The current rally is under pressure as distribution (institutional selling) spiked higher in the first week of the second quarter. The elevated distribution sent a slew of leading stocks and market indexes below their respective 50 DMA lines. Defense is paramount until the market can make its next move. So far, the S&P 500 is down a little over 2% from its Q1 high and is sitting near its 50 DMA line. The last pullback was shallow in size (-2.9%) and scope (only 1-week). The market is way overdue for a larger pullback and only time will tell if we roll over and get the larger pullback that normally occurs around this time of year.
Monday-Wednesday’s Action: Distribution Rises
European and Canadian stock markets were closed on Monday for Easter which led to a relatively quiet session. Volume in the U.S. stock market was the third lowest of the year. Separately, in the US, the March ISM Index missed estimates and fell to 51.3 in March from 54.2 in February and missed the Street’ estimate for 54. March’s reading was the lowest reading since December and the first decline since November.. In Asia, economic data failed to impress which bodes poorly for the global economy. China’s purchasing manufacturing index (PMI) and Japan’s Tankan Survey both missed estimates which led some to question the health of the global recovery.
Thursday & Friday’s Action: BOJ & Fed Are Printing $8 billion a day
Market Outlook: Uptrend Under Pressure
As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we published a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce” and the rest is history. Most recently, on Wednesday, February 20, 2013 we sent out a note saying, “Time For A Pullback” and a week later on Feb 27, 2013 we sent a note saying “Bulls Quell Bearish Pressure.” Stay tuned as we will continue to keep you in sync with the market and ahead of the crowd. As always, keep your losses small and never argue with the tape.