Stock Rally Takes a Timeout

During this recent runup of nearly 6% in equity markets over the past three
weeks, there has been the occasional session where stocks needed a regroup for
what has been, up to now, another inevitable move higher. Monday was another one
of those sessions. While two-thirds of the Big Three stock indices did
technically finish higher, well call this one a draw, with no prejudice
whatsoever to the momentum seen lately. The Dow Jones Industrial Average rose 23
points to 12,400, and the S&P 500 was up a fraction to 1333, while the Nasdaq
lost less than a point to 2789. This is also one of those days which taxes those
in our business that are charged with reasons for the specific performance of
one solitary market session. While varying theories about Fridays flat session
(meaning, not hugely positive) are legitimate in spirit a move by crude oil to
above $108 a barrel, the absence of end-of-quarter stimulus, the absence of any
huge news in general, really weve already been on record as doubting the value
in divining a reason in a market already so eager to defy expectations built on
fundamental economic and corporate data. We cringe at this usage, but sometimes
Mr. Market just wants to go up. Yes, it does seem logical that oil above $108 a
barrel is going to have clear ramifications for consumer demand and, ultimately,
corporate profits. But the reality is that we were hearing this sort of
hand-wringing about oil crossing $100 at the end of February. And had you gone
all-in at that point (pre-earthquake/tsunami), youd still have made a profit by
today. A momentum-based rally remains the default mode, and nothing in Mondays
trading puts much doubt into the notion particularly not another 0.4% gain in
the Russell 2000 small-cap index, which speaks well of the speculative mood.
Indeed, what didnt perform well on Monday? Try large-cap tech stocks, and one
company you may have heard of, Apple (NASDAQ: AAPL ), was off 1%. In fact, the
stock has now retreated about 3.6% from an intraday high set March 28 one week
ago. Whats more, a look at a three-month chart shows Apple notching a series of
lower highs, a technically bearish pattern. Is it possible this tech mega-cap is
suggesting the short-term rallys end is near? Its difficult to bet against
current momentum, but betting against Apples mathematical influence on the major
indices may also prove foolish.