U.S. equity markets started off the week on a mixed note as most investors stayed on the sidelines waiting for earnings season to begin after the bell. The Dow managed to squeak by with a one point gain although the Nasdaq and S&P 500 declined on the day, both slumping by 0.3%. Commodity indexes had an even more difficult time as energy products declined sharply off their multi-month highs, with WTI Crude tumbling by 3.3% in the session and Brent Crude falling by 2.4%. Gold saw some weakness as well with the yellow metal falling by 0.7% in Monday trading as appeal for the safe haven declined modestly to start the week. This came after the U.S. dollar index rose by roughly 0.3% on the day, helping to push the beaten down greenback back above the $75 mark.

One of the biggest winners in the ETFdb 60 during today’s session

Perhaps an interim top in Crude as prices are down over 4% today with the front month trading back near $109/barrel. We expect to see some downside follow through in tomorrow’s session and have a first target at the 20 day MA, about $3 from current pricing. That should equate to a 15-20 correction in the distillates as well. In our opinion natural gas is a buy…we’re suggesting July futures or July bull call spreads. We feel there is roughly 20 cents of risk while we see 40 cents of potential profit…trade accordingly. The indices have lost ground for the last three sessions but there has been very little downside movement. We continue to like scaling into bearish plays as we feel the sentiment has become far too bullish. We anticipate a 3-5% correction is around the corner. Shorts in the Aussie are far from out of the woods as

4:14 PM, Apr 11, 2011 --

• NYSE down 38.17 (-0.5%) to 8,445.77
• DJIA up 1.06 (+0.01%) to 12,381
• S&P 500 down 3 (-0.3%) to 1,324
• Nasdaq down 8.9 (-0.3%) to 2,772

GLOBAL SENTIMENT

• Hang Seng down 0.38%
• Nikkei down 0.5%
• FTSE down 0.04%

UPSIDE MOVERS

(+) LVLT buying Global Crossing.

(+) GLBC sold for $23.04 a share.

(+) AMMD sold to Endo Pharma for $30 a share.

(+) TYC reportedly shown bid interest.

(+) AA gaining ahead of earnings

Sentiment

Stocks are trading mixed on a relatively slow news day Monday. With no economic data or earnings of importance, some of the early focus was on deal news after Endo Pharmaceuticals bid for American Medical Systems and Level 3 said it was buying Global Crossing. The Dow Jones Industrial Average opened steady. However, a modest wave of selling pressure surfaced mid-morning and both the Dow and NASDAQ were in the red at midday. The tone of trading then took a wait-and-see attitude ahead of earnings from Alcoa (AA). The aluminum maker and component of the Dow unofficially starts the first quarter earnings-reporting season after the closing bell. The earnings calendar is relatively light until next week, however, and then investors will digest a flood of reports in the weeks that followed. Some pre-earnings jitters might be setting in. The Dow Jones Industrial Average is down 15 points and the

Larry Swedroe was interviewed at Seeking Alpha and as always had some interesting things to say. I generally disagree with him on most things but he is usually interesting. Swedroe is an index investor who favors DFA funds (in many instances anyway) and does not think that any real value can be added with analysis in the context of making active decisions.

There are several points made in the interview that while they can be correct do not have to be universally correct, which calls for a little more detail for people to decide what is better for them based on both sides of these issues.

In pointing out the potential folly in economic forecasting, he notes that a year or so ago, the chief economist from Goldman Sachs said the biggest risk to the economy was deflation while the chief economist from Morgan Stanley was more worried about inflation.

This analysis by CitiGroup highlights the correlation between earnings and equity markets. Citi claims that equities begin to discount the potential for higher earnings well in advance of the actual trough in EPS. This was most visible in my Expectation Ratio which turned sharply north in early 2009 when I stated:

The indicator has only just recently become positive again which is telling me that analysts are finally beginning to cut their estimates to realistic levels. The indicator was a little early to the party in 2007 and I presume it will be early again in forecasting a recovery, however, it is a good sign that now is a time when you might want to be dipping your toe in the waters. If you’re young and have a long time horizon you certainly want to be adding to positions.

Citi is using a similar methodology to highlight their expectations for

Publishing Note: Dave has an early committment this morning, but we've got you covered on the important news, happenings, and market-drivers in his absence.

The stock market finished lower on Friday as volatility struck in the final two hours of the session and the dip-buyers decided to take the day off. The primary drivers of the action included worries over what appeared at the time to be a looming government shutdown, some more hawkish commentary out of Fed governors, trepidation in front of the upcoming earnings season, and oil prices surging to new highs.

The trend in the market over the past few months has been for traders to shake off any and all bad news as new money has consistently flowed into the market. This has kept the bears largely on the sidelines and the bulls in charge. However, given the uncertainty over the potential of a government shutdown,

• Endo to buy American Medical for $2.6B. Endo Pharmaceuticals (ENDP) will acquire American Medical Systems (AMMD), a urological medical devices supplier, for about $2.6B in cash to strengthen its core urology franchise. Endo will pay $30 a share for American Medical, a premium of about 29% to the stock's close on Friday. Endo will also assume $312M of American Medical's debt.
• NYSE says auf wiedersehen to Nasdaq-ICE bid. Sources say Nasdaq (NDAQ) and ICE (ICE) are set to lobby NYSE Euronext's (NYX) shareholders, after the latter yesterday rejected Nasdaq and ICE's joint $11.3B takeover offer. NYSE reaffirmed its commitment to a $9.7B merger with Deutsche Boerse (DBOEY.PK), criticizing the Nasdaq bid as one with an 'unacceptable execution risk.' Breaking up NYSE Euronext, creating a high debt burden and 'destroying invaluable human capital' would be a 'strategic mistake,' NYSE said. However, the exchange had to take calls from angry investors following

TWO roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

– Robert Frost

“I shall be

After weeks of foreign crises, speculation about the Fed, and political posturing about a government shutdown, it's time for some real data. Regular readers know that when I talk about "fundamentals" I mean earnings, interest rates, and risk. I seek to measure each.

Getting your share of corporate earnings, via price appreciation or dividends, is the main reason to invest in stocks. The two-year rally has been powered by increasing earnings prospects and low interest rates. If you want to understand earnings, you need to look ahead. My recommendation? Watch the one-year forward earnings forecasts.

This was the topic for what I felt was my most important article last year. I don't think I can improve on my earnings preview six months ago:

As we embark on a new earnings season, a consideration of how we think about earnings may be especially helpful.

As background, here are two elements of

Last week we saw significant movement in the financial markets, much of it disconcerting. After a long string of mostly bullish weekly outlooks, we're turning more cautious for the coming week, as first quarter earnings reports come in. This should be an interesting period in the markets. First, let's review where we've just been.

Last Week in Review

Stocks: The major US indexes were flat to slightly off for the week, with a few of them finishing on distinctly weak notes - most notably the Russell 2000. S&P sectors showed a defensive look, with most losing ground on the week and consumer staples out in the lead. The industrials were particularly soft, perhaps on concerns about energy prices (many investors don't realize there is considerable overlap between the S&P industrials and the Dow transports). Foreign stock markets for the most part were more robust, except Japan, which understandably continues to

PRIOR WEEK PRIME MARKET DRIVERS

If I had to sum up the key market drivers of the April 4-8 in one sentence: Inflation concerns were the common denominator that explains the unusual lack of correlation between financial markets we saw this past week:

• Weakness in stocks, yet…
• Strength in higher yielding risk currencies
• Strength in commodities

Typically, global stock indexes move in the same direction as other risk assets. Indeed, they often lead these other asset markets higher or lower simply because stocks are considered THE primary indicator of risk appetite.

But not this past week of April 11-14. Why? Inflation fears.

• Stocks Were Flat-To- Negative: Inflation is bad for stocks, and also caused rising rate hike hopes that boosted the EUR, GBP despite poor fundamentals.

• Yet Commodities Were Strong: That explains the flat stock performance. Inflation concerns would also explain the strength of commodity prices (though loss of Japan

Inflation and the Portuguese bailout will be the main themes of the week ahead which will bring the main gauges of inflationary pressures from the U.K., the Euro-zone, China and the United States.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Apr. 12, 4:30 am, ET.

Inflation in the U.K. is expected to remain stubbornly above the Bank of England’s 3.0% ceiling for another month with consumer prices forecast to increase by 4.4% y/y in March, same as the 4.4% y/y reading in February.

2. EUR- Germany ZEW Economic Sentiment Index, a leading indicator of economic conditions and business expectations in the Euro-zone’s largest economy, Tues., Apr. 12, 5:00 am, ET.

The consensus

Thanks to high oil prices and fears over a government shutdown, investors sold off U.S. equities across the board to close out the week. The Dow finished down by 0.2% while the broader indexes posted more significant losses of 0.6% for the Nasdaq and 0.4% for the S&P 500. Commodity markets, on the other hand, continued their recent surge thanks to a weak dollar which was likely caused by investor worries over a prolonged government shutdown. Gold finished at yet another record, gaining $17/oz., while silver finished the day above the $40 level - a multi-decade record for the commodity. This surge in commodities came after traders fled the U.S. dollar in droves ahead of the possible federal government shutdown at midnight tonight. T-Bills fell across the board while the greenback lost more than one cent against the euro in Friday trading as traders continued to jump to precious metals

4:24 PM, Apr 8, 2011 --

• NYSE down 5.39 (-0.1%) to 8,483.94
• DJIA down 29.44 (-0.2%) to 12,380
• S&P 500 down 5.34 (-0.4%) to 1,328
• Nasdaq down 15.73 (-0.6%) to 2,780

GLOBAL SENTIMENT

• Hang Seng up 0.47%
• Nikkei up 1.85%
• FTSE down 0.81%

UPSIDE MOVERS

(+) EXPE splitting in two publicly traded companies.

(+) STX continues evening gain that followed revenue figures, reinstated dividend.

(+) NXPI subject of takeover speculation.

(+) CFW gains as drillers remain active.

(+) LPSN added to S&P SmallCap 600.

(+) LLNW started with Buy rating.

(+) BYI downgraded.

(+) JEF announces stock offering.

DOWNSIDE MOVERS

(-/+) ARR to sell shares.

(-) HERO continues evening drop that followed SEC subpoena.

(-) SGMO announces stock offering.

(-) CLX downgraded.

(-) SPR shareholders selling stock.

(-) COST downgraded.

(-) AIS says NDA for Anturol gel accepted for review.

MARKET DIRECTION

Stocks ended lower after a mixed session. For

The inverse relationship in the dollar and commodities was very evident this week, so keep it on your radar.

On the week, Crude appreciated just over 4% taking prices in the front month near $113/barrel. Very impressive move for the bulls, but perhaps more stunning was the ascent of the distillates, with RBOB up 3.5% and heating oil higher by nearly 6%. My question is: At what price we will see demand destruction? We would not rule out a 3-5% correction, so do not get too long in the tooth. Natural gas has finished lower for six sessions in a row, but the 11% plus correction should be used as a buying opportunity. We’re suggesting purchasing July 50 cent call spreads and on signs of an interim bottom we will be buying June futures for clients. The indices should finish flat on the week but stiff resistance appears to be

Tempur-Pedic International, Inc. (TPX) – The maker of premium mattresses and pillows popped up on our scanners at the start of the trading session with options activity that’s anything but sleepy. Shares in Tempur-Pedic International jumped 17.6% this morning to secure an intraday- and new all-time high of $59.98 after the company raised its full-year guidance and said it expects to report strong first-quarter results in its announcement after the close on April 20, 2010. The company is expecting to earn $2.80 to $2.95 a share on sales of $1.31 to $1.36 billion for the full year, which is far greater than the average analyst estimate of $2.72 a share on revenue of $1.26 billion.

Fresh bullish positions were initiated at the April $60 strike, where more than 2,200 calls changed hands on previously existing open interest of just eight contracts. It looks like the majority of these calls were

A growing wariness has crept up behind bond traders to cause rising yield curves to steepen along the way. The dollar has broken to its weakest since December 2009, broadening the appeal of inflation hedges found in commodities and elevating demand when supply is already short. Some central banks have already taken steps to prevent inflationary pressures from building by tightening the monetary belt. Dollar weakness is exacerbating the debate at the Federal Reserve over whether policy stimulus remains justified while bloating the prospects for inflation down the road. Investors are starting to sense this is not a good menu for fixed income.

Eurodollar futures – The yield on benchmark government debt has risen by 45 basis points in less than a month. Admittedly rates have surged from panic-induced lows relating to Japanese events, but the last 15 basis points have come during April. This third weekly loss for treasury

So far this year, commodity prices have been very kind to investors who have reaped the benefits of supply issues, weather and political turmoil, pushing a variety of products to higher prices. This boom has been especially favorable to commodity-intensive economies around the world, be it Australia, Russia or closer to home, Canada. America’s neighbor to the North, is one of the biggest producers of a variety of products ranging from oil to wheat, and thanks to its relatively small population, the export dollars per capita have provided a huge boost to the country’s overall economy. Still, questions remain over how this boom in the agricultural and petroleum sectors can carry over into the jobs market in order to help the nation slash its unemployment rate. Fortunately, investors will get some insight on this problem later today when Canada releases its monthly unemployment report.

In the report, Canada is expected