity funds. Until those funds start flowing back to the equity market along with the estimated $1.5 trillion currently gathering dust in money market funds we are probably not going to see a big rally. Personally I would be happy with any market with a sustained upward trend because eventually those funds will start flowing back and I would rather that happen at a higher level than from a -20% dip into the summer doldrums.

The Dow rallied +60 points intraday to 10612 but gave it all back on the 2:30 sell program. Bulls bought the dip to push the Dow back into positive territory but just barely. I should not complain about any day that ends with a gain but after the end of day swoons that were becoming common last week I hate to see those points start to bleed away in the afternoons.

Initial support has formed at 10550 and I hope it holds but should it fail I would be very confident buying the dip to stronger support at 10400. I have a bullish bias and I believe we should buy the dips until proven wrong. The next material resistance is 10725. The Dow and the S&P are the only major indexes that have not broken out to new highs. I believe it has to do with fund managers selling big caps to raise cash for small cap buys. Fund managers stored money in the highly liquid big caps at year end and now it is time to put that money to work in a faster growth medium like small caps.

Dow Chart

The S&P has extended its gains a little higher than the Dow but still faces a significant test of resistance at 1150. The lagging S&P is a critical benchmark for fund managers and until that 1150 level is broken there will still be doubt the 2010 rally is real. Initial support is 1135 followed by 1120.

S&P-500 Chart

The Nasdaq confirmed its breakout over 2325 and then used that prior resistance as support on both Monday and Tuesday. This appears to be a real breakout and is being powered led by Apple although RIMM contributed a $4 gain so far this week. If the Nasdaq did decide to take profits it is a long way back to real support at 2280. The next real resistance is 2400.

Nasdaq Chart

The Russell is still leading the parade but this can't go on forever. The Russell is becoming extremely over extended and needs to rest soon. The Russell is clearly in breakout mode and as the fund manager sentiment indicator I would say they are bullish. If you read my commentary last week I described how fund managers are no longer fearful of the market but they are afraid other managers will beat their performance. This is no longer about weakness in financials or the economy but about competition between funds for customers and bonuses.

Russell Chart

In summary, there is nothing on the economic calendar that should be a market mover this week. This is mid quarter guidance week and those companies like Texas Instruments that fail to impress will be sold along with their sectors. Those that do provide higher guidance like the airlines today will be cheerfully bought. Hopefully we will have more positive guidance than negative.

I expect some profit taking soon but I also expect any dip to be bought. That would be my recommendation until I am proven wrong.

Jim Brown