The markets were headed for a decent loss until a headline hit at 3:30 to push major indexes back into the green.

Market Statistics

Worries over a deteriorating situation in Greece came back to weigh on the markets and pushed the Dow to a -80 point loss at 2:30 but a headline that hit at 3:30 pushed the Dow back to a +4 point gain. This was very broad based buying because every index including the Dow, Nasdaq, S&P, Russell, Wilshire, Transports, etc all bounced significantly at exactly the same time.

Greece was the headline roiling the market again earlier in the day after the person expected to take over the Prime Minister job in April angered the EU Finance Ministers. Antonis Samaras, leader of the New Democratic Party, said he would not sign the documents requested by the EU and IMF to guarantee adherence to the austerity terms after the April elections. The EU does not want to give Greece the 150 billion euros only to have Greece abandon the terms of the agreement. Samaras does not want to agree to it because of the hostilities from the citizens. Agreeing to the deal could kill his election chances.

Also, Samaras was the politician that said he would attempt to renegotiate the terms of the agreement if he was elected in April. Since Greece has failed to live up to every agreement over the last two years the comment by Samaras was seen as confirmation there would be problems for the EU once he took office.

The meeting of EU Finance Ministers for Wednesday to vote on the Greek bailout was reportedly cancelled and replaced with a conference call. German Finance Minister Wolfgang Schaeuble stressed Europe was doing everything to help Greece avoid bankruptcy "but Greece itself of course must want that." He told German broadcaster XDF that is Greece were to default on its debt Europe "is better prepared now than two years ago."

As I have reported numerous times in recent weeks nearly everyone expects Greek to default. The most widely accepted scenario is an agreement with the EU to do anything necessary to get the bailout funds and then a default by the March 20th date when they would have to pay 14 billion euros in debt payments.

With EU Finance Ministers clearly aware of the betting line on the Greek default you can understand why they want every I dotted and T crossed before agreeing to give Greece any more money. The refusal by Samaras to sign the required paperwork would be the kiss of death to any bailout deal unless something changed quickly.

At 3:30 the news broke that Samaras had agreed to deliver his commitment to the EU on Wednesday and the markets exploded higher as the shorts loading up on the bad news earlier in the day were squeezed out of the market as investors bought the dip. Where would the market be without Greek headlines?

On the U.S. side of the pond the Retail Sales for January rose by +0.4% and the fastest rate since October. Ex autos and gasoline sales rose +0.6%. Growth was strongest from retailers that sell necessities along with grocery stores and department stores. Analysts also pointed out that the warmer winter has led to a mild flu season and therefore undermining sales at drugstores. Overall auto sales slowed slightly in January despite an increase in new vehicle sales. Vehicles and parts sales declined -1.1%.

Retail sales are now up year over year by +5.8%. Consumer confidence for February dipped and this could be a factor suggesting a minor retail slump in February.

Business Inventories for December rose by +0.4% and less than the +0.7% analysts expected. Retail inventories rose only +0.2%. The inventory to sales ratio edged down to 1.26 and close to its cycle low of 1.24 last January. The decent increase in sales in December helped to push inventories lower and that suggests we should see a rebuild cycle in the spring. This was a December report and the lagging data was ignored.

There is a very heavy economic calendar for Wednesday. The NY Manufacturing Survey kicks off the monthly cycle at 8:30. The FOMC minutes at 2:00 would normally be the highlight of the day but this was a month with a post meeting press conference so there is not likely to be any earth shaking data in the minutes.

The EU Finance Minister were supposed to meet to vote on the Greek bailout but reportedly that has been cancelled. Nobody really knows what the EU schedule will be once they get all the terms met. Greece still has to finalize the Private Sector Involvement debt swap before the EU will approve the bailout. No word on the progress there. The last I heard the PSI creditors had approved the terms of the deal but were waiting for the bailout to be completed before signing anything. Greece can't pay them unless they get the bailout so this is a chicken-egg scenario. The creditors don't want to sign anything unless they are sure they will get the money because it would negate their credit default swaps. Those swaps would be triggered if Greece defaults on the March 20th debt payments.

Economic Calendar

Earnings were still moving specific stocks with Masco (MAS) posting a loss of 9-cents compared to analyst estimates for a 7-cent loss. Masco makes products for homebuilders. Revenue did rise by +1% to $1.74 billion. Apparently the heavy load of distressed properties is still holding back on new home construction and the demand for building materials. Shares of Masco had risen +50% on expectations for a recovery in the housing market but gave back -12% today.

Masco Chart

Zynga (ZNGA) posted adjusted earnings of 5-cents compared to estimates of 3-cents. Revenue was $307 million compared to estimates of $305 million. GAAP earnings was a loss of -$1.22 per share or -$435 million. That number was the result of a $510 million charge for stock compensation expenses triggered by the IPO in December.

Revenue rose +59%. Zynga said it had 54 million active daily users in Q4, up +13% from 48 million in Q4-2010. That was seen as lackluster user growth and the stock was sold after the report. After closing at $14.33 shares dipped to $13 in after hours before rebounding to close at $13.55.

ZNGA Chart

Met Life posted earnings of $1.31 compared to estimates of $1.24. Revenue was $16.4 billion and below estimates of $16.8 billion. Premiums and fees accounted for $11.5 billion and a +23% increase. Investment revenue rose by +$4.94 billion. Shares traded up over $1 in after hours to $38.55.

Met Life Chart

FMC Technologies (FTI) posted earnings of 41-cents compared to analyst estimates of 51-cents. The company is an offshore oilfield equipment maker. They said higher project costs at its subsea technologies operations ate into its margins. The company lowered full year estimates to $2.10 to $2.25 per share and analysts were expecting $2.26. Shares declined nearly $2 in after hours.

FTI Chart

Peet Coffee (PEET) said sales rose in Q4 but so did coffee costs. Earnings were 42-cents, down from 48-cents in the year ago quarter. Analysts were expecting 43-cents. Revenue rose +11% with a +22% rise in specialty coffees. The company said higher costs for coffee and milk were to blame for the lowered profits. They also said they had hedged costs for the rest of the year.

PEET Chart

Earnings continue to be a challenge with 72% of S&P 500 companies now reported. Different reports claim the number of companies beating estimates are between 60-64% of the total. More than 27% have missed earnings. This is the worst quarter for earnings reports since the recession.

Analysts point to the more than 60% who have lowered guidance as the real metric that should be watched. This is well above normal and suggests companies are fearful about the future. Estimates for Q1 earnings growth is now +3.75% compared to +15% six months ago. Personally I am just glad the estimate is still positive given the number of companies lowering guidance.

Yahoo was in the news again with rumors the potential deal with Alibaba to sell back the 40% of Alibaba owned by Yahoo had ended. Just last week Alibaba had said it was going to borrow $4 billion from a consortium of banks to be used towards buying back that stake from Yahoo.

Reporters claim the deal failed because Alibaba said the Yahoo board was not committed to getting the deal done in a tax free fashion and at an agreed price. Reportedly the Yahoo board changed its mind in February after agreeing to a 300 page proposal outlining the deal and the price in late December. Estimates of the value of the Alibaba stake range from $11 to $18 billion. Yahoo's market cap today is only $19 billion so that would be a major bonus to unload that asset.

Yahoo reported last week that four board members were leaving and would not stand for reelection. That included the chairman of the board. Yahoo is clearly a company in a state of flux and the board may be flushed as a result.

New York hedge fund manager Daniel Loeb, a 5.6% stakeholder is seeking to put four new members on the board and oust two members just appointed last week. He claims that replacing outgoing board members with handpicked people already in agreement with management is not the way to maximize returns for shareholders. He also wants to replace Patti Hart, who is tasked with replacing the departing board members.

Yahoo Chart

Bank of America (BAC) was downgraded by Citi to neutral from buy and shares dropped -3% to $7.99. The analyst, Keith Horowitz, raised his price target to $8.50 from $8 but said other analysts are too optimistic in expecting profit growth over the next two years. He is predicting earnings of 50-cents in 2012 and 70-cents in 2013. Consensus estimates are 69-cents and $1.05.

It was also reported that Ken Heebner's CGM Focus Fund bought 22.1 million shares of BAC in Q4. Clearly there is a difference of opinion. I am bullish on BAC and believe once the mortgage mess is over the profits will be amazing.

BAC Chart

Crude prices rallied to nearly $102 intraday but the spike in the dollar to a new four week high blunted the gains in commodities and kept crude from breaking through resistance at $102. The announcement that tanker owners were no longer going to book loads out of Iran was the primary reason for the gains in crude.

Crude Oil Chart

Dollar Index Chart

The S&P missed moving back into positive territory at the close by 1.27 points. However, that missing point was a result of the continued strong resistance at 1350. This has been a solid ceiling for the rally. The end of day short squeeze boosted total volume by nearly one billion shares to 6.7 billion but the squeeze was unable to break that 1350 level. One analyst wrote that 25% of the day's entire volume was in the last 30 minutes as a result of the squeeze. That is a clue as to how many people were shorting the decline in anticipation of a long overdue bout of profit taking.

However, there are other factors. Currently the percentage of fixed income investments relative to equity investments by retail investors is at a 50 year high. There is no conviction this rally will last. Short interest on the NYSE is lower than the March 2009 levels suggesting everyone is expecting the market to go higher on a contrarian basis.

Corporate buybacks in January were at an 18 month low. Insider selling hit $2.3 billion in January. Traders may be talking bullish but they are investing bearish in many respects.

They are buying the worst earnings in more than two years as though earnings don't matter. Investors are ignoring the economic declines in Europe and warnings about China. Despite the dip buying there is still a lack of conviction.

The key point for me is the two month rally without any material profit taking. Until the rally breaks over 1350 on strong volume or takes a multiday rest to something in the 1310 range I think the market will continue to be lackluster.

Remember, since 1938 the market has only failed to move below the January 1st opening print a total of eight times. It has never failed to trade lower over the last 30 years. Every time this statistic gets repeated the conviction level will decline.

S&P Chart

The Dow is fighting the same problem with 12,900 although it did not quite manage to reach that level today. The Dow stalled at 12,878 but that was due to the big decline in BAC and DD. The 30 stock index is much more susceptible to moves in individual stocks. The Dow has higher support at 12,750, which was prior resistance.

The Dow should get help on Wednesday if Deere (DE) reports good earnings at the open. That would spike CAT and as a $115 stock that would give the Dow a big lift. Obviously if Deere disappoints CAT will also react negatively.

The Dow is also going to be more reactive to event headlines from Europe so anything is possible.

Dow Chart

The Nasdaq managed to close at a new high by a whopping four tenths of a point. You can thank FOSL +15, AAPL +9, ISRG +7, PCLN +5 and NFLX +5 for the new high. All of Apple's gains came in the last five minutes. Clearly there were a ton of people shorting it at $505 that were shocked when the squeeze began.

The Nasdaq, thanks to the big cap gains, is slightly more bullish than the other indexes but is still struggling to make new highs. It has retreated to support at 2900 four times in the last eight days but that support has held.

Nasdaq Chart

The Russell saw some buying at the close but it was the weak index for the day. The Russell ended down -4 points but +5 points off its lows. The lack of bullish conviction is showing on the Russell but investors are not yet ready to throw in the towel.

Russell Chart

I remain cautious on the market. There are so many conflicting headlines and emotions that anything is positive. We can't believe the short squeeze at the close as anything but a squeeze. If anything we should take the amount of shorting as a signal the bears are becoming more convicted.

Volume remains very low and I would be surprised if we get a major rally or a breakout over S&P 1350 until there is a decent bout of profit taking. It is always possible a "done deal" over Greece would bring new buyers into the market but there is also the potential for a sell the news event. I would remain cautious on committing new money without a decent dip or a strong break over 1350.

Jim Brown

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