The market rebounded last week and erased nearly all of this year’s negative move. Although the bulls have yet to take-out important 1335 resistance completely, they defended 1301 on multiple occasions in April and look poised to make higher highs into May. While volume has been missing recently, it did increase last week. And volume levels will need to stay above average if the bullish party is to continue.
The bulls have been assisted in the pursuit of higher highs by another round of record earnings. The free money dolled out by Ben Bernanke has negated bad business decisions of the past and resulted in another quarter of earth-shattering corporate financial results.
Earnings season did not start out well however. Alcoa (NYSE: AA) JPMorgan (NYSE: JPM) and Bank of America (NYSE: BAC) posted good but not impressive results during the first week of earnings season.
But last week, the second week of earnings season, technology companies like Apple (Nasdaq: AAPL) and IBM (NYSE: IBM) along with other sector names such as McDonalds (NYSE: MCD) Newmont Mining (NYSE: NEM) and Verizon (NYSE: VZ) reported huge profits.
The positive earnings were fantastic to see last week but earnings season is far from over. And economic activity picks up this week so the bulls need to continue to show strength. Every day this week has a market-moving economic announcement. Today is new home sales, Tuesday has CaseShiller data, Wednesday has the FOMC conclusion in the afternoon, Thursday has GDP and lastly, Friday has personal spending. Wednesday is easily the biggest day in news this week with durable goods for March announced before the market opens and the potential conclusion of QE2 in the afternoon.
Although I gushed over earnings last week, that gain was most certainly assisted by another big decline in the dollar, which is now down over 2% in April and 7% for the year. Over the past several months I maintained a bearish near term and bullish long term forecast for the dollar.
While I still have that outlook, the dollar is literally at a must hold price. In order for my long term bullish call to play out, the dollar will need to hold the $75 area. Friday, the dollar indexed closed near $74.11 and it breached $74.23 (the lows from 2009) Thursday. All time lows for the dollar were recorded in 2008 at $70.70, which is the next stop if last weeks low of $73.74 can’t hold.
The misery of the dollar has boosted, or at minimum, provided stability to the fragile market in April and for most of 2011. The decline of the dollar will likely continue as long as the U.S. government supports loose policy and deficit spending, especially at a time when most nations operate with austerity and fiscal prudence. But that may change this Wednesday.