WALL STREET : Pre-opening Outlook

When Technical Resistance and Bullish Seasonality Collide ......
Traders breathed a sigh of relief last week, after an endless gauntlet of employment data came in better than expected. The major market indexes wrapped up their best first quarter in more than a decade, and closed the week comfortably higher -- all in all, more than making up for a flattish month of March. However, it was impossible to ignore the fact that stocks finished Friday on a rather timid note, with bulls tapping the brakes just shy of key technical hurdles. With the second quarter off to an impressive start, ZLBT highlights the critical technical levels to watch for the next few days.

"A few indicators caught our attention this past week which could align nicely for the bulls. For instance, evidence in the options market suggests some hedge funds may be in the early stages of accumulation again.... fear among indexes future players hit a six-month high... the VIX is trading at a very small premium relative to SPX historical volatility... when the VIX reading and SPX historical volatility converge following a period of weakness, such situations usually mark bottoms and precede a period of bullish price action."

Investors last week opted to ignore overseas uncertainty and instead focused on positive domestic news, bidding equities sharply higher for the second consecutive week. Stronger-than-expected employment numbers, a Fed survey indicating easing credit conditions for hedge funds, pension funds and private equity firms; plus continued merger-and-acquisition activity and impressive March auto sales all acted as catalysts to close out March in an impressive fashion and begin the seasonally strong month of April on a positive note.

But by Friday afternoon, equities ran out of steam, as technical-related selling appeared to cap an initially promising day. For example, we have discussed the importance of the 1,333 level on the S&P 500 Index (SPX - 1,332.41), which marks double the March 2009 low. After trading above this level on Friday morning, the index retreated back below it by later that afternoon.

Finally, the Dow Jones Industrial Average (DJIA - 12,376.72) had a battle of its own to fight, as it attempted to break through its 2011 closing high at 12,391, made on Feb. 18. The DJIA actually climbed above 12,400 in late-morning trading on Friday, but quickly retreated back below 12,400 and its 2011 closing high by the close. A move to Dow 13,000 would double the 2009 low.

For the Dow and other major market indexes, important resistance levels lie just overhead that could impact short-term trading patterns. The good news for bulls -- as we have discussed in previous weeks -- is that the sentiment backdrop is one that suggests there is still firepower on the sidelines to drive equities through these critical overhead levels, as selling power may not be as great in reality as it looks in theory on a chart.
If you read the headlines -- which seem to be fairly glum on this market -- you may not realize it, but the SPX just had the best first quarter in over 10 years. The index was up 5.4% through the first three months of 2011, despite March being flat. The table below lists each year since 1975 that the market was up 5% or more in the first quarter. There's nothing too noteworthy about April's average return of 1.55%, because -- as we had always missed some finer details -- April tends to show pretty good returns, anyway.

TECHNICAL ANALYSIS
Dow Jones Industrial Average
The Dow closed higher on Friday and above February's high crossing at 12,391 as it renewed the rally off last June's low. Today's rally was supported by the morning's unemployment report, which fell to 8.8% and an increase in non-farm payrolls increasing by 216,000 jobs. Stochastics and the RSI are overbought but remain bullish signaling that sideways to higher prices are possible near-term. If the Dow extends the aforementioned rally, weekly resistance crossing at 12,767 is the next upside target. Closes below the 20-day moving average crossing at 12,085 are needed to confirm that a short-term top has been posted. First resistance is today's high crossing at 12,419. Second resistance is weekly resistance crossing at 12,767. First support is the 10-day moving average crossing at 12,206. Second support is the 20-day moving average crossing at 12,085.

This Week's Key Events: Bernanke Speech, Fed Minutes on the Docket
Here is a brief list of some of the key events this week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

Monday
Federal Reserve Chairman Ben Bernanke is scheduled to deliver a speech at the Atlanta Fed conference today. Schnitzer Steel (SCHN) will headline a relatively quiet day of earnings reports.
Tuesday
The economic calendar includes the Institute for Supply Management's (ISM) non-manufacturing index for March, as well as the minutes from the latest meeting of the Federal Open Market Committee (FOMC). KB Home (KBH), Layne Christensen (LAYN), and AngioDynamics (ANGO) are expected to report earnings.
Wednesday
Mid-week brings us the usual update on crude inventories, as well as the Chicago Fed's manufacturing index for February. On the earnings front, we'll hear from Monsanto (MON), Immucor (BLUD), and Ruby Tuesday (RT).
Thursday
The day's economic docket includes weekly jobless claims and February's consumer credit report. Quarterly earnings are due out from Constellation Brands (STZ), Pier 1 Imports (PIR), and Rite Aid (RAD).
Friday
The sole economic announcement of note is the government's wholesale inventories report for February, and Blyth Industries (BTH) is the only company on the earnings calendar.

HAPPY TRADING WEEK & GOODLUCK2ALL