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Sell Into The Rally-Is It A New Trend?

Sell into the rally-two days in a row.

Today's open looks a lot like yesterday: 1) We had a piece of somewhat surprising good news (yesterday: the ADP report, today: retail sales better than expected), and 2) The market opened strong and traders immediately sold into the rally.

Retail sales: the bottom line. In general, sales were stronger than expected. Three take-aways:

1) Sales were helped by a combination of pent-up demand, better weather, the Easter shift, higher tax refunds, higher consumer confidence, and continued promotional activity.

2) Many raising guidance: but that's because retailers and the Street dramatically cut guidance a few months ago, when it looked like a catastrophe was brewing in 2009. It's still bad, but the numbers in Q2 aren't as dire as thought a few months ago, so numbers are being brought up.

3) What we need now is top line growth. David Berman, who runs a hedge fund that specializes in retailers, and others noted to me this morning that while cost cuts are clearly working, top line growth has been meager. It's time for the top line to kick in.

What about May?

Nobody is expecting a sudden turn-around. One common refrain is that comps will be tougher because the stimulus package kicked in last year in May (remember that?). However, most expect sales to continue to improve sequentially.

Stress test-that's so last week. Traders are a bit talked out on the stress test results, since so much of it has been leaked already.

Instead, they are concentrating on the nonfarm payroll report tomorrow. Bottom line: the numbers need to be closer to the ADP numbers (loss of 491,000) rather than the loss of 600,000 estimate for nonfarm payrolls. Why? Because we need to continue the “much less bad” scenario for stocks.

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