Bears Looking to Build Up Momentum

The market retreated for the second time on a weekly basis this year. The
decline wasn’t terribly heavy, but it was a decline – and win for the
bears – nonetheless.

The reason for the loss is difficult to pinpoint. Many would argue that
Europe, mainly Spanish debt yields, spooked investors. Some could also
point to the breakdown in oil from $104.50 support as the decisive reason
for the pullback. I would argue that the indices were way overbought and
a little retracement was needed and long overdue.

That said, Europe fears will weigh on investors. If Spanish yields top 7%
panic will mostly likely ensue.

Additionally, I have mentioned numerous times how important oil was to
the rally and that oil prices would tip us off to near-term market
direction. After $105 was broken by the bears last week, $94 become the
target and that’s a long way down from here.

The pause from SPX last week was just the market working off overbought
conditions, but that pause will turn into a collapse if some of those
other elements do not reverse, quickly.

The indices are already in trouble to start the week. Last week, when the
market was closed to trading, payrolls came in very weak. Economists
expected businesses would add 210,000 jobs in March, but official results
showed a 120,000 addition. Labor growth continues to be a problem. But as
I mentioned last week, unseasonably warm weather likely made January and
February employment high and by March something had to give.

The bears have been waiting to pounce on the market, so they may not be
rational. If the bears are truly back, they will rip apart any data that
seems weak without remorse. That could get the indices in trouble too,
because earnings season starts this week and Alcoa (NYSE:
AA) is unlikely to post record financial results. Bank earnings
from big players like JPMorgan (NYSE: JPM) will also be
crucial to monitor in the sessions ahead.