Stock markets and the US Dollar saw strong rallies last week, with the S&P 500 hitting new all-time highs (once again) above the 1665 level, and the Dollar Index rising to its best levels in 3 years.  For the most part the corporate earnings season has come in better than analysts had initially anticipated and this is helping stoke bullish optimism as we head into the summer months.  Market focus is beginning to center on the US Federal Reserve, however, as it is becoming more and more likely that the third round of quantitative easing stimulus will soon have a definitive end-date.

For the week, the S&P gained 2%, despite negative earnings stories from Dell (DELL) and JCPenney (JCP), with both company’s releasing results that were lower than Wall Street’s already-weak expectations.  The negative climate continues for JCPenney but perhaps the bigger surprise was the report from Dell, which showed that profits for the fiscal first quarter dropped nearly 80%.  These neagtive results come at a time when company CEO Michael Dell is making great strides to take the company private and broad weakness in seen in PC sales.

These trends are unlikely to change any time soon, as first quarter PC sales showed the biggest drop since the data started being tracked and a much larger share of the consumer market is focusing on handheld and mobile devices.  Dell has made many comments suggesting the company is starting to focus on these areas as well but at this stage it looks as though the company is in for a run of prolonged weakness as long as difficulties with shareholders continue and PC have limited prospects for a rebound.

All Eyes on Next Week’s Fed Comments  

Next week, more of the attention is likely to be centered on the macro story as we are starting to see more pronounced arguments that the Fed will be willing to phase out its stimulus programs.  We have scheduled speeches from Fed presidents on Monday and Tuesday, and then Chairman Ben Bernanke will give his congressional testimony on Wednesday.  Any suggestion that the Fed is ready to announce an end to its stimulus programs will be bullish for the US Dollar (and a negative for gold and oil, which are priced in US Dollars).  Any suggestions like this will be a negative for stocks, however, and with prices in the S&P 500 already elevated, this could very easily be viewed as an opportunity for investors to take profits at elevated levels before the summer doldrums set in.

Chart Perspective

Dell (DELL):  

Dell is still managing to hold an elevated position after its near term rally but longer term, the picture is indicative of further weakness.  The main bearish argument rests on the fact that price failed at the 61.8% fib retracement of the decline from 17.95, and this puts the focus back on historical support levels much lower at 12.30, followed by 8.60.

JCPenney (JCP):

JCP is caught in a descending triangle, and with limited pushes higher, the focus remains on the downside.  Major support comes in at 12.60 and this is the next bear target for the stock.