The strong rally off the February low is showing signs of running out of steam as the string of weekly white candles is now showing alternating up and down weeks and forming a possible small rounding top. But we're heading into opex and that's typically a bullish week.

Week's Indexes

Review of Major Stock Indexes

It was a relatively quiet week as far as news and economic reports go and that left the market to deal with just the FOMC minutes released on Wednesday. The market gyrated a bit around FOMC expectations and other than the rally around the FOMC minutes and the meager attempt at a rally on Friday there was more selling than buying and the week finished lower for most indexes.

Biotechs did well for the week, up +3.9%, but they didn't help the tech indexes. Oil did well, up +8.0%, but it did not help the stock market, which is different than we've been seeing. The two have been linked tightly and this week there was a fairly significant disconnect. At the moment oil's rally looks like a bounce correction and could turn right back down in the coming week but if it can be sustained and continue higher in the coming week I see the potential for the stock market to follow. But if oil turns back down and the stock market gets back in synch with it we could see trouble for both.

Part of the volatility around the FOMC minutes is that the market is confused about what the Fed wants and what it can and cannot do. Several Fed heads stated before the minutes and again after the release of the minutes that they feel the Fed needs to raise rates. However, the minutes reflected a consensus about worry that the weakness in the global economy will spill over into the U.S. and that the downside risks are greater than upside potential. The consensus opinion, supposedly, was that there will likely be fewer (two) rates increases for the rest of 2016.

But with some inflation data ticking higher and continuing signs of relatively strong employment, both being data points that the Fed has said would prompt a rate increase, many are now confused about what the Fed is doing. Their "data dependency" seems to be just words in the wind and now that they have the data to support further rate increases they instead now prefer to wing it and abandon their data-dependent mode.

I happen to agree with their reluctance to raise rates because I think the U.S. economy is showing too many signs of slowing (employment is always a lagging indicator) and the huge debt burden will be that much more difficult to service if rates start heading higher. Defaults on loans are already ticking steadily higher and that's deflationary. But with the market so hung up on what the Fed is saying/doing we now have a situation where the Fed can't be believed and it's the loss of faith in the Fed that will be the major problem for the market to deal with in the next few years.

The Atlanta Fed's GDPNow indicator has steadily come down and is currently projecting just +0.1% growth. Only a month ago it was projecting +2.3%. Earnings is the key for the stock market, if it paid attention to it (it seems the Fed is the only thing the market pays attention to anymore), and the current forecast for earnings, from S&P Global Market Intelligence, is for a -7.6% decline y-o-y for the 1st quarter. This makes it the 3rd quarter in a row for a decline and even removing energy we're still looking at a -3.3% decline in earnings.

Despite the evidence of slowing, hope prevails and many economists are predicting this 1st quarter will mark the bottom of the slowdown. The problem is most of these economists have a dismal record in predicting the economy. Actually they have a perfect record -- they're always wrong. But as you can guess, all of this simply confuses market participants and part of the reason for this past week's weakness has to do with the market's uncertainty, which creates less of a desire to buy stocks.

With buyers holding back their purchases the market will simply decline due to selling for any number of reasons. People sell to get money for all kinds of reasons but they have to want to buy and that's why we hear things like "gravity causes the market to fall." From a short-term perspective, the pattern of the selling in the past week is not clear enough to help determine how the coming week will go. We have opex, which is typically bullish, but waning momentum and oscillators turning down. One thing to note about opex is that while it's typically bullish, when it's not bullish it's typically very bearish. Therefore it's going to be important for the bulls to at least provide enough buying power to thwart the efforts by the bears to get something stronger to the downside started.

A Look At the Charts

S&P 500, SPX, Weekly chart

The week prior to last week saw SPX rallying above its downtrend line from November-December, near 2052 at the time, and it was looking like it was going to head for its downtrend line from July-November, near 2093 (the April 1st rally stopped at 2075). This week's selling dropped SPX back below its November-December downtrend line but it was almost able to hold it with Friday's small rally, closing near 2048 and about 2 points below the trend line. It's close enough to call it closing at support but a continued drop below the trend line would leave a failed breakout attempt. There's still upside potential to the July-November downtrend line, now near 2092, and it would be more bullish above 2100, but if it drops below its March 24th low it would confirm it's into at least a larger pullback if not something more bearish.

S&P 500, SPX, Daily chart

The daily chart shows how SPX oscillated around its November-December downtrend line. Friday's recovery attempt failed to hold up and the minor close back below the line, even with a final 30-minutes bounce back up, appears more bearish than bullish, especially in front of opex. How the market goes on Monday could dictate how the rest of the week will go but even if it does rally I think it's going to be hard to break through its downtrend line from July-November 2015, near 2092.

Key Levels for SPX:
-- bullish above 2100
-- bearish below 2022

S&P 500, SPX, 60-min chart

For a closer view of this past week, the 60-minute chart shows the gyrations since the end of March. I could easily argue the choppy sideways/down price action is just a correction to the rally and that it supports another rally leg. The more bearish interpretation is that it's building a bearish wave pattern that calls for a sudden and hard breakdown. The bearish pattern supports the idea that the market is typically very bearish during opex week if it's not bullish. But as of Friday's close I continued to see the potential for another leg up and that's why I think Monday's move will be important for direction.

S&P 100, OEX, Daily chart

OEX looks very similar to SPX in that it has been gyrating around its November-December 2015 downtrend line, currently near 910, about a point above Friday's close. Like SPX it was able to hold above its 20-dma, near 908, which is an important intermediate-trend moving average. If we do get a new high in the coming week it will very likely show bearish divergence with the oscillators, which would be one more indication the rally should not be trusted. Nothing goes in a straight line and the market is overdue a correction.

Key Levels for OEX:
-- bullish above 920
-- bearish below 895

Dow Industrials, INDU, Daily chart

The Dow has been oscillating around its May-November 2015 downtrend line since climbing above it on March 30th. For an important trend line it hasn't exactly shown us bullish enthusiasm following the break. This past week spent more time below the line, currently near 17630, than above it and Friday's rally attempt failed to hold above the line. The Dow did manage to hold onto its 20-dma, at 17543, on a closing basis and as with the other indexes the pullback from April 1st is choppy enough to suggest we'll get another rally leg. But a continuation lower on Monday would suggest the top is in for now.

Key Levels for INDU:
-- bullish above 18,000
-- bearish below 17,399

Nasdaq-100, NDX, Daily chart

The techs have held traded a little more sideways than the blue chips since March 30th but suffered the same percentage loss this past week. NDX broke below its uptrend line from February 24th after suffering two days of selling following a gap-up start on Thursday and Friday (leaving the double side-by-side red candles). The break could be significant but there's still a chance for another rally leg in the coming week. As with the others, it will be important what price does on Monday.

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

Nasdaq Composite, COMPQ, Daily chart

The Nasdaq looks the same as NDX with the small break of its uptrend line from February 24th. But whereas the NDX is still well above its 200-dma the Nasdaq is trying to hold onto its 200-dma, having tested it repeatedly since rallying above it on March 30th. From a bullish perspective it looks good that it's consolidating mostly above it but at 4850 it closed about 5 points below it for the week. It can still recover back above it in the coming week but the bulls need to stop dilly dallying and get the rally started otherwise it will also show a failure at its downtrend line from December 2015, currently near 4880.

Key Levels for COMPQ:
-- bullish above 4811
-- bearish below 4570

Russell-2000, RUT, Daily chart

While the other indexes have been struggling with their downtrend lines the RUT has been struggling with its H&S neckline near 1100. This is the uptrend line from October 2014 (the bottom of the left shoulder) - September 2015 (the bottom of the right shoulder). It tried repeatedly to get back above the line, which the RUT had dropped below in January, since first trying on March 7th and then made it above the line on March 29th. But it's had a hard time holding the line and dropped back below it on Thursday. It rallied back above the line Friday morning but it was once again unable to hold it into the close. This is weak price action and unless we get an opex save it's looking more vulnerable to the downside here.

Key Levels for RUT:
-- bullish above 1135
-- bearish below 1065

SPDR S&P 500 Trust, SPY, Daily chart

The SPY chart shows the midline of its Bollinger Band, which is the 20-dma, caught up to price since it's been consolidating for the past week. The BB is narrowing significantly and it should result in a big move to expand the band again, although we don't know when or in what direction. You can see how it stayed narrow last year from about this time into August when the market broke down and the BB blew out wider. The MFI is now back down near the 50 line and if it holds there and starts back up we would see price head higher. The problem for the bulls is that price is up inside its previous consolidation zone from last November-December and the high VAP is roughly 205-212 and SPY is struggling at the low end of this range. It could continue to be a tough battle, especially with an overbought market.

Powershares QQQ Trust, QQQ, Daily chart

QQQ has also stalled at the top of its BB and the 20-dma is coming up as it consolidates. The 20-dma has supported pullbacks since February so how it acts around it this time will provide plenty of clues. Williams %R has been choppy with price action but it's rolling over so the bulls will need to do something in the coming week otherwise it's hinting it's going to break its 20-dma this time.


Thursday's decline followed by the big gap up Friday morning had it looking like the typical Thursday prior to opex week -- pull it back to get the shorts piling in and then flame them with some buy programs and get the rally started into opex week. But Friday's failure to hold onto the rally puts a bearish taste in our mouth (that's a good taste if you're a bear but very sour if you're a bull). Failing to hold onto some important trend lines into Friday's close also looks more bearish than bullish.

But with opex typically being bullish we have to expect another try at routing the bears and sending them back to their caves for at least the coming week. If the bulls are unable to shoo them away Monday morning I think they'll see blood and as mentioned above, when opex is not bullish it tends to be very bearish. There's a bearish wave count that supports that idea as well. Therefore the bulls need to do their thing Monday morning but whichever direction we get on Monday I think that could set the tone for the rest of the week.

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