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MLR - PMP 4/3/14

The S&P 500 Index extended its gains into new high price ground yesterday on lighter volume while the NASDAQ stalled on heavier volume. While the NYSE-based indexes have moved to higher-highs as a result of rotation into defensive and low-PE, big-cap names the NASDAQ has lagged and leading stocks remain mired in corrections, many of them below their 50-day moving averages. The so-called "resumption" of the market's rally has not been accompanied by much in the way of fresh breakouts and pocket pivots among potentially new leading stocks, and for this reason the Market Direction Model remains in a cash signal. We would like to see the NASDAQ confirm the S&P 500's move to new highs but so far it has only been able to regain its 50-day moving average after a 5% correction during March. Typically, during market turns back to the upside over the past year, leading stocks have accompanied the move by issuing pocket pivots or buyable gap-ups, action that is conspicuously lacking here.

The S&P 500's breakout to new highs could very well be a bull trap, and we prefer to sit back and let the market prove itself further before choosing to plunge headlong into the so-called "rally resumption." In our view, caution is still warranted.

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