The storm of headlines last week failed to dent the market although the weekly gains were minimal.
The market wandered aimlessly on Monday and Tuesday but spiked in relief on Wednesday with decent gains. The wandering returned on Thursday and Friday when the indexes declined to barely close positive for the week. The headline storm was like most winter storms. The weatherman predicts 1-2 feet of snow and everyone panics and the food stores are mobbed as everyone stocks up for the pending disaster. The storm arrives and barely provides a dusting of snow and suddenly the panic turns into just another day at the office.
The various headlines came and went and the only one that mattered to the market was the Fed decision and the promise to move gradually on future hikes. That took all of the worry out of the market. The focus turned to the option expiration and plans for the weekend.
This week could start out negative. Comments from the G20 on globalization and free trade sent the S&P futures down -7 at the open and they are -6 at just after midnight on Monday morning. This could reverse completely by the open but we are due for some weakness.
The day after a quadruple witching rarely sees a strongly directional market. Everyone is waiting for their expired option trades to settle and trying to decide what to trade next.
There are very few headlines expected this week. There are only a couple economic reports of note with the home sales numbers. There are very few earnings with FedEx, Nike and Finish Line as the highlights.
The risk for this week is "normal market forces." With earnings basically over and the Q1 option cycle complete, this is the ideal point for investors to take money out of the market to pay their tax bill. The last week of March and first two weeks of April are typically choppy to down. The first two weeks of April tend to be especially weak because of the tax withdrawals.
The S&P is holding right at initial support and if the futures hold, we could see that break at the open on Monday. The real support to watch is the 2,360, which was tested twice over the last two weeks. We should also watch uptrend support because any decline of 10 points or more will break that trend and it could trigger additional selling.
The Dow remains the weakest index and there is a lot of profit in the Dow stocks that remains uncaptured. If the market decides to pause, the Dow is likely to be the biggest loser. Support at 20,800 was tested twice and the next test may not get a passing grade.
The Nasdaq remains the strongest indexes with the Nasdaq 100 making new highs. The Nasdaq Composite has closed at 5,899 for three consecutive days with the current historic high close at 5,904. There is some strong resistance preventing a higher high. The Nasdaq 100 closed at a new high at 5,416 on Wednesday and held the gains through the post Fed weakness to close at 5,408 on Friday.
The big market change late in the week was the reversal in the small cap space. The S&P-600 and Russell 2000 rebounded off of support on Tuesday and closed positive the last three days. This is a complete turnaround from the weakness the prior week. If the small caps can continue moving higher it would be very positive for market sentiment.
I would remain cautious over the next three weeks as the normal volatility passes. Strangely, we are only three weeks from the start of the Q1 earnings cycle and that will start the investing/trading cycle all over again.
My biggest fear is that we get a big downdraft given the gains since November. I worry that we get stopped out of a lot of positions only to see the market rebound again. I am sure you have noticed that I am keeping the stop losses wider than normal. If we can skate through the next three weeks with only a 2% decline, we should be ok. More than 2% and we will start losing positions. I have no doubts the market will end the year higher so depending on the speed of any future decline, I may remove the stop losses entirely or selectively.
Markets do not go up or down in a straight line. There are normally pauses along the way.
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