This week the title of my piece sums up my thoughts succinctly. I’ll give you the reasoning below. The market seems a bit tired as we enter first quarter earnings season. It's also becoming increasingly selective. So, look through your portfolios and eliminate weak performers because the market is going to treat laggards harshly this earnings season.
I’ll start with some good news from last week. The metals complex moved aggressively higher. Gold was up 1.0% Friday to settle at $1474.40 per ounce. It set a new all time high of $1476.20 per ounce last week. Silver performed even better Friday with a 2.7% return to close at $40.62 Friday. Silver set a 30-year high of $40.65 per ounce last week.
Commodity strength was also seen in the oil markets. Oil hit a two year high of 2.88 per barrel last Friday.
Commodity strength was fueled by continued weakness in the dollar. The U. S. dollar fell to a new 52-week low against the euro last week.
Several market indexes surged to new highs last Wednesday. The Dow and Russell 2000 indexes hit new intraday highs last Wednesday. These moves were not matched by the S&P 500 and NASDAQ composite. If these indexes do not confirm the move in the next two days this situation will be a negative divergence. Divergences like these, either positive or negative, often signal a change in market sentiment. A negative divergence of this type can signal that the market is simply running out of buying momentum and is in need of a breather. That is the way that the bears will see it. Bulls will take the view that the market is simply waiting to launch higher on the strength of coming quarterly earnings announcements.
Here are the levels of interest from a technical perspective that I will be focusing on. To the upside, moves beyond the following levels will be the signal for a further move higher; S&P 1345/Dow 12,452/NASDAQ 2842/Russell 2000 860. Downside supports from a short term perspective are 1320/12,300/2770/830. From an intermediate term point of view more important support levels are 1300/12,100/2750/816.
The monthly weekly and daily triggers I look to are all currently positive. The hourly readings turned slightly negative at the end of last week. The market has consolidated over the past seven to eight weeks. From the low reached after the disaster in Japan the S&P 500 surged ahead for a 7.2% gain at its peak last week. After such a run, and with earnings season looming, it is logical the market would be less decisive.
As earnings announcements come rolling in over the next few weeks look to how the markets react at the support and resistance levels I gave above.
