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Good Morning. It has been said that a picture is worth a thousand words. And since my oftentimes meandering morning market missive winds up being about that many words most days, I guess I could take the easy way out this morning and just point you to the charts below. But what's the sport in that, right?

So that there are no misunderstandings, I should let you know that I don't consider myself a high level chartist/market technician and I do NOT believe that "the tape tells all" (on that note, does anybody remember the analyst that this tag line was originally associated with?). It has been my experience that technical analysis, like any number of other indicators, works great... right up until it doesn't. As such, I like to keep things simple, focusing on stuff like trendlines and support/resistance zones and leaving the fancy indicators to folks much smarter than I am.

I do, however, believe in trying to listen to the "message" or "the story" that can sometimes (but not always) be derived from the charts. And as I'm guessing you've surmised by now, this is one of those times where I think it is important to see/understand the chart action that is unfolding.

First off, you'll be pleased to know that I've learned how to insert shapes in my charts. Thus, my skill set with Paint now includes lines AND circles (who said an old dog can't learn a new trick, right?). Maybe next week I'll explore the concept of adding text or something extravagant like an arrow!

There are two points that I'd like to make this fine Friday morning. First, it is fairly obvious that the S&P 500 closed Thursday perched at a fairly important juncture from a chart perspective. Thus, the next move from here could be significant. And second, I'm wondering if the current pullback (which was close to -3.25% as of Thursday's close) will be enough. So, let's get to the charts.

S&P 500 - Daily


(Click to enlarge)

The chart above is the S&P 500 on daily basis since November. The black line that I've drawn in represents an uptrend line that has been intact for five months now - and therefore, it is fairly important. The key points here are that the trendline (a) has been around for awhile, (b) has been tested before, and (c) is now under attack. Thus, a meaningful close below yesterday's low, would mean that the trendline is toast (and yes, that's a technical term - well, at least at my office).

Yesterday's action is also important from a couple other perspectives. First, the decline represented a "test" of the 1540 support area. One could argue that the intraday break below the 1540 line, which as you can see, had represented a support zone going back into early March, was a bad sign as none of the other tests of this area had gone much below 1540. However, the bulls will contend that the S&P did manage to rally back to the all-important 50-day moving average by the time the closing bell rang.

This is why I inserted the oval on the chart. Contained in that oval is the uptrend line, the 50-day moving average, and the near-term support level - all at or around the 1540 level. Therefore, whether you are a fan of the charts or not, this represents an important area from a technical analysis standpoint. The bears will suggest that a break below will cause stops to be hit and technical selling to come in. And of course, the bulls will argue that a successful test of this area will lead to new highs.

But now let's turn our attention to "why" this area is important. In my humble opinion, the players in the game are currently trying to decide if the current decline is enough to discount the "growth slowing" theme that has been coming out of the economic reports. And for the record, the Philly Fed and the LEI releases added to this theme yesterday as both reports missed the mark.

Okay, on to the next chart. While this is definitely not an exact science, let's look at the weekly chart of the S&P 500 and see if we can find any clues about what to expect next.

S&P 500 - Weekly


(Click to enlarge)

Starting from the left, the first two circles on the chart represent the last two times we started the year off on a string of "better than expected" economic data. As you can see, both times, the market rallied in response to the BTE theme. However, both times, the data then took a turn for the worse, leading to a springtime correction.

But if you look closely at the chart, you can see that the first decline in the circles didn't lead directly to the nastiness that eventually ensued. No, each time there was another rally that followed the initial peak and pullback phase. From my perch, this action represents "the argument" that took place over the importance or meaning of the data. And as the charts clearly show, the bears eventually prevailed (with a little help from their friends across the pond, of course).

Now turn your attention to the oval at the upper right on the chart. Doesn't this pattern look a little familiar so far? And the fact that the economic data has been coming in below expectations recently would seem to fit in with the prior chart patterns. So... should we expect the bears to rule the day again at some point soon - perhaps after another rally try? Or will this time be different?

Although I can't answer these questions, I do think it can be very helpful to understand the question being posed by the action on the charts. And from where I sit, that question is: Will the current decline be enough to discount the slowdown in the data that is occurring? Stay tuned, as I wrote earlier in the week, this is about to get interesting.

Turning to This Morning ...

Stocks look like they will follow the overseas markets and bounce higher at the open. Asian markets rose on the rebound in commodity prices which was based on talk of improved growth rates in China. Here at home, the extent of the rally depends on the index in question as the DJIA is suffering from GE's earnings results while the NASDAQ is up strong on the back of Google's latest report. The key line of resistance to watch on any rebound attempt will be the 1552 zone on the S&P 500.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell ...

Major Foreign Markets:

- Shanghai: +2.16%

- Hong Kong: +2.33%

- Japan: +0.73%

- France: +1.41%

- Germany: +0.38%

- Italy: +1.93%

- Spain: +1.49%

- London: +0.60%

Crude Oil Futures: +$0.55 to $88.28

Gold: +$14.40 to $1406.90

Dollar: lower against the yen, euro and pound

10-Year Bond Yield: Currently trading at 1.705%

Stock Futures Ahead of Open in U.S. (relative to fair value):

- S&P 500: +7.49

- Dow Jones Industrial Average: +12

- NASDAQ Composite: +21.40

Thought For The Day... "Truth at last cannot be hidden." -- Leonardo da Vinci

Positions in stocks mentioned: none

Source: Daily State Of The Markets: Will It Be Enough This Time?