Neither have they hearts to stay, nor wit enough to run away. --Samuel Butler
We kick off the month of May with the market sitting at an important juncture. We have rallied for about a week following a good earnings report from Apple (AAPL) and even managed to shrug off a barrage of negative economic news. Do we roll back over and test the April lows, or do the bulls continue to regroup and make a run at the highs of a month ago?
The major indices are down from where they were at the end of March, but again, the bears squandered their advantage when they had it. In the early part of earnings season, most of the reports were being sold and it looked like we were going to see a downtrend gain traction, but the good report from AAPL turned the tide, even though AAPL itself hasn't done a thing since its big gap up after the news.
We still have quite a few earnings reports to come, but most of the major ones are finished and we have few obvious catalysts as we move into a weaker time of the year. The big question is whether the market can shrug off poor economic news and European issues and keep pushing higher.
Virtually every economic report recently has missed expectations, yet the market has generally shrugged off the disappointments. Some attribute this indifference to the likelihood that Fed chief Ben Bernanke will roll out another round of QE if things soften too much, but the Fed has been indicating that it may not be so quick to unleash the printing press.
We have the monthly jobs report Friday, which will be of particular importance. Expectations have been coming down so by the time the report hits, we may have a very low bar. But there is no question that few expect to see robust growth.
The biggest positives in this market are more structural than anything else. The straight-up first quarter left too many money managers underinvested and trailing benchmarks. Many market players are fearful of being left out of further upside, and that helps to put a bid under the market. Sentiment is tilted bearish and that gives us the "wall of worry" phenomena, which helps to provide support.
Overall, we are right in the middle of a trading range with good arguments for both bulls and bears. The key to dealing with this is to manage trades closely and see how things develop. The technical support and resistance levels are clear, and traders are going to be piling in one way or the other depending on which is tested first.
There is no reason to be overly bullish or bearish. The market needs to make up its mind about which way to break, and then we can follow and pursue trades more aggressively. It is awfully slow and random, which is a function of indecision, but if we stay vigilant we should see some interesting trading develop.
Overseas action is mixed and we have a mild positive start to the day. The first day of the month tends to be a positive one, but you'll probably be tired of hearing the old adage "sell in May and go away" very quickly.
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