The Chart I Find Most Concerning in This Market

by Sam Collins | April 22, 2013 2:24 am

On Friday, the major indices struggled to stay above the breakeven line for most of the day. The major impediment to a solid recovery, following two days of losses, was disappointing earnings from U.S.-based multinationals that have so far kept the market in the black.

General Electric (NYSE:GE[1]), IBM (NYSE:IBM[2]) and McDonald’s (NYSE:MCD[3]) management all expressed doubts concerning growth for the remainder of the year, however GE and MCD met earnings forecasts. But IBM fell 8.3% after missing earnings estimates and reporting revenues that were more than $1 billion below consensus estimates.

Despite disappointments from those blue chips, the Dow Jones Industrial Average closed 10 points higher at 14,548, the S&P 500 gained 14 points to 1,555, and the Nasdaq rose 40 points to close at 3,206. The NYSE traded 914 million shares and the Nasdaq crossed 518 million. Advancers exceeded decliners by over 2-to-1 on both major exchanges.

For the week, the Dow fell 2.1%, the S&P 500 dropped 2.1%, and the Nasdaq lost 2.7%.

04 22 13 dji 300x200 The Chart I Find Most Concerning in This Market
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chart key 300x84 The Chart I Find Most Concerning in This Market[4]

The Dow industrials’ bull channel is still intact, but barely (or should I say, “bearly”). Friday’s intraday low at 14,444 appears to have almost hit the bullish support line where it triggered a minor buy signal from our proprietary internal indicator, the Collins-Bollinger Reversal (CBR). Note the support zone at 14,382 to 14,550. A break there could lead to a violation of the 50-day moving average, now at 14,354 (advancing).

04 22 13 djt 300x199 The Chart I Find Most Concerning in This Market
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In contrast to the industrials, which made a new high on April 12, the transports failed to follow through with a new high, setting up the previously discussed Dow divergence[5], or “non-confirmation.”

 

04 23 13 bond 300x199 The Chart I Find Most Concerning in This Market
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The bond rally, as illustrated by the iShares Barclays 7-10 Year Treasury Bond Fund (NYSE:IEF[6]), is still intact. It is trading at the top of a one-year channel and has been rallying since mid-March. This normally indicates a tendency for institutions to go to the protection of bonds versus stocks. A break to new highs would show a rush to safety.

Conclusion: When I left for vacation on April 5, I noted[7]: “Despite the Dow industrials’ ability to hold the course, the breakdown of the transports creates a classic Dow divergence and must be considered a negative.”

A chart of real concern is that of IEF, which has been under accumulation since March 14. With yields at historic lows, there is only one reason to buy bonds, and that is safety.

Perhaps the industrials and transports will hold at the current support levels and turn back the market from fear to optimism. Thus far, the abundance of bad news has failed to break the bull’s back. But the uptrend lines in both the S&P 500 and the Dow transports have been broken. And a close under S&P 1,538, as noted by Serge Berger on Friday[8], would be a strong negative.

It is clearly time to hold cash. After two weeks of vacation, my reflection is that “the more things change, the more they remain the same.”

Many thanks to Serge, head trader and investment strategist for The Steady Trader[9], for minding the store during my absence. As many of you have noted, he is an outstanding technician who provides intelligent, plain-spoken support for his ideas. You can sign up for his free weekly newsletter here[10].

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[11].

For a list of this week’s economic reports due out, click here[12].

Endnotes:
  1. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  2. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  3. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  4. [Image]: http://investorplace.com/wp-content/uploads/2011/04/chart-key.gif
  5. previously discussed Dow divergence: http://investorplace.com/2013/04/daily-stock-market-news-smart-money-still-chasing-blue-chips-but-should-you/
  6. IEF: http://studio-5.financialcontent.com/investplace/quote?Symbol=IEF
  7. I noted: http://investorplace.com/2013/04/daily-stock-market-news-smart-money-still-chasing-blue-chips-but-should-you/
  8. as noted by Serge Berger on Friday: http://investorplace.com/2013/04/daily-stock-market-news-now-is-not-the-time-to-go-bottom-fishing/
  9. The Steady Trader: http://thesteadytrader.com/
  10. free weekly newsletter here: http://forms.aweber.com/form/42/1636996642.htm
  11. click here: http://online.wsj.com/mdc/public/page/markets_calendar.html?mod=topnav_2_3024
  12. click here: http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

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