We have seen a lot of volatility in the stock market over the last couple of months, and when you look at the monthly chart it really puts things into perspective. We have clearly seen a lot of upward pressure, but notice how the January and the February candlesticks are starting to form shooting stars. This is not a good sign, but it is a bit early to start calling for the death of the S&P 500.
We are starting to see a lot of concern when it comes to the yields in the bond markets, with the 10-year bond offering 1.5% at one point. That causes havoc in the market, as algorithms will be buyers and sellers of certain stocks to rebalance portfolios in that scenario. I think that the next month or two is going to be crucial for the markets, but I still believe that we are trying to reach towards the 4000 level based upon the previous consolidation area.
One of the things that the chart does not tell you is that a lot of what we have been seeing as far as selling is concerned is people getting out of some of the widely held names to go into smaller companies. However, the value stocks out there are going to start attracting a certain amount of attention, and that may cause this index to rally again, but with different leaders. That is one of the issues with the S&P 500, because there are seven main drivers of it typically, but that may be changing before our very eyes.
You simply cannot trade the stock markets in America without paying attention to the bond markets, because rising yields continue to cause major headaches for traders. If bond yields start to drift lower again, then it should be reason enough for this market to continue to go higher, and eventually tag that 4000 level. I do believe that 4000 could be tested during the month of March, if not April. On the other hand, if we break down below the lows of the February session, then I think we are probably going to go looking towards the 3500 level. The 3250 level would be the next support level after that. Wall Street is paying more attention to bonds than stocks right now, so if you are going to trade anything as far stocks are concerned, you need to pay close attention to that 10-year yield.
