The starting gun on earnings season officially began this afternoon with Alcoa's earnings, and the Wrap's title might prove equally apropos of developments in North Korea. South Korea's government speculated Sunday that North Korea could, indeed, be planning a missile launch this week, saying that South Korea had prepared for all possible eventualities. North Korea today announced that it would shut down the joint-Korean Kaesong Industrial Complex. More than 50,000 North Korean workers will be pulled out of the complex if today's announcement is followed by the threatened action. Although some experts downgrade the importance of Alcoa as a market bellwether and dismiss North Korea's threats as posturing, the two developments at least bookmark the Monday through Wednesday portion of this week.
The SPX gained 0.63 percent; the Dow, 0.33 percent; and the NDX, 0.52 percent. The RUT rose 0.89 percent, and the SOX, 1.25 percent. The Dow Jones Transports jumped 0.90 percent. Last week's most beaten-down indices rose the most. A midday check today showed that, at that time, advancers and decliners on the SPX were running neck and neck, and down volume slightly higher than up volume. On the RUT, the pattern was different. Declining issues often led advancing issues, but advancing volume was ahead of declining volume. By thirty minutes before close, advancers were well ahead of decliners and up volume well ahead of down on both indices.
The U.S. Commodity Futures Trading Commission reported on net-long positions. In the week ended April 2, speculators trimmed net-long positions by 31 percent. Silver was among the commodities deemed to be in a bear market, but others joined with it to create the impression that there's not enough demand for produced goods. Forces at work on commodity prices today included currency fluctuations as well as skirmishes between government forces and militants in Nigeria this weekend. The /CL crude contract closed at $93.36, up $0.66. The /GC gold contract closed at 1572.60, down $3.30. Silver closed at $27.16, down $0.06.
With the currency markets still reacting to the Bank of Japan's efforts to steer prices lower, the yen moved closer to the psychologically important level of 100 yen per dollar. The yen moved to 99.466 per U.S. dollar, the first time it's been that low since the middle of 2009. Some analysts now call for the yen to breach the 100 level this week, not so very far away now, and to dip further against the dollar by year's end. The yen has moved straight from $92.56/dollar on April 2 to today's high. That's a huge move. It's on a momentum run fueled by Japan's determination to lower the yen, so both bulls and bears know to be careful.
Asian bourses were mostly lower, with Japan's bourse bucking the trend and reaching a high not seen since the middle of 2009. Just as often happens in our markets, the lowering of the native currency props up the equity markets priced in that currency. The Nikkei 225 soared 2.8 percent. However, the Hang Seng edged lower by 0.4 percent, the Straits Time dropped 0.46 percent, and China's Shanghai Composite fell 0.62 percent. More cases of bird flu have been reported in China.
European bourses closed off their highs, initially pushed back by renewed speculation that Cyprus could leave the EU, but then pressured by the U.S. open and other European developments. The Cypriot finance minister subsequently rejected the idea of exiting the euro.
Also, Portugal's main court today rejected the austerity measures that the troika demanded in return for bailout funds. U.S. Treasury Secretary Jack Lew weighed in on talk about austerity measures in Europe, saying that those measures are crushing economies in many European countries and should be eased. In Greece, the state suspended a merger deal between the two largest banks after they failed to garner attention from private investment. Those banks may now face nationalization. Notable events in Europe included the death of the former U.K. Prime Minister Margaret Thatcher. She was 87.
The FTSE 100 gained 0.43 percent, holding closer to its day's high better than most bourses in that region; the DAX rose 0.05 percent; and the CAC 40, 0.09 percent. Spain's IBEX 25 dropped 0.14, and Italy's FTSE MIB, 0.05 percent.
The only scheduled economic report was Moody's weekly Survey of Business Confidence. The headline number dropped to 30.9 from the prior 32.3. This is the second month in a row of declines. Moody's still summarized the number as characteristic of an economy "expanding at the high end of its potential," but said that soft hiring and office space demand hurt the headline number. When "abstracting from the highs and lows in the weekly data," Moody's concluded that they were seeing what they had seen during the economic recovery: business confidence at the high end of the range during that recovery.
In other news, President Obama's proposed budget will include cuts to cost-of-living adjustments for retirees, now put into writing. In addition, Medicare providers and drug companies will see reduced fees and high-income beneficiaries will face more costs. Recently, companies such as Humana (HUM) had jumped on hopes that such cuts would not be proposed. HUM and others have been pulling back since their week-ago highs. Today was another down day for many insurers.
Traders and investors might note that new flash-crash rules went into effect today. These include new "limit up/limit down" rules applied initially only to a group of liquid stocks but planned to extend to all exchange-traded stocks. These rules peg executions to a range around the recent prices. If no trades occur within that band for 15 seconds, a five-minute pause in trading will be instituted for that stock. This system is designed to prevent the failures of the prior circuit breaker system that was sometimes triggered if someone entered an erroneous price, but some believe the new system could cause havoc of its own. What happens if many hundreds of stocks trigger the five-minute pause at the same time? Experts urge that the system be rolled out slowly and tested thoroughly under real market conditions.
Story stocks have to start with Alcoa (AA), reporting after the close. Although some pundits dismiss AA's bellwether status in recent years, the company's earnings have traditionally been recognized as the official start of earnings season. AA reported earnings of $0.11/share, ex-items, versus the expected $0.08. Revenue was short, however, at $5.85 billion versus an expected $5.88B. The company's chairman and CEO said that the company expected 7 percent growth in aluminum demand this year, meeting expectations. An initial pop higher after the report was soon reversed, with shares priced at $8.30 as this report was edited for publication. Due to the after-hours pattern, it's clear that traders will have to wait at least until tomorrow's opening to determine whether this earnings report will be a market-mover either direction for AA or the broader market.
Story stocks included Tesco (TSCO.L, 374.15, up 5.10 or 1.38 percent). Analysts speculated on the cash costs and write downs for the company to withdraw from the Fresh & Easy U.S. business. Various options are being considered, but analysts believe it possible that the Fresh & Easy assets will be sold off piecemeal. The company will provide an update on expected costs when it reports earnings results on April 17.
GE (GE, 23.12, up $0.19 or 0.83 percent) will acquire Lufkin Industries (LUFK, 87.96, up 24.03 or 37.59 percent), with LUFK shareholders receiving $88.50/share for their LUFK shares. The proposed deal is of course subject to various approvals and conditions. Subject to those approvals and conditions, the deal will likely close in the second half of 2013. In after-hours trading, GE had dropped $0.17 off the closing price listed above as this article was prepared for publication.
Avon Products (AVP, 20.61, up 0.35 or 1.73 percent) announced that it would lay off more than 400 full-time employees. The company also plans to pull out of Ireland in its plan to reduce costs by $400 million. Both tasks will be completed by the end of 2013. AVP lost $0.22 in after-hours trading, but without looking at time and sales, it's impossible to know whether that was a large number of trades or in a few lower trades.
Las Vegas Sands' (LVS, 54.59, up 1.87 or 3.55 percent) owner Sheldon Adelson is involved in an unpleasant trial in Nevada. A Hong Kong businessman claims LVS is about a decade late in paying a "success fee" for helping the company obtain permits for a casino and hotel in Macau. The Hong Kong businessman claims he set up meetings with important Chinese officials, meetings in which Adelson agreed to help defeat a U.S. resolution protesting the awarding of the 2008 Olympics to China in return for help securing the permits. On Friday, China commented that it won the Olympics on its own merits and denied any involvement by the central government in securing those licenses for Adelson. The special administration region's government handled this in an open and transparent way, China said.
News Corp. announced today that it might convert the Fox broadcast network to a subscription model. It battles Aereo Inc., saying the Internet startup has stolen FOX's over-the-air signal. It's been selling it without paying for the rights.
Late in the day, rumors, later confirmed, surfaced that J.C. Penney's (JCP, 15.87, up 0.42 or 2.72 percent) CEO would be replaced. The stock jumped in after-hours to 16.84 as this report was prepared. Before too many assumptions are made about future gains, it's important to note that JCP had a high short float of 30.05 percent. Many shorts were put into a position of needing to cover.
More incidents of bird flu impacted two U.S. companies, but neither suffered today. Yum! Brands (YUM, 67.33, up 0.36 or 0.54 percent) is the owner of KFC and has a presence in China. In China, McDonald's (MCD, 101.50, up 0.08 or 0.08 percent) cut prices on poultry-related items.
Let's look at daily charts. We'll see that although the indices didn't behave quite as predicted in the early morning, most managed to pull out the expected gains by the close.
Those new to my Monday Wraps might find the following two paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.
For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with ovals, usually green for upside and red for downside. Orange ovals are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.
As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher oval, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.
Annotated Daily Chart of the SPX:
Last week, the SPX tested grey channel support and closely approached the mid-March swing low. Friday's quick reversal off the early-morning lows and close well above the middle of the day's range suggested a pop higher this morning. That's what pre-market futures suggested would happen, too.
That's not exactly what actually happened, however. The SPX opened near Friday's close. After a soon-aborted effort to move higher, the SPX began pulling back almost immediately. The pullback never went far, however. The SPX and most other indices soon moved into wait-and-see mode, rising in a tight coil to retest the day's high. When bears could not knock prices back again after big money returned from lunch, bulls or worried shorts took over in the afternoon. Almost two points of the day's gains occurred during the last ten minutes of trading. That late-day push helped close the SPX back above its red 9-ema.
Don't give full credulity to that close over the 9-ema, however, when it's likely that short-covering produced some of those late-day gains. If this single close back above the red 9-ema does prove meaningful and prices stabilize above the 9-ema, the SPX could climb into the next potential resistance zone from about 1571-1587 over the next day or two.
A small drop tomorrow morning that isn't quickly reversed could see the SPX retesting or even falling below the red 9-ema again. If so, the SPX could as easily begin another drop to the next support zone, from about 1529.50-1541.50. It would be nice to able to narrow both listed zones, but both contain numerous prior highs or lows, closes or opens, and potentially important Keltner levels.
If the SPX starts down immediately tomorrow or another day this week and violates the suggested potential support on daily closes, other potential downside targets are marked on the chart in case the SPX should fall through nearest support.
Annotated Daily Chart of the Dow:
The setup at the end of last week was the same for the Dow as for the SPX, except that the Dow showed one strength the SPX didn't: it closed the Friday back at its 9-ema.
The setup suggested a pop higher this morning, whether or not that pop held. Instead, that initial pop never happened, showing that bullish scenarios are not always being fulfilled as readily as they would have been a couple of weeks ago. The Dow dropped straight from the open, but, like other indices, didn't drop far.
If the drop didn't amount to much in number amounts, it perhaps was more significant in Keltner terms. Even with the end-of-day run higher, the Dow barely closed back above its red 9-ema. The Dow now seems to be clinging by its fingernails to that moving average, if a little anthropomorphism can be allowed. Although there of course are no guarantees, that renders the possibility that the Dow could drop to retest the support zone that ranges from about 14330-14430 slightly more likely than it would otherwise have been. That next zone of potential support on daily closes (lowest yellow-orange rectangle) includes Friday's low and many intraday and closing lows throughout March as well as grey-channel support. If the Dow should drop further on daily closes, other potential support zones are marked, including one either side of 14200.
If Alcoa's results or other news should drive the Dow higher, potentially strong resistance begins at about 14550 and stretches up to about 14720.
Annotated Daily Chart of the NDX:
The NDX's recovery off Friday's lows wasn't as strong as the previous two indices', but still the NDX managed a close above the middle of the day's range. It, too, was set up for morning gains. As was true with the other indices, those gains did not materialize right away.
What can be said about the NDX's pattern? Whether you draw the NDX's pattern for this year as an unstable broadening pattern or as a climbing channel, the NDX had been moving down through both those patterns, and today's action offered little clarification as to whether the declines are finished. Today's low again plumbed a rather broad zone of potential support, ranging from about 2730-2775, and today's high did not reach the red 9-ema.
If the NDX sinks again, it's difficult to ascertain one specific level where support might be found within that zone. The NDX could easily sink further into that zone, compressing the lower grey-channel potential support into the green 120-ema. If that support should fail, other potential downside targets are marked.
If as-yet-to-materialize enthusiasm over Alcoa's results or other forces should lift all markets, it's possible that resistance on daily closes might still be found at the red 9-ema. This moving average has not been a strong predictor of NDX behavior over the last months, but there are times, especially during declines, when it is more so. A zoom past that moving average on sustained daily closes might then set a target spanning the zone from the recent 2828.64 high up to about 2865.
Annotated Daily Chart of the RUT:
The RUT's recovery Friday closed that index just a few cents below the day's high. However, that recovery nosed it up to the peach-colored 45-ema, a moving average that has been significant for the RUT over the last few months. Therefore, building a scenario for the RUT's behavior today was always more complicated than for the other indices.
The RUT jumped higher this morning, up to a 38.2 percent retracement of the drop from the 3/28 high into last week's low, but it soon found resistance there and tumbled into negative territory. It spent the middle part of the day climbing in a tight range, chopping back and forth between slightly positive and slightly negative, finally easing back into another test of that 38.2 percent retracement zone.
When big money returned to the table after lunch, a test punch higher wasn't met by selling, so the index started higher again. Any shorts who wanted out of the market were forced to cover. High prices drove the RUT up closer to its red 9-ema and a 50 percent retracement of the drop from the 3/28 high to Friday's low.
The outcome was that the RUT looks slightly more likely to rise all the way into a 9-ema test, at least, than it does to decline, but that's an impression that can be easily reversed by a lower open tomorrow morning. Whatever one thinks of Fibonacci levels, the 50-percent retracement of any move can sometimes prove daunting resistance or support, so even the slight gains needed to bring the index up to the red 9-ema aren't guaranteed. If a lower open should occur and there's not a quick bounce, the RUT might roll lower toward deeper support again. Support on daily closes might be found anywhere from about 909.90-927.00, but if support does not hold in that area, the RUT is vulnerable to a drop to the 880-895 region, where next support might be found.
On a climb, resistance might be found at the red 9-ema. If the RUT can sustain daily closes back above that moving average, it sets a tentative upside target from about 947-961.
Annotated Daily Chart of the Dow Jones Transports:
Friday's $DJT close had shown the support of the 45-ema holding. The next task for those who hoped for a bullish resolution was for the $DJT to challenge and exceed the red 9-ema. Although the $DJT pulled back this morning when other indices did, its pullback was modest. By early afternoon, the $DJT had risen to closely challenge the 9-ema. It could not exceed it on the close, however.
Since this is not a trading vehicle but rather is a bellwether index, I have not marked potential support and resistance. Those who hope for more bullish behavior on the SPX, OEX, and Dow would like to see the $DJT soon maintaining daily closes back above the 9-ema. Bears would like to see it turned back from tests of that moving average.
Tomorrow's Economic and Earnings Releases
This week's important economic events are carried forward from Jim Brown's weekend Wrap.
In addition, FOMC President Ben Bernanke speaks at the Federal Reserve Bank of Atlanta 2013 Financial Markets Conference at 7:15 PM ET tonight. He titled his speech "Maintaining Financial Stability: Holding a Tiger by the Tail." The conference will be in Stone Mountain.
Another potentially market-moving event arrives tonight. China's year-over-year CPI will be announced at 9:30 PM ET.
What about Tomorrow?
Annotated 30-Minute Chart of the SPX:
If the SPX rises tomorrow morning, it will soon face resistance in a several-point-wide zone around 1565.25. Resistance on 30-minute closes may be lurking there. If the SPX can maintain 30-minute closes above it, however, the next potential target zone is marked. Bulls should also be protective of short-term gains as the 1573.66 swing high is retested.
If the SPX pulls back tomorrow, the constellation of converging potential Keltner levels that might provide support on 30-minute closes is marked at the yellow-orange rectangle. This is also today's breakout zone. Bulls want to see any pullbacks find support on 30-minute closes at or above a turning-higher red 9-ema.
If support fails, other potential downside targets are marked.
Annotated 30-Minute Chart of the Dow:
The Dow ended the day with a clear upside target at the lowest green rectangle. However, scanning across the chart shows that the Dow stopped short near Thursday and Friday's swing highs. Much of the target-setting action was produced on the end-of-day bounce, too, and may not be trustworthy. Whether we're in the "Alcoa's reports is a bellwether earnings report" or "Alcoa doesn't really matter any longer" camp, we all know that others will be watching the official opening of earnings season. Shorts may have been induced to cover.
If the Dow does climb, watch for potentially strong resistance on 30-minute closes at that nearest green rectangle. Sustained 30-minute closes above it will set a next target at the highest green rectangle.
If the Dow produces lower prices tomorrow morning and the decline is not quickly reversed, it's possible that the pullback will bring the Dow into a red 9-ema retest. Bulls want to see sustained 30-minute closes above that average. If the 9-ema's support and that shown in the yellow-orange rectangle fail on sustained 30-minute closes, the Dow may target the zone at the highest red rectangle.
Annotated 30-Minute Chart of the NDX:
By the end of the day, the NDX had charged up toward its next Keltner target, a lower Keltner target than the previous two indices were testing at the close. If the NDX rises tomorrow morning, watch for potential resistance on 30-minute closes at the green 120-ema, now near 2790. If the NDX can sustain 30-minute closes above that average, then it might charge up to the next resistance zone near 2800.
If the NDX falls back tomorrow morning, watch for potential support from about 2770-2780. If support there fails, the next potential downside target is marked.
Annotated 30-Minute Chart of the Russell 2000:
Late-day gains zoomed the RUT all the way up to next potentially strong resistance on 30-minute closes. A break above that tomorrow morning, if not quickly reversed, sets a potential upside target currently near 946-947. If the RUT pulls back tomorrow morning, bulls want it to find support on 30-minute closes at the red 9-ema, but at least in the zone near 925. If that should fail on sustained 30-minute closes, the next potential downside target is marked.
The markets did not appear dazzled by Alcoa's earnings report this afternoon, and I noticed several other important stocks easing in after-hours trading after AA's announcement. If markets weren't dazzled, will they at least be reassured that it wasn't worse? We have to wait until tomorrow morning. I discount the late-day pop. I wanted out of my APR monthly RUT butterfly today, locking in the profit there rather than waiting for possible bigger profit amid heightened risk as the April expiration period draws closer and trades become more difficult to manage. Presumably others felt that way today, too, whether they discount AA's bellwether status or not. I wasn't entirely convinced by the late-day buying while remaining grateful that I had exited earlier in the day, before it hit, just in case it presaged another zoom higher.