A Pivotal Week Ahead

We remain in the "Yellow Flag Flying " mode because although the market has rallied sharply off its March lows, it remains to be seen if this rally is sustainable; this week will be pivotal in the course of recent market activity.

For last week, our Standard Portfolio gained +1.3% while the Ultra declined -0.2%.

We are at something of a crossroads regarding the future direction of the markets, and the P&F chart for the S&P 500 looks like this:

You can see that we're above the red bearish resistance line which puts us in at least a medium term uptrend. Also the last column of Xs formed an Ascending Triple Top Breakout on April 16, which is a very strong buy signal.

From a fundamental point of view, the market has shrugged off bad news from the retail sector, including the bankruptcy filing of the second largest owner of malls in America which went almost without notice.

That's the good news for entering bullish positions.

The bad news is that this week's rally stopped exactly at the 875 level and then declined to 869. This is significant because you can see the heavy line of resistance at 875 which would indicate that this rally is now running into some headwind and may be running out of steam.

Other negative indicators are the facts that this bear market rally has been almost without pause and that most sectors are extremely overbought.

Beyond that, the market response to Citi's (C) and Google's (GOOG) earnings was muted, to say the least, and so one can only wonder if this rally is sustainable.

The View from 35,000 Feet

This week will be pivotal, as I said, because we'll see if the market can penetrate the upside resistance and continue on without a pause.

Big earnings reports in the financial sector are due from Bank of America (BAC), Morgan Stanley (MS) and Amazon (AMZN) on Thursday and Bank of New York Mellon (BK) on Wednesday.

Eleven of thirty Dow components are reporting this week including heavyweights IBM, Caterpillar (CAT), Merck (MRK) and McDonald's (MCD).

From a technical standpoint, we're certainly due for a pullback, at least to the 840 level on the S&P and possibly lower.

The problem with bear markets is that you never know when the bear is going to reappear and bite you and so proceeding with caution makes sense to me.

The most likely scenario is a pullback and then a continuing rally into late spring; if we break the 875 barrier, there is not much resistance left between here and 900 which is where we started off the year.

The Week Ahead:

Monday: March Leading Economic Indicators

Wednesday: FHFA February Home Prices

Thursday: Weekly Jobless Claims, March Existing Home Sales

Friday: March Durable Goods, March New Home Sales

Sector Spotlight:

Weekly Leaders: iShares Dow Jones U.S. Home Construction (ITB) +11.5%, SPDR KBW Bank ETF (KBE) +9.7% and Market Vectors Steel Index ETF(SLX) +8.7%.

Weekly Laggards: Market Vectors TR Gold Miners (GDX) -6.2%, ProShares Short Financials (SEF) -4.9% and United States Oil Fund (USO) -4.0%

Disclosure: None