Many pundits and market participants like to make a big deal out of a new quarter. We really don’t understand the point, in our view unless the underlying trend in the market changes, there’s no big deal to be made. We wouldn’t expect a change in the calendar to be the reason for a change in trend, so we’ll continue to instead focus on the things we believe could be responsible for the direction of the market as we enter April.
The main concern those bullish on the market should have right now is the recent price action in oil. The slimy black commodity closed at a 6 week low last week and we have seen in the past that weakness in oil can precede weakness for the overall market. We may already be seeing this though as the NASDAQ is on a 4 day losing streak entering Monday. That’s the worst streak for the NASDAQ since November of last year.
That streak is definitely worth noting because the NASDAQ has been the clear leader in the market so far in 2012. The tech heavy composite has gained nearly 20% this year, 6% more than the S&P500 and 10% more than the Dow Jones. Being that the NASDAQ has been the leader and it is showing some recent relative weakness, the broader indexes could follow suit.
In the event we do start April out with a pullback, we’d like to see 4 things happen to let us now its just another dip within a broader uptrend:
- oil maintains support around $100
- copper maintains support above $3.70
- the VIX stays below 20
- the Spanish 10 year yield stays below 5.5% (currently it’s around 5.37%)
In order to undue the recent weakness and resume its strong uptrend, the NASDAQ needs to reclaim the 3,100 and extend past it. If that happens, we would expect the rest of the market to be testing 4 year highs.
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