Stocks just delivered one of their best weekly gains of the year with a four-day surge off their April lows. Investors ignored growing tensions between Ukraine and Russia although the threat of strife between the two countries did represent geopolitical risk over the three-day weekend. Overall the market is digesting Q1 earnings results well with many companies beating lowered expectations. The biotech stocks, semiconductors, and transportation stocks all led the rebound with +3% gains for the week. The S&P 500 added +2.7% while the NASDAQ recouped +2.39% for the week.

Economic Data

The Philadelphia Federal Reserve Manufacturing Survey for April improved from 9.0 in March to 16.6 in April. This is the highest reading since September and the second big monthly gain in a row. February's reading was -6.3. The New York Empire State Manufacturing Survey for April came in at 1.3. That is a decline from March's 5.6 and economists had been expecting a gain.

Housing starts rose +2.4% in March to an annual pace of 946,000. That's up from February's 920K pace. Unfortunately they remain below the 1 million unit pace set in Q4 2013. The National Association of Home Builders monthly sentiment survey was disappointing with a gain from 46 to 47. Economists were expecting the NAHB index to rise to 50. Readings under 50 suggest builders believe conditions to be poor.

The U.S. industrial production data increase +0.7% in March. That follows a +1.2% gain in February. The Consumer Price Index (CPI) rose +0.2% in March following a +0.1% gain in February. Meanwhile U.S. retail sales in March came in slightly ahead of estimates with a +1.1% gain. February's retail sales reading was adjusted from +0.3% to +0.7%.

Overseas Data

It was a relatively quiet week for economic data overseas. Germany said their Producer Price Index, a look at inflation at the wholesale level, dropped -0.3% month over month. Yet another signal suggest Europe is facing the specter of deflation. Most European markets will be closed on Monday for the Easter holiday.

Last week China said its foreign direct investment dropped -1.47% in March but still managed a +5.5% growth in the first quarter of 2014. That's down from a pace of +10.4% in the first two months of the year. The bigger headline was China's Q1 GDP estimate. The country's target is +7.5% annualized GDP growth but there has been a parade of disappointing economic data out of China the last few months. Expectations were negative. The communist country said its quarter-over-quarter growth was +1.4%, just under expectations. The year-over-year growth was +7.4%, which was better than many had feared.

Ukraine-Russian Conflict

The Ukraine government had been patiently dealing with pro-Russian separatists who had taken over government buildings and an airport in several Eastern Ukrainian towns. The challenge was to avoid an armed conflict so as not to give Russia any excuse to invade. There were a few small skirmishes between Ukraine forces and the militants but the equity markets did not react.

On Thursday last week there were several headlines surrounding a big peace initiative designed to "de-escalate" the situation. Everyone was supposed to stand down and avoid any new violence. Yet just hours after Russia, Ukraine, the EU, and the United States announced this deal there were signs that neither Russia or Ukraine planned to abide by it. In a separate event Russian President Putin admitted that the unmarked troops that invaded Crimea were indeed Russian. Yet he denies that the militants currently occupying government buildings in Eastern Ukraine are also Russian soldiers.

NATO has decided to send five warships to the Baltic Sea, which seems a strange way to "de-escalate" the situation. If we see Russian tanks crossing the Ukrainian border it could spark a significant sell-off in stocks.

Major Indices:

A week ago the S&P 500 index had pierced support at its 100-dma and the 1820 level. Here we are a week later and the index has produced a 50-point bounce, or a +2.7% gain for the week. Year to date the S&P 500 is up +0.89%. I am concerned that this is just a bounce. Until we see the S&P 500 actually close at new highs the risk is the market rolls over in the 1880-1900 zone.

If stocks do manage to keep rising then the 1800 and 1900 levels are potential resistance. On the other hand if stocks reverse lower again then 1800 and the 200-dma near 1770 could be key support levels to watch.

chart of the S&P 500 index:

The NASDAQ composite also managed four days of gains last week but it was a bumpy ride. Tuesday's session dropped to new two-month lows and tagged the 3950 area and technical support at the simple and exponential 200-dma(s) before bouncing. The NASDAQ ended the holiday-shortened week with a +2.39% gain but it's still down -1.9% for the year.

The intraday chart looks a little ominous with the NASDAQ's bounce stalling at a new trend line of lower highs. The path of least resistance appears to be down. Now every level of broken support is new overhead resistance. I would not be surprised to see the NASDAQ struggle with the 50-dma and 100-dma as resistance.

It is worth noting that on an intraday basis the NASDAQ has seen a drop from 4,371 to 3,946 or a -9.7% correction from its March highs. Maybe, just maybe, that has satisfied the market's need for a correction but I wouldn't bet on it. "V" shaped bottoms are not that common.

chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index:

It was a volatile week for the Russell 2000 index as well. It pierced support near 1100 and its 200-dma before bouncing to a +2.38% gain on the week. Year to date the $RUT is down -2.2%. Just like the NASDAQ the $RUT now faces new resistance at every level of broken support. Also like the NASDAQ the $RUT's bounce has stalled at a new trend line of lower highs.

chart of the Russell 2000 index

Intraday chart of the Russell 2000 index

Economic Data & Event Calendar

This week is kind of quiet for economic data. We will hear from the Chicago, Richmond, and Kansas City federal reserve banks and their regional surveys. Q1 earnings will overshadow most of these reports. We're about to face one of the busiest week of the reporting season with hundreds of companies reporting results. Thus far only 10% of the S&P 500 companies have reported. About 57% have beaten Wall Street's lowered estimates.

Don't forget that the next FOMC meeting is April 30th.

Economic and Event Calendar

- Monday, April 21 -
Chicago Federal Reserve National Activity index
Moody's Business confidence

- Tuesday, April 22 -
China HSBC manufacturing PMI data
Existing home sales for March
Richmond Federal Reserve manufacturing survey

- Wednesday, April 23 -
New home sales for March
Eurozone PMI data

- Thursday, April 24 -
Weekly Initial Jobless Claims
Durable Goods Orders
Kansas City Federal Reserve manufacturing survey

- Friday, April 25 -
University of Michigan Consumer Sentiment (final reading for April)

Additional Events to be aware of:

April 30th - FOMC interest rate decision and outlook

Looking Ahead:

Are investors nervous about the stock market? If they are the volatility index (VIX) does not show it. The VIX reversed with a drop back toward its recent lows. I heard one market pundit suggest the VIX, as an indicator of investor fear, is broken.

Most of us have heard of the "sell in May and go away" phenomenon. That's the seasonal pattern of selling in May to avoid the worst six months of the year. This year a few advisors have suggested their clients sell in April to beat the rush. Mid-term election years tend to be more volatile, especially in the summer just ahead of the election.

If you are having a rough year in the market you are not alone. New research shows that hedge funds are having their worst start to the year since 2008.

Last week market legend Art Cashin said we should be watching the 10-year U.S. treasury bond yields. These yields have been churning sideways in the 2.60% to 2.80% range for the last several weeks. A breakdown below 2.6% yields could signal serious trouble as money flows into the "safety" of bonds. The February low was 2.579%. 10-year yields ended this week at 2.72%.

chart of the U.S. 10-year bond yields

The S&P 500 index has gone more than 900 days without a -10% correction. That's more than unusual. A normal market sees a 10% pullback about twice a year. Since 1900 the average bull market died at 3.5 years. Since the end of World War II that has grown to 4.2 years. Our current bull market is over 5 years old and currently the second longest bull market in the last 80 years. These numbers do not mean bull market is going to end soon but just like a human body the market is probably growing more fragile as it ages.

On a short-term basis I would not be surprised to see the NASDAQ and the Russell 2000 roll over and retest their April lows. If we see these indices bounce there then it would look like a bullish double bottom and offer more confidence for investors.