Yesterday, the market pulled back and it never recovered. The volume was light and I would not read too much into the move. Passover (Tuesday/Wednesday) and Good Friday will impact trading activity. Light volume favors the upside.
Mutual funds have underperformed the stock market and managers will buy stocks before the quarter ends (window dressing). They never got the 5% pullback they were looking for and they will get more anxious with each passing day.
The economic news is light this week. Durable goods orders exceeded estimates is morning and it rose to 5.7. Initial jobless claims and Chicago PMI will be released Thursday.
The action will pick up next week. ISM services, ADP, initial claims and the Unemployment Report will be released. Job growth has not been robust, but it is improving. This trend might spark a breakout.
Earnings season is right around the corner (April 8th) and the results should be good. Revenue growth will be flat, but profit margins will be healthy. Companies are lean and mean and any uptick in demand will go right to the bottom line. At a forward P/E of 14, stocks are attractively valued.
The yield on 10-year US Treasuries is lower than the dividend yield on the S&P 500. Corporate balance sheets have never been stronger and cash flows are at record levels. Asset Managers want to buy stocks.
I still believe the market has one good push left in it. After the first few weeks of earnings season, we might see a little profit taking and it would be wise to head to the sidelines.
I currently have 60% of my desired call position. I will add this week if I see strength. If not, I will add to positions early next week. We might trade in a narrow range this week and I want to avoid time decay.
The market feels very dull today and I don’t believe we will move much in either direction. Look for the bid to strengthen into the weekend.