The Dow 11,000 bell was rung at the close and now the question is how long it remains at this level and will it move higher.

Market Statistics

The closing spike came on low volume and was obviously a small buy program that triggered some short covering above resistance at 10985. Yes, Dow 11K was touched but it is not the major milestone the press claiming it to be. It was psychological only and not a specific resistance level that changes the characteristics of the market. The last time the Dow closed over 11,000 was Sept-26th 2008.

The first Dow close over 10,000 during the rebound was October 14th. Since that close only five Dow stocks contributed 459 of the next 1000 Dow points. To say it was a broad based rally would be an error. The following five stocks contributed the most to the Dow gain.

Dow Movers

Dow Intraday Chart

There was only one economic report on Friday and that was the lagging Wholesale Trade report. The wholesale inventories rose by +0.6% in February after a +0.1% gain in January. February was the fourth month in positive territory in the last five months. Sales rose +0.8% compared to January's +0.9%. The report was seriously underwhelming and had no impact on the market.

There are a lot of reports next week but none are really market movers other than the Fed Beige Book on Wednesday. If the Fed says the regional economies were doing better or worse than in their last report then the markets could move on the news. It the report is just more of the same with slow improvement then it will likely be ignored.

The Philly Fed survey on Thursday will be of interest but I doubt it will be a market mover. The real problem for the markets next week will be earnings not economics.

Economic Calendar

Alcoa kicks off the Q1 earnings reporting cycle on Monday but all eyes will be on Intel, JP Morgan, Google and Bank America starting on Tuesday with Intel. There has been some discussion that Alcoa could miss earnings and that would not be a good way to start off the reporting cycle even if the majority of traders don't have a vested interest in Alcoa. They were downgraded twice last week so the negativity may already be priced into AA.

Intel is probably going to set the tone for the entire earnings cycle. Estimates have been raised to the point where they may not be able to hit the target. We know Intel is having a good quarter but analysts have built up expectations for a +39% jump in earnings. If Intel misses that target it could produce a serious crimp in market sentiment.

JP Morgan is in the same boat. Earnings are expected to be 65-cents per share compared to 40-cents a year earlier and I am not sure Jamie Dimon is going to be that excited about posting blowout earnings. That will just bring more government wrath down on the banking sector for higher taxes and fees on big banks.

Google always has trouble with earnings. Everyone always expects more than Google delivers and the stock normally tanks after the report. Will this time be different?

Bank America is expected to report only 8-cents compared to 44-cents in the year ago period. That is not likely to go over well despite the reasons being TARP repayment. Richard Bove posted a note on BAC on Friday that caused the stock to decline slightly although I thought it was positive. Bove said BAC would be worth three times as much if it were broken up instead of allowed to continue as a conglomerate. He projected a $53 stock price if it was split into three companies. He projected a double for JP Morgan using the same logic last week. He believes JPM would be worth $102 in a split.

I really hope the headliners in the earnings table below don't let the market down next week.

Earnings Calendar

Greece was back in the headlines on Friday as Fitch cut its debt rating on Greece by two notches to BBB- from BBB+. Fitch said Greece was facing new problems in raising fresh money on the global markets. This downgrade again roiled the markets but it was quickly reversed after several EU nations said they were ready to bailout Greece if needed. Greek debt is bid at 7.5% and rising and the EU bailout would lower that rate based on the guarantees. Greece needs 11.5 billion euros by next month to cover current obligations and another 32 billion euros by year-end.

I believe the Greek debt crisis is over. I don't think anything is going to happen to materially impact the global debt market. That does not mean there will not be volatility as events are announced. The EU and the IMF are ready to provide the bailout and this daily barrage of news is simply political wrangling and positioning ahead of the bailout. The other EU countries want to make it difficult for Greece to borrow the money so they will be forced to agree to stronger fiscal rules in order to get the funding. We know Greece will be bailed out so all this talk is wasted breath.

What we do need to worry about is the next shoe to drop in July when the ECB upgrades its outlook on the rest of the EU countries. The countries below are each going to get their time in the spotlight because nobody is going to want to loan them any more money until they get the same kind of guarantees Greek debt is about to get.

EU Debt Problems

The resolution of the Greek debt crisis, again, caused the Euro to spike a whopping +1.42 points to 134.58 and the dollar to plunge to the low for the week at 81.0 on the dollar index.

Chevron gave the energy sector a boost after they preannounced a better than expected quarter after the bell on Thursday. Chevron said its refining division would return to profitability in Q1 as margins increased. Refiners have been operating at less than 80% of capacity until the last couple weeks because of low demand and high inventory levels. The pickup in demand over the last month has increased crack spreads to nearly $14 per barrel and that is music to their ears.

Chevron said global oil and gas production of 2.75 mbpd in the first two months of the quarter was down slightly but increased oil prices would make up for the shortfall. Chevron is hoping to maintain 2.73 mbpd for the rest of 2010. Their average selling price in Q1 was $79 and that was significantly over the $43 average in Q1-2009. S&P quickly boosted earnings for Chevron by a whopping 38 cents to $1.95 per share. Chevron rallied +1.84 on the news.

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Palm (PALM) continued to find a bid after unconfirmed reports that Taiwan's HTC might be a potential suitor. HTC is the world's fifth largest smartphone maker. The acquisition of Palm would give HTC the access to the new Palm OS, which has been well received by the industry. The decline in Palm's stock price over the last couple months has reduced their market cap from $2.4 billion to $780 million. That is chump change for any acquirer. Earlier in the week Palm spiked on rumors that Lenovo was also interested in acquiring the company. Barclay's Capital immediately downplayed the potential Lenovo deal for various reasons. However, HTC could be a viable candidate.

Palm Chart

The major indexes hit a major milestone this week and I am not talking about Dow 11,000. They completed six consecutive weeks of gains. This has not happened since March/April 2009 when the rebound first began. The Dow has not had a single day with a -1% decline since February 4th. The markets have moved slowly higher on light volume with everyone and their brother talking about the impending correction.

That correction never comes and everyone is stuck scratching their heads and wondering if it is too late to go long. Those bears with conviction have been shorting every high to no avail. This is the worst kind of market for a bear. A melt up market lacking conviction provides almost perfect daily setups for the bears. You have the intraday spike and failed high and shorts start taking positions only to see a minor new high the next day and the process repeats.

This week the Dow resistance at 10985 was rock solid on Monday and Tuesday and Wednesday's high volume dip (9.5 billion shares) was the perfect confirmation for the bears after they shorted the 10985 highs. You could easily visualize them piling on the shorts on that cascade decline just before Wednesday's close. Unfortunately for the bears the Thursday rebound was yet another short covering rally and that continued into Friday's close. What intelligent bear wanted to carry already losing positions into a new closing high before the weekend?

Now the stage is set for next week. The market is at new highs and there are major earnings reports on tap. S&P is expecting earnings for the quarter to come in at +30% and that was before the upgrade from Chevron that will boost estimates for the entire energy sector. Earnings at +30% are great but lower than Q4 because the comparisons are more difficult.

On the downside the earnings expectations are already priced into the market. Intel has been stuck at its 52-week high for three weeks on anticipation of good news. JP Morgan is also holding at its resistance highs and can't seem to make any upward progress. Google is trading exactly where it was a month ago and there is no pre earnings ramp. Expectations are actually holding Google back this time.

At the risk of repeating every earnings cycle warning I have given over the last 13 years I believe we are setting up for an upset. The markets are up +75% over the last year. The economy is recovering but recovering slowly. The Fed is getting ready to change its bias and we are heading into the normal summer doldrums. I have reported on the "Sell in May and go away" trend more times than I care to count but this year I fear it will happen.

It is not going to happen because earnings are terrible or the economy is going to roll over. It is going to happen because it is time for the market to rest. The historical cycle for the markets is to be weak or choppy over the summer months and then rally again in the fall. The best six months strategy of being invested over the winter and in cash over the summer has been proven accurate over and over. That frees up investors from worrying about their investments while walking through Disneyworld or while driving across country on a vacation trip.

I took a four-week vacation a couple years ago and drove from Denver, to Vegas, Los Angeles, Yosemite, San Francisco, Seattle, Cor D'Alene, Yellowstone, Grand Teton and back to Denver. Roughly 4,500 miles with stops to visit friends and relatives in every major city. Keeping up with the market and my positions was a nightmare. Every night was drag out the laptop and see what happened. Millions of investors have figured this out and they simply clear the table of anything not a long term core position and tune out the markets over the summer.

Last year the markets were in full rebound mode and the Dow still lost -600 points from June 11th to July 10th. The Dow only gained +75 points from May 1st to May 29th. The markets were in rally mode and still suffered from the historical May-July weakness.

How are they going to hold up this year after a 75% rebound? I am concerned we could see a real correction of 5-10% sometime this summer. I am starting to see less bullish bias in the mainstream media. They have been in buy the dip mode since the January decline. I completely agreed and have been recommending the same thing. Now I am less confident and I am seeing more analysts hedging their bets with comments about a potential market dip. While having a rising number of analysts calling for a dip is actually a bullish signal for contrarians, I think retail investors are already cautious and that may make them even more cautious.

Obviously nobody can claim with 100% certainty that a dip or rally is about to occur but there is plenty of precedence to justify caution over the next three weeks.

For next week we have the major earnings from Intel and JPM and it is also option expiration. The market bias should be bullish through expiration assuming there is no major earnings disaster.

The following week has earnings from IBM, MSFT, AMZN, YHOO, and GS plus a dozen Dow components and over 500 other companies too numerous to mention. When that week is over the market will be primed for a decline. Add in the Fed meeting on April 27/28 and the potential for a language change and even a market rookie could find a sell signal.

Since the market exists to make fools of as many people as possible that will probably be the turning point towards Dow 12,000. Personally I am betting on the other direction so I will be the one farthest out on the prediction limb when the guy with the saw appears.

The Dow punch through to 11,000 on Friday lasted less than 30 seconds and was greeted by a huge cheer from the NYSE floor. Had it occurred at noon instead of 3:55 I suspect the closing print would have been much different as it would have been another shorting opportunity for the bears.

Closing at that level ahead of the weekend was due to short covering and the lack of anyone being around to apply any selling volume. Springtime Friday's are notoriously lacking in afternoon volume.

Despite the close at 10,997 the Dow is still at resistance. Plus or minus 10 points on the Dow is only a rounding error. The Dow hit 10987 on Monday and Tuesday so to bookend the week at 10,997 was not a big deal.

For Monday I suspect we won't see a big decline and the markets should remain relatively calm until the Intel earnings on Tuesday assuming there is not a news event that causes traders to become nervous. Once Intel reports and assuming they don't blow away earnings I think the tide will start to weaken. I don't really expect any material decline until the following week and the FOMC meeting but I am not trying to predict a short-term event today. I just want everyone to be prepared for additional weakness as April comes to a close. Whether that starts next week or the Friday before the Fed meeting is anybody's guess.

Dow Chart

The S&P resistance at 1200 is clearly the next target and one that I think could be tested next week. While the 11,000 level on the Dow was purely a psychological resistance level, S&P 1200 is real resistance PLUS it was the anticipated year-end target for the S&P by quite a few analysts. SPX 1200-1250 was the Holy Grail for analysts back in September when the S&P was 1000. The common comment was "This would be a +20% gain and the best we could hope for given the +40% rally from March." Surprise, surprise! Here we are in April and the S&P is up +65% from the March 2009 lows at 666 and there are still eight months left in 2010.

I have heard a couple analysts upgrading their targets to 1300 by year-end but most are being very quiet about their outlook. They either want the world to forget they predicted 1200 by year-end or they are hoping for a decline to appear so they can get a second chance at being right.

I believe touching 1200 next week would produce more bearish reaction than Dow 11K. This is a much more targeted number and like I said last week it would be the equivalent of an electric shock to the markets. If we reach that level I would be VERY surprised to see us pass it without a blowout number from Intel, Google, JPM and BAC.

S&P-500 Chart

The Nasdaq benefited on Friday from big gains in ISRG, CREE, CASY, ATLS, BIDU and DECK. All the other major players like GOOG, MSFT, INTC, RIMM, ORCL and DELL were either negative or up only a few cents. Most of those cents gained came on the closing spike. It was not a broad rally.

The Nasdaq came to rest at 2454 and almost exactly on the uptrend resistance and the resistance highs from August 2008. This is where the Nasdaq should fail if it is going to fail. Obviously with Intel earnings on Tuesday the Nasdaq bulls are going to be hesitant to put any more money into longs on the outside chance Intel is less than a blowout. With Google earnings on Wednesday they have double risk. I would be surprised if the Nasdaq moved higher but it is a broad market index and small positive gains on hundreds of stocks can offset hesitancy in the leaders.

A breakout on strong volume here would be bullish. I would have to hold my nose to go long but it would be bullish.

Nasdaq Chart

The Russell-2000 sprinted higher on Monday-Tuesday and then stalled after touching the uptrend resistance from Jan-2009. The first two days of the week were incredibly bullish but then the buying ended. I thought we were seeing another rotation from big caps to small caps but apparently it was not a broad market move and probably just a major fund restructuring positions.

I will be very surprised if the Russell moves higher this close to expiration, major earnings, FOMC meeting and summer. Small caps don't normally do well over the summer. Small caps are however a sentiment indicator for fund managers and despite the stall at resistance I see no indications today that managers are becoming squeamish.

Russell 2000 Chart

In summary, expiration week is normally bullish but earnings misses could sour that sentiment. I expect no major market changes next week without a major news or earnings event to provide motive power.

The following week has earnings from over 500 companies that will include nearly all the major companies left to report. When these earnings are over the earnings cycle will be over for all practical purposes. With the FOMC meeting the following Tue/Wed the potential for a decline increases. If the Fed does change the language in their statement I think the profit taking will begin. Obviously this is only my opinion but as a student of the market it is my best guess. I will continue to refine this outlook as April progresses and I will be publicly eating my words if we continue to move higher.

Jim Brown