Investors are all queued up about this week's earnings and hoping for good results. Three days last week were the lowest market volume of the year. Investors have placed their bets and are waiting patiently for what they hope will be positive results. There is no sense of urgency to buy a market top unless earnings expectations improve.

The market moves on Friday were almost completely due to the short squeeze in JP Morgan and Disney and their impact on the Dow, which then impacted the broader market. The Nasdaq and Russell almost fell back into negative territory intraday because all the firepower was in the Dow stocks.

Even with the massive short squeeze producing a knee jerk rebound in some other stocks the volume was still a mediocre 6.7 billion shares and not too much higher than Thursday's 6.0 billion and the low for the year. There was not a lot of excitement outside those few Dow stocks.

We did see the S&P post a respectable gain of 19 points thanks to the Dow stimulus. The S&P futures are flat on Sunday night after being down a couple points in early trading.

Despite the low volume, the market breadth has been good. Breadth on the S&P on Friday was nearly 4:1 in favor of advancers. This is very high and there is no hint of selling.

With the S&P only 23 points from a new high, I would really be surprised if we did not reach it. As I have said all along, the prior highs act like a tractor beam in a bullish market. The Dow is still 416 points below its prior high at 26,828 but that is just one good week with a couple Dow components posting large gains each day. The Nasdaq is about 125 points from a new high. All of these indexes could easily see those levels reached this week if we have some positive earnings guidance.

On the headline front, the comments from the White House suggest all the hard points have been agreed on the China trade talks and they are just finishing up on the punctuation and presentation. Once President Xi approves the final draft, they will schedule a Florida summit and that announcement will be the equivalent of a done deal. Whether that has any upward lift left is unknown. We have been trading on expectations of a deal for so long, there is a serious risk of a sell the news event. It might not be on the day it is announced or concluded but shortly thereafter because that goal will no longer be present.

The earnings are the wild card. If they continue to be positive and the forecast creeps back into positive territory and guidance is decent, we could actually see some further market gains. However, after rising 20% in 2019, the decline into the summer doldrums could be especially frustrating. We all would like to see the market skip the normal summer slowdown and I would also like to find a winning Powerball ticket in my mailbox. It is possible we will not see a market pause over the summer but highly unlikely.

Because it is unlikely there will be a lot of investors betting on that to happen. A funny thing happens when the herd moves in the same direction. The market has a tendency to move in the opposite direction. Time will tell what summer will bring and there is nothing we can do but watch and wait.

There is no resistance between Friday's close and the prior highs. The only thing holding us back is a reluctance to buy a market top.

The Dow closed at 26,412 on Friday and 12 points below the close on April 5th. Normally that would be resistance, but I doubt it will be this week. The market is too close to the prior high at 26,828. However, the January high at 26,616 could be light resistance. That would be the head and shoulders level in a perfect chart, but I doubt that will occur this close to the high. I could foresee a double top, so we need to watch for that in the days ahead.

The Nasdaq is easing slowly higher and now only 125 points from a new high. There is no visible resistance in the way but there is congestion from September. It may not be a straight shot unless Netflix posts blowout numbers on Tuesday. Facebook is now leading the FANG pack with a 7-month high close on Friday while Amazon has stalled at $1,850.

The Russell remains the laggard, but it is slowly easing up to that magic number resistance at 1,600. If positive earnings were to suddenly lift the Russell over that level a breakout could be powerful.

The calendar for next week is busy with the most important reports the Philly Fed Survey and the Fed Beige Book. The retail sales, wholesale trade, etc, are important to the overall picture but they are not market movers. The Beige book is not normally a market mover, but it does fill in the economic blanks for each of the Fed regions. If there are any developing areas of weakness, they will show up here first.

Friday kicked off the Q1 earnings cycle with the first of the big banks. That cycle continues next week with Citigroup and Goldman Sachs on Monday. The tech sector gets into the swing with IBM and Netflix on Tuesday. The pace slows as we near the Good Friday holiday and the long weekend but accelerates the following week.

I believe we will see new highs in the coming days. Positive earnings guidance will be the key. Moving materially over the prior highs could be a significant challenge but one I would like to see. It is hard not to be bullish at new highs but as we saw from the three lowest volume days of the year last week, there are a lot of investors waiting patiently on the sidelines rather than chasing prices higher. Be patient. There is always another day to trade.

Enter passively and exit aggressively!

Jim Brown

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