FX:SPX500   S&P 500 index of US listed shares
43 0 2
Prior to yesterday, we had been consolidating/trading almost since the beginning of the month in a rather narrow band of approximately 57 points as illustrated in the two blue horizontal lines.

Yesterday, however, on the back of increasing oil             prices and extremely dovish comments from the Fed we saw prices break out of the range and today we added to those gains and saw a high in the 2046 area while filling in a significant gap in the 2044 area marked by a red dashed line above today's close. Close to a 39% gain on the prior range, suggesting maybe a bit more though percentage gains on prior ranges are not terribly consistent.

Many, including myself, believe recent gains off the lows of January and February, which by every measure are similar to the prior pair last year, are part of larger bearish pattern which will likely fail and lead to a gradual retracement to the downside. We have seen this pattern in previous corrections and the fat blue line in the 2050 area is my best technical "guess" as to where we may see the top if we have not already seen it.

If the past is a guide to the future, we should expect to see what we saw last fall when the market recovered from the lows in August and October. The pair of lows to led to a substantial recovery and a gradual deterioration through a succession of lower shoulders with 2135 remaining the head. And, as with trading, it was the third shoulder that led to the collapse. The market seems to work off of 3's.

Technical indicators are a mixed bag with some of the higher frequency indicators suggesting the market is over bought while others suggest further upside and the internals of the market are improving. And seasonality is constructive with April being typically favorable for the market. But structural issues remain and recent gains have been driven by the beaten down energy, materials and industrials. Given where we are in the economic cycle, this poses serious leadership issues.

This would reinforce the view that it is likely to be more of a process incorporating a succession of lower lows and I emphasize my view is not for an abrupt reversal but rather a steady (maybe volatile) decay in prices stemming from valuations, declining earnings, margin pressure stemming from lower producer prices and wage pressures, ebbing global trade, declining economic growth, persistent deflationary trends and a long list of fat tail risks.

Link to a Gundlach presentation: http://www.advisorperspectives.com/pdfs/2016/TotalReturnWebcast_slides_3-8-16FINAL.PDF

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