Market Resistance Will Be Strong – New Home Sales Down 14% – Pent-Up Demand In Question

Posted 10:30 AM ET - Yesterday the market continued to grind higher and my second target was reached ($187.50). The last and final target is a new all-time high. As we get closer to that level, resistance will build. In the last two months we have seen sharp reversals when the market has tried to breakout. This is a sign of profit-taking. We have also seen a rotation into bonds and that suggests a flight to safety. These warning signs tell me not to buy this breakout. We still have a few powerhouse stocks that will post results, but many have already announced earnings. That means that earning season has lost some of its firepower. GOOG, NFLX, INTC, GILD, VMW are few examples. FB and AAPL will post after the close. The overnight news was good. China's flash PMI came in at 58.3. That was a slight improvement from the previous month. Traders are still focused on fiscal stimulus. The PBOC also lowered bank reserve requirements for rural banks and that is getting positive press. Chinese banks will be posting results during the next week and it will be important to keep an eye on loan defaults. I suspect they are rising at a fast pace. Europe's flash PMI's came in at 54 and that was stronger-than-expected. This should keep the ECB from pushing rates into negative territory. Major US economic releases (ISM services, ISM manufacturing, ADP and the Unemployment Report) will be posted next week. Traders will be watching for pent-up demand. I feel we need to see at least 250,000 jobs in April to keep this rally going. This morning, new home sales were posted and they fell 14%. That was much worse than expected and it certainly refutes the pent-up demand theory. I exited all of my call positions yesterday as I said I would. I am in cash and I will be watching for signs of selling. In particular, I want to see rallies that reverse and I want to see selling late in the day. Five-year bull markets die hard and I don't want to be early. My entry points for SPY put positions are: $187, $186, $184.50, and $183. I plan to scale in as the market pulls back. If I am completely wrong, the market will breakout without me. I don't mind missing 2 to 3% of upside when a correction could be looming. Raise stops and set targets. We could still have a few more good days, but the closer we get to the all-time high, the stronger the headwinds. Also keep in mind that the strongest earnings reports will be behind us.

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