Last week the S&P futures were down -20 when the newsletter was published.

What a difference a week makes. The futures are slightly positive and Washington did not self destruct after the health care vote was cancelled. The opening drop on Monday was bought and all the indexes posted gains for the week. The small caps posted five consecutive days of gains in what appeared to be window dressing rotation out of some big caps so portfolio managers could appear to be broadly invested at the end of the quarter.

The worry for this week is whether or not there is a big flush from window undressing on Monday/Tuesday. Personally, I think any dip will be bought.

We are headed into what is shaping up to be a strong earnings quarter with nearly 10% earnings growth. That is the strongest growth since 2011 and there has been a lack of any material earnings warnings. With earnings officially starting on the 13th when Citi, JP Morgan and Wells Fargo report, there could be enough pent up excitement left in the market to hold our gains until those earnings.

Unfortunately, in normal years the week after April 15th is typically rocky as traders extract money to pay their tax bills. This year we have an added problem with Congress going back to work on the 24th and government funding expiring on the 28th. There will be some massive fights both bipartisan and partisan over what to fund. They also have to do something about the debt ceiling, which expired several weeks ago. They cannot add a few hundred billion to the debt when the ceiling is locked at the current level. There will be a war the last week of April unless I am terribly mistaken.

The S&P closed just over prior support at 2,360 and we need to hold that level early in the week if there is any hope of moving higher. There is additional support at 2,350 and we could take a step back before taking another running jump forward but I would rather not give up any ground. The dip buyers are still alive and well but they can also read the calendar and know what is coming.

The Dow remains the weakest index with solid resistance at 20,750 and secondary resistance at 20,800. The dip on Monday tested converging uptrend support at 20,500 and that level held. That gives us a kind of worst-case level if the market heads south early in the week. The path higher would be classic stair step resistance.

Portfolio managers perfectly handled the Nasdaq and pinned the index almost exactly to its highs for the end of the quarter. The index set a new high on Thursday at 5,914 and only gave back 2 points on Friday and that was in the last ten minutes of trading as a few investors tried to jump in front of any window undressing on Monday.

The Nasdaq and the Russell 2000 will be the indexes to watch to determine the strength of any undressing on Monday. Both rallied right to resistance and stopped.

The economic calendar is busy and this is the week for the payroll reports. These reports will monopolize the headlines on Wednesday and Friday. The Manufacturing ISM on Monday and the FOMC minutes on Wednesday will be the next most important events.

I would like to think investors will be excited about the coming earnings cycle and there will not be a flush early in the week. Unfortunately, what I think never seems to matter to the market. We are overly long and I tightened up a few stop losses. I would rather not stop out if possible but that is preferable to giving back all our gains. As we get closer to April 15th I will tighten the stops some more.

One problem with very optimistic earnings estimates is that it is hard for everyone to beat their numbers. With estimates at 10% a 7% rate is a miss even though it is still a good quarter. I hope investors understand that and hang on for the ride.

We have not yet seen that 3% to 5% correction everyone is expecting and we do not have to have a headline for it to occur. We need to be watchful and utilize it as a buying opportunity if it appears.

I am very thankful the futures are slightly positive and not down -20 points again this week.

Jim Brown

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