The markets took a day off on Tuesday after three days of strong gains. The declines were minimal especially after the +460 point rebound from last week's lows.

Market Statistics

Continued problems in Japan and unrest in the Middle East failed to dampen the markets spirit. At its highs today the Dow was +14 and only -33 at the lows. This 47-point range was the lowest in over a month. Volatility fell dramatically over the last four days to close at 20 on the VIX today. Has all the bad news been priced in?

On the economic front there was nothing to cheer about. The Richmond Fed Manufacturing Survey fell to 20 in March from 25 in February. That is still well into expansion territory and should not be considered a change in direction. The biggest decline came in the new orders component, which fell from 27 to 20. Back orders declined to 8 from 12. Capital expenditure plans rose from 20 to 28.

Richmond Fed Chart

The Mass Layoffs for February fell slightly to 1,421 events, down from 1,534 in January. Workers impacted fell to 130,818 from 149,799. The initial claims for layoffs in manufacturing declined to 13,129 and the lowest on record since data began in 1995. This is a strong point for the case of the rebounding economy. This is a lagging indicator but another positive data point suggesting employment will continue to increase.

Economy.com Mass Layoff Chart

The FHFA Purchase Only Home Price Index declined -0.3% from December to January and -3.9% compared to January 2010. This is a severely lagging report and was ignored by the market. Very few people are unaware home prices are falling again.

Reports left for the week include the New Home Sales and the final reading for the Q4 GDP. There are whisper numbers for Jobless Claims to decline to 375,000 and GDP is always a wildcard.

Economic Calendar

In stock news NetFlix rallied +8.55 to $21.39 after Credit Suisse raised its rating on the stock. CS raised it to an "outperform" from neutral and raised the 12-month price target from $180 to $280. NetFlix is up +500% since January 2010. The analyst said he expected NetFlix to enter one new international market every year after the successful implementation of streaming movies into Canada. He thinks they will grow to 33 million subscribers by year-end and more than double to 69 million by the end of 2016. NetFlix closed 2010 with 20 million after adding 7.7 million for the year. The worries over content costs seem to have evaporated and none of the other competitors including Time Warner and Amazon seem to be ready to take the plunge and really compete with NetFlix.

NetFlix Chart

Walgreen's (WAG) was knocked for a loss after they reported earnings of 80-cents, which was inline with estimates. Revenue rose +9% to $18.5 billion and slightly over estimates. Same store sales rose +4%. Walgreen shares declined -7% because traders were expecting an earnings beat.

Walgreen's Chart

Adobe reported earnings after the bell of 58 cents and a penny ahead of estimates. Sales rose +20% to $1.03 billion. However, Adobe said the Japan quake could knock as much as a dime off the earnings for the current quarter. Adobe is now projecting 47 to 54 cents and analysts were expecting 56-cents. Japan sales contribute about 10-15% to Adobe's overall revenue. Shares were flat in after hours trading.

Shares of Jabil Circuit (JBL) surged +10% after the close on earnings that rose +86% to 54-cents and revenue rose +31% to $3.93 billion. Earnings beat analyst estimates of 51-cents. Jabil projected current quarter earnings of 55-59 cents and analysts had been expecting 53-cents. This excludes any potential impact from Japan. Jabil said its plants in Japan were not affected but they don't yet know if suppliers were impacted.

Jabil Chart

Research in Motion said it was going to release the PlayBook tablet on April 19th. Three models will be available in over 20,000 retail outlets with prices starting at $499. Best Buy will begin accepting orders next Tuesday. RIMM announced the tablet seven months ago but took a long time to bring it to the market. This allowed Apple to completely over power the sector and competitors like Motorola's Xoom to capture attention. The initial PlayBook models will not offer a cellular connection and have to use WiFi or be tethered to the users BlackBerry.

RIMM Chart

Apple will release its iPad 2 in 25 more markets this weekend and they are already expecting an immediate sell out. Apple has been at the top of the tech news headlines this week. They sued Amazon for using the term App Store to refer to their store for selling applications for Android phones. Apple's Steve Jobs was order to appear at a two-hour deposition regarding antitrust claims against its use of the Fair Play digital rights security to prevent songs from other music services to be played on iPods. Initially there was cross platform capability but Apple turned off that capability in 2005. RealNetworks and Harmony are suing Apple over the block.

A Sanford Bernstein analyst said Apple's new datacenter should go live this spring and it covers 500,000 square feet and could be the largest in the world. That is five times the size of its current data center and suggests Apple has massive plans for remote computing in the near future. Apple spent $1.7 billion in 2010 on upgrading its IT assets and that is expected to rise to $2.6 billion in 2011. Bernstein believes the computing power will be used for serving up iAds and a digital "file locker" in the cloud to share content between other Apple users. Also a music streaming service on a subscription basis and a video subscription service for streaming video like NetFlix and YouTube.

A New York court rejected a class action settlement between Google and publishers that would allow Google to scan millions of books and sell them online. Google was flat on the news.

MolyCorp (MCP) a rare earth miner rallied +17.7% today after a Reuters report on falling export volumes from China. Prices paid per ton for China's rare earths broke through the $100,000 mark for the first time. Last July they were selling for $14,405 per ton on average. In February that rose to $109,036 and that was nearly double the price in January. China exported 750 tonnes in February and only slightly over the 647 tonnes in January which was the lowest volume in more than two years. The catalyst for this has been the drop in Chinese exports. China has been the only material rare earth supplier for the last six years and their internal usage is exploding. The CEO of MolyCorp believes China will become a net importer by 2015.

Jim Cramer just reiterated his strong sell on MolyCorp on Monday calling it significantly over valued. At $14,000 a ton maybe, at $109,000 a ton I seriously doubt it. MolyCorp is in the process of reopening the biggest rare earth mine outside of China. They were going to be very profitable at $15,000 a tone so this news is a major improvement in their future profitability.

MolyCorp is a current long-term play in the OilSlick Newsletter.

MolyCorp Chart

Silver prices rallied to close at a 31-year high at $36.37 on news the manufacturing sector in Japan may not be as hard hit as many had thought. Many companies are announcing that plants have already begun restarting or will resume full production by the end of the month. Add in the plunging dollar and the poor mans gold continues to ramp higher.

Silver Chart

The dollar hit a new 15 month low intraday at 75.24 as currencies from other growth countries like New Zealand, Australia and South Africa surged. The Euro ended the day slightly negative but very close to a five month high. The U.S. dollar is falling on the money printing component of QE2 and that falling dollar is pushing commodities and stocks higher over the longer term. The currency market has shrugged off Japan and Libya and returned to the prior trends.

Dollar Index Chart

Fed governor Richard Fisher warned on "speculative excess" in a speech he gave on Tuesday. Fisher said the U.S. "needs no more stimulus after QE2 ends in June." He said the economy does not need an extension of QE2 where the Fed tapers off on its bond purchases. "Doing so would only prolong the injustice that we have inflicted on savers through inflation."

This is the first major dissention speech since the March 15th FOMC meeting where everyone voted to continue QE2 through its planned completion in June. Fisher was not a voting member when QE2 was initiated and he claims he would have voted against it if he had been able to vote. He said the flow of money into the stock market was a sign of speculative excess. "We have done a bit too much."

"There’s lots of liquidity sloshing around the U.S. financial system," Fisher said. "We are seeing signs of all the intoxication that typically takes place when we have the ambrosia of cheap and readily available capital." He said Bernanke has purposely embraced speculative excess and will not back off a date once set. He has not stopped a single program before its termination date. This means the Fed will continue buying US. Treasuries until June come "hell of high water." Fisher was a voting member in 2008 and then rotated off the committee for two years. He dissented five times in favor of a tighter money policy. He is one of the four Fed presidents that rotated back into the voting lineup for 2011.

Sandra Pianalto, president of the Cleveland Fed was also speaking on Tuesday. She said the U.S. recovery should continue at a modest pace, with rising commodity and energy prices only temporarily putting pressure on broader consumer prices. Pianalto is a centrist on the committee rather than being an inflation hawk or a policy dove. She did say energy prices as a result of the Middle East problems are a "key risk" to the economy. "If prices are sustained it will slow the pace of GDP growth. Even if the impact is low it will increase inflation worries." Pianalto is not a voting member of the FOMC this year.

Oil prices continued to rise as scenes of riots and demonstrations in multiple MENA nations combined with the war in Libya to provide support. The April WTI crude contract expired at the close today at $104 and Brent closed just under $116. The May WTI contract was over $105. Neither are showing any weakness or suggesting the prices will decline soon. Demand in Japan has risen rather than declined and the democracy virus is producing potential problems all over the Middle East and Northern Africa (MENA).

Remember the "oil is fairly priced at $85" comment from OPEC and Saudi Arabia not too many months ago? Forget it. An OPEC official said this week that oil at $120 is fairly priced and would not harm the global economy. However, if crude moved over $120 they would "consider" holding an emergency meeting to discuss increasing production. The comments came from Iraqi Oil Minister Abdul-Kareem Luaibi. "Global prices are moving towards $120 a barrel. We consider this an acceptable price that will not harm global growth. We think prices will not exceed $120 per barrel."

I hope you have a lot of oil stocks in your portfolio!

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U.S. WTI Chart

Brent Chart

Today was certanily lackluster after the three days of +100 point gains. Volume today was only 6.3 billion shares and the lowest volume day in 2011. Decliners of 3,780 beat advancers of 2,504 and down volume was twice up volume. However, the markets held their gains from the prior three days.They did this in spite of various negative headlines including a warning from ECB president Jean Claude Trichet that the bank was ready to act quickly to guard against inflation. In banker speak that means raise interest rates.

The market appeared to take a wait and see attitude today ahead of more action in Libya and still unknown supply chain issues from Japan. While I think it may be too early to claim the bad news bulls have returned, I do think Tuesday was mildly bullish. We have seen traders take any excuse to sell over the last couple weeks and Tuesday was a perfect opportunity to take profits on the +460 point rebound. When selling did not appear that is a bullish sign. However, futures are moving slightly lower in after hours.

The S&P traded in only a 7 point range from 1292 to 1299 with support at 1295. Since it did not vascillate to far from that level it suggests buyers are waiting just under that 1295 support. The complete lack of any volatility makes it hard to call. However, there were no sell programs. Fund managers were suspuciously silent in their trading activity. I looked twice at tomorrow's economic calendar just to make sure there was not something I was missing.

The lack of volume on a day when sellers should have been pounding the tape suggests they may have exhausted their supply of stock or they are weak from having their shorts blow up in their face for three consecutive days. However, the buyers were no better with support holding but showing a complete lack of conviction.

If we do move lower the next material support would be in the 1275 range. Moving higher finds decent resistance between 1300-1305.

S&P-500 Chart

With a very narrow 47-point intraday range the Dow managed to cling to the high ground and close for the second day over prior resistance at 12,000. No Dow stock gained or lost over a dollar. Caterpillar was the biggest loser at -80 cents and Boeing the biggest winner at +65 cents. Nineteen Dow stocks moved less than 25 cents for the day.

The Dow has closed right at the 50-day average for two days and while that is not normally a material resistance point for the Dow it appears to be respecting it on this rebound. If we break below 12,000 we should fine initial support at 11900 but a break there would probably retest the lows. We need to move over 12,060 to signal a return to a positive trend but resistance at 12,235 should be strong.

Dow Chart

The Nasdaq 100 cannot seem to break through resistance at 2270 and the Nasdaq Composite has the same problem with 2700. However, after a week of seeing relative strength weakness from the tech sector I thought the minor decline on Tuesday was slightly bullish. It would have only taken one big cap tech to push the Nasdaq into a decline but all appeared to hold their gains from the rebound.

I think the Nasdaq has gone from the leader on the downside to neutral and waiting for news out of Japan for market direction. The fear factor over the broken supply chain appears to be evaporating.

Nasdaq Chart

Nasdaq 100 Index

The Russell has rebounded higher than the big cap indexes and I see that as slightly bullish. It is still a long way from strong resistance at 830 but it is trading over the 50-day that has held the other indexes back.

Russell 2000 Chart

Tuesday was a wait and see day. Triple witching expiration is now behind us and the settlement volatility normally seen on post expiration Monday's has passed. The news stories seem to have less impact. Even the Richard Fisher speech saying the Fed would "buy treasuries come hell or high water" failed to move the markets. Obviously that was confirmation of sorts there would not be an early end to QE2 and that should have been positive for the market. We had a day where negative news and positive news failed to produce any activity and there were no buy/sell programs of note. This is the kind of day that drives market analysts crazy. Plenty of news but no activity and no indication of direction. However, given the gains of the prior three days I see this lack of selling to be slightly bullish. Time will tell.

Jim Brown

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