Current Market Outlook
Wednesday was a missed opportunity for the bulls, though it wasn’t all that surprising. Major indices did not follow world markets higher, despite Germany posting a nice rebound, and European markets finishing mostly higher. With no economic data state-side, little talk of policy divergence, and a quiet Greece meeting with troika, it looked as though the bulls were poised to bounce. That didn’t happen, and major indices traded in choppy fashion throughout the day. The major culprit of the weakness in equities was once again the U.S. Dollar. One quick glance at the Powershares DB U.S. Dollar Index (UUP) and it is clear to see why stocks are having so much trouble recently. So, while all may seem quiet on the news front, the dollar trade is what investors are really focusing on in March, so it would be wise to keep a close eye on what the dollar is doing.
Turning to this morning, we have a bit of economic data and some news from around the globe. Retail sales declined 0.6% m/m in February, while the consensus expectations was for an increase of +0.3%. This was following a 0.8% decline in January and a 0.9% decline in December. Needless to say, the figure wasn’t good, but traders don’t seem too sour on the matter, as S&P futures are currently trading modestly higher. Not much news from the Greece / troika meeting, which has some concerned, though we’ll continue to monitor the situation as it progresses. U.S. banks mostly passed the Fed’s stress tests yesterday, which caused the rally in Midcaps. Finally, and ECB’s Couere reiterated that its new QE program can go beyond September 2016 if necessary.
Technically speaking, Wednesday’s finish didn’t change the technical picture much, though it did strengthen the bears’ control in the short-term. Though the Nasdaq is in better shape relative to the DJIA and S&P 500, it is by no means immune to the recent selling pressure. All major indices are currently trending negatively in the short-term, while the DJIA and S&P 500 are now negative in the intermediate-term as well, falling below their 10-week moving average this week. Worth noting yesterday was the surprising strength of Mid-caps (see: MDY). The Midcaps rallied +0.73% while all other major indices finished negative. This was due to the Fed approving capital plans (stress test) for 28 of 31 banks, with none of the banks receiving a qualitative fail. This caused a big rally in banks, which underpins the Midcaps. We’ll see how they respond today when the spotlight is back on weak data and the dollar.
S&P 500 Index – Last 3 Months
Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of Fed/ECB Policy
2. The State of the U.S. Economy
3. The State of the Macro Economy
4. The State of the Oil Crash
The State of the Trend
We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:
Short-Term Trend: Negative
(Chart below is S&P 500 daily over past 1 month)
Intermediate-Term Trend: Negative
(Chart below is S&P 500 daily over past 6 months)
Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 2 years)
Key Technical Areas:
Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:
- Key Near-Term Support Zone(s) for S&P 500: 2020
- Key Near-Term Resistance Zone(s): 2063
The State of the Tape
Momentum indicators are designed to tell us about the technical health of a trend – I.E. if there is any “oomph” behind the move. Below are a handful of our favorite indicators relating to the market’s “mo”…
- Trend and Breadth Confirmation Indicator (Short-Term): Negative
- Price Thrust Indicator: Negative
- Volume Thrust Indicator: Negative
- Breadth Thrust Indicator: Negative
- Bull/Bear Volume Relationship: Positive
- Technical Health of 100 Industry Groups: Neutral
The Early Warning Indicators
Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide “early warning signs” that a trend change may be near.
- S&P 500 Overbought/Oversold Conditions:
– Short-Term: Positive
– Intermediate-Term: Neutral
- Market Sentiment: Our primary sentiment model is Neutral .
The State of the Market Environment
One of the keys to long-term success in the stock market is stay in tune with the market’s “big picture” environment in terms of risk versus reward.
- Weekly Market Environment Model Reading: Neutral
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