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ETF Periscope: The Pain In Spain Is Unlikely To Stay On The Plain

 April 02, 2012 03:06 PM

"There are only two mistakes one can make along the road to truth; not going all the way, and not starting."– Buddha

You may forgive Wall Street if it is acting a bit giddy as of late. It has just come off one of its best first quarters in over ten years, and after the wild ride of 2011, who can blame it for a round or two of light-headed celebration?

The numbers are, on the face of it, admittedly pretty impressive.

The Dow Jones Industrial Average (DJIA) swung upwards to the tune of 8.1% for the first three months of 2012, which, at least in terms of total points gained for a Q1 period, placed it at the very top of the heap. Not too shabby, when you consider that the Dow's history encompasses a timeline of roughly 128 years.

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As for the S&P 500 Index (SPX), it ended Q1 up 12% through the end of March, a first-quarter performance not seen by the benchmark index since the heady days of the dot.com era, a good 14 years back. The most stunning performance of the quarter by a far margin, however, was the Nasdaq Composite Index (COMP), which gained 18% over the same time period. Apple's otherworldly 40% gain over the course of the first three months of the year certainly served as the fuel that blasted the Nasdaq into the stratosphere, though the tech heavy index certainly had a lot of room to move up, having been something of a laggard during the current Bull Run that stretches back to '09.

As for the Dow, 13,000 seems to be the developing as the latest testing ground for the Blue-Chip index's next potential leg up, and that psychologically important horizon may e eventually serve as a textbook example, in terms of technical analysis, of a level that segues from critical resistance into crucial support.

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Which side of the line the Dow ends up spending the majority of its time on in the immediate future will depend on the same two factors that have served as the primary influence on the equity markets for the last year: the domestic economy and the Eurozone.

If it's true that a reasonably accurate take on the U.S. economy is reflected in the health of its corporations, then the next wave of earnings reports for Q1 2012, officially beginning with the "first pitch" tossed out by Alcoa (AA) next week, should affect the mercury in the barometer in fairly short order. If a positive trend emerges in the overall earnings arena, then the Bulls can downshift, regain traction, and resume the current year's momentum.

A strong round of earnings reports may also be what it takes to coerce all those bystanders on the sidelines, holding cash positions and harboring doubts of the equity market, to start buying stocks and boost the relatively anemic volume that has been one of the hallmarks of Wall Street so far this year.

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