As Sam is taking a well-deserved vacation break, I have been asked to cover for him for the next two weeks.  I am honored to be sitting in and looking forward to sharing my views with his readership, and of course encourage any questions/comments on the daily takes.

The Arrival of April last week brought about some winds of change as stocks measured by the S&P 500 closed just about 1% lower on the week.  To be sure, the index managed to hold a critical line of support on Friday thanks to an intra-day reversal higher in the second half of the session.

Let’s take a look at the S&P 500 through the lens of a daily chart.

The up-trend channel dating back to the November 2012 continues to tucker along in a mechanically perfect fashion.  While the upper end of the channel serves as solid resistance, the lower end acts as support that the bears still find impossible to break.  The mini correction in mid-late February quickly stalled at said support line, leading to a move higher into resistance.  While the S&P 500 has mostly danced a sideways shuffle since early March, the support level at 1538 is gaining in significance and thus a line that market participants may want to circle on their charts.  To be clear, a daily close below 1538 would break the November up-trend line as well as lateral support that held in mid March and again this past Friday April 5th.  As a side note, on the weekly charts the S&P 500 did record a bearish outside week last week, which at the margin is a tick in the bear column.

A little under the surface of the market plenty of negative divergence signs are brewing.  So have for example new 52 week highs in the MSCI world index as well as on the NYSE been declining in recent weeks while the S&P 500 has moderately risen.

More recently however we have finally seen bearish price action confirm the weak market internals, which as I often point out to my readers and clients, is the ultimate/only arbiter.

Take the transportation group for example as measured by the iShares Transportation etf (IYT), which last week snapped its November 2012 up-trend.  Friday’s intra-day reversal off the morning lows in the broader market also left its immediate term positive mark on this group, which however given the trend-break should at best bounce to a lower high versus the March highs.

Much the same can be seen in the small cap universe if we spy at the chart of the iShares Russell 2000 Index etf (IYT).  Last week’s break below the up-trend confirms a change in posture that would take a good few days of solidly bullish price action to reverse.

Last and through these eyes likely most importantly, the bond market is signaling more signs of concern.  Yields on the benchmark U.S. Treasury 10 year note last week dropped to 1.71%, which is a level we have not seen since December 2012.  The iShares Bond ETF (TLT) too broke a key technical level of resistance, which is something to keep on the radar.

In summary, last week’s price action in stocks at the margin is kicking the ball closer in the bears’ court.  To get all out bearish for more than a cup of coffee however I will need to see the S&P 500 take out the 1538 reference level with conviction.

 

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