Another week has gone by and little has been resolved in the markets.
Pretty much everyone is clueless and making up explanations for every movement that takes place. This is the type of environment in which it is wise to be patient in, and cut back on trading activity. The PowerShares (QQQ), which tracks the Nasdaq 100 index and iShares Russell 2000 (IWM) are still removed from the action in S&P 500 Index
The one change that was noticeable last week was that the Russell 2000 not only got below the 200-day, but closed below it. The small caps typically lead the way in a raging bull market and as you can see below by this monthly chart, rage they did.
Now that the bull market is slowing down, a natural progression after five years, it should be no surprise that we're experiencing a pull-back. If you step back and view the bigger picture on this monthly chart, it doesn't seem as ominous as when you view it from a daily perspective.
After weeks of underperformance in the Nasdaq, the Russel, the iShares NASDAQ Biotechnology Index (IBB), and high beta discretionary without pulling the S&P 500, Dow Jones Industrial Average, or value names down with them, it seems appropriate to visit the question again of whether this can go on for much longer. Although for weeks my bias was that it can't and that the S&P 500 and the Dow Jones would likely follow, I have so far been proven wrong.
Of course that could all change in a heartbeat, but after assessing the strength of certain sectors last week and the open interest of the indexes and many stocks for this coming May expiration, I have switched to short-term bullish. Currently the S&P 500 is stuck in a box and if this week should see a breakout than my current bias is a breakout to the upside, which would entail a break of 1890 that doesn't fall right back into the box.