Market Preview: More Room to Run

NEW YORK ( TheStreet) -- The charts appear to be coming together for the bulls.

Mark Arbeter, chief technical strategist at S&P Capital IQ, made the case in commentary on Friday that the S&P 500 could have another 10%-plus run in store for the second quarter.

"One ultra-bullish interpretation of the S&P 500 based on both the current price structure as well as long-term price action and multiple trendlines shows a potential for the index to climb up to the 1,550 region by the end of the second quarter or early in the third quarter," wrote Arbeter.

"Sometimes, a plethora of trendlines as well as other technical tools seem like they are all drawn to one point in the future, and we believe this is one of those times," he added.

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Arbeter began calling for a pause in stocks in early February when the major U.S. equity indices were up 20%-plus off the October 2011 lows.

Although there was never a dramatic drop, he did document what he termed an "invisible pullback" during March, noting a 6% decline in the Dow transports from late February through early March.

The mild selling at the end of March was also a good sign for Arbeter.

"The major indices are pausing once again and have had a tough time making any progress over the past couple of weeks," he wrote. "A fair amount of smaller indices and sectors have actually made little progress over the past two months. We view these price consolidations as positive, and believe once they run their course, the market will be able to have a rally into May or June before we see the chance for anything major on the downside."

The detail on why the S&P 500 may shoot up to 1550 in the second quarter gets a bit, well, technical, so here's the breakdown from Arbeter.

"First off, the highs from 2000 and 2007 both come in near 1,550, and therefore, represent key long-term chart resistance," he wrote. "Trendline resistance, off the highs in April 2010, February 2011, and April 2011, comes in at 1,550 when projecting out to the June/July period. Trendline support, off the lows in October, November, and December 2011 crosses the above-mentioned trendline at 1,550 in the June/July period."

There will be challenges, though, from a headline standpoint. As has been previously noted, first-quarter earnings season is going to be challenging.

According to Thomson Reuters, Wall Street is looking for earnings growth of just 3.2% in the period, down from analyst expectations of 10.2% on Oct. 3. There have also been an outsized number of warnings already, with 82 negative pre-announcements vs. 28 positive ones.

That makes for a negative/positive ratio of 2.9, the highest since the first quarter of 2009. More warnings are inevitable this week in the lull before reporting season really begins.

On the positive side of the ledger, the sell side seems confident the banks will deliver strong results and back up the 26% year-to-date jump in the KBW Bank Index ( BKX).

Citigroup said Friday an improved fixed income trading environment should support its above-consensus earnings estimates for certain names.

The firm's top picks are JPMorgan Chase ( JPM), which will be the first of the money-center banks to report on April 13, and Goldman Sachs ( GS), which reports on April 17.

"Overall the tale of the 1Q appears to have been a 'risk-on' rally across markets from equities to credit to mortgages," the firm said.

But, the firm continued, trading and underwriting volumes remain relatively weak, with completed merger-and-acquisition, equity capital market and derivative capital markets 20% to 40% lower year over year.

In addition, U.S. equity trading volumes are down 15% from last year, while interest rate and foreign exchange volatility are "markedly lower" vs. a year ago, Citigroup added.

"Volumes aside, we take comfort that sharp downside risk from Europe seems to be off the table near-term -- which may encourage further re-risking, rising trading activity, and earnings momentum," Citigroup wrote.

Another source of concern is whether the economic data will hold up. A number of reports last week were less than stellar -- durable goods orders and consumer confidence, to name two -- and there's some feeling that the mild winter may have pulled forward growth from spring. This coming week will be pretty data-centric, building toward the March jobs report on Friday.

Then there's the global situation. The good feelings from Europe's long-term refinancing operation were starting to flag when eurozone leaders opted to boost the size of the region's bailout reserves on Friday, but the situation is still tenuous, and whether more backstopping is necessary will depend on how poor Europe's economy ultimately fares for the rest of the year. A hiccup in China is a worry as well.

As for Monday's action, there are no major earnings reports. The economic calendar includes the Institute for Supply Management's manufacturing index for March and construction spending for February. Both reports are due out at 10 a.m. EDT.

And lastly, Groupon ( GRPN) will be selling at a deep discount to Friday's close after the online deals company revised its reported fourth-quarter results lower and said its independent auditor determined it has a "material weakness" in its internal controls.

Not very inspiring of confidence, given Groupon just went public in November, pricing its stock at $20 per share. The stock was last quoted at $17.29, down 6%, on volume of roughly 900,000, according to Briefing.com.

Check out TheStreet's quote page for Groupon for year-to-date share performance, analyst ratings, earnings estimates and much more.

-- Written by Michael Baron in New York.

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