Date: April 21, 2014

Rally, Decline… Outcomes Abound

The stock market begins the post holiday week in neutral territory after the mid week bottom last week that I discussed on Yahoo Finance.

The day before Good Friday is usually up less than 0.50% and that ended up coming true. The Monday after Good Friday, which is also the first day after April option expiration has a bit of a headwind to it so a strong advance by the bulls would be an especially positive sign. In all likelihood, we will probably see a + or – 0.50% day across the major indices.

Here is what’s important. The major indices have all recently completed their pullbacks and are rallying off the low. It’s very important that rallies lead to new highs before rolling over again. Why? Because more significant declines typically occur after failed rallies, or rallies that can’t recover what they lost. This will be especially challenging in the Russell 2000 and Nasdaq 100 where the pullbacks were deeper.

Additionally, not only is sector leadership crucial, but we also need to see some of the battered sectors begin to repair themselves, which won’t be such an easy task. Here is my Yahoo Finance segment on key sectors to watch.

One area that’s been giving good hints to where stocks are going has been the yield on the 10 year note. A move above 2.73% should give stocks a push higher while a move below 2.68% should see stock hit a headwind.

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Paul Schatz, President, Heritage Capital