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Stock Market Outlook for April 10, 2012

Upcoming US Events for Today:

  1. Wholesale Inventories for February will be released at 10:00am.   The market expects an increase of 0.5% versus 0.4% previous.
  2. Alcoa starts the First Quarter earnings season with its report to be released after the closing bell.   The consensus estimate is for a loss of 5 cents per share.

 

Upcoming International Events for Today:

  1. Euro-Zone Investor Confidence for April will be released 4:30am EST.   The market expects –9.1 versus –8.2 previous.

 

Recap of Yesterday’s Economic Events:

Description Actual Forecast Previous
JPY Trade Balance – BOP Basis (Yen) Â¥102.1B Â¥104.3B -Â¥1381.6B
CNY Producer Price Index (YoY) -0.30% -0.30% 0.00%
CNY Consumer Price Index (YoY) 3.60% 3.40% 3.20%
JPY Bankruptcies (YoY) -1.90%   5.20%
JPY Eco Watchers Survey: Current 51.8 46.5 45.9
JPY Eco Watchers Survey: Outlook 49.7   50.1
CAD Business Outlook Future Sales 35   -4
CAD Bank of Canda Senior Loan Officer Survey -16.9   -6.3

 

The Markets

Market Close % Change Expected ST Low Expected ST High
Dow Jones Industrial Average (^DJI) 12,929.59 -1.00% 12,891.40 13,225.97
Dow Jones Transportation Average (^DJT) 5,196.99 -1.65% 5,113.42 5,321.87
Dow Jones Utility Average (^DJU) 455.80 -0.64% 451.92 459.58
S&P 500 (^GSPC) 1,382.20 -1.14% 1,359.93 1,410.51
S&P/TSE Composite (^GSPTSE) 12,018.50 -0.70% 12,236.88 12,691.34
NASDAQ Composite (^IXIC) 3,047.08 -1.08% 2,950.15 3,106.61
Austrian Traded Index (^ATX) 2,059.73 -1.55% 2,121.84 2,225.00
French CAC 40 (^FCHI) 3,319.81 0.19% 3,376.52 3,559.18
German DAX (^GDAXI) 6,775.26 -0.13% 6,766.59 7,113.35
UK FTSE 100 (^FTSE) 5,723.70 0.35% 5,767.08 5,946.18
Swiss Market Index (^SSMI) 6,163.50 -0.05% 6,110.61 6,314.91
Brazilian IBOVESPA (^BVSP) 62,923.00 -1.21% 64,209.36 67,754.79
Mexico’s IPC (^MXX) 39,432.15 0.08% 37,742.78 39,384.89
Amsterdam Exchange Index (^AEX) 314.91 0.33% 319.16 333.71
Shanghai – SSE Composite Index (000001.ss) 2,306.55 0.19% 2,133.71 2,446.96
New Zealand NZX 50 INDEX GROSS (^NZ50) 3,467.98 -0.36% 3,334.45 3,506.67
China HANG SENG INDEX (^HSI) 20,593.00 -0.95% 20,616.88 21,485.95
Korea KOSPI Composite Index (^KS11) 1,997.08 -1.57% 1,997.19 2,043.93
Tokyo NIKKEI 225 (^N225) 9,546.26 -1.47% 9,645.33 10,151.97

 

Markets sold off on Monday as investors reacted to Friday’s dismal employment report, initiating concerns that expectations are too overblown and that equity market values need to correct.   This is the first chance that investors had to react to the number as markets were closed on Friday.   Markets were also closed in Europe on Monday, therefore leaving Tuesday as the first day that European investors can trade following the economic event.   Equity markets have now undergone the worst four-day selloff since November of last year as markets around the world show struggle in holding the euphoric gains attained in the first quarter.   The technical “Sell” signals are many, as indicated in the charts below.

The S&P 500 Index has broken the long-term rising trendline that dates back to the October low, indicating the conclusion to the positive trend that has benefitted equity investors for the past two quarters.   This long-term trendline also forms the basis of a rising wedge pattern, a bearish technical setup that typically precedes significant market declines.   The big cap index is now trading below its 20-day moving average, suggesting weakness in the short-term, however, the 50-day continues to hold as support.   Should the benchmark fail to bounce from around this level, a more pronounced downturn could be felt in a much more abrupt fashion.   Momentum indicators are also notably weakening.

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The results are consistent across the equity benchmarks, all producing equivalent sell signals and suggesting a possible pronounced selloff ahead.

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European equity benchmarks have been trading below the long-term positive trendline for the past few days, leading the decline in North American markets.

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Indices worldwide are rolling over, breaking trend in the process.   The Shanghai composite index, which has largely contributed to this year’s early rally in the US, has shown significant declines since the beginning of March as the index failed to overcome its 200-day moving average.   Also, a lower significant high has been charted, compared to the November peak, therefore suggesting a negative trend.  The Nikkei has found resistance precisely around last July’s high: a double top.

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Bond markets, another good leading indicator of equity market direction has also shown indication of a change of trend.   The 30-year T-Bond yield just confirmed a lower significant high, breaking the recent trend of higher-highs and higher lows.   This divergence is indicative of the unwillingness of bond markets to participate in equities at these levels.   Bond market participation has been sought for months to fuel equity market momentum, unfortunately that participation never materialized.   Both the 10-year and 30-year yield are below all significant moving averages (20, 50 and 200-day), indicating weakness across multiple timeframes.

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And finally, the percent of stocks in the S&P 500 trading above their 200-day moving averages provides great indication as to the strength of the market.   Using the 50-day moving average of this indication of breadth has proven to provide excellent buy and sell signals once a crossover is realized.   This crossover of the 50-day was attained on Monday, hinting of the weakness ahead as levels of support are broken.   It is typical for selling pressures to escalate upon this crossover.

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Bottom line is that the trend has been broken, and, unless an upside catalyst can be obtained in short order, more selling pressures should be anticipated as markets cross into the unfavorable six months of the year from May to October.   The extent of the correction remains unforeseen, leaving it as a risky prospect to forecast where/when the declines will end.

Sentiment on Monday, as gauged by the put-call ratio, ended slightly bearish at 1.02.   The put-call ratio has remained within a neutral range for the past couple of months as investors remain indecisive on market direction at current equity valuations.

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Sectors That Moved the Market

Sector % Price Change % Volume Change
Energy Sector (XLE) -1.26% 50.64%
Basic Materials Sector (XLB) -1.45% -9.84%
Financial Sector (XLF) -1.54% 52.35%
Health Care Sector (XLV) -1.25% -9.83%
Consumer Discretionary Sector (XLY) -0.91% 15.41%
Industrials Sector (XLI) -1.62% 31.09%
Technology Sector (XLK) -0.70% 36.17%
Utilities Sector (XLU) -0.52% 7.01%
Consumer Staples Sector (XLP) -0.91% -39.78%

 

Monday provided all indications of a risk-off day as cyclical sectors underperformed broad market indices.   Market sell signals combined with risk aversion suggests that the end of the favourable six month period in the market is now over.  Transitioning into defensive plays now appears prudent.

 

S&P 500 Index

Support 2 Support 1 Pivot Point Resistance 1 Resistance 2
1366.75 1374.48 1385.96 1393.69 1405.17

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Chart Courtesy of StockCharts.com

Support & Resistance Analysis MACD Analysis MACD vs. Signal RSI Analysis Stochastic (Fast) Analysis
Broke Lwr Support (2) Positive/Decreasing Below/Widening Bearish Centerline Crossover Increasingly Oversold
Current Day Candlestick Prior Day Candlestick Candlestick Analysis
Black Candlestick Long Lower Shadow Neutral/Indecision

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TSE Composite

Support 2 Support 1 Pivot Point Resistance 1 Resistance 2
11942.96 11980.73 12041.92 12079.69 12140.88

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Chart Courtesy of StockCharts.com

Support & Resistance Analysis MACD Analysis MACD vs. Signal RSI Analysis Stochastic (Fast) Analysis
Broke Upr Support (1) Negative/Decreasing Below/Widening Bearish Increasingly Oversold
Current Day Candlestick Prior Day Candlestick Candlestick Analysis
Long Upper Shadow Black Candlestick Neutral/Indecision

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