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Stock Market Outlook: Has The Rally Run Out of Steam?

Last weekend we pointed out 9  reasons that this could be a new Bull cycle off the 1810 lows running to all time highs, but we also threw some water on that near term with short term topping indicators.  This is what we said last weekend:

“What should we look for near term then for clues?  Well for one its common that following a “March” positive OPEX week of trading that the market will in fact correct the following week.  If we were to take a minor re-tracement of the recent leg from 1969 to 2052, we should look for pivots of correction at 2022 and even 2000-2002 area this coming week for the SP 500.”

Well we hit 2022 on Friday and then rallied to 2035, so the low end of our corrective prediction did in fact come to pass.  If that is all the Bears can muster, then we are likely going to challenge that 2064 resistance zone this coming week as we end the quarter and window dressing takes over. However, if you look over the past 18 months or so, all major rallies off of big corrective declines lasted between 6-7 weeks.  This most recent rally hit 6 weeks this past week and made a moderate new high of 2057 before correcting. The October lows of 2014 had a 7 week rally and the September lows of 2015 followed with a 6 week rally of their own before correcting hard in both cases.

 The sledding should be a little muddy ahead we would assume.

Therefore it would be fair to assume a modest pullback to the 1999-2000 range is still likely as we pointed  out last weekend,  and further a pullback to 1963 would not be out of line in the intermediate period ahead, without causing a major issue for the Bulls just yet. As we end the quarter, the market may be a little wobbly ahead of April earnings season.

326 srp sp 500

Oil has run up against resistance as we show below: (Gold , Silver and Sugar have also turned south)

326 oil

Bulls are now running at 47% in the Advisory surveys vs just 28% for Bears as of the end of this past week. When the uptrend began at 1810 on the SP 500 Bulls were only 27% and Bears were 40%.  (Source: Investors Business Daily March 28th Edition)  Bulls have not been this high since the November 2015 highs that led to the last major corrective wave down to 1810.

bulls v bears

NASI indicator we pointed out last week being very high, continues to point to muddy waters ahead

326 nasi

Bottom line is as we have pointed out recently, the market was due for a pause and a pullback in the rally.  We hit our 2022 shallow target, then bounced up Friday.  However, much of the ammunition for the rally has been spent in terms of cash that was on the sidelines, short covering, and oil re-inflation off the $26 lows to $42 highs.  In order for the Bulls to maintain control, the earnings season that is coming up needs to be strong for the market to get past 2064, our current line in the sand of resistance.  In the meantime, a further pullback to 1999 or 1963 would not be a shock.

We see Gold pulling back to 1197-1200, which is a projection we put out on March 16th. Here is that original chart and our  forecast stands:

316 gold

With the above said on the larger indices, we turn our focus to some opportunities as well.

Biotechnology will be entering a seasonally strong period soon as the annual ASCO conference tends to have a run up in May and June for many names in the sector.


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