This was the biggest week for earnings so far in 2015, with the bulk of names reporting on Thursday. Generally, companies are exceeding reduced estimates, but it's all about guidance and the strong dollar, which may affect earnings going forward. Roughly a third of all the companies in the S&P 500 reported first-quarter results this past week, and the news was mixed. Analysts expect companies in the S&P 500 will report earnings inched up 0.6 percent compared with the same period of last year, according to S&P Capital IQ, a provider of financial information. But revenue is expected to drop 1.4 percent.

The three major U.S. share indexes posted modest gains in April. For the week, the S&P lost 9.40 point or .4 percent, the Nasdaq is down 86.70 points or 1.7 percent as investors sold many of the technology companies that have fared well this year, and the Dow fell 56 points or .3 percent. The most obvious comeback story is gold mining stocks. In the graph below you can see how gold mining stocks were dead in the water during early March. Now gold stocks are far and away the best performing equity class.

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.

Negative earnings results from high profile technology companies such as LinkedIn and Twitter helped send the Nasdaq Composite BPI into a downtrend last week. If the current support level doesn't hold, the index could easily to fall to the low established at the end of January.

The NYSE Bullish Percent Index chart below shows the BPNYA broke below the support of its trading range. The 50-day MA line should hold as new support, if it doesn't that probably signals a longer-term downtrend.

The S&P 500 Bullish Percent Index is in a deep dive. In the BPSPX chart below you can see how the index crashed hard last week and actually broke below all recent support levels. In the upcoming week, if the BPSPX doesn't recover, the next defined support level is the lows for the year established at the end of January.

The dollar continues to lose ground against foreign currencies posting its worst month in four years in April. This usually boosts commodity prices. But investors are increasing equity exposure and that contributes to downward price pressure on treasuries and precious metals. Also, the threat of higher interest rates is bashing treasury bonds while gold remains subdued in the current noninflationary environment. Treasuries posted their worst week in two months as traders readjusted to higher yields globally.

Market Outlook

Recent financial reports have raised concerns about the economy's strength. On Wednesday, the government announced that it nearly stopped growing in the first quarter of the year. To some investors this isn't bad news because tepid economic growth could lead the Federal Reserve to suspend its plans to raise key borrowing rates. Record low interest rates have helped the stock market soar since the financial crisis began.

For the start of the second quarter the graph below shows Energy stocks continuing to lead the other major asset classes gaining about 20 percent in April. The weaker dollar helped U.S. crude oil prices hit fresh 2015 highs by making oil less expensive for holders of other currencies. Oil posted its best monthly gain in six years.

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 commented "...If positive quarterly earning announcements continue, expect the trend to reach the March high..." Earnings disappointments from several high profile technology companies helped pull down stock prices. Observe in the updated chart below how the recent downtrend bounced off the bottom of the current trading range. As noted, momentum remains stuck in neutral, which supports stocks continuing to bounce up and down in a trading range.

In the updated chart below you can see the VIX jumped midweek as stocks pulled back, but by the end of the week our recent analysis remained valid "...has sunk to the lowest level since the end of last year. The obvious question is whether the S&P 500 index will finally break out past the high established in early march..."

The Put/Call ratio of equal calls and puts signals traders' indecisiveness on which way the market is headed and confirms the current range-bound environment.

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 4/29/2015. As we have been saying recently "...The AAII Neutral reading remains near historically high levels. This continues to reinforce the range-bound trading trend that has been in place the past few months..." From a contrarian perspective, the current reading suggests that when prices break out of the current range the trend will be to the downside.

The Nation Association of Active Investment Managers (NAAIM) Exposure Index represents the average exposure to US Equity markets reported by NAAIM members. The blue line depicts a two-week moving average of the NAAIM managers' responses. NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group. As the name indicates, the NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. First-quarter NAAIM exposure index averaged 83.02%. Last week the NAAIM exposure index was 75.88%, and the current week's exposure is 90.60%. Money managers are maintaining a relatively high equity exposure as they take positions during quarterly earnings season.

Trading Strategy

The November-to-April historical best six months for stocks just ended. This past week's market activity lent credence to the old axiom to "Sell in May and Walk Away". If you use data from Kensho, a tool designed to quantify historical events and run a study of how stocks performed from Memorial Day to Labor Day in the past two decades to quantify market results, here is what the data shows:
S&P 500 up only 55 percent of the time with an average return of 0.13 %
DJIA up only 55 percent of the time with a negative average return of -0.19 %
Russell 2000, up only 50 percent of the time, but with an average return of 0.60 %
S&P tech sector matches the odds of the broader market to rise, but has a much better average return of 3%
NASDAQ 100 echoes that sentiment up 60 percent of the time, with an average return of 3%
S&P health care sector is positive more often, up 65 percent of the time, with an average return of 1.53%

The trend shows you should be careful with consumer-related companies:
S&P consumer staples sector companies are down 60 percent of the time, with an average negative return of -2.89%
S&P consumer discretionary sector companies were down 65 percent of the time, with an average negative return of -0.98%

Recent history skews a little different compared to the long-term historical data. If you analyze more recent results the trend supports continuing to invest during the summer months. The caveat is interest rates, if the Federal Reserve decides to hike rates any time soon; a summer swoon becomes a higher probability. We suggest changing your investment posture from aggressive to more defensive and hedging your bets, especially with the market standing on shaky ground and ready to breakdown. Be especially careful in May, which has been down in three of the last five years (sizeable losses in 2010 & 2012).

Feel free to contact me with questions,