Trouble Brewing in the Markets

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.

As Sam Collins is taking a much-deserved vacation, I have been asked to cover the Daily Market Outlook for the next two weeks. I am honored to be filling in and looking forward to sharing my views with his readers. I encourage any questions or comments.

The arrival of April brought about some winds of change as the S&P 500 closed about 1% lower for the week. The index managed to hold a critical line of support on Friday thanks to an intraday reversal higher in the second half of the session.

SPX Chart
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On the daily chart of the S&P 500, we see the uptrend channel dating back to November 2012 continues to climb 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 can’t break. 

The mini correction in mid-February quickly stalled at the 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 1,538 is gaining in significance and, therefore, is a line that market participants may want to circle on their charts. 

To be clear, a daily close below 1,538 would break the November uptrend line, as well as lateral support that held in mid-March and again on Friday, April 5. As a side note, on the weekly charts the S&P 500 did record a bearish outside week last week, which is a tick in the bear column.

A little below the surface of the market, signs of negative divergence are brewing. For example, new 52-week highs in the MSCI World Index and NYSE have been declining in recent weeks while the S&P 500 has moderately risen.

More recently, 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.

IYT Chart
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Take the transportation group for example. The iShares Dow Jones Transportation Average (NYSE:IYT) snapped its November 2012 uptrend last week. Friday’s intraday reversal off the morning lows in the broader market also left its immediate-term positive mark on this group. However, given the trend break, IYT should at best bounce to a lower high versus the March highs.

IWM Chart
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Much the same can be seen in the small-cap universe if we look at the chart of the iShares Russell 2000 Index (NYSE:IWM). Last week’s break below the uptrend confirms a change in posture that would take a few days of solidly bullish price action to reverse.

TLT Chart
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Finally, and through these eyes likely most importantly, the bond market is signaling more signs of concern. Yields on the benchmark 10-year U.S. Treasury note dropped to 1.71% last week, which is a level we have not seen since December 2012. 

The iShares Barclays 20+ Year Treasury Bond (NYSE:TLT) also broke a key technical level of resistance, which is something to keep on your radar.

In summary, last week’s price action in stocks kicked the ball closer to the bears’ court. To get all out bearish, though, I will need to see the S&P 500 take out the 1,538 level with conviction.

Today’s Trading Landscape

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

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

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