Is the Bull Market Over?

Who, what, where, when, why and how? It seems that each of those fit the current market trading environment. The challenges facing the investor is related more to emotions than logic. What is the emotional news of the day. Is Europe really at a point of rattling the US markets based on the election results in France? The Netherlands can’t vote for austerity nor do they want it. The vote in France was against the austerity programs as well. Greece heads to the polls in two weeks and austerity will equally be an issue for them. Nobody wants to cut spending regardless of the consequences, just look at the United States. We continue to run a deficit spending budget at nearly 1.4 trillion dollars. Are there cuts? No way! Thus, looking at Europe and the news relative to these issues doesn’t surprise me that no one wants the cuts. It is the long term consequences investors are worried about globally. Since we have not been down this road before, the outcome can only be speculated. Even it the speculation is exaggerated the end result is still ugly! We have to be aware of the fear factor relative to the situation and what catalyst will trigger them. Not an easy task when there is no precedent for the challenges we may face.

Scanning the broad market indexes and sectors following Monday’s selling we find plenty of technical damage done, but there is also some optimism that it wasn’t worse. In other words, the late day buying showed some willingness of buyers to step in and put money to work on the downside movement of stocks. There some bargain hunters and those willing to sell to the bargain hunters. The S&P 500 index managed to hold above the April 10 th low, but below the 1370 support. 1340 remains the level to watch near term. This puts me in the camp of nothing has changed short term and the trading range remains in play.

Two charts to watch today are technology and financials. Technology has been the biggest disappointment short term as the leadership has turned south. The break of support on XLK, SPDRs Technology ETF at $29.20 was a negative. Can it bounce back or do we progress lower towards the next level of support at $28.40. The pressure to move lower is coming from semiconductors and networking overall. Software and internet have not helped the overall sector. Semiconductors broke support near 415 and then tested the next level at 396 with the SOX index sitting on the 400 mark at the close Monday. There isn’t much in the way of hope short term as the news has been mixed relative to earnings and the outlook for the next quarter.

 

Financials broke support intraday, but managed to close back above the $14.95 mark on XLF, SPDRs Financial ETF. The brokers (IAI) have been the bigger drag on the sector dropping 11.5% since the high on March 26th. Banks (KBE) are testing support at $22.60, but have declined off the high on March 19th. The sector is sitting on support and it needs to take on some leadership if the uptrend is to resume for the broad market.

The consumer services sector is the other leader that needs to step up if the market is going to hold its ground. The index fell in unison with the broad markets on Monday, but still remains above key support levels short term.

The warning signs are everywhere when you scan the charts. The economic data isn’t lending any type of catalyst and the global markets are one big worry for investors. The sentiment is working against the market resuming the uptrend, but each time the sellers have the opportunity to drive a stake in the heart of the bull market sentiment, they fail to follow through. Today will be a key day to find out if the buyers are still willing to step in and buy what some see as an opportunity. For me, the bias remains on the downside based on the data, but that doesn’t prevent short term buying before the real selling begins.