The Coast is Clear - For a Drop

Almost three months ago, we saw most major indices and quite a few stocks backtest their 200-day moving averages. One notable exception was the NASDAQ Composite.

COMP came with 1.1%. But, it ran out of time when, as expected, SPX, DJIA, RUT, etc. all bounced off their SMA200s. It had another chance on Apr 2, but that opportunity was scuttled by Jim Bullard and Larry Kudlow’s dovish comments. This time, it missed by 0.8%.

Our thesis all along has been: (a) the broader indices wouldn’t advance until COMP had a chance to tag its SMA200; and (b) said dip would wait until the SMA200 reached recent lows. The SM200 is now up to 6836.19, about 3.25% below yesterday’s close.

With April out of the way, it seems the coast is finally clear for a backtest. The only complication is that a 3.25% drop would put SPX way down at 2562 — a good 50 points below its SMA200. So, either things are about to get pretty crazy in the broader indices or we’ll have to wait a little longer for a milder dip.

There is a third alternative. With AAPL due to report after the bell, we could get a divergence between the two that allows a backtest that doesn’t clobber SPX quite so badly. That would take some pretty fancy footwork. But, there’s a logic to it, given that several of COMP’s leaders are trading below their SMA200s.

Of course, the other event the market is worrying about is the outcome of the FOMC’s meeting. They say Jay Powell is in the hawkish camp these days. I guess we’ll find out.I’m sticking with our bearish outlook for now.