The April Employment Report disappointed stock market participants. However, it really wasnt a bad report. Private-sector job growth has been moderately strong this year. The Household Survey data suggest that the economic expansion has been strong enough to absorb the growth in the working-age population, but not enough to take up much of the labor market slack that was generated during the downturn. These figures tell us nothing about where the labor market is headed. Job growth over the next six months will have important implications for investors and for the November election.

When youre wrong you say youre wrong; at least thats what the pros do. Clearly, I have been somewhat wrong by being conservative, but not by much because the INDU is actually 70 points lower than at the April 2, 2012 intraday high. Given the aforementioned litany of cautionary indicators, my sense remains the S&P 500 (1403.36) will spend some more time below 1425 while the short-term overbought condition is alleviated and the stock markets internal energy is rebuilt. Fridays market action only reinforced that belief with the indices gapping higher and then closing well below those highs.

Real GDP rose less than expected in the advance estimate for 1Q12. However, the details were a mixed bag. The report added little to the debate about where the economy is headed. The first thing to remember about the advance GDP report is that the figures will be revised, and revised again. There is often a larger difference between the advance estimate and subsequent estimates. However, the underlying story behind the numbers typically does not change much. Consumer spending, which accounts for about 70% of GDP, helped by mild weather. Yet, the personal income figures suggest caution.

This week we will see more major companies reporting earnings. From our research universe, stocks that are favorably rated by our fundamental analysts and appear positive on our proprietary algorithms are: Brinker ; Baidu; Pultegroup; and Caterpillar. For the past few weeks I have wrongly suggested that my sense is the S&P 500 (SPX/1378.53) will remain mired in the 1385 1425 consolidation zone. Subsequently, the SPX dropped below that envisioned zone, yet has rallied back into the 1375 1385 zone, which has now become an overhead resistance level.

Recent economic data have been mixed, but generally consistent with moderate economic growth. The recovery continues, but has failed to gather much steam and remains relatively fragile. Were on our way, but weve a long way to go. Over the last year, the economy has faced a number of headwinds, capping the pace of improvement. Those headwinds appear to be lessening to some extent although there are uncertainties, particularly as one looks to 2013.

The stock market has risen nicely this year, partly on improving economic data, but are such gains justified by the earnings outlook? The level of the S&P 500 Index does not appear to be out of line with earnings expectations, but there may be some pressure on profits over the longer term. As the election approaches, we may hear more about class warfare. Its unclear what role the distribution of income will take in this years election, but investors should pay attention.

As stated, this is a key week for the equity markets and we continue to wait and see how the equity markets resolve themselves on a short-term basis, a trading stance we have been in for weeks. Meanwhile, for investors, I met with a portfolio manager last week whose investment style I think is suited for the current stock market climate. The investment style of Troy Shaver, PM of Dividend Asset Capital, sub-advisor to Goldman Sachs Rising Dividend Growth Fund (GSRAX/$15.05), is to invest in companies that increase their dividends by 10% per year on average for 10 years in a row.

March came in like a bear, but went out like a bull, capping the best first quarter since 1998. For the quarter the SPX gained 11.99% for its 10th best start of the year ever. For me it was almost like dj vu as I recalled the best first quarter of my lifetime, which was 1975s surge of 21.59%. Why dj vu? Well, it is because I began writing strategy In November of 1974 with the line, I believe now is the time to accumulate stocks. At the time the Dow was trading below 600, having fallen from its March high of 891 for a 34% decline.

The monthly report on personal income and spending rarely gets much interest from the financial markets. However, the spending figures are a direct part of the governments GDP calculation. The latest numbers (through February) paint a much brighter picture than they did a month ago. While the outlook has improved from a month ago, its not enough for most Fed policymakers. It will take much more substantial economic growth to undo fully the recessions damage to the labor market. QE3 is still seen as unlikely, but its not off the table completely.

I continue to exercise patience with the equity markets while I sit on the cash raised over the past number of weeks. Unlike many, I consider cash an asset class. Indeed, to assume the investment opportunity sets that are available to you today are better than ones that will present themselves next week or next month is nave. To take advantage of those opportunity sets one needs to have some cash. For those wishing to be more aggressive, it looks to me as if the U.S. dollar is in the process of breaking down.

Nothing in the recent economic data suggests that the Fed is any closer to raising short-term interest rates. However, the figures also imply that further Fed asset purchases are less likely. While the Fed did not surprise last week, the bond market had factored in some chance that the Fed would eventually undertake QE3. In the short term, the recent pop in bond yields may simply be a case of be on the bus or be under it. However, bond yields seem unlikely to rise sharply from here, at least for now.

I do expect stocks to be higher by year end. Last Tuesdays upside breakout turned out to be the first 90% Upside Day of this year. To negate that action would require a sell-off on heavy volume that results in a closing price below the previous rallys closing high of 1374.09 on the SPX. Still, the stock market may have enough forereach to tag 1420, but in my opinion the games not worth the candle. For investors not sharing my counsel, I continue to like the strategy of buying stocks that have recently declined for one-off reasons where the bullish fundamental story is still intact.

Nonfarm payrolls rose more than expected in February, with an upward revision to figures for December and January. The job market figures have been strong. However, an unusually mild winter has certainly had an impact. Its difficult to isolate the effect of mild weather. The labor market is definitely improving, but recent figures may be somewhat exaggerated. Mild winter weather may pull forward some seasonal gains that would have otherwise occurred in March and April. In addition, higher gasoline prices threaten to dampen the pace of improvement in the near term.

I had a meeting with two PMs from Switzerland that had 10 questions they wanted answered. 1. Would you buy cyclical stocks or defensive stocks? I would buy cyclicals because I dont believe we are going to see another recession in the U.S. for the near future. 2. 2011 was a risk on/risk off year, so is it a top down or bottom up strategy for 2012? Last year you only had to get two things right. You had to raise cash in March/April and put it back to work during the bottoming sequence of August October. One always needs to employ a bottom up strategy combined with a top down view.

While I remain cautious (not bearish) there are still things to do. For example, I continue to like the strategy of looking at companies whose share price has collapsed for a one-off event. Recall, this was the case with Acme Packet (APKT/$30.26/Strong Buy) back in January, where in our analysts view the stock swoon had taken a lot of the price risk out of the equation. A similar sequence occurred last week with Vocus (VOCS/$13.52/Strong Buy), where our fundamental analyst maintains his positive view.

The economic data reports have become more mixed. Growth is rarely even across time and industries, but the stock market often has a hard time with conflicting evidence. For Mr. Market, the economy has to be either booming or falling apart completely. Mild winter weather has clearly been a factor in the last few months, but unusual weather often merely shifts growth from one quarter to another. Last year, the economic gears were starting to catch, but gasoline rose from around $3 per gallon at the beginning of the year to $4 per gallon in early May. Are we in for a repeat?

The American Recovery and Reinvestment Act of 2009 was signed into law on February 17, 2009. Did it help? Yes, but estimates of the impact vary. Before Barack Obama took office, he selected Christina Romer to be the chair of the Council of Economic Advisors. Romer, a professor of economics at the University of California, Berkeley and an expert on the Great Depression, is exactly the sort of person youd want advice from in combating a severe recession. Its long been rumored that Romer had requested a significantly larger stimulus package than the roughly $800 billion in ARRA.

There have now been 37 trading sessions in 2012 and so far the S&P 500 has yet to experience a 1% Downside Day. This 37-session skein has occurred 11 other times in the past 84 years and has on every occasion except one seen the equity markets higher by the end of the year. Still, the rise since the buying stampede ended, which stopped on January 26, 2012 at Dow 12841.95, has felt unnatural to me. Surprisingly, the Industrials reside only 141 points above their intraday high of January 26th, causing one market maven to exclaim, no wonder I feel like were in the Trading Twilight Zone.

The economy continues to operate far below its potential, which means that an extended period of above-trend growth is needed to mop up current slack. Real GDP growth has long trended about 3% per year. This trend is not the same a potential output. In fact, potential output should be below this trend partly due to the aging of the population. However, those arguing that the housing sector has either permanently reduced potential output or overstated potential output prior to the housing correction are off base. We have a lot of ground to make up, especially in the job market.

Despite overbought conditions, a Dow Theory upside non-confirmation, the end of the buying stampede on January 26th, a stock market that has used up most of its internal energy in the short-term, a massive downside reversal from Wall Streets premier stock last Wednesday (AAPL/$502.12), saber rattling in the Hormuz Strait, a ~21% rise in the price of gasoline since mid-December, et all the stock market has trudged higher. Manifestly, the SPX has now gone 35 trading sessions in 2012 without suffering a 1% down day.

The White Houses Office of Management and Budget will release its revised budget outlook this week. That outlook is expected to show a substantial reduction in the 10-year budget deficit, largely due to the required discretionary spending cuts specified in last years Budget Control Act. For the most part, the legislative battle ahead is not whether to cut, but what to cut. More importantly, tax policy, and in turn, the economic outlook, remains a major uncertainty into 2013.

The implications are that things are likely going to get a little less fun for investors for a while with the major averages transitioning from a steep price rise to more of a sideways to downward pricing structure. This does not mean you cant make money. On the upside, my algorithms show that our fundamental analysts Strong Buy ratings on 7.6%-yielding CenturyLink (CTL/$38.02) and non-yielding Whiting Petroleum (WLL/$50.89) are setting up for a potential upside breakout. Meanwhile, our analysts Underperform rating on ViaSat (VSAT/$45.22)is being confirmed by my algorithms to the downside.

Remember all those Negative Nabobs that caused you to panic and sell-out at the August lows? Or, the Bear Boos who told you the undercut low of October 4, 2011 was the start of a whole new leg to the downside? Then there was the Cowering Crowd that insisted the first half of 2012 was going to be terrible. Such rants have left the world profoundly underinvested in U.S. equities. Revenues and earnings are at all-time highs, yet the SPX is ~13.5% below its October 2007 high; indeed, Strange brew trying to get through to you (Cream 1967; Eric Clapton at his finest).

Make no mistake. The labor market is improving and theres hope for strong job growth this spring. Moreover, average weekly hours have been trending higher, consistent with an expected increase in new hiring in the months ahead. However, not to harsh your mellow, the January employment data were not as rosy as the headline figures would seem to suggest. These data should not change the picture for the Fed. We still have a lot of ground to make up in the labor market.

I have repeatedly commented that earnings comparisons were going to get more difficult because the trailing four quarters earnings reports have been so strong; and, thats precisely what is happening. For example, with 180 of the S&P 500 companies reporting, there has been 1.81 upside earnings surprises for each disappointment versus a more normal ratio of 3:1. Accordingly, it makes sense to screen for companies producing Triple Plays that would be companies beating earnings and revenue estimates and also raising forward earnings guidance.

The Fed has adopted an inflation target, as many other central banks have done long ago. However, the Fed retained its dual mandate, with a soft employment target. How will the two goals be achieved and what happens when they conflict? The Fed says is will use a balanced approach. The Fed lengthened the period for which it expects to keep short-term interest rates at exceptionally low levels. However, the five Fed governors and 12 district bank presidents have differing opinions on when the Fed should start raising short-term interest rates and what the rate target will be at the end of 2014.

When the Fed embarked on its second round of asset purchases in 2010, officials were worried about the threat of deflation. The 2011 inflation results suggest that the Fed was successful in warding off deflation, but inflation did not surge as some had feared. Despite the moderate inflation results for 2011, some still believe the Feds accommodative policy will lead to a substantial increase in inflation sooner or later. However, were still a long way from a full economic recovery, and there will be plenty of time to unwind the Feds accommodation when appropriate.

On January 3 I stated that session felt like an emotional peak and that January 10 felt like the price peak. Subsequently I wrote, The only question in my mind is if the markets are going to have a pullback into the 1230 1240 support zone, or go sideways to correct their overbought condition and allow the internal energy to be rebuilt. So far, it has been a sideways consolidation until last weeks upside breakout causing one old Wall Street wag to exclaim, Breakout or fake-out?! On a short-term basis I think it is a fake-out believing a trading top is due this week ...

The turtle makes no progress until it sticks its neck out; I have been sticking my neck out since Thanksgiving, believing the Santa rally was beginning. I stuck with that strategy until the first day of trading this year, which felt like a short-term emotional trading peak. A short-term price peak occurred on 1/10/12 at 1296.46 basis the SPX. The only question in my mind was whether we were going to get a pullback into the 1230 1240 support zone, or if we would experience a sideways correction as the overbought condition was worked off and the markets internal energy was rebuilt.

The Federal Open Market meets next week to set monetary policy. Its widely expected that short-term interest rates will remain unchanged and that (for the time being) there wont be another round of asset purchases (QE3). The Fed will begin publishing the range of senior Fed officials projections of the appropriate federal funds rate target (for the fourth quarter of this year and the next few years). There are more benefits than risks in making these projections public.

Much like the situation last year, the economy appears to be poised for improvement. Again, there are still some headwinds and a number of downside risks to the growth outlook and much will depend on developments in Europe and in the oil market over the next few months. Theres still some prospect for further accommodation from the Federal Reserve we may see another round of asset purchases announced later this month.

Its amazing that equity markets have rallied in light of the strong U.S. dollar. That action suggests that stocks are not ready for the pullback I have been expecting following last Tuesdays upside blow off. Still, while the Dow Industrials and Dow Transports have tagged new reaction highs, the SPX and NDX have not. Such divergences always leave me cautious, especially since we are past the seasonally sweet spot for stocks. At some point we are going to get a profit-taking event, whether it is from last Tuesdays intraday high or the 1300-1320 overhead resistance zone remains to be seen.

Since the day after Thanksgiving I have stuck with the strategy that the Santa Claus rally had begun. On November 25th the SPX was changing hands around 1158. We are now 100 points higher. Consequently, I would not chase the dragon right here since I anticipate that an upside blow off is due ...

StockCharts.com defines a bear trap as a situation that occurs when stock prices break below a significant level and generate a sell signal, but then reverse course and negate the sell signal. While that's the formal definition, I have often referred to bear traps as undercut lows. The biggest one in recent history occurred on October 4, 2011. I revisit the undercut low thesis today because it appears that is precisely what happened last Monday afternoon when the S&P 500 (SPX/1265.35) knifed through its previous reaction low of 1209.47.

The U.S. economy is expected to advance at a moderate rate in 2012, but Europe presents a key downside risk to the outlook. That aside, there are longer-term uncertainties about potential growth over the next several years. Next year will be an election year and income inequality could be an issue. Like any good horror movie, the European crisis has carried an ongoing feeling of dread. The potential for a catastrophic collapse is palpable. For the U.S., a meltdown would hit exports, but the bigger fear is possible financial market disruptions.

For months I have stated, While I guess we could talk ourselves into a recession, like the aforementioned hot dog folks, most of the finger-to-wallet ratios I monitor are not pointing towards a recession. To be sure, railcar loadings (especially intermodal) have been pretty strong for the past few months. State tax receipts are up year-over-year. East Coast port traffic, both inbound and outbound, remains perky. And, one of the best walk around indicators, namely foot traffic at the casual dining restaurants because it is the most discretionary of all consumer purchases, is still positive.

The Federal Open Market Committee will meet on Tuesday to set monetary policy. The Fed is widely expected to leave short-term interest rates unchanged and the wording of the economic assessment should be largely the same as in the previous statement. However, we could see another round of asset purchases or some changes to the Feds communications. The inflation outlook is moderate. It doesnt look like well see substantially higher inflation in 2012, but (barring a large negative shock to growth) were unlikely to see a threat of deflation.

Last week the ECBs interest rate cut took center stage, but that cut should be viewed within the context of the 40 world wide interest rate cuts that preceded it. Clearly, there is a global easing cycle underway; and, we think you will see more such news this week when the FOMC announces it policy statement Tuesday. Stocks will continue to grind irregularly higher driven by portfolio managers trying to play catch-up, the upside seasonal bias, low valuations, still depressed sentiment readings, and the knowledge that we have now entered the best performing six months of the year for stocks.

December has been the best performing month of the year over the past 100 years with positive returns 73% of the time. And while last weeks 7.39% romp will likely not be duplicated quickly, the path of least resistance remains up according to our work. That said, while the DJIA bettered its 200-day moving average last week, the SPX and D-J Transportation Index did not. Consequently, a divergence currently exists that could lead to some sort of pause and/or pullback. Therefore, look for opening strength this morning followed by attempts to sell stocks back down.

The good news is that the economy does not appear to be contracting. The bad news is that its still not growing fast enough to make up much of the ground lost during the downturn. The unemployment rate fell to 8.6% in November, from 9.0% in October and 9.8% a year ago. However, more than half of that drop was due to a decrease in labor force participation. The data suggest an economy that is growing just enough to absorb the growth in the working-age population.

The week before Thanksgiving has been up eight of the past nine years...that is up until last week. While many pundits cited the failed German Bund auction, Chinas slowing PMI Index, another bank stress test, a downwardly revised GDP report, Euroquake, etc.; my hunch is the real reason for the recent swoon is our own government. The breakdown of the Super Committee has clarified the differences between the two parties. Americans must now decide to accept either serious reductions in their healthcare and pension programs, or substantially higher taxes, and probably both.

Last Friday CNBCs Maria Bartiromo asked me what was going to happen with this weeks Super Committee decision? After jokingly responding that if past is prelude if the Super Committee doesnt arrive at a decision they will appoint a SuperDuper Committee, I then stated, I dont think the Super Committee will reach a consensus.I also opined, I believe there is a wink and a nod between President Obama and Speaker John Boehner to not implement the mandatory cuts and let the 2012 Presidential election resolve the debate between increased taxes and spending cuts.

Loan growth plays a key role in economic expansion. Simply put: no loan growth, no economic growth. However, theres a downside. Debt doesnt matter until it does. Debt has played a key part in the economic downturn and in the gradual recovery. Europes sovereign debt crisis has continued to escalate, with no easy way out. In the U.S., the government has borrowed more, but the markets have not punished it for doing so. Theres no sign that that is going to change anytime soon.

On Wednesday, Enel, the major Italian oil company, said, Its time to tell the truth to Italians. Number 1: The party is over. The party referenced is the welfare state that has careened so many Mediterranean countries down the entitlement road. Recently, driven by the sovereign debt markets, reality has arrived at the crossroads along with the realization that the welfare-state needs major austerity reforms. Ignoring lessons our union leaders steered us down the same road as Ohio voted to reverse a law designed to curb the bargaining power of unions representing public employees.

Hows it going? Not good. The nonpartisan Congressional Budget Office has to score the super committees recommendations and return its analysis to the committee by November 21, which would allow the committee two days to make changes before its final recommendations. The CBO was supposed to receive the bulk of the recommendations by late October or early November. Things are a little behind schedule. The committee seemed doomed to fail from its inception

Last week at the G20, like John Kennedy, President Obama tried to emphasize support for a German bailout plan to prevent a Greek tragedy. The tragedys trajectory rose sharply on Tuesday when Papandreou announced there would be a referendum to decide if the new austerity measures for a second bailout would be acceptable to the Greek people. That news shocked the worlds equity markets, which was reflected by the Dows Dive of some 297 points. I was seeing portfolio managers at the time and told them that in my opinion Papandreous prose was telegraphing a Greek withdrawal from the EU.

Websters defines the word crescendo as, The peak of a gradual increase; or a climax. And, thats the climatic feeling I got last Thursday when the D-J Industrials sprinted some 340 points on the European euphoria to close above 12000 for the first time since August 2, 2011. Such action caused one old Wall Street wag to exclaim, Buy on the cannons and sell on the trumpets! Clearly we bought on the cannons back on October 4th when the indexes broke below their respective August 8th and 9th selling-climax lows.

The European debt agreement puts the concerns about Greece off to the side for the present. However, its unclear exactly how much the European stabilization fund will be increased and how it will be financed. The agreement doesnt do much to head off potential problems for Italy and Spain. The government debt situation in the UK is worse than in Spain and Italy but borrowing costs for Spain and Italy are much higher. Thats because Spain and Italy do not have their own monetary policy. There is inherent fragility in the monetary union. TheECB and the EU will have to address this at some point.

The Federal Open Market Committee, the Feds policymaking arm, will meet on November 2-3. Clearly, there are some differences of opinion among senior Fed officials regarding the appropriate path for monetary policy. However, the dissenters (those wanting to do less) are a small minority. The FOMC will come together with a somewhat less troublesome near-term economic outlook (no recession in the near term), but there are more concerns about growth in 2012.

Whether this stampede turns out to be that strong will likely depend on the economy, our changing political environment, and Europe. However, I remain cautiously optimistic, believing there is a change afoot inside DC whereby business people are being elected, fostering the hope of simple, market-based solutions to our Nations ills. And, over the last three weeks the stock market appears to be sensing this as well with winning sectors continuing to be Energy, Financials, Consumer Discretionary, and Materials. Such sector rotation suggests the stock market believes things are getting better.