Volatility in the market was widely expected for this week and that is what we are getting. Earnings season, oil, interest rates and geopolitical events are shaking things up and you probably are getting numb to hearing about these issues. All the noise sounds so familiar. Turning up the volume or straining to listen even harder to what the market is trying to say is counterproductive. Sometimes it’s tough to filter it all out and when that happens, I believe that it’s better to let the market alone as much as possible and just be immediately ready to move as soon as there is clarity. On top of all the noise, I dealt with two recurring issues that periodically affect my willingness to change signals and one troubling factor that I have struggled with for years.

First of all, I had to largely ignore insights from last week’s market action due to the light volume from the holiday-affected trading. I always hesitate to change signals during periods of abnormal volume so this week I didn’t give as many Down signals as I probably could have. In fact, I decided to retain about 400 Up signals that I have been closely watching for the past 3 weeks because I didn’t get volume confirmation. I am also hesitant to change signals during the earnings season and that also contributed to the lower number of signal changes.

While I expect this to occur each holiday-shortened week and earnings season, something else is making me feel different about what is going on in the markets. As I will discuss in greater detail in a future post about my technical analysis style, my greatest challenge is dealing with stocks and markets that are hovering around key resistance levels. Today, I am facing this with the two dominant factors that are largely responsible for where our markets are heading - oil and interest rates - and this is the thing that is really dominating my analysis. Both are at levels that imply a Breakout or Breakdown is near.

If oil breaks out ( which I believe it already is,) sooner or later stocks will suffer from it. I am only amazed that it has not happened so far. However, from last week’s action and confirmed by today’s rally, it is clear that oil has not lubricated the downward path enough to cause the bulls to slip. I believe it’s only a matter of time before it does. If it’s true that the market slides down a “slope of hope,” this one is going to be very black and slippery. If you analyze the new Up signals this week, you will see that quite a few of them came from the energy sector. Last week’s move in oil finally convinced me that it was time to recognize we were on a breakout and change some Down signals about which I had to concede I was wrong and more importantly, that I expected to become even more wrong.

Regarding interest rates, the move around 5% on the ten year looks more like a breakdown and if it does, I guess we can expect more of the rallying action we saw today. I did have to chuckle more than a few times today reflecting upon how much we moved on such meaningless “olds”. I’d like to call it “news” but it there isn’t anything new in it. Oh my - we now believe that the Fed is almost done raising rates. Brilliant!! Yesterday, Moskow was hawkish, today Yellen is dovish. In the “battle of the birds,” the dove is winning (at least today). Then the Fed minutes came out as I was writing this post and yep, we have proof that some on the FOMC (say Yellen) are debating with others on the FOMC (say members like Moskow) that they should determine what to do about the Fed Funds rate. Brilliant!! It’s so great to hear “One and done” again. Maybe we can hear it a few more times before the next FOMC meeting on May 10th.

So there you have the “reasons of the day” for the nearly 2.0% move. I am somewhat relieved that we weren’t expected to believe it was because of the new OMB and Trade appointments. Or because the Chinese president is going to bow down to President Bush tomorrow and give in to all our demands. Or… (substitute any other goofy explanation.) Tomorrow is another day and my guess that it will have another reason. Good thing the bulls didn’t waste some old standby explanations - “it’s all about the positive earnings news” or “it’s all about the positive guidance”. I am guessing they will pull them out sooner or later.