If we look at the Dow Industrial e-mini future below we can see that the index has been in corrective mode since April 2 - the first trading day of April. The first trading day of the month is always significant from a directional pivot standpoint and usually etches a monthly extreme; it seems that the April high on the mini at 13229 is proving to be an inflection point thus far. The structural view of the DJIA mini future is currently developing in a supportive area: we can see the confluence of several key supportive time frame boundary lows -- the 'blue' channel low (reference 12813) marks a supportive multi-week low for the index, which has acted to contain the price to date. Just below the 'blue' channel, we can find the 'brown' channel enveloping price which defines the important macro-monthly pivot low (12678 level). Lastly, we can visualize the 'black' horizontal line running across the screen linking the April/May and July 2011 'closing' highs (12768) and now supporting the current distribution of April 2012. We can see how larger time frames (Weekly and Monthly) contain this market from the day chart perspective, along with the 2011 highs. Most importantly, we have to watch for any weekly closing violation < 12678 (monthly pivot channel low -- brown channel low), which would imply further downside corrective action. This would imply a 'price-rejection' above the 2011 highs, suggesting the market is not 'ready' and sustainable above these levels quite yet and would need more time to develop below these highs. Typically, markets will move into new 52 week high territory as part of the nature of a self-reinforcing momentum bias that finds fewer and fewer interested buyers before establishing a balanced or accepted zone of price action. The macro conditions all remain supportive, however, but we need to keep an eye on 2011 highs.
We see similar activity developing in the S&P e-mini future below: levels to watch are again defined by the 2011 highs as per the black horizontal line that is currently supportive to price. As well, we need to watch for any downside momentum weekly closing activity below the current monthly pivot channel low at 1335 level. A weekly closing below this level would violate the structural macro-trend since January and would imply again that the S&P's are not ready to be accepted above the 2011 highs and need more time to develop.
Small caps have been under-performing as per the IWM (Russel 2000 ETF). The 2012 trend has not taken this market above 2011 highs. The Russel 2000 is still in a major-monthly macro down trend, despite the support in the major indices. This is an important divergence from the Dow and S&P - which reflect general perception and capital inflow from foreign investors. This inconsistency in breadth or concentration of capital to Dow, S&P 500 and NDX 100 speaks about the general perception of this move since January as a move to private sector quality balance sheets defined by cash flow and income through dividend as a proxy for real-economy support and less so for the more 'speculative' real-economy growth theme defined by small caps, along with the inflationary theme as per the materials which we'll look at shortly. The 83.22 level in the IWM reflects monthly and weekly pivot resistance. We can see that the IWM attempted to move outside this level in late March, but was rejected and continues to move sideways, coming into monthly and weekly support (79.47, 78.52 levels). Any breakdown below the weekly channel low at 78.52 would imply continued weakness.
The Transports have not confirmed the DJIA break above the 2011 highs. The Transports have struggled to move higher since early March and continue to consolidate within the monthly and weekly channel overlays as a range-bound trade. This market should find support at the 5000 level in line with monthly pivot lows (brown channel).
Lastly, well look at the XLB -- the basic materials sector ETF proxy. We find strong correlation to the Transports above; lower macro-monthly structural highs below 2011 highs -- no attempt to push directionally above monthly and weekly pivot channel highs (38, 37.63 -- blue and brown channel boundaries). Capital inflows have been defined by our proxy of foreign buyers -- the Industrials -- with a supportive 'real-economy' perception as per the S&P 500 -- and our proxy for 'domestic' capital flows -- the Nasdaq. Again, the long term broad based inflationary theme as per the risk-on support for materials and mining, small caps and transports is muted by comparison to capital concentration in Major US Market Indices, which suggest early shift of capital and perception to quality private sector balance sheets for preservation against market shocks and government balance sheets.
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