Investors Remain Cautious About the Outlook

Is Alcoa a look at what to expect from earnings in the first quarter? They beat estimates, but the sales revenue was below expectations. This was the theme to the fourth quarter earnings as companies were able to manufacture profits through stock buybacks and lowered guidance. It was a struggle for companies to get beyond the expectations and that could very well continue as earnings reports start. The industrial and basic materials sectors are likely to struggle further as the sector has been under pressure from the mining stocks and lower commodity prices. Caterpillar forecasts were downgraded again Monday by Barclays adding to the pressure on the sector. The challenge from my view, is the same theme playing out in the first quarter, revenue weakness and in line earnings, will not go over well. The economic data last week showed some slowing in March and that could play into the earnings reports as well. Bottom line, this promises to be a fun filled period of earnings announcements and responses from investors.

The war of currency continues as Japan’s stimulus plans take root. The yen (FXY) continues to spike lower as investors are happy to play the downside. YCS, ProSheres UltraShort Yen saw a spike in volume from 300k average to over 1 million per day the last week. Since the announcement by Japan last week the shares have jumped more than 15%. How long does this last? Based on the current acceleration in the downside it could get even uglier before it gets better. The dollar remain the benefactor of the global devaluation, or race to the bottom, as some are calling it. The dollar remains in a trading range of $22.40 to $22.70 for now. The British Pound (FXB) has bounced off the lows as well to push higher against the euro and the dollar. Worth watching on the upside as well.

Since JC Penny’s announced they are done with Ron Johnson, maybe Apple can bring him back to help improve their challenges. After all Penny’s is bring back their previous CEO! Apple stock is flirting with breaking to a new low near the $420 level. Some buying on Monday¬†deferred¬†the move for now. What is it going to take for the buyers to come back and fall in love with the stock again? For now it seems content to trade in the $420 to $470 range. If we break below support the short plays will pick up again.

Retail moved back to the top end of the sectors range at $70.75 on XRT. Today we get same store sales data with the March Sales Report on Friday. Will the March economic slowing show up in the numbers or do we move higher from here? This could be one of the catalyst points going forward along with the banks earnings on Friday. Watch to see how it plays out and the reaction from investors.

Yields rose on Monday adding some downside pressure to bonds again. They remain in an overbought status from our view. I would make stop adjustments to protect the value of the bonds short term and then look for the¬†opportunity¬†to buy them back as yields rise. If you don’t want to sell your positions a hedge against the downside risk may be prudent short term. TLT and TBF are the long and inverse ETFs for the 20+ year Treasury bond. Since neither are leveraged it allows you to hedge your position dollar for dollar. TBT is the 200% leveraged short Treasury bond ETF and you can use the¬†leverage¬†to hedge with less dollars. Remember as with any leverage is comes with additional risk. The same downside ¬†risk is present in most bond ETFs and mutual funds with the recent rally off the lows. Treasury bonds are up nearly 7% off the March lows and worth protecting the gains.

More earnings today as we continue the parade for the next month. Volatility is low again and the calm is in play before the storm. Be patient, plan for the worst and hope for the best.