Although the DJIA was able to put up a fractional gain on the day, a review of the rest of the major indices showed that stocks pulled back a bit Tuesday as the bulls may have finally encountered some resistance. While the action was fairly subdued and the indices did recover from their mid-day lows, it is important to note that the small- and mid-cap segments have been getting slammed this week. So, although the DJIA looks to be hanging tough, all may not be well under the surface.
In looking for drivers to the market action, there were various excuses bandied about on Tuesday for the slack action. So, let's go to the board. First and foremost, the bears pointed to the fact that their counterparts may have enjoyed just a little too much fun for the past week and a half. The bears tell us that the recent breakout was not accompanied by strong volume or robust internals and may have simply gone too far, too fast.
One of the more specific drivers cited so far this week includes the possible rotation out of the metals/commodities/energy trades by the fast-money. Let's not forget that the big funds have loaded up on things like oil and silver, and when these guys decide to exit a trade at the same time, things can get ugly in a hurry. I'm not saying this action will continue, but "rotation" is something to be on the lookout for.
Next up is the concept of the "risk off" trade associated with the "Sell in May and go away" theory. Frankly, when anything gets this popular, it tends to stop working. And since this particular Wall Street cliche is both overused and misunderstood, I'm not going to put too much stock on idea.
Things that are worthy of our consideration, however, include the potential for trepidation in front of Friday's Big Kahuna of economic data - the Jobs Report. Given that a fair amount of the recent run for the roses has been based on the concept that the economy is continuing to improve, any hiccup in this story could be problematic. But then again, as long as the dollar continues to fall, the risk trade could continue to dominate the action.
Finally, there has also been a fair amount of chatter relating to the fear of retaliation in response to the killing of Osama bin Laden. While the U.S. has been immune to attack since 9/11, every trader worth their keyboard knows that any type of retaliatory effort from Al Qaeda could cause a very fast reaction in the markets. As such, there is likely a contingent of trader choosing to do a little "de-risking" at the present time.
Bottom line? It might simply be time for a little pullback and we remain on high alert for an "out of the blue" drop. And while only time will tell us for sure, the underlying action hasn't been especially positive over the last couple of days. So, be sure to stay tuned and avoid becoming complacent.
On the Economic front... First up, Challenger, Gray and Christmas reports that there were 36,490 planned job cuts announced in April which was down from March’s 41,528.
Next on the jobs front, ADP reported that the private sector job market expanded 179K jobs during the month, which was below the consensus expectations for a gain of about 198K. March’s report was unrevised from the initial report of 201K.
