The major indexes traded mixed most of the day with alternating periods in positive and negative territory as bulls appear to be losing traction.

Market Stats Table

The morning economics were lackluster as was the market performance. A larger than expected Retail Sales number was overshadowed by a weaker than expected JOLTS report and weaker Semiconductor Billings for February.

The Job Openings and Labor Turnover Survey (JOLTS) saw job openings fall -3.8% compared to Feb-2009 levels. Hiring fell to 3.96 million from the 4.09 million in January. Separations fell to 3.96 million from 4.16 million. In English there were fewer workers leaving their jobs but still no pickup in hiring. This is a lagging report for February so traders don't really apply much significance to it but it is still an important data point. The drop in JOLTS in February corresponds to decline in the non-farm payrolls data from February.

JOLTS Chart for February

Non-Farm Payrolls March

Semiconductor billings for February declined for their third consecutive month with a -1.3% drop. The three-month moving average of sales dropped to $20.8 billion and a -5% decline from the prior month. This is disconcerting since sales normally rise in February due to seasonal demand factors. This drop in billings suggests there is some left over inventory from the holiday season.

We have been reporting almost every week from different chipmakers that sales are improving and in most cases improving strongly. Sales do come before billings but seeing three consecutive months of declines is troublesome.

Semiconductor Billings

On the positive side of the economic ledger was a +2.1% jump in chain store sales for the week ended April 3rd. Warm weather and the calendar shift for Easter were credited for lifting sales. Year over year the improvement was +4.7%. This is the strongest growth in three years. This was the third strong gain in the last seven weeks.

This sudden improvement in sales has prompted the ICSC to upgrade their forecast for March retail sales to a gain of 6%. The retail sales report will be out on Thursday. Their prior forecast was for 3.5% growth. The factors impacting March sales were mostly weather related with two giant snowstorms in February that kept shoppers at home. Those shoppers came out in force in March but the malls may start seeing lower traffic again if gasoline prices continue to rise. We are at the point in crude oil pricing where gasoline should start moving over $3 once again. That will be very detrimental to consumer spending.

Retail Sales Cart

The biggest economic event of the day was the release of the FOMC minutes for the March meeting. The minutes suggested Fed members were more confident about the recovery and had fewer worries about inflation. The minutes did show a growing uneasiness about the extended period clause. Some members expressed concern that the Fed should not be locked in to the extended period phrase. Members argued that economic conditions rather than the extended period language would be the criteria for changing rates.

The bottom line to the discussion in the minutes is that the Fed members wanted to express to readers that they could change rates at any time and the extended period clause did not prevent them from doing that. Since various Fed members told us in the past that the extended period clause basically meant the next six months it appears now they are trying to tell us they are changing that definition to a shorter period that is not tied to language. Obviously this was not a unanimous feeling but because there is a growing dissent I would expect that language to be changed relatively soon.

However, members also said they viewed the risk of tightening too quickly as greater than that of moving too slowly. Fed members also expressed concern that rising budget deficits and over spending would produce significant upward pressure on inflation. They also acknowledged that for the time being there remained considerable slack in the economy along with a very weak labor market and that was continuing to push inflation lower in the short term.

Fed members noted that they could and would raise rates quickly if warranted and that meant there was no need to start increasing rates incrementally in the near future. It sounds like the Fed is ready to act quickly if needed but it still sees no need to act soon. I do expect a language change at the April meeting or at least by the June meeting. Most analysts don't expect any rate changes until employment improves in 2011. Given that backdrop there is no reason to change the language except to provide some drama in the monthly updates. They can't just put a sign on the door saying, "gone fishing, back in 2011" or the markets would become unbalanced. They have to keep the drama in play in order to keep an element of risk in the rate markets.

The indexes moved slightly higher on the release of the minutes but the rally was lackluster and most of the gains were lost by the close.

The remaining report schedule for this week is fairly bland. The only two reports of note are the Retail Sales for March on Thursday and the Wholesale Trade report on Friday.

There was a $40 billion three-year debt auction today that went off at 1.775% and a bid to cover of 3.10. These are respectable numbers and better than we saw in the auctions over the last couple weeks. Analysts believe that the end of quarter cash flows were responsible for weak demand in those earlier auctions. Later this week there will be additional auctions for 10-year notes and 30-year bonds. It will be interesting to see if the longer term paper will get the same favorable bids. The U.S. is going to auction $2.43 trillion in debt in 2010.

If you don't want to bid for U.S. debt you could walk on the wild side and bid on up to $10 billion in Greek debt being sold in the U.S. sometime over the next 2-3 weeks. Morgan Stanley is the likely candidate to sell the debt after a Goldman Sachs effort fell apart from lack of bidders. Greek finance minister George Papaconstantinou will lead a U.S. road show sometime after April 20th in an effort to drum up interest. Greece is trying to sell itself as an emerging market, Balkan country and thus investors will get a higher yield from emerging market debt. I guess that is a good ploy if they can sell it but I think U.S. investors may be a little more intelligent than that. Secondly, if Goldman could not sell the debt I doubt Morgan Stanley can either. Greek 10-year debt yields rose over 7% intraday today.

The banking index was a leader today after Wells Fargo raised its ratings on the sector to market overweight. Wells said PNC Financial (PNC) and Bank America (BAC) were the best positioned. JP Morgan also raised its rating on U.S. banks to "market weight." The Banking Index ($BKX) rose +2.4% on the upgrades. Bank America rose to close at $18.48 and a new six-month high. PNC closed at $62.57 and a level not seen since Nov 2008.

Banking Index Chart

Netflix continued its three-day rally with a +3.38 gain after Apple revealed the movie on demand application was one of most popular on the iPad. NFLX is now up +13% in the last three days on the news.

Netflix Chart

Also benefiting from the iPad delivery was Amazon. There are worries that the iPad may take sales away from the Kindle but it appears the Kindle app on the iPad is one the most downloaded apps and that means more book sales for Amazon. Apple's store only has 60,000 book titles available compared to 450,000 in the Amazon store. Amazon just got 300,000 new reader devices with the delivery of the iPad. Long term it is not how many Kindles Amazon sells but how many books are purchased and downloaded and the iPad just gave Amazon another sales channel. AMZN gained $4.07 on the news.

Shares of Nokia fell after the wireless phone maker said it would be producing its own tablet PC to compete with the iPad. With more than 15 tablets announced and in production it appears investors were thinking Nokia was late to an already crowded market.

Apple shook off early morning weakness to gain a buck for the day but while the iPad apps may be boosting other stocks the pace of iPad sales is less than expected. There were 300,000 the first day and analysts were expecting 400-500,000. It appears quite a few people are waiting for the cellular device due out later this month. Apple closed at $239.66 and most price targets are $300-$325 so there is still plenty of room to run but some analysts believe there will be a pause before the next rally in apple shares begins.

Homebuilders were weak after Credit Suisse downgraded KB Home (KBH) and NVR (NVR). Credit Suisse said they were shifting to a neutral stance on builders because the spring trade has played out with the tax credit expiring in three weeks. CS expects a sharp decline in housing demand after April 30th.

Stifel Nicolaus slapped a sell rating on Pulte Homes as part of a sector downgrade in a 42-page report released today. The SN analyst said there were years of pain ahead for the builders. The analyst said normalized growth would not return until 2014. He said 1.26 million households are formed annually. Given the rates of current industry growth of 575,000 homes a year it will take three years to clear out excess inventory. New home prices are expected to decline another 10%. He expects PHM to decline 22% before reaching fair value and Toll Brothers (TOL) to decline 9%.

Massey Energy (MEE) fell 11% after it was announced that 25 miners died in the coalmine explosion and another four are missing. Rescue operations were suspended due to excessive levels of methane and carbon monoxide inside the mine. Massey had been cited for 458 safety violations at this mine in 2009. This is the worst mine disaster in the U.S. since 1984 when 27 were killed in a Utah mine fire. If those four missing miners are found dead as most expect it will bring the death toll to 29. On March 28th 150 miners were trapped underground by a flood and 36 were killed. Jefferies was quick to reiterate its buy on Massey saying that the tragedy may tarnish Massey's image but not its prospects.

Riddle me this Batman. Oil prices traded over $87 intraday and the Airline Index ($XAL) is right at a two year high. Since fuel is 25% of the cost of doing business and oil is up +25% from the February lows the airlines should be headed for a crash landing. Todd has a good commentary about this on OilSlick.com tonight.

The slow market melt up has forced the volatility index ($VIX) to new 52-week lows. The VIX hit 16.08 intraday and that is the lowest level since a dip to 15.82 in May 2008. That was the lowest level since July 2007. This very low volatility reading is a warning that complacency is very high. Until today the Dow had only four days of losses since March 4th. This is a warning to investors and it is even more so a warning since the markets are hitting new highs every day.

Chart of VIX

In addition to the falling VIX the market volume is also falling and with that falling volume goes an increased lack of conviction. The Dow came within 13 points of 11,000 today but volume was only 7.3 billion shares across all markets. On Monday volume was only 6.9 billion shares. Volume has fallen significantly since early March when the daily average was near 9 billion shares. This current rally began on March 1st and while we have not seen a 1% decline day in 27 days the gains continue to be smaller and on progressively lighter volume. New 52-week highs have topped 1,000 for the last two days despite the low volume.

This is very confusing to technicians and traders alike. The bears are pulling their hair out over the apparent contradictions of weakening indicators and constantly rising markets. The bulls are losing conviction but the gains keep coming. They don't know whether to buy or sell or wait on the sidelines. Everyone is confused.

Now that the end of quarter window dressing is over and fund managers have yet to pull any money out of the market all eyes are focused on earnings. If I asked you to name one major company that warned on earnings other than healthcare related charges I bet you could not give me any names. This lack of warnings coupled with several guidance raises has everyone expecting great things from this earnings cycle.

Next Monday the earnings cycle will officially begin when Dow Component Alcoa (AA) and Biogen Idec (BIIB) report. This earnings cycle is front loaded with Intel (INTC) reporting on Tuesday along with LLTC, CSX, FAST, INFY and about 100 others on the same day. Unlike the Q4 cycle that was extended for 5-6 weeks the Q1 cycle gets it all done in barely three weeks. That means anyone who wants to sell in May can capture a couple weeks of earnings excitement before exiting the building for the long summer break.

This also means the next three weeks are going to be dangerous waters. Stocks missing the market are going to get pummeled as usual but I suspect those hitting or beating the street estimates will also suffer from friendly fire. Once earnings are in the headlines there is little reason for traders to remain invested in those stocks. I hope I am wrong but I suspect this is one earnings cycle that will be strong for earnings but end with a weak market.

The Dow is trying to comply with trader's wishes by hitting that 11,000 mark but the few bears willing to take a position are jumping in on every tick above 10,985. If I were trying to short the Dow that is exactly where I would wait. An actual touch of 11,000 could trigger more than one sell program and I would want to be already short when that happened.

Remember my premise as the quarter ended that the Dow and S&P were finding buyers because they were liquid big cap indexes? The Russell was stalling because fund managers were putting their last bit of cash in the big caps in case they needed to make a fast retreat.

That tactic is over. While the Dow languished with single digit moves this week the Russell has exploded. It appears the big caps are being sold again and the money put to work in the small caps. The Russell blew past resistance at 693 and closed over 700 and a new high dating back to Sept 2008. This appears to be a breakout at the expense of big caps. If so it would be a very strong sentiment indicator for the market in general.

The Dow has been trading in a narrow range between 10825 and 10950 until this week. Monday's opening spike on the delayed jobs trade pushed the Dow into an even narrower range from 10940-10985. It could be coiling for the next leg higher or waiting for that mystery sell program to trigger a cascading failure. You have to bet that everyone has moved their stops higher with every incremental gain. If we do get a selling event the support at 10825 should hold on the first test. Everyone who has been wishing for an entry point will be buying the dip regardless of the reason for the event. Real resistance is still hundreds of points higher. The 11,000 level is strictly psychological.

Dow Chart

Russell Chart

Russell Chart - 60 Min

The S&P was stuck under resistance at 1180 for two weeks before Easter. Monday's opening spike broke that resistance and put the S&P on track for a test of stronger resistance at 1200. The 1200-1250 range has been the year end target for several major analysts for several months. Hitting that target this early would have many calling for a return to 1150 or even 1085 before heading back up later this year.

While I believe that 1200 would be the equivalent of an electric shock to the S&P I don't necessarily expect it to roll over and die in response. The S&P is over extended but like the Dow has had a couple weeks of rest prior to this week's rally. I am neutral on what comes next on the S&P after any recoil related selling. Support is now 1170.

S&P-500 Chart

The Nasdaq is chained to Apple and whatever happens to Apple shares will translate directly to the Nasdaq. With Apple over extended and past its iPad delivery window there is definite risk. GOOG, ORCL and MSFT are trading sideways without direction and RIMM was crushed on Thursday by earnings. It rebounded today but the damage may not be over.

The best chance the Nasdaq has is the Intel earnings next Tuesday. Anticipation over those earnings could keep a bid under tech stocks but Apple could kill that Nasdaq sentiment with a multi dollar loss that is more than due. Heck, even Cramer, an Apple bull, told listeners to take profits this week.

Initial support should be 2420 followed by 2400. Unless the market implodes any profit taking to those levels should hold.

Nasdaq Chart

In summary, I am neutral on the market short term since it appears fund managers are still content to buy small caps. However, I am bearish on the market once we get into earnings. While they are expected to be strong that expectation is already priced into the market. We are approaching the "sell in May and go away" period post earnings and we have a two day FOMC meeting on April 27th. That would be a potential pothole for the market. If they change their statement at the same time traders are left without any market catalyst then it could be a reason to take profits.

Jim Brown