Sunday, April 17, 2011

Equity Week in Review and Preview of the Upcoming Week/Month

For the last few weeks, I've felt the market was going to be moving sideways. That is still my general analysis. I don't see any reason for a major correction right now; instead, I believe the markets and traders are in a wait and see position.

The market is facing some strong headwinds: the end of QEII, China tightening, Japan recovering from its earthquake, high gasoline prices, budget stupidity in Washington, continuing EU problems and high commodity prices. We're currently seeing a wave of first quarter GDP downward revisions, which will probably continue as we go forward. However, as I will write throughout this week, the latest Beige Book is surprisingly strong -- much stronger than I originally anticipated. This should give traders pause is selling all their positions.

The technical indicators show an unexciting market: the A/D and CMF lines show no major volume move into or out of the stock. The MACD has given a sell signal and overall is showing decreasing momentum.

As prices recently approached the 134 area, they started to form smaller candles and appeared to stall. They dropped to the 50 day EMA and have since rebounded. However, the 10 day EMA is moving lower while the 20 day EMA has little upside momentum. While the 50 day EMA is moving up slightly, it's not the strongest move.

I still see upside resistance at tn 134-134.5 area, with support at the EMAs.

Like the SPYs, the QQQs have a stalled volume reading, with the A/D and CMF both showing little volume movement into or out of the market. The MACD has also given a sell signal and overall is showing decreasing momentum.

Prices have yet to meaningfully challenge the recent highs of 58 and 59. In fact, after recently approaching 58.5, prices stalled and fell back to the EMAs. The 10, 20 and 50 day EMA are all moving sideways and are in a tight bunch, indicating traders are neutral on the market right now.

I see upside resistance at the 58/59 level with support at the EMAs.

While the A/D and CMF lines are a bit more animated than the SPYs and QQQs, there is still no new money flowing into the market -- although little is flowing out either. The MACD has given a sell signal.

The IWMs have actually broken through previous resistance levels, but have fallen back to the EMAs for technical support. The EMAs give little hope for upside advancement as well.

With all of these averages, I wouldn't be surprised to see prices start forming some type of triangle consolidation pattern over the next few months, largely as traders wait and see the longer term effects of the economic headwinds we're seeing right now.