SUMMARY:

- Wells Fargo pre-announcement ignites a strong continuation of the rally's second leg.

- WMT lackluster March sales seen as disappointing but it could herald the start of consumer recovery.

- Earnings season thus far rewarding as earnings top expectations. Investors now expecting too much?

Thursday was more than just a bounce, at least for part of the market.

Wednesday night we said the move up was not as strong a rebound as you want to see, but we could live with it given the leadership. Thursday was strong enough, at least on the NYSE indices given the financial stocks' rampage. The reason for the rampage was Wells Fargo pre-announced $0.53 versus $0.23. Futures were up before that news, but that is what upped the horsepower tenfold.

That was enough to overcome sloppy same store sales that saw WMT March sales +1.4%, quite off from the 3.2% expected. Overall retail sales were slimmer at -1.8% versus the -0.9% expected and the +0.3% in February. With weekly jobless claims still high (654K versus 660K and 674K prior) and continuing claims hitting an all-time high at 5.8M, a bit of consumer upset is expected. On the other hand, Japan put forth a larger than expected stimulus package and reported an increase in machinery orders. On balance the negatives were nowhere near enough to stand in front of the financials and their lead engine on the day, WFC.

Stocks gapped higher and never came back. After that initial gap and run in the first half hour stocks and the indices moved laterally for 5 hours, basically the rest of the session before a late drift higher and bump upside into the close. The indices cleared the early April peak and made some significant moves with NASDAQ 100 making a new breakout, SOX pushing the November high, the previous high since the bear market started, into the dirt, and NASDAQ moving over the January closing high.

Despite the great set ups after the pullback, the gap did not give us a chance to enter many positions. That happens. Fortunately we had taken some new positions as the opportunity presented during the past week. Moreover, an upside session ahead of a holiday typically leads to some downside early the following week and that can produce some buys. Thing is, the market is strengthening as the second upside leg breaks to a new high given the better than expected earnings and earnings pre-announcements. Thus maybe we get an entry point early next week or maybe those that gapped Thursday require a week or two to consolidate the gap and set up the next move as we cull through earnings season. There will be others stepping up in the interim and as always we just have to be patient and not chase the bus. We have some great positions we are riding higher, e.g. AMZN, BRCM, MRVL, QCOM, TSM, and we will let them move along with the newer positions we picked up the past week as well as on Thursday. You have to like how the market is rotating new leadership into the fold as the early leaders rest and set up for their next move as well. Thus you see the waves of good movers and while Thursday was hard to get in on given the gaps, the market is giving series after series of entry points. That is another sign of a healthy market.

TECHNICAL. Intraday was positive again with the gap higher, the long flat intraday consolidation, then the rise into the close. The market shot higher and held its gains without any serious test. Given the type of news that drove stocks higher it is not surprising the shorts didn't want any part of the action.

INTERNALS. Very strong breadth as you would expect with 6:1 on NYSE and 5:1 on NASDAQ. All sectors were strong as financials led the move but other sectors found reason to rally: if the financials are doing well that is good for the economy and hence the market. Volume surged back above average on NYSE though NASDAQ could not turn above average volume though trade was the best of the week. The shorts had to cover desperately once more as the market did not turn over at next resistance. There was also long buying however as you saw leaders make strong moves; most leaders have no sizeable short positions in their stocks and thus their moves are typically long buying. The drawback is volume was NOT spread out over the entire market. Most of it was concentrated in the financials as shorts are still present and they were again forced to cover.

CHARTS. There were some very key moves. SOX, the clear leader in the rally, put in a new bear market recovery high. SP600 broke out of a reverse head and shoulders pattern though it rallied right up to next resistance. NASDAQ closed over the January closing high, starting the breakout from what is more or less a 5 month Double bottom w/handle base. NASDAQ 100 made a clean break out of its 6 month base. SP500 broke from its own reverse head and shoulders pattern on that stronger, above average volume. These are all bullish indications as noted above, and they show strengthening as the upside move continues. The indices are currently on the second leg of the rally off the March low, renewing the move after the 1-2-2.5 pullback (as opposed to a 1-2-3) last week.

Some are saying that the market has to go back and test the prior lows before a sustained, long-term upside move. First, the market never has to do anything and those that expect certain things are typically disappointed. Figuring market moves is all about probabilities based upon patterns, volumes, leadership, etc. We have discussed the need for another test before. In the last bear market only one index did not undercut its prior low; all the others did and that did not require a test. This time around SOX held above the lows, never testing November. The other indices did make tests: NASDAQ 100 formed a nice double bottom as has NASDAQ. SP500 undercut its November low but again, it is not necessary that every index return to the point of origin in the selloff.

That does not mean it is all clear sailing from here. SP500 is still in a range of thick resistance from 900 to 945 and it just crossed the October lows that represent important resistance as well. SP500 will continue to work hard to get through this level, though the Friday breakout from the reverse head and shoulders gives it some upside momentum near term toward 900. From there it likely tests and extends laterally as it bumps resistance and tries to consolidate for a new breakout.

LEADERSHP: Financial leaders were of course surging along with most other financials, leader or not. Leaders in semis, tech, commodities (coming back nicely), and retail (more or less) were all moving. There were breaks higher by industrials such as DE and CMI, but their gaps were big and they never came back, and we did not want to chase the bus. Volume outside the financials, even in commodities that jumped higher, was weak. Hence the lower NASDAQ volume even as NYSE with its large financials contingent saw jumping trade. Not bad action; it is always good when leaders lead and new leaders continue to emerge. Friday saw both, and we enjoyed other investors pushing our positions taken earlier further to the upside.