The stock market struggled to put together a rally today but the sellers were not aggressive either. The market essentially went on hold while waiting to get through the Nonfarm Payrolls report Friday morning.

Today's Market Stats

For this week I am in a location that has spotty internet service (less than had been anticipated when I reserved the rental house in Costa Rica) and therefore tonight's wrap will be a little shorter than my usual diatribe. Some of you might think that's a good thing since I do tend to get a little verbose (wink). I tried to get charts updated during the day and a quick comment about each to ensure I get the report uploaded before possibly losing my connection. Next week (Thursday again for me as Tom and I will switch one more week) I'll be back to a stronger and more reliable connection. Like most everything, you don't realize how important these technological marvels are until you lose them.

The market sank further today but each new low over the past couple of days is showing less strength -- bullish divergences are showing on the charts. That could be traders were simply pulling away from the market as we approach Friday morning's Payrolls report or it could be an ending pattern that's setting up at least a bounce correction and the Payrolls report could be the catalyst, even if it's because it's not a bad report (OK report could be good).

Oftentimes we'll see chart patterns that point to an expected move and the price pattern for the indexes looked to me like ending patterns for the decline rather than something more immediately bearish. As I'll cover for the charts, there is one particularly strong bearish pattern that calls for an acceleration of the selling so I wouldn't say a bounce on Friday is guaranteed but as a game of odds that we play I will say the odds favor a bullish reaction to the NFP report. We'll certainly know soon enough.

There were no economic reports of interest today and in light of what I mentioned about my internet, I'm just going to jump right in and review the charts to see what they're telling us. I'll start with the SPX top-down review.


S&P 500, SPX, Weekly chart

Following the intraweek poke above its downtrend line from July-November, into its April 20th high, SPX rolled over and it's bringing MACD with it, which is about to cross back down. It could jump back up to a new high and leave a lower MACD high but that would be just a guess right now. The real test, if reached, will be the 50-week MA, currently near 2026. If it instead jumps back up and reaches its downtrend line, now near 2088, we'd get to see if it will continue to hold as resistance.


S&P 500, SPX, Daily chart

Over the past week SPX has broken a few layers of support once it broke free of its July-November 2015 downtrend line on April 28th. It broke its 20-dma, bounced back up to it the next day, broke an uptrend line from March 24th (the bottom of a now-negated expanding triangle top) yesterday and bounced back up to it today for a back-test. So far all of this price action is bearish but it hasn't yet tested its 50-dma, currently near 2043. Interestingly, this is also near its 2015 closing price at 2043.62 and obviously it would be more bearish below 2043. There are hints of weakness in the selling and that could be setting the market up for a bounce after we get through the NFP report Friday morning.

Key Levels for SPX:
- bullish above 2100
- bearish below 2033


S&P 500, SPX, 60-min chart

The hints of waning selling pressure can be seen in the bullish divergence on the 60-min chart below. Forgetting about the NFP report in the morning I look at this chart as a warning to bears since it looks like it's setting up for a bigger bounce and the NFP report could be the catalyst (even if it's going to be just a relief rally). The short-term pattern suggests a quick low in the morning followed by the start of the bigger bounce and if that happens we'll see a quick bear trap set in the morning. But if we get a strong break below 2043 and no immediate bounce back up, there is a bearish wave count (a series of 1st and 2nd waves to the downside) that calls for an acceleration lower, which is reason enough to be cautious about thinking of immediately buying a morning dip.


Nikkei 225 index vs. S&P 500 index, 2013-present

Keeping an eye on the Nikkei 225 index for clues about the bigger pattern shows the NIKK now nearing potential support at an uptrend line from February-April and obviously the bulls want to see support hold and then a continuation higher. But if trendline support fails to hold and especially if it drops below its April low near 15700 (today's close was 16147) there's little question in my mind that SPX would follow and close the unusual gap that's present after SPX rallied hard off the February low (for what? Certainly not for fundamental reasons).


Dow Industrials, INDU, Daily chart

The Dow is also looking like it could test its 50-dma, currently near 17524, before setting up a stronger bounce (it might not reach its 50-dma if we get just a quick minor new low Friday morning). If the Dow drops below its 50-dma and its April 7th low near 17484 it would open an air pocket below that down to price-level support at 17140 and its 200-dma at 17117. If we do get a decent bounce keep an eye on possible resistance at its downtrend line from November through the April 1st high, currently near 17770, and then its 20-dma, near 17865.

Key Levels for DOW:
- bullish above 18,120
- bearish below 17,484


Nasdaq-100, NDX, Daily chart

This week NDX broke support at its uptrend lines (June 2010 - November 2012 and March 2009 - August 2015. A second break of these uptrend lines, following the breaks in January and February, is bearish if not recovered quickly. As with the other indexes, the short-term pattern supports the idea that we're going to see a bigger bounce into next week before continuing lower. But if it drops sharply lower on Friday I don't think it will find some support until the 4200 area.

Key Levels for NDX:
- bullish above 4525
- bearish below 4213


Russell-2000, RUT, Daily chart

Since the March 7th high for the RUT it had risen inside a parallel up-channel, the bottom of which was broken slightly yesterday and more so today. Like the other indexes it also seems to be heading for potential support at its 50-dma, near 1102. A sharp break below 1100 could lead to a fast drop to the next support area near 1070. But if the 50-dma holds on a weekly closing basis I think there's a good chance for a bounce correction into next week.

Key Levels for RUT:
- bullish above 1162
- bearish below 1100


10-year Yield, TNX, Daily chart

Treasury yields have been in decline since the previous bounce peaked on April 26th and today it closed on its uptrend line from February-April. As drawn on the TNX (10-year) chart below, this uptrend line could be the bottom of a sideways triangle, which calls for one more bounce back up to the top it before heading lower in June. A more immediately bearish wave count calls for a sharp decline in yields where TNX will drop well below its February low. A drop below price-level S/R at 1.65% would confirm the more bearish pattern. But if it does head back up, presumably in reaction to Friday morning's NFP report, look for 1.90% to complete the bearish triangle pattern.


KBW Bank index, BKX, Weekly chart

The banking index is at an interesting point as it has dropped back down to potential support near 66.50. From a bearish perspective the bounce off the February low into the April 27th high was a near-perfect back-test of its broken 50-week MA, at 71.20 with a high at 71.09, and that's been followed by a strong move back down, which has it looking like a bearish kiss goodbye. Now it's back down to potentially strong support and obviously the bulls want to see this back-test result in a bullish kiss goodbye. We'd then have to wait to see which side blinks first and allows either a break above the 50-dma, currently near 71, or below S/R near 66.50. A drop below 66.50 would also leave a confirmed 3-wave bounce correction off the February low so the bulls really do need a bounce on Friday to keep their hopes alive.


U.S. Dollar contract, DX, Weekly chart

The US$ was in real danger of breaking down last week when it dropped below 93. But as the dollar often does, it dropped below support and then created a bear trap on Tuesday with its strong reversal back up. Tuesday's low at 91.88 is now the key level for dollar bulls to hold otherwise we'd likely see the dollar work its way down toward its 200-week MA, currently near 87. However, if this week's reversal is the real thing we should now see a return to the top of its trading range, near 100 by August and then one more trip back down before setting up the next rally leg later this year.


Gold continuous contract, GC, Weekly chart

Gold rallied up to 1302 on Monday, 2 points (so far) shy of the 1308 target I've been watching for. This is a test of its January 2015 high and if it rallies above that level we could see the rally make it up to at least its 200-week MA, currently near 1324. Gold hasn't been anywhere near this MA since it dropped below it in early 2013. But so far the new high is showing bearish divergence against the March high and the risk from here is the start of at least a larger pullback if not the another leg down to a new low, such as to the 1000 support level.


Oil continuous contract, CL, Weekly chart

Oil is pulling back a little but it could be for just a back-test of its broken down-channel, the top of which is near its 50-week MA at 42.95. If that holds as support and oil makes it higher than its April 29th high at 46.78 we'd likely see a test of price-level resistance at 50.92 (its October 2015 high) before we'll get a decent pullback. But a drop back below support near 42.95 would open the door to at least a larger pullback if not back down to the bottom of its down-channel, which will be near 20 in August. Gold and oil down together?


Economic reports

Following a quiet day for economic reports we'll get the anticipated Payrolls numbers before the bell Friday morning. The numbers for total Nonfarm Payroll and Nonfarm Private Payroll are expected to be lower than March, as was the ADP number on Wednesday. As long as it comes in around a Goldilocks 190-200K we probably won't see much of a market reaction since it won't move the meter for the Fed.


Conclusion

Some important support levels have been broken this week and the market is looking vulnerable to more selling. But this week's selling pressure has been waning and that sets up the possibility for at least a larger bounce correction of the decline. We have an important NFP report before the bell tomorrow and it's likely to be the catalyst for a bigger move. However, I see the potential for a head-fake move out of the gate tomorrow and then a reversal so be careful of getting caught in that.

If we get a snap to the downside and it doesn't reverse quickly, such as after only 30 minutes of selling, the bears could take over in a big way and I'd look to short bounces for a little longer. But if a quick spike down is followed by a reversal back up I think that should set up at least a multi-day bounce correction, maybe something more bullish.

The opposite scenario is also true -- a quick pop up, if it stays below Tuesday afternoon's highs, could lead to a reversal back down. In that case I'd watch for a minor new low with bullish divergence before thinking about looking for a buying opportunity (for at least a trade). A rally above Tuesday afternoon's highs, such as SPX 2069, would be a good signal that the bottom is in for now and then look for at least a higher bounce into next week.

So Friday morning has the potential to be whippy and the initial direction has a good chance of being reversed in the first 30 minutes. Trade carefully by letting the dust settle before trying to determine which direction the market really wants to go.

Good luck and I'll be back with you next Thursday (due to my travel schedule, Tom and I are switching).

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying