Either shorts were covering or bulls were buying the market today in anticipation of a positive response to the FOMC minutes, which were released at 14:00. The initial reaction following the release of the minutes was selling but as we've seen so often, buy programs kicked in and kicked the bears to the side again. Now we wait to see if there will be follow through to what might have been just an FOMC-inspired rally (again).

Today's Market Stats

The market got a nice bounce off yesterday's low and it continued higher right into the FOMC minutes, released at 14:00, but then sold off some. The rally might have been more short covering than real buying since the shorts have learned you can't hang around long in short positions in this market. But following the release of the minutes the bears were satisfied that they're right and they jumped back into short positions, driving the indexes back down in the afternoon. However, they were forced out again once buy programs kicked in to drive the indexes back up in what appears to be a "Fed save" as we've seen many times before. These post-FOMC saves often get reversed the next day so we'll see if that pattern holds true on Thursday. Today's trading volume was less than what we've seen during the days of selling.

There was very little to distract the market today since economic reports were minimal and had no impact. Overseas news reports were also benign and oil's rally following this morning's crude inventory report (an unexpected drawdown) helped the stock market rally. Following the decline from last Friday it appeared there was profit taking today as the shorts covered (bought back) their positions and that lifted the market up. But the FOMC minutes did not shed any new light on what we already know and it's not exactly market friendly.

While the market likes the idea that the Fed has backed away from raising interest rates there is concern now about why the Fed is backing away. The minutes showed the Fed heads debated whether or not to raise rates in April but it was clear that the consensus opinion was that the global economic slowdown warranted a cautious approach to rate increases. They recognized that there were too many downside risks to the growth expectations. Combining the Fed's cautious approach, reflected in the minutes, with the continuing reports of a slowing economy, including downgrades to GDP growth, investors are starting to get more nervous about what that might mean for the stock market (although today certainly did not reflect any concern).

While the FOMC minutes reflect the desire to raise rates at least twice more in 2016 (down from an expected 4 times that we were told back in December), and we're hearing from Fed heads since the last meeting saying we should expect more rate increases, most are starting to believe the Fed will not have the wiggle room needed to raise rates again. Many are now saying it won't be until 2017 before they'll be able to raise rates further (I think it will be well beyond 2017 since they'll be into negative rates and beaucoup QE by then). There's been a shift in Fed opinion about the state of the market and it's not good.

Adding to the Fed's worries, there are more signs of an economic slowdown, which in turn has created a less desirable stock market in which to take companies public. In the continuing drumbeat of downbeat economic news (it really is more fun to talk about growth but reality is the opposite), the U.S. IPO market is not looking so good at the moment. Bringing IPOs to market is a reflection of how well the companies (including the big banks behind the IPOs) believe they can do in the market.

When the companies and the banks behind them are not feeling good enough about the market support they will simply pull back and wait for better times before going public. Nervous investors tend not to support new IPOs and that's what makes these a leading market indicator. It tells us whether the current bull market is healthy or if instead it's finishing its run. At the moment the IPO market is saying the bull is dying of old age.

The chart below shows the number of IPOs that came to market each year since 2006. The significant decline in 2008 was of course followed by a very bad year for the stock market. The bounce into May 2008 was accompanied by a significant slowdown in the IPO market and that high led to the market crash into the end of the year. The number of IPOs topped in 2014 and it's been dropping since then. The lower number in 2015 was accompanied by a choppy flat year for the stock market. The number has been dropping steadily since last October and so far this year, as reported by VentureBeat, only 24 companies have filed for IPOs this year. The data for 2016 is obviously only the first quarter but only 8 IPOs shows us the rate has significantly decreased and is on par with 2008.

We know the market has ignored fundamental reasons to be cautious and the above information is just another one to throw into the pile of "warnings" that could be ignored for a long time. However, with a tired bull market and many signs of an economic slowdown (recognized by the Fed as well), it's difficult to make an argument for higher prices. The market could certainly continue higher but I think it's a much riskier bet today to bet on the long side. Upside potential is dwarfed by downside risk and once we get through what might be a bullish April it's going to be hard not to agree with the sell-in-May crowd. The more immediate question is whether or not April will be bullish.

The price pattern for the indexes is not clear enough to argue strongly for either side. I could make the argument that we've only seen another corrective pullback from last Friday's highs, which points to a continuation higher. But with plenty of bearish divergences at the last high and daily oscillators rolled over it's hard to argue for higher prices. It looks like it would be safer to bet on the short side but we know how well that's been working for the bears (wink). Let's see what the charts are telling us.

S&P 500, SPX, Weekly chart

Last week SPX broke its downtrend line from November-December 2015 and appears to have its sights set on the downtrend line from July-November 2015, near 2092. This week it pulled back to its 2015 closing high near 2043 and today's rally keeps it in the green for the year. If SPX does make it up to its downtrend line from last year, it will be important to see how price behaves there. At the moment the weekly candle is a hanging man doji, which could be a reversal in the making but would only be confirmed with a red candle for next week. It's opex next week, which is typically bullish (but also typically very bearish if it's not bullish) so there could be some volatility between here and 2092. It would be more bullish above 2100.

S&P 500, SPX, Daily chart

The SPX daily chart below shows the price action around the downtrend line from November-December after breaking above it on March 30th. Yesterday it broke its uptrend line from February 24 - March 24, as well as back below its broken downtrend line, but bounced back up today to the broken uptrend line. It could result in a bearish kiss goodbye if it sells off on Thursday. But if the buyers can keep the bears away, we could see a rally at least up to the 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

The 60-min chart below shows how well SPX has been holding price-level support near 2043 so that it stays in the green for the year. Clearly some computer programs are set to buy that support level. As a possible pattern that I'm watching, two equal legs up from March 24th points to 2092.28, which is right on top of the downtrend line from July-November 2015. That's another reason to watch price action carefully if that level is reached.

S&P 500, SPX, Weekly cycles chart

The SPX weekly chart below is to show a cycle study, which points to another reason bulls should be careful this week. A 23-week cycle has identified multiple tops, even if they're followed by only a small pullback. This cycle study says we're due for a top this week (+/- a week or two so last week's high could have been it or we might see a final high next week).

Dow Industrials, INDU, Daily chart

The Dow has been fighting to stay above its May-November 2015 downtrend line, which it had broken above on March 30th. It closed below it yesterday and above it today and there's upside potential to the 18K area if it's to test its November high (17978). If it does make it up there I suspect it will show further bearish divergences on the oscillators, which are already showing a reversal (and MACD has broken a shelf of support it's been holding for the past month). I see upside potential but it's not something I'd be comfortable betting on.

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

Nasdaq Composite index, COMPQ, Daily chart

Last Friday's rally for the Nasdaq stopped at its downtrend line from December as well as price-level S/R at 4920. This S/R level goes back to July 2015 and on January 4th it gapped down below this support level. How many traders are now thankful just to get out of positions they felt they were stuck in since January? It's for this reason why support often turns into resistance so we'll see if resistance still holds. A little higher, near 4955 is the top of a rising wedge, which will be near 4970 by next Monday. That level is where the Naz would also retrace 78.6% of its December-February decline so it could be tough resistance. By the same token, a rally above 4970 would be more bullish. The bears need to see a break below Tuesday's low near 4839 to suggest a top is in place, which would be better confirmed with a drop below the March 24th low near 4735.

Key Levels for NDX:
- bullish above 4970
- bearish below 4734

Russell-2000, RUT, Daily chart

The RUT's struggle has been around its H&S neckline (uptrend line from October 2014 - September 2015), near 1100. It first tried to break above the line on March 7th, pulled back and then tried again on March 18th, pulled back and then climbed above the line on March 29th. It has pulled back to the line (closing slightly below it yesterday) and from a bullish perspective it's a bullish back-test of the line now that it's been recovered. It's also back-testing its 20-dma, currently near 1093. If support holds we could see another leg up to its downtrend line from June-December 2015 and its 200-dma, near 1137. Above 1140 would be a bullish breakout but with oscillators showing bearish divergence it's hard to bet on the upside here. A drop below 1090 would be bearish and below 1065 would confirm the leg up from February completed.

Key Levels for RUT:
- bullish above 1140
- bearish below 1065

10-year Yield, TNX, Daily chart

Treasury yields look like they'll be heading lower (bond prices rally), which supports the idea that the Fed will not be raising rates. If yields do continue lower it will likely reflect a rotation out of stocks and into the perceived safety of bonds so keep an eye on the 10-year yield (TNX) here. It dropped below its uptrend line from July 2012 - January 2015, near 1.77 and as long as it stays below that level it will remain bearish (bullish for bond prices). I haven't changed my opinion, held for the past several years, that we'll see TNX below 1% (and TYX, the 30-year, below 2%) before yields bottom.

Transportation Index, TRAN, Daily chart

The Trannies topped out on March 21st and while the other indexes continued to press higher they did it without the TRAN following, which at the moment is bearish non-confirmation. The TRAN was able to break its downtrend line from March-November 2015 on March 18th but held above it for only two more days before dropping back below the line on March 23rd. It tried again by poking above the line on an intraday basis on March 30th but it was rejected and has sold off since then. All of that is bearish price action around this key trend line. Dropping below its March 4th today, at 7726, should be an indication the leg up from January completed and now we're looking for at least a larger pullback before heading higher. The bearish wave count calls for the start of a stronger decline than the November 2014 - January 2016 decline.

U.S. Dollar contract, DX, Daily chart

The US$ has made it down to support at the top of a broken up-channel from 2008-2011, which supported previous pullbacks during the past year and is currently near 94.25. A little lower is the top of a broken up-channel from May 2011, near 93, which is where the bottom of its down-channel from last December will be located at the end of this month. So the dollar could find support here or about a dollar lower if it continues to chop its way lower this month. It's now very oversold on the weekly chart and showing bullish divergence on the daily chart so it's certainly setting up for a bounce back up to the top of its trading range (near 100).

Bloomberg Commodity index, DJUBS, Daily chart

It can be reasonably argued that much of the stock market rally off the February low had a lot to do with the rally in commodities. There was no real fundamental reason for the rally other than it came off a very oversold market and more buying simply ignited more short covering. Oil and the stock market have been more in synch than not since May 2015. Looking at the DJUBS daily chart below you can see the rally started off the January 20th low, the same as the stock market. It made a higher low on February 10th, one day before the stock market, and it peaked on March 18th, which is two weeks prior to the stock market high on April 1st. Did anything fundamentally change to support the big stock market rally? Not really and in fact it looked like it was rolling over with commodities following its March 22nd high. But then Janet Yellen promised to take care of the stock market, I mean economy, with fewer rate increases and that boosted the stock market to a new high.

The commodity chart shows a down-channel for the decline from April 2014 and the January-March rally stopped at the top of the down-channel. I could easily make the argument that the 3-wave a-b-c bounce off the January low will now be followed by another leg down to complete a larger 5-wave move down from April 2014. The bottom of the down-channel will be near 65 by mid-May. But there's still a bullish possibility here if it rallies from here. It needed to stay above the January 29th high at 77.25 to better support the idea that we'll get a 5-wave move up from January but the pullback hit a low of 76.80 yesterday and today and following EW (Elliott Wave) rules, that's a violation of the bullish impulsive wave count.

Turning a blind eye to the brief EW rule violation for the bullish wave count, if it rallies from here we could see a new high for the move (bold green depiction). The new high would likely be followed by a deeper pullback correction before continuing to rally into the summer so be careful chasing a new high. However, if the bounce into the March high completed a correction to the decline then we'll see a new low follow (bold red depiction). What commodities do from here should provide the clues we need for what the stock market will do and if DJUBS drops below today's low at 76.80 I would not look to be on the long side of the stock market of either commodities or the stock market.

Gold continuous contract, GC, Weekly chart

After gold reached the top of its down-channel from 2013 it has been pulling back but in a choppy fashion. Gold's moves tend to be choppy so I can't read anything into the short-term pattern but as long as it stays below 1250 I would stay bearish gold. Between 1250 and its March 11th high near 1288 would be no-man's land and above 1287 would be bullish (but watch for resistance at 1308).

Oil continuous contract, CL, Daily chart

There was a surprise crude inventory drawdown that was reported this morning at 10:30 (-4.937M barrels as compared to a +2.299M barrels buildup last week) and that gave oil a boost higher and it finished +5.2% today. Oil's rally helped the stock market rally as well. But follow through to today's rally will be key for oil bulls since today's high was 37.90, which at the moment is a back-test of price-level S/R near 38. You can see on its daily chart below how the $38 level has acted as support/resistance since the August 2015 low. It had broken above this level in mid-March, as well as its downtrend line from June-October 2015 (log price scale) and then hit the top of its parallel down-channel for the 2015 decline. It then dropped back below 38 last Friday so today could be the back-test. If it rolls back over following today's bounce it will confirm a sell signal with a bearish kiss goodbye. That's the setup so we'll see if oil bulls can thwart the bears here.

Economic reports

In a continuation of a slow week for economic reports this week, Thursday will only be the unemployment numbers in the pre-market session followed by natural gas inventories following the open and then consumer credit in the afternoon. Friday's report will only be wholesale inventories so the market will have to look overseas for trouble.


The short-term price pattern for the indexes supports the idea that we could see another push higher for what would likely be the completion of the leg up from February. Whether or not the market will hold up into opex week next week (typically a bullish week) is a big question mark at the moment. Last Friday's high might have been it for the blue chips but the tech indexes made new highs today and that has it looking like we should expect new highs for the other indexes. If they don't make new highs then we'd have bearish non-confirmation if the indexes drop back below Tuesday's lows.

We're seeing bearish divergences on the charts and with an overbought market showing waning momentum it's a risky time to bet on the long side. It might be early to try shorting this rally (for at least a deeper pullback) but I think the bear's turn is now very close.

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