Despite lackluster U.S. economic data, a world grappling with slow growth, concern that Greece and Ukraine could default on their debts, the U.S. stock market has been more than resilient. Even after a selloff on Friday, major indices are less than two percent from all-time highs and volatility measurements have been close to their lowest levels for 2015. As you can see in the graph below, all the major asset classes remain positive year-to-date.

Last week we said "...is the beginning of positive divergence between the Dow Jones Industrial Average and Dow Transportation index?...If the Transportation index continues surging higher this provides solid confirmation that stocks current up trend has legs..." In the updated chart below, the Dow Transportation Index did not follow though to confirm the DJIA bullish move and consequently, the DOW crashed at week's end.

A tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market "breadth" indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Like many of the market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving higher as more and more stocks are purchased.

Recent comments about the Nasdaq Composite BPI are playing out as analyzed, "...earning results over the next few weeks will guide the next move. Positive surprises will send the Nasdaq BPI back toward recent highs..." Led by companies such as Netflix, Inc. technology companies are reporting better-than-expected numbers to start quarterly earnings season and dotted line below denotes the upward trend.

To start the quarterly earnings season the Dow Jones Industrial Average companies are reporting favorable results as the dotted line in the NYSE Bullish Percentage Index chart below denotes a strong uptrend.

A negative for the overall stock market is the S&P 500 Bullish Percentage Index not being able to break out above the highs established at the beginning of March. Until the BPSPX breaks above the dotted line you can expect the stock market to continue trading range-bound.

In the chart below the inverse relationship between the dollar and commodities remains intact. The dollar is slinking toward its recent lows and treasury bonds and gold responded by moving up. If the equity market continues to wane, investors will probably start parking funds into commodities, which will send them even higher.

Market Outlook

April tends to be one of the best months of the year for equities -- and with a gain of 1.5% so far this year, 2015 is living up to its reputation. During the last 10 years, the S&P 500 has seen a median gain of 2.01% from the close on April 13 through April 27, with positive returns 60% of the time, including a 2.6% gains last year. History is not destiny, but seasonal tendencies can be surprisingly strong. For the start of the second quarter the graph below shows Energy stocks are trouncing the other major asset classes. The energy sector was oversold weeks ago and investors starting buying these undervalued shares. In general equities are struggling early in the second quarter due to economic uncertainty and the dollar has weakened a little which is boosting Gold and Treasury Bonds.

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend.

Last week we said "...If companies report better than expected results during earnings season look for the trend to approach the top of the trading range..." Quarterly earnings reports have been tepid to start the season, which is reflected in the updated Momentum Factor ETF (MTUM) chart below. As noted, the recent price uptrend is broken. Also highlighted are neutral strength and momentum indicators that suggest near-term range-bound trading.

The updated chart below signals the possible start of a price pullback. The S&P 500 Index upward move dissipated last week and Fridays' price plunge did serious damage to the trend. If the S&P falls further expect the Volatility Index to make a serious bounce higher.

The current Put/Call ratio has converted from excessive bullishness to overly bearishness. Traders are getting leery about mixed economic signals and are buying protection in case the market follows up on the end of week price crash.

The American Association of Individual Investors (AAII) Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. The current survey result is for the week ending 4/17/2015. The AAII Neutral reading has been at the highest level in over a decade the past few weeks. Basically this reflects the current market trend with stocks trading range-bound the past six weeks or so.

Trading Strategy

With stock markets worldwide being propped up almost entirely by monetary stimulus, a change of sentiment can happen almost overnight, so holding some put positions is prudent. But the major stock indexes are continuing to give bullish readings, so options traders should continue to favor call buying. In the updated graph below energy stocks are blowing away the other main S&P sectors over the past month. Essentially, all the other sectors are basically breakeven the past 30 days with some groups moderately lower and others slightly higher.With the major S&P sectors struggling to gain traction and economic indicators sending mixed signals smart investors should continue maintaining both bullish and bearish positions. With this strategy you need a reasonable stop-loss plan to bail out of underperformers and ride winning trades.

Feel free to contact me with questions,