The stock market took quite a shot after Friday's dismal jobs report as the already weak S&P futures quickly dropped another 11 points before they started to stabilize.
The market spent the rest of the day rebounding as the futures and the majority of key stock market averages closed well above the day's lows. Overnight, the aggressive action by the BOJ helped push the yen sharply lower and the Nikkei 225 made new rally highs, gaining 2.8%.
The major European markets are also showing nice gains, and so are the S&P futures, as we enter the first full week of earnings season. The market's yellow flag last week reflected the decline in the small-cap sector as well as the deterioration in the market internals.
With further signs of signs of weakness after last week's lower close, will the earnings reports be enough to push stocks back to the upside?
- Last week's close was just above the quarterly pivot at 8936.
- There is first resistance at 9122, which was last week's high with the starc+ band at 9209.
- The NYSE A/D line did confirm the recent highs but dropped below its WMA on April 2 (point 1).
- There is more important support at the February highs, line b, and the uptrend (line c).
- The next major support is at 8700, which was the February low.
The Spyder Trust (SPY) made a new higher daily close last week at $156.82 (line 2) and then dropped as low as $153.77 early last Friday.
- The decline held just above the important support from late February in the $153.50 area, line d.
- The quarterly pivot as noted last week is at $152.75.
- The longer-term uptrend, line e, is now at $151.
- The NYSE new hi-new now indicator (see last week's trading lesson Tracking the Market's Trend) has formed lower highs over the past few months, line f.
- The short-term MA has dropped below the longer-term MA and is now testing important support at line g.
- A convincing break of this support would confirm the negative divergence.
- The number of new highs peaked at 440 in early January and then formed lower highs at 430 and 373.
- At last week's price high, only 268 NYSE stocks made new highs.
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After today's close, we get the earnings from Alcoa Inc. (AA), and they surprised the market last January 8 with a stronger than expected report.
- As the Dow Industrials was surging to new all-time highs, AA was just barely able to surpass its long-term downtrend, line a, in February.
- AA closed Friday at $8.24, which was 12% below the year's high at $9.37.
- There is next long-term support, line b, at $7.94.
- The weak relative performance over the past year was a good reason not to buy this stock as it has made lower highs, line c.
- The RS line has also made lower lows, line d, and has been acting weaker than prices.
- The OBV also shows a well established downtrend, line e, as it broke important support last November.
- The quarterly pivot is at $8.69, which now represents strong resistance.
JPMorgan Chase (JPM) reports before the opening on Friday as it peaked at $51 on March 14 and hit a low last week at $46.53.
- This was a drop of 8.7%, and so far, the 38.2% Fibonacci support at $46.31 has held.
- The 20-week EMA and the March 2012 high (line f) has also been tested.
- The uptrend, line g, and the starc- band are at $45.26-$45.59.
- The relative performance broke its long-term downtrend, line h, early in the year.
- The RS line dropped below its WMA a few weeks ago but turned up last week.
- The on-balance volume (OBV) also broke through major resistance, line i, early in the year.
- The OBV has held well above its WMA on the correction and has now turned higher.
- JPM closed last week just above its quarterly pivot at $47.68.
What it Means: Clearly last Friday's action did further weaken the technical outlook for the stock market, which is consistent with the early phases of the top-building process. The declining number of stocks making new highs is also a sign of internal weakness. There are no signs yet that we are ready to accelerate on the downside, but this week's action will be important.
Alcoa Inc. (AA) may give the market a brief boost but any rally is likely to fail because of its weak technical outlook.
JPMorgan Chase (JPM) does look much better technically and could easily challenge its recent highs over the next few weeks.
How to Profit: Aggressive investors should go long JPMorgan Chase (JPM) at $47.56 or better with a stop at $45.91 (risk of approx. 3.5%). If filled, raise the stop to $46.90 on a move above $49.12. Cancel if $48.42 is hit first.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.