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April 10, 2015

Stocks Follow the Numbers to a Rally

By Paul Vigna for First Enercast Financial

Don't follow the money. Follow the numbers. You just need to know which numbers.

The economic numbers have been uniformly weak for three months, with the March jobs report putting a wan bow on the entire soggy package. Profit growth in the first quarter is going to be, well, there isn't going to be any profit growth in the first quarter, at least not for the S&P 500. There may not be any in the second quarter either.

The Fed is still split on when to raise rates, but is keeping June open. "I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting," the Richmond Fed's Jeffrey Lacker said on Friday. Mr. Lacker is a voting member of the FOMC, the rate-setting committee. The market's been leaning toward September, or later, so one might reasonably think, given the market's near obsession with Fed policy, that the market would be concerned by that.

Rather than shrinking under all that, the market has resumed its ascent, and it appears the market's technicals are driving the bus. For the bulk of the past two weeks, the S&P 500 has been sitting under the 2090 level, falling back every time it's approached the mark. On Thursday, it edged past it, and that apparently was enough to embolden the bulls on Friday. The index rose as high as 2101, and is more recently trading at 2099. 
"Having conclusively moved above the 2090 iron ceiling," UBS' Art Cashin wrote in a midday note, "the S&P pauses just below secondary resistance at 2100/2103."

Instinet's Frank Cappelleri is another chart watcher who's been eyeing the 2090 level. "It wasn't the most impressive of showings on Thursday, but by closing within two points of its intra-day high, it was the best all-around day of the week . We've been up near this area before, with the missing ingredient being an upside follow through." That follow through appeared on Friday. But this is more or less the way it's been all year. The index falls, then rises, then falls, then rises again. It's up only 2% through more than three months of trading, which is a stark contrast to the manic buying that is driving up stocks in Asia and Europe.

Now, we don't want to put too much on technical analysis. It matters because trading programs dominate the Street, and what do trading programs rely upon? Numbers. But the numbers go only so far. Despite some recent scaremongering about the machines taking over, Wall Street is still run primarily by humans. Until that changes, greed and fear will continue to be the dominating trading opportunities on the Street.

Courtesy First Enercast Financial (Article Archive Here)

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Item Reviewed: Stocks Follow the Numbers to a Rally Rating: 5 Reviewed By: EconMatters