This Week: Rally Gets a Credibility Check

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The Week Ahead

This week appears pivotal in testing this rally's conviction. After rising more than 20% this month, investors finally expressed buyers' remorse last Friday, and with the Labor Department's Employment Report due this week, bad memories of months past have resurfaced.

As far as unemployment expectations go, economists are unanimous - it will rise again this month. All the evidence points toward that same conclusion, given the steady growth in the level of insured unemployed seen in the weekly jobless claims data. New claims have not given ground either, so the unemployment rate seems poised to jump sharply again for March. Finally, while earnings season is still a week away, whispers are growing louder on the street of an impending massive and broad reaching miss in store. Still, remember, the news of solid banking figures for this quarter is what got this party started, the "Three Kings Rally," as I've dubbed it.

The demons of the past quelled buyers' fire on Friday, when the Personal Income and Outlays data offered a price index on the rise. Demons of the present threaten unemployment will remain troublesome. Meanwhile, the G-20 convenes in London, in the midst of global protests and a recently heightened state of terror alert for the U.K. (not specific to the meeting). The Europeans are cracking under the pressure of varied national conditions, and the Chinese are pushing for a greater role in world affairs.

While all this is occurring, North Korea prepares a rocket launch that Japan assures will be shot out of the sky. In Afghanistan, al-Qaeda must be feeling the heat, with new U.S. troops on the way and a desperate Pakistani government willing to oblige in exchange for some help in keeping its own government in place. AQ has already lashed out, reportedly bombing a mosque that sat on a new supply route agreed upon by the Pakistani government and United States.

Yes, it seems there will be a significant test of this short bull's conviction this week (having risen over 20%, it classifies as a bull market). We suspect the bulls will cave, at least after March 31st passes and portfolio positions are booked for investor reporting. Nobody wants to look like they've been in cash through this March rally, and so "reverse window dressing" has very likely taken place (I have to credit Kopin Tan of Barron's for bringing this to my attention).

Monday

Speaking of credibility, The Arab League and its usefulness is under intense pressure from the populace of many of it member states. The Israeli punishment of Gaza met with lip service from the League, and so the average man on the Middle Eastern street is wondering what the group does then anyway.

Feeling the heat of America's frustration, President Obama had good reason to bring pain and a message to General Motors (NYSE: GM) on Monday. With the company still begging for dollars, somebody's head had to roll, and it was CEO Rick Wagoner who took the blow. The Administration was reportedly not satisfied with the degree of change at GM and Chrysler, nor with their plans moving forward. Ever mindful of a growing frustration among the citizens of this blue collar country, the Administration had to act with force.

Farm Prices are due for report at 3:00 PM, offering insight into changes in crop and protein price change. Monday's earnings schedule highlights news from Arotech Corp. (ARTX), Cal-Maine Foods (CALM), China Petroleum and Chemical (SNP), Community Bankers Trust (BTC), Dover Saddlery (DOVR), Entera Energy Trust (ENT), Entertainment Distribution (EDCI), Formula Systems (FORTY), Full House Resorts (FLL), General American Investors (GAM), Hong Kong HighPower (HPJ), Industrie Natuzzi (NTZ), Infologix (IFLG), Jinpan (JST), Layne Christensen (LAYN), Metabasis Therapeutics (MBRX), Oxford Industries (OXM), Perma-Fix Environmental (PESI), Pharmathene (PIP), SORL Auto Parts (SORL), Telestone Technologies (TSTC), TOR Minerals (TORM), Votorantim Celulose (VCP), WebMediaBrands (WEBM) and Zi Corp. (ZICA).

Tuesday

Tuesday offers a complete contrast to Monday's short schedule, with a very busy day full of market moving events. The pre-market chatter should be consumed with the S&P Case Shiller Home Price data, and another expected drop. Last month, the report showed both December and fourth quarter prices set records for change on the downside. December prices fell 19.2% on an annual basis. The problem with this report is that it comes two months too late. We'll only get January's data on Tuesday, and we're entering April now. A world of change can take place in that much time.

Of course, we'll also receive the weekly same-store sales data from the International Council of Shopping Centers in the early morning. Last week's report showed a 1.4% year-to-year decline. It seems the spring-like euphoria didn't last long, but Easter lies ahead.

Despite Monday's news, Tuesday presents the real deadline for the government to decide whether GM and Chrysler have presented a viable case for more aid. This looks to be rendered resolved by Tuesday though.

Neel Kashkari gets grilled again on Tuesday, as he testifies before the Senate Finance Committee on the state of TARP. This is a regularly scheduled six-month grilling, so rest easy. At 9:45, the National Association of Purchasing Managers (NAPM) - Chicago produces its Business Barometer Index for March. Bloomberg's consensus of economists forecasts the metric might climb to 35.0, from 34.2 in February. Data out of Philly and New York was mixed, so Chicago seems likely to be depressing, or at least sad anyway.

Coming off an all-time record low, the Conference Board's Consumer Confidence Index is set for 10:00 a.m. release Tuesday. Economists are looking for a modest rise from the trough, to 28.0 (25.0 in February). Speaking of Chicago, Philadelphia Fed President Plosser addresses the University of Chicago's Booth School of Business at 1:00 p.m. The topic of the day will be regulatory reform.

The U.K. starts pulling its troops from Iraq on Tuesday, but the escalating tension surrounding North Korea's rocket launch is garnering an increasing amount of attention. We're approaching the advised launch date, as the Japanese scramble interceptors.

Following Monday's Farm Report, the U.S. Department of Agriculture issues its spring planting report on Tuesday. Genentech (NYSE: DNA) gets news on Avastin from the FDA, and Stryker's (NYSE: SYK) spinal putty receives its review as well on Tuesday.

Janney Montgomery Scott hosts a water industry confab in New York. The EPS Schedule highlights news from Aluminum Corp. of China (ACH), American Caresource (ANCI), American Defense Systems (EAG), Apollo Group (APOL), Astea Int'l (ATEA), Banks.com (BNX), Borders Group (BGP), China Direct (CDII), China National Offshore (CEO), China Sky One Medical (CSKI), Corriente Resources (ETQ), Craft Brewers Alliance (HOOK), Cyclacel Pharmaceuticals (CYCC), deCODE Genetics (DCGN), Document Security Systems (DMC), Edap TMS (EDAP), Exfo Electro-Optical (EXFO), FirstCity Financial (FCFC), FSI Int'l (FSII), Fusion Telecomm (FSN), G-III Apparel (GIII), Gentium (GENT), GigaMedia (GIGM), Goldleaf Financial Solutions (GFSI), H.B. Fuller Co. (FUL), Hana Biosciences (HNAB), Heely's (HLYS), Huaneng Power (HNP), Hythiam (HYTM), Imperial Industries (IPII), Kowabunga (KOW), Lennar (LEN), Lifeway Foods (LWAY), Medis Technologies (MDTL), MIVA, Inc. (MIVA), NN Inc. (NNBR), Northern Dynasty Minerals (NAK), Novavax (NVAX), Petro Resources (PRC), Physicians Formula (FACE), Pressure BioSciences (PBIO), Russ Berrie (RUS), Saba Software (SABA), Saga Communications (SGA), Sealy (ZZ), Sonic Automotive (SAH), Spire (SPIR), Steelcase (SCS), Stonemor Partners (STON), Sypris Solutions (SYPR), TAM S.A. (TAM), Targeted Genetics (TGEN), Team (TISI), Technology Research (TRCI), Telkonet (TKO), TLC Vision (TLCV), ULURU (ULU), WidePoint (WYY) and Willdan Group (WLDN).

Wednesday

The recession is over! April Fools... It's April Fool's Day! Get somebody...

The parade of monthly employment reports headlines another busy day on Wednesday. First to the wire is Challenger, Gray & Christmas and its Announced Corporate Layoffs Report. There's been no let up of new claims filers, and the small business sector is now fully wrapped up in consolidation along with larger businesses. February's data showed layoffs amounted to 186,350, a big number, but short of the prior month's tally. We think you can expect something similar this month, as unemployment is a lagging indicator and should be late to change direction.

ADP's Private Employment Report is set for release at 8:15 AM EDT. This precursor to Friday's DOL data offered a harsh forecast last month when it noted 697K monthly job losses on net. This data served to scare the heck out of equity traders and force shares lower ahead of the DOL data last month; the government's report later produced a less tragic result and a relief rally ensued. Investors might remember that recent past and limit the impact of this month's data.

Also in the pre-market, the Mortgage Bankers Association reports on weekly mortgage activity. Last week displayed the early impact of the Fed's new plan to acquire long-rate securities, including MBS. Rates moved sharply lower last week on fixed 30-year mortgages, and mortgage activity spiked reaction. Refinances of course led the charge, with the housing market still plagued by deflation and an uncertain environment. Expect activity to keep improving as of the latest check.

After the open, ISM will produce its Manufacturing Index. Indications seem to be that a bottom is forming in this weather beaten sector. We received mix results this month from the Philadelphia and New York regions, and Chicago's results came due earlier this week. However, while a change in the pace of decline may be in process, activity is still contracting significantly. Economists forecast the index will measure 36.0 for March, versus 35.8 in February. A reading below 50 signifies economic contraction.

We receive two housing metrics on Wednesday, a sector seeing seasonal benefit and potentially a real bottom. However, an article in Barron's this weekend noted significant seasonal adjustment influence in some of the recent housing metrics, and others as well. The truth will be told eventually, but at some point a real bottom will be reached and we'll have to recognize that as well, as difficult as that is becoming.

Construction Spending may still have declined sharply in February, since it includes the nonresidential segment. New Home Sales have seemingly found bottom, albeit a very low one. After all, you can't go lower than zero, and we were getting awfully close near the 300K annual pace point. Still, January's construction spending decline of 3.3% was significantly influenced by nonresidential spending, and judging by the vacancies I see by my naked eye during my short walk to the subway (not to mention the store closings flooding the wires), expect more of the same in the months ahead. Economists forecast spending will ease 1.5% for February.

Pending Home Sales data will eventually show early signs of recovery in the real estate market, but before now and then, it's possible that seasonal influence or unnatural driver (like temporary government provided catalyst) might lead the market to believe it has begun earnest prematurely. As seen by the recent rise in housing stocks, valuations are super-conducive to any spark, so trading opportunities (both long and short) will avail for sharp traders. Eventually sincere traction will take hold though as well. I can't believe I am now reminding investors that stocks can go up and economies can grow. An economists' consensus forecast for this leading measure of the existing home sales marketplace is absent. Last month, we saw a 7.7% month-to-month decline for January, to a level of 80.4.

Automakers will report Motor Vehicle Sales for the month of March on Wednesday. Economists estimate the annual pace of sales will steady at the anemic rate of 6.4 million in March. Considering the fact that the Obama Administration is poised to allow GM and Chrysler to go bankrupt, sales seem likely to suffer for the two going forward; this despite the President's reassurance that the government will stand by GM's warranties. Chrysler is contemplating a merger with Fiat; the other option is bankruptcy in 30 days, so other buyers might come forward, considering the attractive asset pricing and a profit sensitive Cerberus Capital at the helm.

Look for the EIA Petroleum Status Report at 10:30. Last week's data showed a sharp build in oil supply, and oil prices are now reflecting remorse for their recent rise. Japan's Tankan Survey of corporate sentiment is due on Wednesday as well, and expect it to reflect dire-level low confidence. President Obama will meet with his Russian counterpart, Dmitry Medvedev in London. I'm sure there'll be less soul searching than occurred between Bush and Putin the first time they met...

Wednesday's earnings schedule highlights news from Alseres Pharmaceuticals (ALSE), Chaparral Energy (CPR), Multiband (MBND), Pet DRx (VETS), UniFirst (UNF) and Worthington Industries (WOR). It seems nobody wants to report earnings on April Fool's Day.

Thursday

Two more jobs reports meet us on Thursday morning. The Monster Worldwide Employment Index (NYSE: MWW) is due bright and early. Last month, this measure of online job demand actually improved to 122 for February, from 118 in January. Weekly Jobless Claims has continued harsh, though the pace of deterioration seems to have stalled, albeit at frightful heights. Last week's tally recorded 652K new claims filers, and Bloomberg's consensus forecasts another 655K this week. As accustomed to this data as we've become, this week's count will surely intensify concern ahead of the unemployment rate data release scheduled for Friday.

Overseas, the meeting of the G-20 kicks off with a promise to be heavy on empty rhetoric. Every nation the world over warns of protectionism while each succumbs to national pressures, and applies protectionist measures nonetheless. Governments are toppling and elected officials will often forsake sane economics for the near-term satisfaction of their constituents... unfortunately. There will also be plenty of discussion around the topics of regulation and stimulus, and the roles of emerging market nations seem likely to garner attention as well. The ECB is meeting on Thursday and will announce monetary policy. After taking a pause a few months back, the picky group seems to have its head on straight again. Look for a rate cut this time around, and some are forecasting one of 50 BPS magnitude (to 1.0% for the target rate).

Factory Orders for the month of February are due at 10:00 a.m. Economists forecast a rise of 1.5% this time around, after a decline of 1.9% was recorded for January. Given the recent notation of strong durables goods orders growth, this forecast makes sense. The EIA will post its Natural Gas Report at the usual 10:30 reporting time.

Novo Nordisk's (NVO) diabetes drug, Liraglutide, is under review by the FDA, and so market-moving news might be kicked up for the stock. The earnings schedule highlights reports from Monsanto (MON), Rite Aid (RAD), A. Schulman (SHLM), Acuity Brands (AYI), Aehr Test Systems (AEHR), Allscripts-Misys Healthcare (MDRX), AngioDynamics (ANGO), CarMax (KMX), Cascade (CAE), DemandTec (DMAN), Global Payments (GPN), Lawson Software (LWSN), Lindsay Corp. (LNN), Micron Tech (MU), MSC Industrial (MSM), MSCI (MXB), Origin Agritech (SEED), Research in Motion (RIMM) and RF Monolithics (RFMI).

Friday

Once every month, the market focuses complete attention on a single report, perhaps the most important and followed data on the economic stream. This particular Friday is the hot one on the calendar, with the Employment Situation Report reaching wire by 8:30. Economists are on record looking for the unemployment rate to jump to 8.5%, from 8.1% in February. 8.5% seems in the bag, and 8.6% even more likely.

The pace of job loss has been near Biblical in its level of importance, and there's no let up in sight. Nonfarm Payrolls are seen shedding 650K jobs on net, nearly matching February's 651K. The range of estimates, however, spans from 525K to 711K, so there is room for error. Indeed, we believe that this time around, 50K short or above the consensus will have profound impact on stocks in either direction, so stay tuned. What's left of your money is at stake...

At 10:00 AM, look for ISM's Nonmanufacturing Report, the group's tally of the vast service sector. This portion of the American economy now dominates our national productivity, and so this data is not negligible to markets. Still, in the wake of the employment data, it will inevitably be lost in a sea of traders' cries. Economists are looking for a March read of 42.0 for this index, compared to 41.6 in February.

By noontime, we may need the soothing voice of one Ben Bernanke, as he addresses the Richmond Fed. The Fed Chair will cover the credit markets. The problem here is that he'll be in Richmond, which is the realm of Jeffrey Lacker, the Fed's black sheep (so to speak). Lacker has often been on record voting against the consensus at the Fed, and most recently he argued against the Fed's power grab.

Overseas, Indian markets are closed on Friday. The earnings schedule back in the States highlights news from AZZ Inc. (AZZ). I couldn't have planned for a better way to close the week or this article... God bless.


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