The market closed modestly lower on Tuesday – S&P was down by -0.04%, Dow by -0.13%, NASDAQ by -0.07% and Russell 2000 by -0.24%. Yesterday, S&P 500 closed at all time high but over the last couple of days it has gone nowhere as the 15-minutes chart of June contract of eMini shows.

This is just demonstrating the lack of direction. The first week of the month is usually packed with lot of economic reports that impact the market including the ECB meeting and US non-farm payroll report and unemployment rate. So it is not surprising that no one wants to make major bets considering that the markets keep on discounting all bad news and continue to chug-along. Without a major catalyst, the markets will continue to grind higher.

On the daily timeframe, S&P 500 is forming an upward leaning wedge. The current close is again hitting upper channel line. The 9-period RSI is has been acting as a resistance is above 70 and turning down. Prior occurrences of such combination led to mild pullbacks.

On Dec 31 (point A in the chart), the RSI was above 70 (point W) and fell below that level on Jan 2nd. The resultant pullback took the index from year-end high close of 1848.36 to low close of 1741.89 on Feb 3rd – 100 point fall. Similar pattern occurred on March 7th (points B and X) and the pullback was 37 points from 1878.04.

In April the index touched the upper channel line (point C) but the RSI did not go above the overbought levels (point Y) . Still, the index retreated from April 4 intra-day high of 1897.28 to the intra-day low of 1814.36 on April 11th.

These pullback were also accompanied by US Treasury Bonds bouncing up from short-term support levels – see points AA, BB and CC. This trend indicates that the markets are ripe for a pullback as the S&P is knocking on the upper channel line, RSI is above 70 and turning down. The bonds are at minor support level though it is not certain if this would hold.