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Has the first-quarter rally already fizzled?

Wall Street's first-quarter rally could already be fizzling. On a technical basis, the major indexes last week failed to meaningfully break out of their recent trading ranges.
/ Source: The Associated Press

Wall Street's first-quarter rally could already be fizzling.

On a technical basis, the major indexes last week failed to meaningfully break out of their recent trading ranges. Yes, the Nasdaq composite index reached consecutive five-year highs on Wednesday and Thursday — and then gave it all back and then some Friday.

For the market's number crunchers, such "technical resistance" is a bad omen. And while discerning trends solely through trading averages can be akin to reading tea leaves, the fact that the major indexes have retreated off these highs is never a good sign.

As a practical matter, there's really no reason for investors to push stocks substantially higher. Last month's Federal Reserve statement on the economy was clear — rates will continue to rise, at least for one more session, and for as long as the economy shows strength. And the economic data back up that notion, as the economy appears to be growing at a solid pace, with more people getting jobs and buying power.

Investors would like to see slow growth, so rates remain stable and companies can borrow money to expand without worrying about higher interest costs. Lower rates would be good for consumers, too, especially those with credit card debt and adjustable-rate mortgages.

And while earnings season — which starts this week — is customarily a boon to stocks, some analysts fear that bullish profit forecasts and outlooks issued last month have pushed investors to buy up the stock ahead of the actual reports, which means the stock prices we're seeing now already have positive earnings "baked in." That could result in modest selloffs even if earnings are good.

So whether you believe in technical number-crunching or the market's fundamental psychology, there's little evidence either way for a major breakout.

Last week, investors seemed content to stand pat ahead of Friday's strong job creation report, and sell off after it to leave the major indexes unchanged. For the week, the Dow Jones industrials rose 0.1 percent, the Standard & Poor's 500 index edged up 0.05 percent and the Nasdaq slipped 0.03 percent.

Economic data
The economic reports coming out this week are unlikely to help the market out of its funk. Perhaps the most telling number will be the University of Michigan's closely watched consumer sentiment index, due Thursday morning. The index is expected to come in at 88.5, slightly lower than March's 88.9 reading.

A higher-than-expected number could increase interest rate fears, while signaling only a short-term benefit for the economy given consumers' high debt and lack of savings.

The nation's trade deficit is expected to narrow slightly, from $68.5 billion in January to $68 billion in February. The Commerce Department report, due Wednesday, could pressure stocks if the deficits continue to climb.

The first-quarter earnings season officially kicks off Monday afternoon, with the first Dow Jones industrial, Alcoa Inc., reporting its results. The rest of the week, however, will bring few earnings reports with market-moving potential.

A number of newspaper companies, including The New York Times Co., Tribune Co. and Knight-Ridder Inc., will report in the week ahead. Knight-Ridder's prospective acquirer, McClatchy Co., will issue its quarterly results Thursday morning, and is expected to earn 68 cents per share, down slightly from 69 cents per share a year ago. McClatchy has seen its stock price tumble 34.2 percent from its 52-week high of $74.50 on April 15, 2005, closing Friday at $49.05.

In the tech sector, Advanced Micro Devices, reporting Wednesday afternoon, has had better fortunes, more than doubling from its 52-week low of $14.08 on April 29, 2005, to close Friday at $33.69. The chip maker is expected to earn 29 cents per share for the quarter, compared to a 4-cents-per-share loss a year ago. With Intel Corp. and other tech heavyweights yet to report, AMD's earnings could move the entire semiconductor sector.

Electronics retailer Circuit City Stores Inc., reporting Wednesday morning, could benefit from the strong sales reported throughout the retail sector during the first quarter. Circuit City is expected to earn 77 cents per share, up from 58 cents per share a year ago. The company's stock is up 70.4 percent from its 52-week low of $14.47 on April 15, 2005, closing Friday at $24.65.

The nation's bond markets will close by 2 p.m. Eastern time Thursday, and both stock and bond markets will be closed Friday in observance of Good Friday.