If it were not for the big market rebound on Friday, the weekly results would have been a lot worse. If you look at the daily gains for Friday in the first graphic and the weekly gains in the second graphic you will notice all the gains for the week occurred on Friday.

If you remove the Friday gains the Dow would have lost -12 points for the week. The NYSE -51, Nasdaq -55 and S&P -10. While I realize it is nice to be able to say the markets were up for four weeks in a row, that sentence takes into account the big Friday gains.

The big gains on Friday ran into a confluence of resistance at 2,020 and fortunately, the Asian markets are following our lead with a minor gain on Sunday night. The U.S. markets are overbought and dependent on oil prices, the biotech sector and financials to remain there.

Oil is at critical resistance at $38.50 with even stronger resistance at $40. The current month WTI futures contract expires next Monday and the open interest is at record levels. The vast majority of those long contracts will have to be sold by next Monday. That should produce a negative trend for the week that could accelerate after the Wednesday morning inventory report.

If the S&P can break through that resistance at 2,020 it has some congestion to fight but the next major resistance is 2,075 and I am sure we would all be thrilled to make it to that level next week.

History is in our favor with the 36 hours before a Fed decision normally bullish for the markets. That means any profit taking dip on Monday should be bought and Wednesday morning could be the high for the week. There is normally a lot of volatility after the Fed decision and I fear the Fed will want to bring back the expectations for further rate increases. The market may not like that language and could react negatively before resuming a mostly upward bias in the days that follow.

The Biotech sector could continue to be a drag. The $BTK failed at 3,000 in early March and has been struggling higher since the February 11th lows. The political conversation these days is negative for biotechs. The high cost of drugs has prompted several candidates to attack various companies and drugs in general. Some analysts believe the sector will be uninvestable until after the election and maybe longer depending on who is elected.

A decline in crude prices and biotech stocks will weigh on the Russell 2000, which is the sentiment indicator for the market. A declining Russell rarely allows the broader indexes to post gains.

The economic calendar is very busy next week with the FOMC decision on Wednesday and the Yellen press conference the key event. As a quadruple option expiration week there is always enhanced volatility.

While I would like the bullish bias to continue there are numerous obstacles in our path. I know a bull market climbs a wall of worry but this is not exactly worry. It is more a series of random events that need to be overcome. The economic worries have faded and that brings an entirely new set of discussions starting with the Fed decision.

Jim Brown

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