Again?

Market Action:
Monday’s market action took the SP500 to a new relative high against the late February reading. As the market opened, C (Citigroup) announced earnings just before the market opened and said revenues were up 15%. The earnings were a little distorted due to the recently announced layoffs of 17K workers. The market took it as good news but read about the results in the WSJ on Tuesday and see what you think.

The news was upbeat on retail sales with March numbers coming in at 0.7% versus expectations of 0.4% and last month’s numbers were revised higher from 0.1% to 0.5%.

One other news item that came in before the market opened was that Sallie Mae was being purchased. (SLM, Sallie Mae is the student loan company.) This news was another reason to buy everything.

The rest of the news we saw was related to real estate, all calming fears of investors of all ilk. The news surrounding Fremont General, a California financial services company, was that they had found a Potential buyer for $2.9 billion of its subprime loans. This sale would allow them a handy little profit. And, Fannie Mae and Freddie Mac said they would step in to help certain subprime loans from becoming a burden on the home owners. Fannie Mae (FNM) was up 5.5% on the day.

Opinion/Analysis:
The SP500 traded to a new relative high on Monday breaking above its late February highs and causing us to increase our awareness level of the next move in the market. We are going to say that the market is overbought and with Monday’s rally, it is even more overbought. We recall that it is options expiration week which reminds us that the rally may go into Wednesday before we get any downside.

The volume was on the decent side on Monday but still strong enough to get our attention. In fact, Monday’s volume was lighter than last Wednesday’s volume. You may recall that Wednesday was the only Down day in the last 12 trading days.

The thing is that with the Dow so close to making a new high, we have to believe it will. The rally over the past couple of weeks has been relentless and we are just not holding up very well. Normally there is some downside associated with these up days, not the last few weeks. Last week we were whining about the market and tonight we feel that more whining is in order. That really doesn’t help in the market but sometimes we just can’t help it.

We think that the rally is almost over (this sounds repetitive) and with its end we should see a sell off that takes the Dow back down to a new low for the move, meaning below the March 14th low that dipped below 12,000. Tonight we see some possibility for the Dow to run up another leg and then finally find a short term top. We think that could come as early as Tuesday or Wednesday so we will let you know.

Remember the market is overbought and any of the news that is coming out this week could tip this thing over. It doesn’t seem like any news is being treated as bad but Tuesday brings INTC’s earnings so we’ll see if they can produce the numbers and the forward looking statements that satisfy the investors.

Other than that, we are just stunned as to the persistency of the rally even though the volume is fairly light and the moves aren’t very much—ok, Monday’s rally was 108 points but three of these 11 of 12 days have been less than 10 points.

Dow Industrials: 12,720.46 +108.33
VIX: 11.98
HUI: 368.28
QQQQ: 45.06
QQQRS: 1.03 bid
QQQRT: 1.45 bid
RYVNX: 16.10
RYAIX: 21.01
RYCWX: 34.57
TLT: 87.60
BEGBX: 13.92