Stocks Sputter as Investors Seek Next Catalyst

Stocks are sputtering, in search of a catalyst to determine whether the next move is higher, or lower.

Analysts and traders have been expecting a pull back for several weeks now. Stocks have gained more than 20 percent since October and have run straight up since late December.  But most expect a relatively shallow pull back of  3 to 5 percent.

On Wednesday, the Dow turned south, and was off 27 at 12,938, after flirting with the psychological 13,000 level a day earlier. The S&P 500 also moved lower, down 4 at 1,357, now 7 points below its 2011 close and 13 points below the key 1,370 intraday high of 2011.

“I continue to like the market. I believe that we are on good footing, and I think that even though a near term dip may occur that investors should accumulate on that dip,” said Paul LaRosa, chief market technician at Maxim Group.

“The key number is 1,370, on the S&P, and if we don’t penetrate that in the next week or two that could indicate a negative divergence,” said LaRosa.

Thursday’s big number is weekly jobless claims, expected to come in at 355,000 when it is released at 8:30 a.m. EST. FHFA home price data is released at 10 a.m. and there are a few morning earnings, including Kohl’s, Target, Liberty Media, Dish Network, Echostar, Foster Wheeler, Hormel, Safeway, American Tower and CMS Energy. AIG, Gap and Salesforce.com report after the closing bell.

Apple’s [AAPL  Loading...      ()   ] shareholder meeting is at 1 p.m. and traders will be watching to see if there’s any talk about a much speculated on dividend, which would be a first from the cash-rich company.

Traders are also watching 13,000 on the Dow, which it touched briefly on Tuesday. They see it as a big round number that could act as a magnet for investors who have been underweight stocks.

LaRosa said stocks will be attractive unless U.S. economic data begins to sour. “Right now, I’m seeing green lights,” he said. He said technically the market is strong. “With so many charts, it’s that concrete base, that foundation. I think this house has a foundation even if a little storm comes by,” he said. A good sign for the market was when the Dow pushed through last year’s high earlier this month, he said.

“We may just keep marching higher. I think it’s not the news, it’s the reaction to the news. I think people are getting too concerned with headline risk… I think at this point the headline risk is overdone,” said LaRosa.

Steve Massocca, managing director at Wedbush, said he sees the market as a “sell” at current levels, but he would be a buyer if it fell several percent. “I think we see a lot of risks of a very elevated market. On the other side of the argument, I get the feeling the world is very underinvested in stocks and fixed income securities are basically yielding nothing. There’s an impetus for people to buy stocks. I don’t think we’ll get a significant decline, but we’ll probably back off these prices and I we think we’ll see a correction,” said Massocca.

He said the S&P could dip back down to 1,300.

One risk that traders have been watching is the rising tensions between Iran and the western nations that have imposed sanctions on it in an effort to stop its nuclear program. Oil has risen sharply as a result, and was up just slightly Wednesday at $106.28 per barrel. London Brent crude [LCOCV1  Loading...      ()   ] , a measure of international prices, was up 1 percent at $122.90.

Massocca said another risk is that the Greek debt deal could unravel. “It’s fraught with risk of falling apart, and that would put a real damper on the rally. There’s also some concerns about how durable the economic recovery is. How much of it is weather related. How much of it is inventory building,” he said.

BNP Paribas currency strategist Mary Nicola said the next key date for Europe is Feb. 29, when the European Central Bank carries out its next long term refinancing operation, or LTRO. She said the market also awaits news on Greece’s deal with private creditors. “Those are the two pieces of news that could drive euro dollar. For now, the market has settled down and is rangebound,” she said.

She said the market is also watching the weekly jobless claims number to make sure it remains below 400,000, indicating an improving labor market. “If we do get below 400,000 again, it would be the fifth straight week that we get it. I think it will be pretty important,” she said.

What Else to Watch

EIA oil inventory data is released at 11 a.m., while natural gas storage data is reported at 10:30 a.m.  The Treasury holds a $29 billion 7-year note auction at 1 p.m.

Dallas Fed President Richard Fisher will appear on  CNBC’s “Squawk Box” at 8 a.m.

Follow Patti Domm on Twitter: @pattidomm

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