The coming week could be calm but there is nothing preventing a sudden storm.
For the last several weeks, I have written that the first two weeks of April are erratic and interspersed with gains and losses. The week after April 15th is normally down and the fourth week is normally up but this year could be an exception. Nothing has changed. Last week saw some volatility in both directions, which is normal. Next week could be calm with intermittent bursts of directional trading. It is a short week with Friday a market holiday. The only material event on the calendar is the bank earnings on Thursday morning.
With no catalysts on the horizon for this week, it could be a sleeper. Traders could leave early for the holiday and volume for the entire week could be light.
What everyone should be doing is preparing for the final two weeks of April. The last week could be dramatic with Washington going into full warfare on the funding and debt ceiling.
Most traders are aware of the calendar. They understand the risks for the last two weeks of the month and they should be making preparations this week. That could lead to a negative bias.
When determining potential market direction it is best to look at the broadest index and work down. The Russell 3000 has broken uptrend support, which is now resistance. Downtrend support is intact. However, support at 1,390 appears to be rock solid. That will make a great trading signal when/if it breaks. That would be a sell signal with major support down in the 1,335 range. I am not speculating it will go there, only the interim support is weak.
The 1,380 support from three weeks ago would be the first level to watch.
I am not predicting a breakdown in the R3K but the chart is negative. Given our place on the calendar, it will be a directional indicator.
The small cap S&P-600 is barely holding over the 820-825 level and a breakdown could be ugly given all the white space on the chart between 700 and 820.
If you needed any confirmation the rally in 2017 was powered by the big caps you only need to look to the S&P-100. That is the largest 100 stocks in the market. The sprint to the highs after January is unlike any other index.
The indicators are telling us the big cap rally may be fading. Both the MACD and RSI are falling and a break below support at 1,040 could easily drop 40 points in a very short period.
Last but not least, the Dow remains the weakest big cap index. It is stuck below resistance at 20,750 and decent support at 20,500. We could see a lot of volatility and not break out of that range. If a real correction did appear, the 19,750 level would be the target. I am not predicting it but the chart is showing us the target, if a decline appeared.
I am not going to leave the Nasdaq out of the discussion. However, the Nasdaq 100 continues to prove the big cap rally claim. The index traded at a new intraday high on Wednesday and could easily do it again at any time. The FAANG stocks were negative the last couple days but the declines were minimal. They would have to really break down to drag the index lower.
Note that the indicators began to decline at the end of February and are still declining. This means buying interest still exists but it has faded since the surge ended in late February.
Assuming Russia or Syria refrains from some form of retaliation for Thursday's attack, the shortened trading week could be calm. However, ships can sink in a quiet sea. Without a positive catalyst, the bears could become restless and the bulls become timid. The weak before Easter is normally blessed with a bullish bias but Easter came late this year and is conflicting with the April 15th tax deadline and the funding battle is not a normal April occurrence.
I would continue to refrain from being overly long and look to add some positions later in the month when volatility is likely to spike.
Enter passively and exit aggressively!
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