Technical Tuesday – Holding the Line on Light Volume

We closed April positive!

That's right, the Dow finished April with a 1.59 point gain, making 7 consecutive monthly advances.  April is, historically, the Dow's best performing month so we can take those 1.59 points and put them on the refrigerator and maybe take the Dow out for ice cream later to celebrate…

The Russell can't come though, it fell 1.1% yesterday and, unlike the Dow, it wasn't jammed up 30 points into the close to maintain a winning streak that would impress all the people who don't bother to look behind the headlines.  The Russell did, however, manage to hold their 50 dma at 817 – or at least they only failed it by a little and, in a World that celebrates mediocrity – that's good enough for the MSM to crow about, isn't it?  

The NYSE is another broad index that was saved by it's 50 dma with 1,856 stocks in the index declining and 1,190 advancing on a day they fell just 0.4%.  That didn't stop 104 out of 2,627 stocks on the full Nasdaq from making new highs – defying gravity while AAPL took a little 3% dive on the day.  The S&P also fell 0.4% but the defensive dividend paying stocks in that index matched their 12-year highs – levels we haven't seen since just before the great crashes of 2,000 and 2008 – so all must be well!  

It's an interesting take on a defensive move as the actual Dividend Pay-Out Ratio has never been lower, barely holding 27 from a high of 63 in 2008, the last time the dividend-payers were anywhere near this popular.  What's going on is the S&P 500 have a lot of cash on their books and, just like the Fed, investors are sitting around like trained seals begging for MORE FREE MONEY fish – maybe if they learn to blow horns with their mouths?  

Stocks pay dividends, in part, to attract investors.  That's not going to happen in this market as you can't keep retail investors away if you beat them with a stick, can you?  No amount of bad data or poor earnings will scare investors out of owning stock – the retail ones anyway – as the professional money is bailing out in droves.  In fact, CFTC data shows the small speculators are the ONLY net longs in the S&P (/ES) Futures contracts with the commercials and large specs on the other side of the trade. 

As Peter Brandt notes: "In the futures market typically the wisest bet is against the small or unreportable speculator (as opposed to the large reportable spec/futures funds and commercial interests).  So, the gun fight at the “CME coral” is between the small spec on one end of the street and the large spec along with the commercial at the end of the street. In my view, this is like a guy with a knife facing off against a 50-caliber machine gun."  The last 3 times small speculators have been carrying the net longs preceded our last 3 major market corrections.  

Brandt concludes that "ownership in the hands of the small spec is immediatley bearish. The message is that if prices turn down with the small spec in control of the long positions, look out below."  Doesn't that make you feel better?  

Hopefully our some market data will make us feel better this morning and, if not – then maybe it will be so bad that it will be good because – as the conventional market "wisdom" goes – the worse things get the more likely it is that Ben Bernanke will save us – again.  It's a brilliant plan – completely flawless and without any possibility of failure.  No wonder so many stocks are trading at their all-time highs despite earning LESS than they did 5 years ago and despite horrific unemployment and, even if they do have a job – Joe Stiglitz points out that a full-time worker in the US is worse off today than he or she was 44 years ago.

"When you look at America, you have to concede that we have failed. Most Americans today are worse off than they were fifteen years ago. A full-time worker in the U.S. is worse off today than he or she was 44 years ago. That is astounding – half a century of stagnation. The economic system is not delivering. It does not matter whether a few people at the top benefitted tremendously – when the majority of citizens are not better off, the economic system is not working." 

Or, as Cramer would sum up: BUYBUYBUY!!!  And we're off to a great start with a 0.3% drop in  Retail Store Sales and Redbook Chain Store Sales fell from 2.9% to 2.7% but, unfortunately, that's not really bad enough for Uncle Ben to come bail us out and the Futures are taking a little dip at the 8:55 am release.  Don't worry though, we still have the ISM Report at 10 along with Factory Orders and Construction Spending – maybe they will be terrible so we can rally to new highs.

We also get Fed speak from Williams (11), Evans (12:30) and Plosser (2pm) to tell us what to think today.  In other data that we'll be ignoring, Germany had a 1% quarterly decline in Retail Sales, with just a disappointing 0.8% bounce in March after a 1% decline in January and a 0.9% decline in February.  

The quarterly decline does not bode well for the private consumption component of first quarter gross domestic product, the broadest measure of an economy's output, wrote Berenberg economist Christian Schulz in a note after the release of the data.  "Against the background of unemployment at its lowest since reunification, falling headline inflation rates and a pick-up in wage growth, German consumption remains relatively weak," he added, stressing that it is rising fuel prices, not the euro-zone crisis that is likely affecting consumption.

Economorons were projecting that the UK, who's economy is back in recession, would have a PMI of 52 and they came in this morning with just 50.5 but don't worry – like the US, Manufacturing in the UK is just 15% of their economy these days so what's another 3% drop between friends?  "Stop trying to make things, you fat-fingered idiots" said some guy in China…

"A sharp decline in export demand has led to a slowdown in U.K. manufacturing growth, placing the sector in a more delicate position compared to the start of the year," said David Noble, chief executive officer at the CIPS.  "Although still in positive territory, manufacturers reported a slowdown in activity, characteristic of continued problems and poorer consumer confidence across the euro zone," he said.

The details of the survey show that export orders fell at the sharpest pace since May 2009, with the decline coming not only from the euro zone, but also from the U.S. and Asia. And while input prices rose at a slower pace than in March, firms increased their output prices so consumers bore the brunt of much of the continuing rise in fuel prices. 

BUYBUYBUY!!!

This evening we'll get more PMI data from CHINA! with the HSBC Manufacturing PMI but how can it matter if it's CHINA!  Even P. F. Chang's CHINA! Bistron (PFCB) is up 30% this morning on news they are to be taken private.  

Tomorrow we'll get EU PMI and Unemployment and Spain may crack that magical 25% mark ahead of Greece – quite an achievement for a country no one is worried about!  No one is unemployed in Iceland because they told their creditors to shove it – a very wise move it turns out….  We'll get ADP numbers tomorrow but our Big Kahuna, the NFP Report, is Friday and, if we're very lucky, it will be a huge disappointment and we can whip the markets into another buying frenzy in anticipation of MORE FREE MONEY!

I'd say be careful out there but, really, what's the point?  

PS – Congrats to our CHK players as it took even less time than we thought for the company to straighten out their nonsense!  Our CHK trade idea from the April 19th morning post was:  

I do like selling the CHK May $18 puts for $1.30 and buying the May $15/18 bull call spread for $2 for net .70 on the $3 spread that's $2.65 in the money. 

Sadly, we only did 3 of them in our virtual $25,000 Portfolio but the net $210 purchase is well on track for the full $910 return on the 18th – a nice 328% return in 4 weeks – aren't options fun?