JPMorgan Technicals: "The “One Way” Market Rally Since Dec-Jan Is Over"

Tyler Durden's picture

For those who believe in this sort of thing, here is JPM's Chief Technician Michael Krauss, who says that "The “one way” market rally since Dec-Jan is over. Expect weeks, if not months of lateral movement." Well, there's that. Then there is the only thing that matters in "markets" these days - which way Ben Bernanke sneezes. Everything else is meaningless: McClellan oscillators, Ichimoku clouds, RSIs, oh and of course, fundamentals.

From JPM:

Short term- Lift today held the 1358 Oct-Nov weekly uptrendline, after Mon’s short term top breakdown below 1386/1394. Bears have agenda below 1400. Next supports are 1350 Oct CH/Mar range break target, 1340 Mar low, 1333 Jan hig.

Long term- Risks a 1422 April downside reversal month (<1408), from our 1400-1440 midyear target ceiling. Technical setup is not as vulnerable now as May ‘11, but the Dec-Jan surge is over. Favor weeks/ months of sideways above 1300ish. No move above 1450 without Nov Election results

Sentiment/Breadth/Momentum- Short term sentiment gauges are net-oversold. Weekly polls did not become euphoric in Feb-Apr. NYSE Advance-Decline lines saw new all-time highs, but have come off sharply. Monthly momentum retains Jan’s Buy signal, with divergence risk. Weekly probes an overbought Sell with no divergence. Better than 2011

Overall (1367): The S+P 500 peaked at 1422 on April 2, meeting & rejecting our 1400-1440 by midyear targets, while risking an April downside reversal month (below 1408). With the distinct weakness in European Equities since mid-March, and weeks of mega underperformance by S+P Industrials & Materials, I am surprised that the S+P 500 even stayed above 1400 until just two days ago (stay short term bearish below there). I view this as a “garden variety” 5 to 8% correction from the 1422 April 2 peak (SPX stopped beautifully near the July ‘10-Oct ‘11 channel high at 1417....see page 2, 3). The “one way” market rally since Dec-Jan is over. Expect weeks, if not months of lateral movement. To maintain a cyclical bull market hypothesis, corrections must hold the 1293-1300 interim floor (Oct high/Jan pivots).

Short term: Today held the 1358 Oct-Nov weekly UTline (page 3). Just below is the 1350 March range break obj/Oct-Mar parallel channel, 1340 March 6 low, 1333 Jan 26high. Upside resistance rests at 1386 and 1400. Two straight closes above 1400 allow a marginal new high above 1422....but divergences would be huge, allowing a 1423-1440 “Sell in May” short trade. Momentum: Daily- Sell oversold. Weekly- Overbought Sell. No divg. Monthly- Jan Buy stays intact. Divg risk.

S+P 500 Sentiment gauges:

1)Daily Sentiment Index (DSI) (Apr 10): 25% bulls, (46% 5 day avg, 57% 10 day avg). Falling quickly, after peaking at a 75% bulls 10 day on March 21. Bottomed at a 17% bulls 10 day avg oversold extreme in late-Dec.

2)Investors Intelligence readings (Apr 10): 48.4% bulls (vs 52.7%), 21.5% bears (vs 22.6%), 30.1% correction. Neutral. Bulls rose from  43.6% to 52.7% the prior three weeks. Peaked at a 54.8% bulls reading on Feb 14, and at 57.3% on Apr 5 last year. Historical danger zone is 56-62% bulls. Note that the bears level is quite low- the fewest since July 2011.

3)American Association Of Individual Investors (AAII) (Apr 5): 38.2% bulls (vs 42.5%), 27.8% bears (vs 25.5%). Neutral. Peaked at  52.3% bulls on Jan 11. Nov low was 33%. Bottomed last year at 21% bulls in July & Aug. March ‘09 troughed at 18.9% bulls.