Stock markets closed Friday on a positive footing, with little in the way of corrective retracements after hitting new all-time highs in the 1630 region.  Most of the activity on the corporate earnings calendar was positive and this consistent strength is helping support investor sentiment as we head into the summer months.  More specifically, positive earnings stories were seen from Direct TV, Disney, Whole Foods Markets, and Electronic Arts.  All of these stocks saw rallies of between 4% and 10% after earnings were posted and this rallies helped push the S&P 500 into new record territory.  This week, the earnings calendar will slow down a bit but we will still have numbers from Cisco and retailers JCPenney and Macy’s to help guide market direction.

Macro data will mostly center in inflation figures, with the Consumer Price Index (CPI) and Producer Price Index (PPI) both scheduled for release.  This data will be more important for those trading with longer term perspectives, as it will lead to speculation in defining the end date for the Federal Reserve’s third round of quantitative easing stimulus.  Evidence of higher inflation will suggest the Fed will need to end these programs more quickly (a negative for stock markets).  Evidence of stable inflation rates should help keep stock values supported.  Market expectations for the April CPI data is expected to come in at 1.3% on a yearly basis, PPI is expected to show yearly price increases 0.8% (1.7% for the core figures, which exclude food and energy prices).

Longer Term View  

For the longer term perspective, it should be noted that the stock rallies seen in the US markets seen in the post Credit Crisis period (2008-present) have now matched the returns seen in the latter half of the 1990s (roughly 26.5%).  This is the period when internet companies generated historic levels of market optimism.  At this time, however, stocks traded at valuations equal to 25.7 times annual profits.  Currently, the same index (S&P 500) is trading at 18.6 times annual profits.  This is a difference of 28% and an implicit suggestion that stocks are not overvalued on an historical basis (despite the fact that we have risen to new all-time highs).

Chart Perspective  

Nikkei 225:  

Recent stimulus measure by the Bank of Japan have been supportive for the Nikkei 225, and prices have rallied to critical Fib resistance on the monthly charts.  Since the 61.8% Fib retracement of the decline from 18,450 (at 13,990) has been removed, the upside target now calls for a full retracement of that decline.  Initial resistance comes with the downtrend line which originated at the highs from May of 1996.

S&P 500:  

Most traders are looking for places to re-enter the uptrend in the S&P 500 but this is somewhat dangerous given the sharp rallies we have seen in recent weeks.  The more prudent move is to wait for a corrective move back to support in the 1590 area, as this zone marks resistance turned support, as well as the 38.2% Fib retracement of the rally from 1530.