For the first time arguably in all of 2012, the market enters a trading week with the short term technical backdrop in favor of the bears. In addition, the jobs report released Friday when the stock market was closed was below expectations. Not by a little bit either. The market was looking for about 200,000 jobs created in March and all it got was 120,000. Since the market was closed Friday, we could see some overreaction to the number to make up for the inability for the market to react to it on Friday, so be careful. This might be one of those instances where it is best to let the dust settle from the opening bell before putting on some trades.
Underscoring our point that the market comes into this trading week with a bearish tint is the fact that for the first time all year the S&P500 has been down 2 out of the last 3 weeks. Furthermore, with a lack of any notable U.S. economic reports out until Wednesday the action in Spain’s 10 year bond will likely continue to sway markets. With the weekend coming and going with no major developments out of Europe to nip the rising yield in the butt, we feel the path of least resistance remains higher. That’s bad news for U.S. markets that closed near their lows of the week.
A key range to watch in the S&P500 is the one that connects its most recent lows: 1,386 (3/23)-1,392 (4/1). If this range is penetrated the next logical support would be somewhere between 1,370-1,380, as this was a previous area of resistance so now bulls should hope it can become support. There is one positive to take away from last weeks developments, the current sentiment as measured by AAII.
The sentiment survey released on Thursday showed the following:
ResultsWeek ending 4/4/2012 Data represents what direction members feel the stock market will be in the next 6 months.
Change from last week: Bullish: -4.3
Long-Term Average: Bullish: 39%
Why is this a positive? Because if you notice, the % bullish dropped right along with the market. This leads us to believe that the pullback we’re seeing right now is likely to be healthy in nature and unlike the violent drops we saw in the fall of last year. The reason is quite simple, this survey reveals that people aren’t feeling very bullish at the moment even though the market is still near 4 year highs. Such sentiment tells us that expectations are that the market could fall upon pretty hard times and our experience tell us that large corrections do not happen when people are expecting them to. What would change our view is if the market continues to drop this week and the % bullish does not continue to drop with it.
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