No, a double tap is not the bulls taking out the bears with two shots to the torso, although I'm sure the bears are feeling that way at this point. The DOW finally made it up to its December 31st high, the last major index to do so, and so far has a double top with bearish divergence if it doesn't keep going. Otherwise the double tap will be the bears hitting the bulls between the eyes.

Wednesday's Market Stats

The DOW missed its December 31st high by 6 cents, hitting a high today at 16588.19 vs. its December 31st high at 16588.25. Close enough for government work? Certainly the bears would like to think so and with the bearish divergence against its December high this is not a time for the bulls to let up on the gas pedal.

The bulls got their goldilocks employment number today -- not too hot and not too cold. It was just right, coming in at the sweet spot near 200K. It was not as good as had been expected but better than the previous month, which keeps the Fed happy to continue their uber-accommodation of the market, I mean economy. The February number was revised up from +139K to +178K and March came in at +191K so both months looked OK. But the expectation was for March to be +215K and therefore the actual was a slight disappointment. Nothing that a little more Fed money can't help. It's done so much good (cough) already.

On Friday we'll get the government's Payrolls number and with it the average work week. I recently read a statistic, unverified by me, about what's been happening with the work week and what it means for our economy (and a reason Yellen remains uber accommodative). Since the Fed is so data dependent, there's a reason why they remain very cautious about the employment picture -- the shrinking work week and the resulting reduced spending by workers.

Since September we've seen a steady, albeit slow, decline in the average work week, adding up to about 20 minutes shorter over the last 6 months. This doesn't sound like a lot but for the economy the loss is equivalent to a loss of about a million jobs (same fractional loss). If you add the number of new jobs added since last September it's a little more than 900K and that means the net effect is slightly negative, at best break even, when it comes to the spending power of workers. They're either out of a job or suffering from less pay due to a shorter work week.

While the current Administration crows about the number of new jobs created we have to recognize that at best it's economy-neutral -- fewer hours worked means less take-home pay, which means less spending (forget savings -- the Fed is working hard to make sure that's not an enticement for anyone).

There are more than a few guesses why the work week is slowly shrinking. Many blame Obamacare and the fact that many companies are holding back on hiring (to stay below 50 employees, above which requires the company to offer employees insurance) or they're reducing the number of full-time employees and creating more part-time positions so as to avoid the need to offer them insurance. Congress is even considering raising the minimum work week requirement to 40 hours, from 30, which would enable companies to declare all those working less than 40 hour/week ineligible for company-sponsored health care.

This 40-hour requirement that Congress is considering would be unfair to those working anything between 30 and 40 hours that might suddenly find themselves ineligible for company healthcare and it could encourage even more companies to drop the work week for some employees to something less than 40 hours, further exacerbating the problem with a shortening work week that reduces spendable income. We have the Fed trying to encourage more spending and less saving and the government's Obamacare requirements encouraging companies to reduce the work week and employment (e.g., robots don't need healthcare). As usual, it's the law of unintended consequences whenever the government and the Federal Reserve try to manipulate anything.

Today's ADP report indicates Friday's Payrolls report should also be in the sweet zone and as long as it doesn't differ considerably from the ADP report, or stray far from 200K, it will likely remain market neutral. The challenge for traders is trying to figure out whether or not a good number (better than 200K) is good or bad for the stock market. A number greater than 200K, especially above 300K, would of course be good news about our economy and something we should hope for. But if you want to trade the long side you probably want a disappointingly bad number on Friday.

Even though the charts have been less than helpful the past month or so, I'd still rather stick with them than try to figure out how the market might react to what's perceived to be a good or bad number, especially since that reaction tends to switch at undefined moments. So let's dive in, starting with the DOW's charts since it's now challenging its December high.

The DOW's weekly chart points to potentially tough resistance near 16700, which includes price projections and its trend line along the highs from 2000-2007. Two equal legs up from 2009 points to 16686 and a wave relationship in the 5-wave move up from October 2011 (the 2nd leg of the move up from 2009) points to 16702. One good rally could get us there. Notice the significant bearish divergence as the DOW hits its December high.

Dow Industrials, INDU, Weekly chart

One thing I've been considering is a fractal pattern between the 3-wave move up from October to December 2013 and the one from February. The 2nd leg of the first move achieved 62% of the 1st leg and a similar pattern would have the 2nd leg, which is the rally from March 14th, reaching 16767. Between the trend lines, longer-term price projections and this shorter-term one we've got an upside target zone at 16686-16767, a little more than 100 points, which hopefully will be narrowed down once it looks like the pattern is finishing. Just keep in mind the possibility for a double top for the DOW and the completion of its rally at any time.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 16,650
- bearish below 16,190

The choppy price pattern over the past month has me pulling my hair out (what little is left) trying to figure out where it's going. Corrective price action is a very difficult time for traders and this time is no different. I'm forced to change my ideas for the market on a daily basis so what I'm showing on the daily chart above and the 60-min chart below is a best guess based on what I'm seeing so far. Even though the rally from last Thursday is sharp, it still has a corrective wave structure and that helps confirm we're very likely in an ending pattern to the upside. I show a down-up sequence into opex week, topping out near the 16767 projection shown on the daily chart. This stays bullish as long as it doesn't break below last Thursday's low at 16191.

Dow Industrials, INDU, 60-min chart

It's the same for SPX -- a very choppy rally has the appearance of an ending pattern and ideally it needs a pullback and then final high. I show it completing a rising wedge and topping out near 1905 in opex week but that will be modified as price dictates. It stays bullish north of 1842 but keep in mind that if a rising wedge pattern forms it's going to get retraced quickly and completely once it breaks.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1884
- bearish below 1842

I've been following the S&P 100 index (OEX) recently because it often provides a little clearer picture than the others. I'm not sure if it has to do with less rampant manipulation or it's just because it involves the largest 100 companies (by market cap) in the S&P. In any case I want to point out the potential for the rally to end sooner rather than later. I have the same rising wedge pattern as the others but today's rally Might have completed the 5th wave of it. It's an ugly wave count, with the large 1st wave, but I've come to expect ugly wave counts from this manipulated market. The price projection at 835.05, where the 2nd leg of the rally from October 2011 equals 162% of the 1st leg, was achieved today and it did so with a little throw-over above the top of the wedge (the trend line across the highs from March 7-21). A drop back below the line, near 833.70, could mark the completion of the pattern and down she goes. Confirmation of the completion of the pattern would be a drop below last Thursday's low near 816.

S&P 100, OEX, Daily chart

NDX is either very bullish or very bearish here. Following the 3-wave pullback from March 6th into last week's low, we could be looking for a strong rally up to the 3850 area by opex. That would be about a +6% rally from last week. It has climbed back above both its 50-dma and today its 20-dma, as well as recovering back above its June-October 2013 uptrend line. It all looks bullish and bears need to back off if this keeps going. But the bears could have a trick up their sleeve if the decline from March 6th is a 1-2, 1-2 wave count, which calls for a very strong decline to follow in a 3rd of a 3rd wave down. Look out below if this breaks down. For this reason I would not give back much on a long position, especially if last week's low near 3543 is broken. Neither side can get complacent here, nor can either side afford to let a position run against them. Bullish above 3718, bearish below 3543.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 3718
- bearish below 3543

The RUT has the same pattern and the same potential as the NDX -- bullish above its March 21st high at 1208 and bearish below last week's low at 1147. At the moment it has bounced back up to its broken uptrend line from November 2012. A back test followed by a bearish kiss goodbye has the potential to develop into some serious selling so bulls need to be cautious here. Caution for the bears goes without saying but you can see the bearish setup here (with a tight stop).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1208
- bearish below 1147

I've been watching the 10-year yield (TNX) whack around since its February 3rd low and this one has been worse than the stock market. About the only thing I can say for it is that all of the choppy price action has formed a shallow up-channel and looks very much like a bear flag. I see a little more upside potential to 2.842% (today's high was 2.810%) but the rally from last Thursday could complete at any time (sound familiar?) and the larger pattern calls for at least another leg down to match the December 31 - February 3 decline. From today's high that projection would take it down to 2.351, which crosses the broken 2007-2011 downtrend line in early May. That would of course mean a rally in bond prices.

10-year Yield, TNX, Daily chart

While on bonds, it's important to watch how the high-yield (aka, junk) corporate bonds (HYG) are doing relative to the 20+ Year Treasury Bond fund (TLT). Using a relative strength (RS) chart to compare the two will often provide a heads up when risk-off becomes more important than risk-on. When traders are becoming more defensive (less bullish) it will show HYG starting to underperform Treasuries and that provides a clue to stock market participants. The weekly RS chart below shows the current situation -- the December high was much lower than the one back in February 2011 and now the uptrend line for the rally June 2012 has been broken. That uptrend line was back-tested with the February/March rallies but resulted in a bearish kiss goodbye. It's all preliminary but at the moment it's a warning sign that risk-off is becoming stronger.

Relative Strength of HYG vs. TLT, Weekly chart

While on the subject of RS chart, another one that's worth reviewing has to do with consumer spending. Getting back to what I mentioned at the beginning of tonight's report, about the shortening work week and what that means for spending, the impact of this can be seen in the chart below. This shows the relative strength of consumer discretionary (CD) stocks, represented by the XLF ETF, vs. consumer staples (CS), represented by the XLP ETF. CD has more to do with disposable income, over and above necessities, while CS has to do with non-cyclical stocks (if you can eat it, drink it or smoke it, buy it), which are the everyday consumer needs that people buy regardless of how the economy is doing. When we see CD spending stronger than CS that's generally a good sign the consumer is doing well economically. When CD starts to look weaker than CS then we know the consumer is feeling stressed and this is an important clue to watch for.

The relative strength (RS) of XLY vs. XLP is shown on the chart below and at the moment it's not a good sign. Remember, for a strong stock market we want to see people flush with cash and spending more on CD stuff. The RS of these two often peaks slightly ahead of the stock market, which makes it a good heads-up indicator. The RS chart topped in January 2007 and made a lower high in July 2007 and another much lower high in October 2007 when the stock market peaked. The RS chart had peaked with the market in March 2000 but then dropped hard while SPX came back up for a near test of the high in August 2000 before dropping hard. Now we've got a break of the uptrend line from April 2013 on the RS chart, which is a warning sign the stock market should not be far behind.

Relative Strength of Consumer Discretionary vs. Consumer Staples, Daily chart

The RS of XLY vs. XLP broke hard in March and only in the last two days has it bounced up with the broader market. But it has already offered a warning sign to bulls with its early peak on March 7th and now a lower high as SPX presses to new highs. Like so many indicators like this, it's not a market timing tool but it's done a damn fine job at identifying major turning points for the stock market. Read and heed.

The U.S. Dollar has been consolidating for the past two weeks after climbing back above its uptrend line from 2011-2013, which it had broken below in March and recovered on the FOMC announcement. It should continue higher once it finishes consolidating on trendline support.

U.S. Dollar contract, DX, Daily chart

Gold's sharp decline from 1392.60 on March 17th to yesterday's low 1277.40 looks like a completed 5-wave move down, which sets it up for a bounce correction and that might have started today. If it retraces 50% of its decline before continuing lower we could see a bounce back up to 1322 and possibly a back-test of its broken 20-dma in the process. But the 5-wave move down suggests it's just the 1st leg in what will become a larger decline so the bounce, especially if it looks corrective (such as a 3-wave move), will be a good time to play the short side on gold. The completion of its decline later this year is when I anticipate a very good longer-term opportunity to own some gold.

Gold continuous contract, GC, Daily chart

At oil's high last Friday it retraced 62% of its March 3-17 decline, practically to the penny -- it made a high at 102.24 vs. the 62% retracement at 102.22. This week it has dropped back down and today it reached its uptrend line from January 9 - March 17, near 99.25. From a short-term perspective (intraday pattern) I see the potential for a bounce correction, perhaps up to its broken 200-dma at 100.50 (and a 50% retracement of this week's decline), before starting a stronger selloff. That's if the bearish price pattern is correct, otherwise a rally back above last Friday's high at 102.24 would be bullish.

Oil continuous contract, CL, Daily chart

Tomorrow will be quiet as economic reports go -- the usual unemployment claims numbers and then after the opening bell the only one that might cause a wiggle is the ISM Services, out at 10:00 AM. It's expected to improve a little over February's and even if it tanked the market would probably view that as a good thing (to keep the Fed in accommodation mode). We might get a reaction in the pre-market futures if we get word that the ECB is going to get into the QE act for themselves. More free money from nothing; what could possibly go wrong? The market will continue to do well with this free money until it doesn't work anymore and then that big credit bubble that the central banks built will self-correct. Let's just hope we get some warning before it happens.

Economic reports and Summary

At the moment it's looking like there's upside potential into opex week this month but there are enough things to have feeling very cautious about that expectation. As shown on the NDX and RUT charts, there is the potential for a big move but which direction is a toss-up. For the blue chips I see ending patterns and not much price movement if they're going to hold up for another t weeks. The ending patterns (rising wedges) could morph into something else but at the moment the choppy corrective price action as the indexes work their way higher says "ending pattern." With evidence of "risk-off," shown with the relative strength charts, we've got warning signs that traders are getting more defensive and if you're trading the long side it's important to pay attention to the warning signs -- keep one foot holding the exit door open so you can get out quickly and before the masses.

There's been a lot of reporting about excessive use of margin at the current market high, which itself is not a market turn signal but it does tell us the market is vulnerable should the selling become strong and the margin calls go out. Retail traders are piling into long positions while smart traders are taking risk off the table, which is usually not a good combination for those retail traders. Stick with the trend (up) while still in force but stay very aware here -- maybe it will hold up another two weeks and maybe it will zoom climb (NDX and RUT bullish setups) but the downside risk is growing and I would not want to get caught long and experience another flash crash, a possibility that increases in likelihood the longer this is held up. Be careful out there.

Good luck and I'll be back with you next Wednesday.

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