The market selloff since the top 10 days ago has the appearance of an overzealous bullish purge rather than a paradigm shift to a bear market. Expensive momentum stocks are leading lower but cheap emerging market equities are on the upswing, reflecting the market rotational shift to value. However, trading should remain treacherous as markets continue to rebalance the excesses, leading to an uneven 2014.
Earnings will step up the pace and likely drive equities from here. The first few hours will provide some clues on short term market direction, outlined in the Short Term Outlook below:
S&P 500 (SPX) SHORT TERM OUTLOOK: BEARISH
Switch to neutral if SPX closes above 1833.42.
The 2 hour SPX is closing in on bar “9” TD Buy Setup, but it will be negated if the SPX should close above 1830.93 in the first two hours of the trading session. This is the first step in offering clues for stabilization if the SPX is successful. Rather than overcomplicate the trading flowchart, the 4 hour chart will remain the primary chart. Short term bearish momentum will stay intact if the SPX closes below 1833.42 today.
S&P 500 (SPX) SHORT/INTERMEDIATE TERM OUTLOOK: BEARISH
Neutral if SPX closes above 1851.96.
S&P 500 (SPX) INTERMEDIATE/LONG TERM OUTLOOK: BEARISH
Flip to neutral if SPX closes above 1866.52.
The SPX is at the weekly inflection point, testing the boundaries of the uptrend held together over a year. With the Nasdaq and Russell 2000 showing considerable weakness, it is probable the SPX will break below the illustrated trendline, providing additional clarification of at least a choppy year.
S&P 500 (SPX) LONG TERM OUTLOOK: BULLISH
Switch to neutral if all of the following occurs: SPX closes below 1848.36, Dow closes below 16457.66, Nasdaq closes 3771.48, and Russell 2000 closes below 1163.64 (updated April 2nd).