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Today's Technical Outlook-4/21/2014

Market Summary

David Chojnacki, Market Technician

The Market ended the holiday shortened week on a mixed note, as the major indices traded in a narrow range for the entire session. For the week, the averages made a huge reversal to the upside as they appeared to temporarily end a brief pullback. The S&P had pulled back 3.9% from its recent high before last week's turn-around. At the close on Friday, the DJIA lost 16.3 points, the S&P added 2.5 points, and the Nasdaq100 tacked on 1.4 points. Breadth was positive, 1.3 to 1, on above average volume. Some of the added volume was options related. RSI's were little changed, with the S&P and DJIA remaining in the 50's. ROC(10's) advanced in the session, however, all major indices remain in negative territory. For the week, the DJIA added 2.3%, the S&P was up 2.6%, and the Nasdaq100 gaining 2.5%. The major averages recovered all of the losses from the prior week, with the S&P moving back above its 20 week moving average. The VIX fell 9.1% on Friday to finish at 14.18.

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Data sources include ETF Database, ETFTrends.com, IndexUniverse.com, Google Finance, and Bloomberg data and at times other data sources are utilized. Leveraged, Inverse & Leveraged Inverse Conclusions and Risks 1) Leveraged, Inverse, and Leveraged Inverse (L&LI) ETFs generally capture a high percentage of their expected daily returns, particularly on a net asset value basis. 2) L&LI ETFs are not appropriate for all investors. However, we believe they can be appropriate tools for some investors looking to make short-term tactical trades if they perceive a high likelihood of a strong market move occurring in a relatively short time period. In strong trending markets, being on the right side of the "trade" with L or LI ETFs can lead to very strong returns. 3) Investors should not expect these ETFs to deliver total returns linked to their benchmarks over any period other than daily. The effects of compounding and the daily re-leveraging or de-leveraging that occurs with L&LI

ETFs can lead to unexpected results over the long term. As a result, we believe longer-term investors should consider regularly rebalancing positions. 4) Trendless markets, particularly those with a high level of volatility, can lead to substantial relative underperformance of L&LI ETFs. 2) Leveraged and Leveraged Inverse (L&LI) ETFs typically utilize futures and equity swap agreements. The use of these derivative instruments increases risk and enhances the possibility of tracking error.

Relative to traditional ETFs, leveraged, inverse and leveraged inverse ETFs typically have higher costs and lower tax efficiency. 3) The effects of compounding can lead to significant deviations from traditional benchmarks over longer time periods. For example, if $100,000 is invested in an index that increases in value by 10% on day one and then decreases in value by 10% on day two, the investment will be worth $110,000 at the end of day one and $99,000 after day two. However, the value of a security that doubles the daily performance of the index would be worth $120,000 on day one and $96,000 after day two. Thus, the index is down 1% after two days, a doubling of which would be down 2%. However, the security attempting to double the return of the index is down 4%. Investors should consider carefully the potential impact over longer periods. MLP and MLP ETF Risks Individual MLPs are publicly traded partnerships that have unique risks related to their structure. These include, but are not limited to, their reliance on the capital markets to fund growth, adverse ruling on the current tax treatment of distributions (typically mostly tax deferred), and commodity volume risk.

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Trading Trends

Long term trend continues with an upside bias as last week's reversal strengthened the Nasdaq100, which was beginning to see longer term technicals weaken. The Nasdaq100 moved back above its 150D-SMA and the S&P crossed back above its 20week SMA. Short term technicals improved for the DJIA and S&P, however, the Nasdaq100 remains below its 20 and 50D-SMA's. Above 3583 and we see short term bias to the upside. Near term, the S&P and DJIA are not that far from recent highs and any carryover from last week's strength and we may see them test those levels. Near term the S&P has upside bias above 1840. Economic reports are light this week, but earnings pick-up. The Nikkei was flat over-night. Futures are higher this morning versus fair value.

MAJOR INDICES Short term support and resistance level

DJIA

close 16408

SP500

close 1864

N100

close 3534

16400

16500

1862

1875

3525

3537

16337

16576

1858

1888

3512

3549

16258

16631

1851

1890

3500

3550

16000

16700

1850

1897

3488

3562

15941

 

1840

1900

3483

3566

15900

 

1837

1912

3475

3575

   

1833

1925

3462

3588

   

1825

1937

3450

3600

   

1815

 

3437

3612

Major Economic Reports Today

Leading Indicators-10:00am