Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Late Friday the markets moved off their lows in a substantial manner. This is being followed by a small gap up to begin the week. Despite this markets had their worst week of the year but that is a low bar since most weeks have been quite good; the S&P 500 fell about 1% nd the NASDAQ 2%. Much as with late February we are at a very important juncture. Either this was just another pause that refreshes or the first shot across the bow. A litany of warning signals are now out there – just as they were 6 weeks ago. We won’t know if they matter this time around, until after the fact. I would point out the move in the bond market, which is usually “smarter” than the stock market. Note the TLT ETF which is now well above February highs – meaning yields are lower. Low yields usually signal sluggish growth to come. So in late February we saw 10 year yields drop to mid 1.8%s; now we are seeing low 1.7%s.
As for the indexes, the S&P 500 did hold that long term trend line on its first test (light blue line) – each time we have one of these selloffs the question is, is this the beginning of a head and shoulders top? The key as always will be to create a new higher high and not stall on to create a “right shoulder” (left shoulder and head shaded in yellow).
The NASDAQ is weaker as it has been this whole rally due to Apple, it has broken its longer trend uptrend.
The Russell 2000 also is weaker as of late but was very oversold entering Friday’s bad news from the labor report.
NYMO was also oversold – the issue here is even when the market bounces this indicator is basically making it to positive territory indicating a serious lack of breadth.
This is also shown by the % of stocks over their 50 day moving average. Even as the index hit new highs last week less stocks were over their 50 day, this indicates a continuous narrowing of market leaders.
This week we begin earnings season although the heart of it is in the next few weeks. The Federal Reserve meeting minutes are released Wednesday but considering this was minutes from a meeting that had a news conference there should be no major drama. Further, the worry is “tapering” of bond purchases which should be well off the table due to Friday’s poor jobs report. Retail sales are released Friday with expectations of flat, and +0.1% ex-autos. Last week all three key economic reports came in below expectations. Bernanke also has 2 speeches (Mon/Fri) this week.
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