4/25/2018: Dow 24083.83 | S&P 2639.40 | NASDAQ 7003.74 | Russell 2K 1550.47 | NYSE 12517.86 | Value Line Arith 6067.60

Psychological: Woke. Market volatility this year finally spooked the bulls a tad. Bullish sentiment is still elevated though. According to Investor’s Intelligence Advisors Sentiment survey bulls are at 48.0%, up from a more fearful low of 42.2% two weeks ago. Correction advisors are down to 32.4% from a nearly 2-year high of 39.2% two weeks ago. Bearish advisors have ticked up to 19.6%, a 6-month high. Further declines in bullish sentiment would be a welcome sign as negative sentiment is usually strongest near bottoms.

Fundamental: Firm. Unemployment remains low and corporate earnings came in strong, but traders got frightened briefly by some guidance that hinted at peak earnings. That remains to be seen. Q1 GDP estimates have continued to cool and the Atlanta Fed GDPNow model is currently forecasting 2.0% for the quarter. Tariffs have the potential to dampen global activity, but thus far it looks more like a negotiating tactic rather than an actual major shift in policy. Numerous exceptions have already been given for the steel and aluminum tariffs mitigating their full impact and likely setting the precedent for any future tariffs. Meanwhile Trump is sending his team of top economic advisors to China for trade talks next week, including Mnuchin, Kudlow, Navarro and trade rep Lighthizer… Stay tuned.

Technical: Bouncing. Another selloff here in April once again appears to have found support yesterday around 200-day moving averages. S&P 500 was closest to its 200-day average. DJIA and NASDAQ declines paused just above their respective 200-day averages. Stochastic indicators are nearing a turn upwards in oversold territory. Relative strength has recently begun to rise again and MACD indicators just held off a sell signal and have turned higher again. If headline news risk abates and earnings continue to come in strong and there is no more spooky guidance, this rally could run higher into early- or mid-May before the worst six months kick in.

Monetary: 1.50-1.75%. The Fed did exactly what was widely anticipated when its March meeting ended, they raised rates 0.25%. Rates are still expected to go higher later this year, but the Fed remains data dependent. The pace of future increases will largely depend upon inflation and growth data and expectations. Though the 10-Year bond yield’s move slightly above 3% sent stocks reeling earlier this week, longer-term rates are still low within a historical context. In the past, stocks were able to rally in the face of rising rates and oil prices from late 1998 through early 2000, just before the dotcom bubble popped – think FAANG stocks at present.

Seasonal: Bearish. May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash” and the old “May/June disaster area” from 1965 to 1984. Since 1950, midterm-year Mays rank poorly, #9 DJIA and NASDAQ, #10 S&P 500 and Russell 2000, #8 for Russell 1000. Losses range from 0.1% by Russell 1000 to 1.9% for Russell 2000. Since April 2 we have been watching for the seasonal MACD sell signal. It has not yet triggered. When it does, we will issue an email alert with trading ideas for weathering the “Worst Six Months,” May to October.