2:13 p.m. ET
The main averages trade in mixed fashion, but have shown resilience to selling ahead of tomorrow’s Consumer Price Index report for March and the release of the minutes for the March 21-22 FOMC meeting.
The S&P 500 and NASDAQ have seen their progress limited again by losses in the mega cap stocks. The Russell 2000/Small Caps, however, continues to outperform.
SP-500 +0.25%, Dow +0.45% (Transports +1.25%), NASDAQ-100 -0.35%, Small Caps +1.1%
I’d still say most of the averages are in consolidations. The S&P “could” have broken out of a bull flag but the conviction is so low, it’s more probable that it’s broadening out its consolidation, perhaps into an ascending triangle.
SP-500 (15m) may be broadening out to an ascending triangle consolidation around $4100. This would be a more bullish take on the day than a quarter-percent breakout from a bull flag. The day really has none of the conviction you should expect from a breakout.
The one average doing something interesting today is Small Caps (IWM).
IWM (15m) today’s price action (highlighted green) invalidates the prior 3 days of a small bear flag suggesting a deeper pull back to form the right shoulder. Now it seems price is heading toward the pattern’s neckline (breakout point) just ahead of bank earnings that kick-off Friday. The banks are incredibly important for Small Caps as no other major average is as influenced by the banks as small caps.
VIX (-1.8%) is acting normally enough. The ABI sits at 23.
Participation is pretty solid with 10 of 11 S&P sectors in the green with the economically-sensitive cyclical sectors leading, but also two of the most lightly weighted S&P sectors – Materials and Energy. The defensively oriented sectors are generally next best and the mega-cap heavy sectors generally lagging (there’ a sector or two that doesn’t fit that description).
The mega-caps (MGK -0.3%) are still acting as a drag for the benchmark index as they underperform the equal weighted S&P (+0.8%) by 110 basis points.
The KBW Bank Index (+1.3%) is performing decently, but more to the point, it’s something of a model for what we see happening in Small Caps today.
KBW Bank Index (15m) like Small Caps, this too is an inverse H&S base price pattern, although Small Caps’ is better looking. however, note that the bank index has reached the neckline just days ahead of the Banks kicking off earnings season Friday.
NYSE advancers are nearing a 4-to-1 margin over decliners which reflects solid participation today, however it’s also pushing a few metrics toward short term overbought conditions.
The Treasury market is experiencing increased selling ahead of tomorrow’s CPI inflation data. The 2-year yield is up 5 basis points to 4.06% and the 10-year yield is up s basis points to 3.44%.
HY Credit is acting better (HYG +0.25%) on the day, especially in the face of higher yields, but it still needs to gain another half percent or so before even in trend confirmation with the S&P near term.
3C charts suggest continued consolidation, except the Dow’s (DIA’s) which has been confirming upside gains solidly.
SPY (2m) with 3C in good overall position, but this is not what you would expect to see from a true breakout from a bull flag. Rather, this looks more like a broadening consolidation, such as a potential ascending triangle as the dip of the consolidation is accumulated (white arrow) and the neckline of the consolidation (white trend line) sees conviction back off at that resistance (yellow arrow) as the pattern is formed.
I suspect that conviction in the market being on the low side (despite good participation) is a reflection of concerns with tomorrow’s CPI and Thursday’s PPI data. While the banks kick off earnings season Friday, we may not have enough of a picture, especially with regard to the Regional Banks, on Friday to get a solid breakout in Small Caps, however if the earnings are not as bad as feared, we may see that breakout in the KBW bank index which has moved right up to the neckline. If that’s the case, it makes a stronger case for Small Cap IWM to do the same, but the Regional Banks are far more important for Small Cap Russell 2000 (IWM).