Market Outlook April 18

With Tuesday’s Cinderella bounce in stocks, by end of day Tuesday the bullish broker calls started warming up my phone again.  Twitter (@steadytrader) however remained quiet,as the truer tape sensed more to come on the downside for stocks.

Coming into yesterday, by the time I finished the morning sweat and flipped on all six of my screens, red covered most of the cross asset space with a notable breakdown in European large cap stock indices.  They say a picture speaks a thousand words and with that in mind please take a quick glance at the below chart of the DAX 30 large cap index in Germany – nicht gut!  The index snapped a key medium-term support line that now should let the index sail another 3% or so lower before better support is reached.

State-side it didn’t take long after the opening bell for sellers to dominate and by mid-day the S&P 500 had come within five points of my key line in the sand at 1538.  My intra-day low target that I discussed in the comments below yesterday’s column was 1542, and we got within 1.5 points or so of that level before bouncing higher.

I reiterate that unless the S&P 500 can snap 1538, the recent price pressure is better labeled a consolidation phase rather than a correction.  Below 1538 however I am targeting the 1485 – 1500 area.

Elsewhere in the equities landscape, last week’s rally notably produced a series of  lower highs in important groups.  Where you ask?  Transports, housing, semiconductor, and small caps among others all could not muster up enough courage last week to frolic to new 2013 highs.

The transports as represented by the ishares Dow Jones Transportation IYT put in a lower high last week before giving way to price weakness this week.  They now sit on a key neck line that may belong to the head and shoulders formation you see.

The semiconductor index SOX looks much the same; a lower high last week led to lower prices this week and yet another re-test of neckline support.

Housing related stocks as represented by the Phlx housing sector HGX too is at a tricky spot.  Last week’s lower high may just have been the trigger to push this one below its key support line.

And last but by no means least is the Russell 2000.  The iShares Russell 2000 IWM last week  flagged a lower high versus the March highs and this week so far has shown nothing but weakness.  Any break below this necklnie and the index should have enough momentum to slip towards 86, or 860 on the Russell 2000 index itself.  In full disclosure, because that’s how I roll and because full transparency is the way forward, I remain short the IWM for a swing trade.

All in all, as I mused yesterday, unless corporations can serve up some seriously positive beats and outlooks, stocks look to have gained enough momentum for another few percentage points lower on the major indices.


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