What’s Happening?

The US SPX 500 peeked above its March 1st high of 2,400 but then fell back. Mixed signals make it unclear if this is the start of a new upleg or a buying climax signalling the end of a seasonally favourable time of year for stock. This indecision over whether or not to press on comes just as earnings and political news starts and focus turns to the struggling retail sector.

Technicals:

US indices soared through the winter, but since peaking on March 1st, the US SPX 500 has been trending sideways, digesting the gains and working off an overbought RSI. After gapping upward mid-April with other major indices, the SPX has been retesting its recent high.

It remains to be seen if this test will end in a breakout or a double top. Early trading looks like a bearish key reversal day, and coming in May, could be a seasonal buying climax. The RSI is a lot lower than when it was at these levels in March, a negative divergence that suggests slowing upward momentum.  

If the index falters and heads south, initial support may appear near 2,380 then 2,370 (near the top of the gap and the 50-day average) and channel support near 2,325. Should it keep climbing, measured resistance may appears near 2,420, 2,430 and 2,475 although it could get drawn toward the 2,500 round number.

 

Fundamentals:

The news calendar for the US is a lot lighter this week. In politics, the French election is over, the US budget battle has been kicked off to September and health care reform has been sent off to the Senate to die.

Earnings season is pretty much over for the market-moving big cap stocks with the focus moving to smaller and mid-sized companies.

It starts off as a light week for data but picks up a bit later in the week. It’s also just after a FOMC meeting and perhaps too early for traders to speculate on June.

With more news behind the market than ahead of it in the near term, it’s difficult to see what is on the horizon to push markets higher suggesting the potential for a correction.

Later in the week, focus turns to retail sales and retailer earnings, starting with Macy’s and Nordstrom. A lot of stores have closed in the US in recent months and reports related to consumer spending may impact how much pressure the Fed is under to raise interest rates in June.   

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