Market Outlook April 10

With just one day to go until earnings season starts to sneak into more active territory, sell-side shops decided to give it one more push and via a futures-led market tried to lure investors back into the market.  While volume was clearly lacking, oversold sectors and groups bounced the most.

Starting off with a glance at the daily chart of the S&P 500 index, last Friday’s post March payroll low at the key 1538 level is still flexing its muscles.  If and when bears manage to push the index below said level they may be able to build downside momentum.  Until such time however the bulls remain large and in charge and is your friend, if you stay the trend.  On the upside now the index looks to have room up to 1580 followed by 1600, although given the still worsening market internals one would be wise to exercise caution and not chase too much.

Many sectors and groups of stocks that last week broke their November up-trends bounced hard so far this week and right into the underbelly of the up-trend.  While these bounces can quickly turn  more seriously bullish, for the time being a simple re-test of a broken up-trend remains bearish-biased.

So did for example the transportation stocks as measured by the iShares Dow Jones Transportation IYT rally a little more than one percent so far this week and is now snuggling-up at its November up-trend.

More concerning for the bears however is the action in the financials.  The SPDR Financial XLF while also breaking its November up-trend last week is already well back above it and in fact flagging a bullish formation.  With however both JPMorgan Chase & Co (JPM) and Wells Fargo & Company (WFC) on deck to report earnings this Friday April 12th, I would caution against building up any major long or short positions in financials for the time being.  Remember, on average holding trading positions through earnings announcements is a losing game.  Much higher probability setups occur after the earnings announcement has past.

My current cautionary stands, beyond the warning signals from the bond market (discussed on Monday), also comes from the commodities corner.  While stocks have steadily climbed, commodities as measured by the iPath Dow Jones-UBS Commodity Index (DJP) continue to slip lower.  On the chart below the most recent down-trend/resistance line is clearly marked.  Simply put, given that the index is composed of 32.50% agricultural and 30.50% energy sources, the simple lack of demand does in my mind not synch well with the continued rise in equities.

In summary, the waiting came for earnings season is soon over and we shall soon know more whether global/domestic growth will confirm the rosy forecast that equities are painting.

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