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

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.


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