Market Continue to Churn for Direction

For two weeks we have been looking for some direction in the broad markets and the charts show no changes. The S&P 500 index is  a prefect chart to look at as it shows little in the way directional implications. The picture below shows short term more than I can express in words. We can discuss Spain, energy prices, earnings and the economy until we are ill, but the impact on investors has been to churn in place building a conviction relative to direction. Truth be know this drives most traders crazy. The last two weeks has been a great time to catch up on some reading or play golf.

The index has continued to test the uptrend line off the October low. While we can say it is positive that it has held support of the line it is equally disappointing that we have not seen bounce worthy of trading, nor have we seen a break lower worthy of shorting. Thus, my comments above. 1392 on the upside is the level to watch and 1370 and the trendline on the downside are worthy of watching. Volume has been the other issue of concern. The first major distribution day (selling) on April 10th show acceleration in volume and the second happened Thursday. Thus we could be looking at a move lower building for the index based on Thursday’s activity, but that still requires a follow through and confirmation. Downside bias is in play.

Breaking the chart down further, you can see in the 15 minute chart above the bear flag formation which is another short term negative that followed through on Thursday. A break from this pattern would bring the 1340 level into play as support short term. The sellers has a chance to take control, but let the buyers step in the last hour of trading. That makes Friday an interesting day. Watch for the downside follow through short term for a potential downside trade.

Two sectors to watch relative to the downside pressure on the S&P 500 index is Financials and Technology. XLF, SPDR Financial ETF is holding the uptrend off the December lows, but is showing some short term weakness on earnings in the sector and putting pressure on the broader index. Watch the $15 level of support, a break would open the downside and offer a catalyst lower for the S&P 500 index.

Technology broke the uptrend line off the December low and XLK, SPDR Technology ETF broke initial support at $29.80 and is now in position to break the $29.25 support level with $28.40 the next stop. The semiconductors have been a drag on the sector along with Apple, Google and Priceline. The three large cap stocks are putting pressure on the NASDAQ index as well. A break of support and push lower for tech would be a big negative for the broader index on the downside.

Thus, Thursday put things in perspective, but didn’t provide any definitive answers relative to short term direction. If the charts follow through on the downside momentum and confirm the set up in the charts a downside trade would be the opportunity. This has been a slow developing process and we aren’t there yet. Be patient and let this play out. In the meantime work on lowering your handicap or read that novel you’ve been wanting to finish.