We had another bullish week, making it six out of the past seven weeks as bullish. The sharp recovery off the February low gave us a positive quarter and the S&P and Dow indexes recovered their losses to finish positive for the year. Now the question is whether the push to get the quarter positive will hold in the coming weeks.

Week's Indexes


Review of Major Stock Indexes

Give bulls credit where credit is due and last week's rally was a bullish punctuation mark on an already very bullish 7-week run up from the February lows. Regardless of whether it was a quarter-end push or help from the Fed that spiked the shorts out of the market, from a price perspective it's been a very bullish run. It would be nice to see some more volume behind the rally (the lower volume is one indicator of short covering rather than solid buying) but at this point that's nitpicking -- price is king and price says the bears need to be careful.

As you can see in the table above, those indexes that are still in the red for the year include the RUT and tech indexes. The SOX got back in the green with its +8.8% rally in March but the banks (BKX) are still down -11.5% for the year. I like to see the SOX and BKX in synch to support the current trend in the broader indexes. When they're not in synch it's usually a good clue that the current trend could be in trouble.

Oil had a big recovery in May, up +13.6%, and with the tight linkage between stocks and oil it's not surprising to see most of the stock indexes higher as well. Oil's pattern is looking toppy and between that and the mixed message from the SOX-BKX pair I'm thinking it's a good time for stock bulls to be cautious.

The utility sector also remains strong, up +8.0% in March and +15.7% for the year. This is another question mark when thinking about a bull market since the utility sector is a defensive sector. Investors move into dividend paying utilities (these are not growth stocks) when they're worried about the stock market in general. It's like parking your money in big dividend-paying blue chips. When I look at mixed pairs (SOX-BKX), lower trading volume (lower than in previous selloffs), a toppy oil pattern and strong defensive sectors it has me wondering about the current rally. For now it's another caution flag.

The trend is clearly up so bears don't have anything here but the bulls can't get complacent. We've had too many large whippy moves in both directions since last fall and we don't know if that will change. This is a trader's market and we are likely soon facing at least a larger pullback before (if) heading higher.


A Look At the Charts


Dow Industrials, INDU, Weekly chart

The Dow's weekly chart shows why bears should be very nervous here -- a weekly close above its downtrend line from May-November 2015, currently near 17630. It could turn into a head-fake break, and a close back below the line for the coming week would be a sell signal, but at the moment it's clearly a bullish break. The next test for the bulls is the November high at 17978 (possibly only the December 29th high at 17895). As long as the broken downtrend line holds as support on a back-test we should see higher prices but as depicted with the light green dashed line, a run up to the May high at 18351 is likely all we'd see before starting at least a larger pullback. If last week's bullish break turns into a head-fake break we'll see at least a larger pullback, potential back down to the bottom of a sideways triangle (near 16600 by July). The sign of the bear for at least the short term would be a drop below price-level S/R at 17140, which would also be a drop back below its 50-week MA, currently at 17277.


Dow Industrials, INDU, Daily chart

Last Wednesday's rally, helped by dovish comments from Janet Yellen on Tuesday, pushed the Dow over its May-November 2015 downtrend line and it was then back-tested with Friday's quick pullback and support held, which keeps it bullish. The big question in my mind is how much of the rally was quarter-end driven (hedge funds creating the rally in order to maximize AUM, assets under management, as a way to maximize their management fees). If that was one of the primary motives for the rally, followed by new-month money on the first of the month, there might not be much left to support the market in the coming week. This is one reason why it's now important for the broken downtrend line to hold -- the bullish break cannot be reversed otherwise it will become a failed break and they typically reverse hard (creating a bull trap). The coming days will be important.

Key Levels for INDU:
-- bullish above 17,670
-- bearish below 17,399


S&P 500, SPX, Daily chart

SPX also finished last week with a bullish break of its downtrend line from November-December, currently near 2050, which makes it an important level to hold in the coming week. The Friday-morning spike down to 2043.98 was a brief break of trendline support but it held price-level support at its 2015 closing price at 2043.62. I'm thinking there were more than a few buy programs set to buy the pullback to that level in order to make sure the S&P stayed in the green for the weekly close. The rally back up to a high at 2075 was good for a new high for the rally from February and I see additional upside potential to the 2090 area where it would test its downtrend line from July-November 2015, but only if we see it hold above 2050. SPX would be even more bullish if it can rally above 2100 but with an overbought market on all time frames the jam into the end of the quarter might have been the completion of the rally. It certainly has me wondering if there will be any juice left to continue higher and once the leg up from February completes, which would be confirmed with a drop below the March 24th low near 2022, we should see at least a deeper pullback correction before heading higher (bold green depiction) but we could see something more bearish (bold red depiction).

Key Levels for SPX:
-- bullish above 2050
(more bullish above 2100)
-- bearish below 2022


S&P 500, SPX, 60-min chart

The SPX 60-min chart below provides some short-term things to watch on Monday and Tuesday, which should in turn provide clues for what the rest of the week will be like. You can see the rally up to the downtrend line from November-December 2015 on March 22nd and then the break above it Tuesday afternoon (courtesy Yellen's dovish comments). SPX then pulled back slightly into Thursday and then the spike down Friday morning, for the test of the 2015 close, which was followed by Friday's rally back up to the broken uptrend line from February 24 - March 10. The price pattern is a little unclear but with SPX making up near the 2076.44 projection shown on the chart (for the c-wave of the 5th wave of a possible ending diagonal) I'm alert to the possibility that Friday's jam up into the close might have been the final hurrah for the rally. An immediate drop down on Monday and a drop below 2050 would be bearish (don't buy the first pullback) but unless that happens I'd look for a run up to the top of the rising wedge, near 2090 by the end of the day Monday.


S&P 100, OEX, Daily chart

OEX broke above its downtrend line from November-December 2015 last week, near 913, and it stays bullish above that level. A broken uptrend line from February 11 - March 10 was broken on March 23rd, back-tested on Thursday and if it's to be back-tested again we could see the OEX up to about 930 by the end of the day Monday. That would also be good for a test of the mid- to late-December highs and then higher potential is to its December 2nd high, near 938, and its November 3rd high, near 944. But MACD is showing some bearish divergence and to expect much higher, if any, might be pressing your luck.

Key Levels for OEX:
-- bullish above 885
-- bearish below 850


Nasdaq-100, NDX, Daily chart

NDX finished Friday with a bullish engulfing candlestick, which would be a very bullish reversal pattern at the bottom of a decline but has less of a bullish meaning near the highs. One could even argue it's the result of a blowoff move. But if the bulls can keep up the buying pressure on Monday we could see it challenge the top of a rising wedge pattern, near 4557 by the end of the day Monday, which would also have it tagging its 78.6% retracement of its December-February decline. The first sign of trouble for the bulls would be a drop below Friday's low at 4452.

Key Levels for NDX:
-- bullish above 4558
-- bearish below 4374


Nasdaq Composite, COMPQ, Daily chart

The Nasdaq has the same bullish, potentially bearish, candlestick on Friday and it made it up to within 3 points of potentially strong price-level S/R at 4920. This was the shelf of support that held in November and December 2015 until it broke on January 4th. A quick back-test on January 5th was followed by a strong breakdown and therefore a return to the scene of the crime could result in many traders getting out of positions after they had ignored their stops back in January when the market broke down. The promised God that they will never do that again if they can just get out even. But if the bulls can break above 4920 I see upside potential to about 4550 and then maybe up to 4970 where it would retrace 78.6% of its December-February decline. As with the NDX, the first sign of trouble for the bulls would be a drop below Friday morning's low at 4832.

Key Levels for COMPQ:
-- bullish above 4920
-- bearish below 4734


Russell-2000, RUT, Daily chart

Tuesday's rally spiked the RUT up and over resistance at 1100-1105, which had held back previous rallies in March, and then Friday morning's quick pullback held support on a back-test of its uptrend line from October 2014 - September 2015 (H&S neckline that has so far been negated but only if it holds above 1100 this coming week). But the bulls need to keep the buying going because Friday's recovery off the low left a hanging man doji for the day's candlestick, which could turn into a reversal pattern if Monday finishes with a red candle. If last week wasn't a blowoff move and the rally continues we could see the RUT make it up to its downtrend line from June-December 2015, currently near 1140, which is also the current level for its 200-dma. But with the bearish divergence we're seeing at the new highs this past month I would be careful about pressing upside bets.

Key Levels for RUT:
-- bullish above 1105
-- bearish below 1065


SPDR S&P 500 Trust, SPY, Daily chart

This past week, with Wednesday's and Friday's rallies, SPY is pushing up against the top of its BB, as can be seen on its daily chart below. It can push the BB higher but it's not a good time to be aggressive on the long side. MFI shows a clear bearish divergence against the mid-March highs and the trading volume has remained on the light side. These are not all rally killers but it's a good setup for a reversal that the bears should be watching for.


Powershares QQQ Trust, QQQ, Daily chart

QQQ is also pushing up against the top of its BB, currently at 110.41 and only 5 cents above Friday's close. Trading volume is tailing off but Williams %R continues to support the bullish trend by flattening out in overbought. Trend followers should pull stops up tight since a drop back down from the top of the BB could lead to at least another return to the 20-dma, currently at 107.09.


S&P 500, SPX, Weekly chart with 23-week cycles

There's one other chart to show this weekend to highlight another reason for caution following the strong rally off the February low. Other than a rally that has gone too far too fast, which is the hallmark of a bear market rally, there's a cycle study that says the rally could come to an end this week. Since the October 2011 low we've seen important highs occur on a 23.2-week cycle and the next period completion is this coming week. These are typically plus or minus a week or two but you can see how well this cycle study has worked for the past 4-1/2 years on the SPX weekly chart below. It's not a foolproof way to trade the market (it did not reverse at the February 2013 cycle turn date and oftentimes it's good for only a small pullback correction) but added to the other reasons to be cautious about this rally, bulls have plenty to worry about even if it's too early for bears.


Summary

It's been a great run for the bulls and stronger than I thought we'd see when the indexes lifted off the February lows (I had expected a big bounce correction but not this big). Indicators have once again turned very bullish and sentiment hit extreme bullishness, although the sentiment had backed off in the past week and then spiked back up into extreme greed on Thursday and Friday. Both price and sentiment are in nosebleed territory and the bulls are going to need oxygen tanks if they want to climb higher. Waning momentum in the momentum oscillators suggests they're getting tired and had it not been for the end-of-quarter run into the first day of the new month it might have been a different kind of week. That different story might play out in the coming week and therefore it's a good time for bulls to suck those stops up tighter.

If the indexes push higher on Monday keep an eye on the upside projection levels noted on the charts. Respect the trend (up) but don't get complacent about it. Bears have nothing to go with here since there's no evidence of a reversal, only warnings we could be close to one. We could get some important price signals on Monday or Tuesday and by Wednesday we should have a good idea about whether or not a top is being made or if instead we could see a rally last at least another week or two and take us into opex (April 15th).

Trade safe, have a good week and good luck with your trading. I'll be back with you next weekend.

Keene H. Little, CMT

Technicians look ahead. Fundamentalists look backward. The true language of the market is technical. - Joe Granville